Checks and balances
New Delhi, Dec. 17: The government plans to introduce gold-backed pension and savings schemes to curb the import of the yellow metal, which has skewed the country’s trade balance and pushed the rupee to new lows.
Top finance ministry officials said the government was studying the recommendations of the Reserve Bank of India for a slew of new gold-linked financial products to break the tradition of investing in physical gold.
Chief economic adviser Raghuram Rajan said, “Some gold-linked instruments have been talked about by the RBI but potentially there could be other financial instruments to attract investments.”
He said the government was “worried about gold imports”. India imported gold worth $60 billion in the last fiscal. During the April-June quarter of this year, imports stood at around $13 billion, despite the doubling of customs duty on the metal to 4 per cent.
The new savings scheme will function like gold exchange traded funds (ETFs), which track the price and benchmark returns on the rise in the value of the metal, finance ministry officials said.
The money deposited in special gold-backed accounts will be invested in gold ,and the rise in the price will be reflected in the increase in investment. Part of the money can be withdrawn any time, leaving the rest of the investment intact.
The government is also considering allowing pension products or pension funds to invest part of their money in gold.
The All India Gems & Jewellery Trade Federation had submitted a note suggesting a scheme that accumulates household gold for lending to jewellers.
India has around 25,000 tonnes of gold stored away by households and temples.
A widening current account deficit, triggered by costlier imports of gold and petroleum products, has seen the rupee weakening 2.3 per cent this financial year on the back of a 16 per cent fall last year.
Gold-backed instruments have to be hedged through actual gold purchase or investments in the derivatives market.