Recent Announcement by the Union Government: In the Union Budget for 2024-25, the government introduced a significant change by reducing the import duty on gold from 15% to 6%. This move is aimed at making gold more accessible and curbing smuggling while fostering a regulated market. Additionally, the government is expected to make a decision soon on the future of Sovereign Gold Bonds (SGBs), a financial instrument introduced to encourage savings in gold without the need for physical gold ownership.
The Status of the Gold Industry in India:
Gold Reserves in India: As of the 2015 National Mineral Inventory, India's total gold ore reserves and resources were estimated to be 501.83 million tonnes. The majority of these gold reserves are concentrated in Bihar (44%), followed by Rajasthan (25%), Karnataka (21%), West Bengal (3%), Andhra Pradesh (3%), and Jharkhand (2%). Notably, Karnataka produces approximately 80% of the country's total gold output, with the Kolar Gold Fields being one of the oldest and deepest gold mines globally.
India's Gold Imports: India is the second-largest consumer of gold globally. In 2023-24, gold imports surged by 30%, reaching USD 45.54 billion. However, in March 2024, gold imports saw a significant decline of 53.56%, indicating fluctuations in demand. Sovereign Gold Bond (SGB) Scheme:
Launch and Purpose:
The Sovereign Gold Bond (SGB) scheme was introduced in November 2015 with the aim of reducing the demand for physical gold and directing domestic savings, which would otherwise be spent on purchasing gold, into productive financial savings.
Issuance and Availability:
SGBs are issued as government securities under the Government Securities (GS) Act, 2006, by the Reserve Bank of India (RBI) on behalf of the government. They are available for purchase through several channels, including scheduled commercial banks, the Stock Holding Corporation of India Limited, designated post offices, and stock exchanges such as the National Stock Exchange of India (NSE) and Bombay Stock Exchange (BSE).
Eligibility:
The bonds are available for resident individuals, Hindu Undivided Families (HUFs), trusts, universities, and charitable institutions.
Features of SGB:
- Issue Price: The price of gold bonds is linked to the price of 24-carat (999 purity) gold, as published by the India Bullion and Jewellers Association (IBJA).
- Investment Limit: SGBs can be bought in multiples of 1 gram, with the maximum investment limit being 4 kilograms (4,000 units) per financial year for retail investors and HUFs. Trusts and other entities can invest up to 20 kilograms annually. The minimum investment is 1 gram.
- Term: The bonds have a maturity period of 8 years, with an option to exit after 5 years.
- Interest Rate: SGBs offer a fixed annual interest rate of 2.5%, which is paid semi-annually. However, the interest is taxable under the Income Tax Act, 1961.
- Capital Gains Tax: The capital gains tax on redemption of SGBs has been exempted for individuals. This is a significant benefit, as it provides tax relief on the profits made when redeeming the bonds.
Benefits of SGBs: - They can be used as collateral for loans.
- The capital gains tax exemption on redemption makes them an attractive option for long-term investors.
- Unlike physical gold, they are a more secure and regulated form of gold investment.
Disadvantages of SGBs: - SGBs are a long-term investment, making them less liquid compared to physical gold, which can be sold immediately in case of urgent need.
- While SGBs are listed on exchanges, trading volumes are relatively low, making it difficult to exit the investment before maturity.
Green Bonds: Green Bonds are financial instruments issued by governments, companies, or multilateral organizations to raise funds exclusively for projects with positive environmental or climate-related benefits. These projects could include renewable energy, energy efficiency, or sustainable agriculture. Green bonds provide investors with
fixed income payments, similar to traditional bonds.
In line with environmental sustainability, the Indian government plans to issue
sovereign green bonds worth approximately
Rs 20,000 crore in the financial year 2024-25. These green bonds will help fund eco-friendly projects and contribute to India’s commitment to reducing carbon emissions and promoting sustainable development.
Key Takeaways:The reduction in the import duty on gold and the government’s focus on Sovereign Gold Bonds reflect an ongoing effort to modernize and regulate India’s gold market. The SGB scheme continues to encourage financial investments in gold, offering both tax advantages and collateral benefits. At the same time, the government’s push for green bonds underscores a growing commitment to environmental sustainability and climate action.
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