September 27, 2016 2:09:50 am
The government’s Sovereign Gold Bond Scheme is yet to acquire the glitter that its metallic counterpart holds in the country, with the fifth tranche attracting applications worth Rs 820 crore, down from a high of Rs 921 crore two months ago.
The number of applications in the latest tranche is 2 lakh, just up from 1.99 lakh in the previous tranche, when the issue price was Rs 3,119 per kg (now Rs 3,150 per kg).
The present round’s collection would take the cumulative collection so far to just above Rs 3,000 crore — much below the government’s target of Rs 15,000 crore. This was a big concern for the Prime Minister’s Office, which held a meeting last week to consider ways to make the scheme more attractive.
It considered raising the present individual ceiling of 500 grams to 5 kg to attract high-net-worth individuals as well as allowing trading in these bonds. But that failed to cut ice with the Central Bank which feels the real purpose of the scheme was to lower the demand for physical gold and reduce India’s current account deficit. Allowing trading would open the floodgates for hoarders who would start accumulating the paper in the secondary market, it argued.
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One option agreed on was to consider allowing a maker particularly for enhancing stock liquidity for the secondary market and, therefore, for promoting long-term growth in the market. The market maker must maintain continuous two-sided quotes (bid and ask) within a predefined spread. A market is created when the designated market maker quotes bids and offers over a period of time. They ensure there is a buyer for every sell order and a seller for every buy order at any time.
The government introduced new features in the fourth instalment. The minimum subscription limit was brought down to 1 gm from 2 gm while the exemption from capital gains tax at the time of redemption was continued. The interest rate was pegged at 2.75 per cent per annum, payable half-yearly.
In his 2015-16 budget speech, Finance Minister Arun Jaitley had announced plans to develop a financial asset, Sovereign Gold Bond, as an alternative to buying metal gold.
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