The Union Cabinet on 26 July 2017 approved revision of guidelines of Sovereign Gold Bonds (SGB) Scheme. The revision was done with an aim to achieve its intended objectives.
Specific changes have been made in the attributes of the scheme to make it more attractive, mobilise finances as per the target and reduce the economic strains caused by imports of gold and reduce the Current Account Deficit (CAD).
Flexibility: The Ministry of Finance has been given the flexibility to design and introduce variants of Sovereign Gold Bonds with different interest rates and risk protection or payoffs that will offer investment alternatives to the different category of investors.
Ministry of Finance which is the issuer has been delegated the power to amend or add to the features of the Scheme with an approval of the Finance Minister to reduce the time lag between finalising the attributes of a particular tranche and its notification.
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, macroeconomic and other conditions such as gold price.
Following specific changes in the scheme have been approved:
i. The investment limit per fiscal year has been increased to 4 kg for individuals, 4 Kg for Hindu Undivided Family (HUF) and 20 Kg for Trusts and similar entities notified by the Government from time to time.
ii. The ceiling will be counted on financial year basis and will include the SGBs purchased during the trading in the secondary market.
iii. The ceiling on investment will not include the holdings as collateral by Banks and Financial institutions.
iv. SGBs will be available 'on tap’. Based on the consultation with NSE, BSE, Banks and Department of Post, features of the product to emulate 'On Tap' sale would be finalised by Ministry of Finance.
v. To improve liquidity and tradability of SGBs, appropriate market making initiatives will be devised. Market makers could be commercial banks or any other public sector entity, such as MMTC or any other entity as decided by Government of India.
vi. The Government may, if so felt necessary, allow higher commission to agents.
The Sovereign Gold Bond (SGB) Scheme was notified by the Union Government on 5 November 2015 after due approval of the Cabinet. It was approved with the main objective of developing a financial asset as an alternative to purchasing metal gold.
Target: The target was to shift part of the estimated 300 tonnes of physical bars and coins purchased every year for Investment into 'demat' gold bonds.
The target mobilisation under the scheme was at Rs. 15000 crores in 2015-16 and at Rs.10000 crore in 2016-17. The amount so far credited in Government account is Rs. 4769 crore.
In view of less than expected response of the investors to the scheme, and considering its bearing on CAD and consequently on the overall macroeconomic health of the country, it was felt necessary to make changes in this scheme to make it a success.
When: 26 July 2017
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