India mulls gold bonds for infrastructure

India's infrastructure companies may be allowed to offer tax-free gold bonds aimed at channelising household savings to the cash-starved sector that is estimated to need $1 trillion (about Rs 50 lakh crore) over the next five years.

A senior official told the HT that the government is actively considering a set of proposals aimed at converting a portion of stocked-up gold and also new stocks of the metal flowing in to help the nation build highways, ports and other infrastructure.

"The objective is to induce fresh investment and convert existing gold holdings  into investible bonds," said the official.

The proposals, which are likely to be announced in the budget for 2012-13, include allowing infrastructure companies to issue five-year bonds with a unique structure. The capital investment will be protected, over and above which there will be an interest yield. The bonds may also carry the option being redeemed as physical gold.

Investment in  such bonds will be eligible for tax breaks similar to those offered by bonds  of infrastructure firms such as National Highways Authority of India, the official said.

India is the world's bigget importer of gold, which is considered a strong collateral for cheap loans. Households use gold as a key parking avenue for their savings, often as jewellery.

"The annual pool of financial savings can potentially rise to $800 billion by 2020 and unlocking investments in non-productive assets into financial assets such as infrastructure bonds will be critical to exploit the pool of savings," the official said.