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Case Code: CLFIN002
Case Length: 8 pages 
Period: -  
Pub Date: 2016
Teaching Note: Not Available
Subject : Finance
Organization :-
Industry : Financial Services
Countries : -

Sovereign Gold Bonds: A Solution to India`s Gold Import Problem?



In 2015, the Government of India launched the Sovereign Gold Bonds (SGBs) scheme to reduce the gold import bill by providing an alternative to investing in physical gold. SGBs carry a fixed interest rate and various other benefits that investment in physical gold does not offer. Initially, the government planned to sell 50 tonnes worth of gold bonds by the end of FY16. However, this appeared to be a tough target to achieve judging by the unsatisfactory sale of the first two editions of SGBs although investors praised the scheme. Experts suggested that some changes in the scheme could help the SGBs enjoy greater success and reduce India’s trade deficit.
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  • Analyze the Sovereign Gold Bonds scheme and compare it with gold ETF, gold fund, and physical gold.
  • Explore some other ways to reduce the rising gold import bill of the Indian government.
India, one of the largest consumers of gold in the world, accounted for about one-fourth to the total global consumption in 2015. It fulfilled most of its gold demand through import. India’s annual gold imports were in the range of 800-1,000 tonnes a year, which worked out to about 8-10% of the country’s total imports. This resulted in a huge gold import bill, which in turn, led to a high trade imbalance. To discourage the demand for gold, the Government of India (GoI) had took various steps such as hiking the gold import duty, prohibiting gold import in the form of coins and bars, and introduction 80:20 import restrictions etc. However, all these steps had only a limited impact on gold import. According to experts, despite the government’s efforts, gold demand remained strong. In 2015, India’s gold import bill was US$34,982 million, which was 12.22% higher than in 2014 mainly because investors bought more gold due to its lower price...


Sovereign gold bonds, Gold consumption, Gold bonds, India Bullion and Jewellers Association, Gold reserve fund, Gold import bill, Trade imbalance

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