Fourth tranche of Sovereign Gold Bond Scheme fetches Rs919 cr worth of gold

The fourth tranche of the Sovereign Gold Bond Scheme has brought in around Rs919 crore worth of gold, the highest achieved so far, in what looked like the government's plan to incentivise households to hand their gold over to banks in return for interest payments appears to be working.

''The amount realised through the fourth tranche, at around Rs919 crore, is the highest achieved as yet. The previous highest was Rs746 crore in the second tranche when the issue price was only Rs2,600 per gram of gold. This was mobilised through over 1.95 lakh applications representing around 2.95 tonnes of gold,'' a finance ministry statement said.

The fourth tranche of the Sovereign Gold Bond programme, as an alternative to physical gold, rolled out in November 2015 in pursuance of the announcement in the Union Budget 2015-16. The aim of SGB is to reduce demand, including imports, for physical gold, and in process reduce India's current account deficit (CAD).

Three tranches of SGB scheme were floated in 2015-16. This financial year too from 18-22 July 2016, the GOI, in consultation with RBI, launched the fourth tranche of SGB.

To make the SGB attractive, the fourth tranche introduced new product features. The minimum subscription limit was reduced from 2 gm to 1 gm. The capital gains tax arising on redemption of SGB to an individual was exempted, in line with the Budget 2016-17 announcement. This exemption was also extended to last 3 tranches too. The applications were allowed to be routed online and SGB was issued in demat/ paper form. National Stock Exchange and Bombay Stock Exchange were notified as additional receiving offices. Trading of Gold Bonds was also operationalised.

The issue price of the Sovereign Gold Bond in the fourth tranche was fixed at Rs3,119 per gram of gold based on the simple average of closing price of gold of 999 purity for the week 11 to 15 July 2016 as published by the India Bullion and Jewellers Association Ltd (IBJA).

The amount realised through the fourth tranche, at around Rs919 crore, is the highest achieved as yet. The previous highest was Rs746 crore in the 2nd tranche when the issue price was only Rs2,600 per gram of gold. This was mobilised through over 1.95 lakh applications representing around 2.95 tonnes of gold. These numbers are likely to go up further as the receiving offices are keying in the information of huge rush of applications received on the last day.

The top 5 receiving offices were SBI, NSE, Bank of India, ICICI Bank and HDFC Bank, in that order. The total subscription in first three tranches was Rs1,318 crore corresponding to 4.9 tonnes of gold.

The encouraging response of the investors to the SGB Scheme (Series-I) of 2016-17, indicates that the product has come of age, and is becoming popular amongst the general public due to advantages it offers over physical gold, namely, use as collateral for loans, capital gains tax exemption on redemption, zero risk of theft / impurities associated with handling of physical gold; tradability through stock exchanges and also availability in demat and paper form.

The product, in addition, earns an interest rate of 2.75 per cent per annum, payable half yearly on initial investment. Besides, the aggressive marketing of the product by GoI, including through its receiving offices, namely banks, NSE and BSE helped in mobilizing a record high amount. The government is expected to come up with more tranches of the SGB scheme in 2016-17.

India is the world's top consumer of gold, with many Indians placing high value on the precious metal as jewelry, often given as a gift, and as a store of value.

But with little domestic production, India has dependably imported between 700–900 tonnes in recent years (total imports in 2015 was a near record 947 tonnes). The gold monetisation plan is a way to keep the metal in the country and avoid a situation that occurred in 2013, when high gold imports pushed India into a record current account deficit of $190 billion.