What are Consol Bonds?

Consol Bonds: Consol Bonds are fixed-income bonds without a maturity date and are also known as perpetual bonds. Consol Bonds are considered as a type of equity and the investors will be paid a steady stream of interest forever.
Created On: Nov 19, 2020 11:14 IST
Modified On: Nov 19, 2020 11:16 IST
Consol Bonds
Consol Bonds

The unprecedented COVID-19 pandemic and the consequential lockdown have impacted the Indian economy. The government is finding new ways to deal with the economic distress caused by the COVID-19 pandemic. Before imposing the lockdown, the government passed the Budget for the fiscal year 2020-2021. A deficit of Rs. 7.96 lakh crore was projected and it was estimated to increase by a huge margin due to the current pandemic.

Keeping this situation in view, monetary policy needs to be introduced by the government to ease the economic distress. Many experts have suggested that Consol Bonds are a suitable option for India to deal with the current economic situation. 

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What are Consol Bonds?

Consol Bonds are fixed-income bonds without a maturity date and are also known as perpetual bonds. Consol Bonds are considered as a type of equity and the investors will be paid a steady stream of interest forever. Thus, it can be said that Consol Bonds are a type of debt instruments and can be redeemed at issuer's discretion. 

History of Consol Bonds:

The Consol Bonds were issued in 1917 by the British Government to raise funds for financing World War I. The Consol Bonds paid 5% interest to the investors. The Consol Bonds in the UK were mostly owned by the small investors and over 70% of the holding was less than  £1,000.  In 2014, 10% of the total outstanding debt of the consol bond was paid by the British Government. 

Why are Consol Bonds are preferred over PM-CARES Fund?

1- Many experts are of the view that the government must introduce the Consol Bonds just like the British Government as the citizens will actively invest in the bonds rather than donating to the PM-CARES Fund. The proceeds of the Consol Bonds can be used for funding various requirements such as medical, industrial, etc., unlike the PM-CARES Fund. 

2- Apart from investing in Gold, the Consol Bonds can be a safe haven for the investors as the real estate market has shrunk. The Consol bond will be risk-free as it will be introduced by the government. The government can attract investors either giving an attractive coupon rate or tax rebates. 

3- When the Consol Bonds will be introduced by the government, the Centre will issue it on a perpetual basis. The government will have a right to stop its issuance once the situation gets better. 

4- The government can also consider a phased redemption of the Consol Bonds once the economy is back on the track. 

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