Bonds, Currencies & Commodities
Government considering steps to contain gold import: Chidambaram

The Finance Minister said the union government may be left with no choice but to make it a little more expensive to import gold as it is affecting foreign exchange reserves

 

New Delhi: Concerned over rising gold import and widening current account deficit (CAD), Finance Minister P Chidambaram on Wednesday said union government is considering steps to make import of the precious metal more expensive, reports PTI.

 

"Demand for gold must be moderated... We may be left with no choice but to make it a little more expensive to import gold. The matter is under government consideration," he told reporters.

 

The CAD, which represents the difference between exports and imports after considering cash remittances and payment, has widened to $38.7 billion or 4.6% of the GDP during the first half of the current fiscal, he said.

 

This was mainly contributed by gold imports which amounted to $20.25 billion.

 

Had the gold imports been half of the actual level, Chidambaram said, "our foreign exchange reserves would have increased by $10.5 billion" as against the marginal accretion of $0.4 billion during April-September.

 

The country, the Minister said, "cannot afford to spend so much on importing gold. Nobody says gold within the country should not be used for whatever purpose. There is enough gold within the country. But import of gold is huge strain on the current account".

 

During 2011-12, gold imports stood at $56.2 billion.

 

On reports of smuggling of gold, Chidambaram said, it is mostly speculative. "May be some smuggling has taken place but whatever level of duty, there is always smuggling."

 

In order to curb demand of gold, the then Finance Minister Pranab Mukherjee in his Budget last year had doubled the basic customs duty on standard gold bars to 4% and on non-standard gold to 10%.

 

There has been moderation of gold imports as a result of government policies during the first half of the current fiscal.

 

In value terms, gold imports at $20.2 billion in the April-September reflects a decline of 30.3% over the corresponding period a year ago.

 

The decline can partly be attributed to increase in customs duty on gold imports by government in January and March 2012.

 

As more is needed to be done, Chidambaram appealed to the people "moderate the demand for gold which leads to its large imports".

 

Traditionally, India has been the world's largest consumer and importer of gold. The price of gold in the national capital yesterday rose by Rs155 to Rs31,145 per 10 gm, while silver became expensive by Rs740 to Rs57,740 per kg.

 

The main contributors to the widening CAD, Chidambaram said, were declining exports which slipped by 7.4% during the first half of the current financial year and rising imports which went up by 4.3% in the same period.

 

The gap in export and import, he added, was partly made up "by an increase in services exports of 4.2% and, consequently, surplus in services which amounted to $29.6 billion and remittances of $32.9 billion".

 

The CAD, the Minister said, was financed without drawing on country's foreign exchange reserves, mainly because of adequate inflows of FDI ($12.8 billion) and FII ($1.7 billion).

 

The net result, Chidambaram said, is that "we have not drawn on the foreign exchange reserves and, in fact, there is a marginal accretion of $0.4 billion to the reserves."

User

Tax-Free-Bonds: Should you go for it?

Government companies are coming out with Rs53,500 crore worth of tax-free bond issues. While the rate will be lower than what was offered last year, should you still go for it instead of relying on bank FDs? Raj Pradhan explores tax-free bond offerings over the next three to four months and who should grab the opportunities

Ramesh Pandya (name changed), an information technology...

Premium Content
Monthly Digital Access

Subscribe

Already A Subscriber?
Login
Yearly Digital+Print Access

Subscribe

Moneylife Magazine Subscriber or MAS member?
Login

Yearly Subscriber Login

Enter the mail id that you want to use & click on Go. We will send you a link to your email for verficiation
IIFCL, Hudco and IRFC tax-free bonds: Know what’s coming

IIFCL, Hudco and IRFC have lined up tax-free bond offerings even as PFC extended its deadline by a week as it could garner only Rs596 crore till the scheduled closing date of 21 December. Find out the offered rates and where you may want to invest

India Infrastructure Finance Company (IIFCL), Housing, Urban Development Corporation (HUDCO) and Indian Railway Finance Corporation (IRFC) will offer their public issue of secured, redeemable non-convertible tax-free bonds over the next one month. Power Finance Corporation (PFC) has extended its deadline by a week (27 December) as it could mop-up only Rs596 crore till 21 December closing date. Even though the PFC bonds are AAA rated by Crisil and ICRA, it has been finding few takers. It may have suffered as its issue came after REC (Rural Electrification Corporation); both companies are mainly into financing power related projects across India.

