Thursday, May 16th 11:25 AM IST

India introduces yet another scheme to curb Gold

# India gold  # import tariff value  # RBI  # Inflation bond  

The bonds will be based on a fixed real coupon rate and a nominal principal value that will be adjusted against Wholesale Price Index (WPI)-based inflation.

NEW DELHI(BullionStreet): Continuing it's fight against gold, Indian government announced yet another scheme to keep people away from physical gold.

The world's largest gold consumer said it has decided to launch Inflation Index Bonds (IIBs) in consultation with Reserve Bank of India (RBI) as instruments that will protect savings of poor and middle classes from inflation and sensitize household sector to save in financial instruments rather than buy gold.

According to country's finance ministry, the first tranche will be introduced on June 4 and will be for 1,000 crore to 2,000 crore

The IIBs will initially have a tenure of 10 years and total issuance for 2013-14 would be 12,000 to 15,000 crore.

The bonds will be based on a fixed real coupon rate and a nominal principal value that will be adjusted against Wholesale Price Index (WPI)-based inflation.

The main wholesale inflation index fell to 4.89 percent last month, within the central bank’s “comfort zone”, for the first time in over three years but consumer price inflation is still nudging 10 percent.

“The bonds provide inflation protection to both principal and coupon payment. At maturity, the adjusted principal or the face value, whichever is higher, will be paid,” the RBI said.

India aims to sell some 120bn to 150bn ($2.2bn to $2.7bn) of inflation-linked 10-year bonds by the end of the fiscal year in March 2014, the central bank added.

The initial series will be issued to institutional investors including 20 per cent to retail investors.

Both the government as well as the RBI are concerned about the rising gold imports as its putting pressure on Current Account Deficit (CAD), which widened to historic high of 6.7 per cent in third quarter of 2012-13.

In India, bullion imports are one of the main contributors to the deficit in the current account, that the central bank has described as the biggest risk by far to the economy.

Gold and silver imports last month shot up 138 per cent to $7.5 billion. Announcement of the bonds to discourage investments in gold is the second major move by the RBI.

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