India’s gold bond and gold monetisation schemes raise four times more funds than FY20 level

The combined funds raised under the sovereign gold bond programme and the gold monetisation scheme (GMS) shot up to Rs 17,323 crore in FY21 and remained elevated at Rs 18,042 crore in the last fiscal, compared with just Rs 3,870 crore in the pre-Covid year of FY20.

The government is estimated to have sold gold bonds worth Rs 16,142 crore in FY22, its collection of the precious metal under the GMS was worth only Rs 1,900 crore, according to finance ministry data.

The robust performance of the gold bond scheme has been driven by increasing investor interest in “paper gold” amid Covid-induced economic uncertainties globally, said the official. The rise in inflationary pressure in most parts of the world in 2021, too, drove investors towards the precious metal, considered a hedge against price pressure. On top of it, relatively elevated prices of the precious metal, too, contributed to the rise in interest in such bonds, he added.

Gold prices shot up in 2020 globally amid economic uncertainties but later eased as prospects of quick vaccine roll-outs brightened. But again, it started rising in 2022, more so in the aftermath of the Ukraine conflict, before easing in recent weeks. On Wednesday, gold prices dropped Rs 231 to Rs 50,646 per 10 grams in the national capital, still up about 8% from a year before.

The gold schemes (monetisation, bonds and sovereign coins) were unveiled in November 2015 to reduce the country’s reliance on the import of the precious metal and curb its debilitating impact on current account deficit. While the gold monetisation scheme is aimed at tapping household stocks, through gold bonds, the government wants to wean investors away from the purchases of the physical metal to “paper gold”.

Though the bond scheme has witnessed a greater mop-up than the GMS, the collection under these schemes still represents a tiny fraction of India’s usual annual consumption. This suggests a huge potential for further rise, especially under the GMS, as Indians are the biggest hoarders of the precious metal. The country’s total gold holdings are estimated to be at least 25,000 tonnes, worth over $1.6 trillion.

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