The government is estimated to have garnered gold and its equivalent worth a record Rs 20,227 crore through schemes, such as sovereign bond and monetisation, in FY21, amid the onslaught of the Covid-19 pandemic on the economy across asset classes. The mop-up was more than five times what it gathered in FY20 (Rs 3,870 crore).
The surge is primarily driven by increasing investor interest in gold bonds amid Covid-induced economic uncertainties globally, a senior government official told FE. Elevated prices of the precious metal, too, contributed to it, the official added. Gold prices shot up last year globally but later eased as prospects of quick vaccine roll-outs brightened. On MCX, gold futures rose from Rs 43,357 per 10 g on April 1, 2020, to a peak of Rs 55,845 on August 6 before dropping to Rs 44,634 at the end of FY21.
At Friday’s closing price (MCX futures), the collection under gold schemes in FY21 would represent over 42 tonnes of the precious metal. This suggests a marked improvement from earlier years of these schemes as well as similar programmes in the past.
The gold schemes (monetisation, bonds and sovereign coins) were unveiled in November 2015 to reduce the country’s reliance on the import of the precious metal and curb its debilitating impact on current account deficit. While the gold monetisation scheme is aimed at tapping household stocks, through gold bonds, the government wants to wean away investors from the purchases of the physical metal to “paper gold”.
Though the bond programme has witnessed a greater mop-up than the monetisation scheme, the collection under these schemes in FY21 represents just about 6% of the country’s usual annual consumption. This suggests a huge potential for further rise.
Nevertheless, the current monetisation scheme has witnessed a marked improvement upon an earlier one under which the government had garnered only two tonnes of gold between 1999 and 2015.
However, a limited number of collection and purity testing centres (and their lack of desired efficiency), more so in rural areas, and the unwillingness of housewives to get jewellery having emotional appeal melted so that these can be deposited have dented the appeal of the gold monetisation scheme. With renewed push, though, the mop-up under the monetisation scheme can go up, analysts have said. But since gold bonds don’t involve these issues, it has performed better than the monetisation scheme in drawing investors.
Indian households, together the world’s largest hoarders of gold, are estimated to have piled up a record 24,000-25,000 tonnes of the precious metal worth over $1.4 trillion.