In a bid to curb India’s appetite for gold, the Centre introduced Inflation Index Bonds (IIBs) on Wednesday.
The first tranche will be introduced on June 4 and will be for `1,000 cr 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.
“Pursuant to the announcement in the Union Budget 2013-14, the Government of India in consultation with Reserve Bank of India (RBI) has decided to launch Inflation Index Bonds (IIBs), as instruments that will protect savings of poor and middle classes from inflation and sensitise household sector to save in financial instruments rather than buy gold,” the Finance Ministry said in a statement on Wednesday.
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 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. 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.
Gold and silver imports last month shot up 138 per cent to USD 7.5 billion. Announcement of the bonds to discourage investments in gold is the second major move by the RBI.