Indians love Gold. It's an ancient tradition. A few years ago, the World Gold Council estimated that the total gold hoard in India. They came up with a mindboggling figure of 20,000 tonnes held in homes and temples.
There isn't much gold production in India. We import almost all of it. How much? In financial year 2015-16, India imported about 750 tonnes. This puts pressure on our trade balance. Also, the imported gold isn't put to productive use in the economy.
Thus, it is in the government's interest to try and change our behaviour. They would love it if citizens choose financial assets over gold.
Their latest attempt is the Sovereign Gold Bond (SGB) scheme. The SGB is an alternative to physical gold. It is paper gold that mimics the returns of real gold. In other words, you could earn the returns on gold without actually owning gold. And to incentivise Indians to switch to SGBs, the government also offers an interest of 2.75% on the bond. Plus, some tax incentives too. (We have given our view on Sovereign Gold Bonds in The 5 Minute Premium here and here.)
Since November 2015, the government has launched five tranches of the SGB scheme. The chart of the day shows collections from each tranche. As you can see, the first and the third tranche witnessed muted demand. But gradually, investors are showing interest in owning paper gold. The government has collected an aggregate of Rs 30.6 billion through the five tranches, representing 10,155 kg of gold.
The sixth tranche of the SGB scheme opens today. The interest rate has been reduced to 2.5% from 2.75% in the earlier tranches. However, the bonds are being offered at a discount. The issue price of the bond will be Rs 50 a gram less than the nominal value. Applications will be accepted from 24 October to 2 November 2016. The RBI will issue the bonds on 17 November 2016.