Wednesday, January 30th 11:12 AM IST

India to bring back IIB's to keep investors away from Gold

# India gold reserves  # import tariff value  # gold imports  # RBI  

RBI governor D.Subbarao said the central bank had introduced IIBs some years ago but it did not take off due to some design flaws.

NEW DELHI(BullionStreet): India's central bank has decided to reintroduce the inflation-indexed bonds (IIBs) with slight changes and also to allow banks to buy back gold.

The move is part of a series of efforts by authorities in the world's largest gold consumer to cut down imports and to keep investors away from gold.

RBI governor D.Subbarao said the central bank had introduced IIBs some years ago but it did not take off due to some design flaws.

The most important change is that both principal as well as the coupon rate on the bond will be indexed to inflation, he added.

He however said some clarifications need to be addressed before the official launch such as which inflation index to be followed, wholesale price index-based inflation (WPI) or consumer price index-based inflation (CPI).

Bankers on the other hand questioned the introduction timing as inflation remained on the higher side now as WPI-based inflation was 7.18 per cent in December while CPI-based inflation was 10.56 per cent in the same month.

India is the largest importer of gold in the world as people view it as a hedge against inflation. Gold imports grew 39 per cent in FY2012 and accounted for almost three-fourths of the current account deficit (CAD).

India’s current account deficit was 4.2 per cent of GDP, or $80 billion, in FY 2012. In first half of FY 2013, the current account deficit grew to 4.7 per cent of GDP.

Gold imports have been a cause of concern for both the Reserve Bank of India as well as the Finance Ministry.

Last week, in a bid to restrict gold imports, the Government hiked the import duty on gold to six per cent from four per cent.

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