Gold bond investment limit raised to 4kg per year

NEW DELHI: The government approved raising the sovereign gold bond limit to 4kg a year to encourage Indian families to put tonnes of the precious metal stashed at homes into the financial system.

The previous limit for individuals and undivided Hindu families was 500 grams. For trusts and similar entities, the investment limit is 20kg.

The government’s gold monetisation scheme allows people and organisations to deposit gold with banks in return for interest payments. It is aimed at mobilising unproductive gold owned by Indian households, temples and trusts into cash. The Union cabinet chaired by Prime Minister Narendra Modi approved greater flexibility to the finance ministry to design variants of these bonds with different interest rates.

“Such flexibility will be effective in addressing the elements of competition with new products of investment, to deal with very dynamic and sometimes volatile market, macro-economic and other conditions such as gold price,” an official statement said.

Until now the interest rate fixed on these bonds was 2.75% a year. “The decision will allow more investment to come into the sovereign gold bond, this is a positive step,” Ashok Minawala of the All India Gems and Jewellery Trade Federation said.

The target was ₹15,000 crore in 2015-16 and ₹10,000 crore the following fiscal.

However, the amount credited in the government’s kitty was Rs 4,769 crore. The scheme was introduced in November 2015 to reduce the Indian appetite for the metal and shift a part of the esti- mated 300 tonnes of physical bars and coins purchased every year for investment into financial savings. India imports an average 1,000 tonnes of gold each year, which widens the country’s current account deficit — the difference between inflow and outflow of foreign currency.

Indians’ penchant for gold spans centuries and is rooted in religion as the stockpile with households, which is neither traded nor monetized, is estimated to be over 20,000 tonnes. A large amount of it is held by temples and other religious institutions.

Gold is also an instrument of financial security for 70% of India’s rural population.

The government is trying to convince households, who sometimes have little faith in financial institutions, to break the tradition and hand over gold passed down the generations.