The Indian government’s plan to incent households to hand their gold over to banks in return for interest payments appears to be working.
According to The Indian Express, the government collected 919 crore (USD137.8 million) during the fourth tranche of its Sovereign Gold Bond program, rolled out in November 2015.
“The amount realised through the 4th tranche, at around Rs 919 crore, is the highest achieved as yet. The previous highest was Rs 746 crore in the 2nd tranche when the issue price was only Rs 2,600 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 first three tranches of the Sovereign Gold Bond program raised 1,318 crore (USD197.6 million). The fourth tranche was launched July 18-22, in consultation with the Reserve Bank of India.
Under the plan, people who own physical gold will be allowed to put their metal into banks and earn interest until it is withdrawn. The idea is to mobilize the thousands of tonnes of gold estimated to be sitting idle in Indian households.
India is the world’s top consumer of bullion, 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 (2015’s gross total was a near record 947 tonnes) and going back decades has been the world’s number one importer of the metal; only on two occasions handing the crown to China. The gold monetization 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.
MINING.com reported earlier this month that following government import curbs and duties (an onerous 10%) and other trading restrictions introduced in recent years, the dynamics in the Indian gold market have been turned on its head.
Gold imports have all but imploded with shipments dropping to to just 130 tonnes year to date. At this rate annual imports could be the lowest in at least two decades.