 

Last year, many bond offerings closed early due to over-subscription, but this year the trend seems to be reversed. Extension of the closing date is due to lack of investor participation. Find out what is going wrong with tax-free bonds this year –

 

 

10 year bond

15 year bond

IIFCL coupon for retail investors

7.69%

7.86%; 7.90% for 20 year bond

IIFCL coupon for others

7.19%

7.36%; 7.40% for 20 year bond

IIFCL credit rating

AAA by ICRA, CARE and Brickworks

AAA by ICRA, CARE and Brickworks.

Hudco coupon for retail investors

7.84%

8.01%

Hudco coupon for others

7.34%

7.51%

Hudco credit rating

AA+ by CARE and India Ratings and Research Private Limited

AA+ by CARE and India Ratings and Research Private Limited

IRFC  coupon for retail investors

7.68%

7.84%

IRFC  coupon for others

7.18%

7.34%

IRFC  credit rating

AAA

AAA

Individual investment up to Rs10 lakh will be considered as retail application

 

IIFCL will launch its public issue of tax-free bonds at an interest rate of 7.69%, 7.86% and 7.90% per annum (p.a.) for 10, 15 and 20 year terms for retail investors. Non-retail investors will get 0.5% p.a. less. The bond issue will remain open from 26th December 2012 to 11th January 2013. IIFCL is planning to raise Rs1,500 crore with green-shoe option up to the shelf limit of Rs9,215 crore.

 

It is proclaiming to offer rare opportunity to invest for up to 20 years, as it is the only company approved for it.  The bonds have been rated AAA by ICRA, CARE and Brickworks. Considering the IIFCL’s diversified infrastructure portfolio into financing infrastructure projects in the sectors like power, roads & highways, ports, airports, renewable energy, and urban infrastructure, it is an option for including in your debt portfolio.
 

Hudco will offer tax free bonds from 9 January to 22 January 2013. The company proposes to raise Rs750 crore through the issue with an option to retain over-subscription up to the shelf limit of Rs5,000 crore. The retail coupon for 10 year and 15 year bond will be 7.84% and 8.01% respectively. The non-retail investor coupon rates will be 7.34% and 7.51% for 10 and 15 year bond respectively.
 

Hudco’s coupon rates are higher than other bond offerings today, but that’s because its rating is below AAA. CARE and India Ratings and Research Private Limited have assigned a rating of AA+ to the bonds. Hudco’s task involves building affordable housing and carrying out urban development. It provides long term finance for construction of houses for residential purposes or finance or undertake housing and urban development programs in the country.

 

IRFC will offer tax-free bonds from 21 January to 29 January 2013 for raising up to Rs8,981.40 crore. It has already raised Rs1,018.60 crore through the private placements of bonds. The coupon rates will be 7.68% (7.18% for non-retail) for the 10-year bond and 7.84% (7.34% for non-retail) for 15 year bond.


IRFC is a dedicated financing arm of the ministry of railways. Its sole objective is to raise money from the market to part finance the plan outlay of Indian Railways. The money so made available is used for acquisition of rolling stock assets and for meeting other developmental needs of the Indian Railways. Even though it is an AAA rated bond, there have been recent reports of rampant time overruns and resultant cost escalations in railway projects.

 

Name of Company

Bond Issue Size in Rs crore

NHAI (National Highways Authority of India)

10,000

IRFC (Indian Railway Finance Corporation)

10,000

IIFCL (India Infrastructure Finance Company)

10,000

HUDCO (Housing and Urban Development Corporation)

5,000

NHB (National Housing Bank)

5,000

PFC (Power Finance Corporation)

5,000

REC (Rural Electrification Corporation)

5,000

Jawaharlal Nehru Port Trust

2,000

Ennore Port

1,000

Dredging Corporation of India

500

Ten companies authorised to issue tax-free bonds this fiscal.

 

The interest from these bonds is tax-free to investors. Today, it is difficult to get more than 9%p.a for long-term fixed deposits (FDs) from banks. Those earning more than Rs10 lakh annually are in the highest tax bracket (30%). This means that effective post-tax return from long-term FDs is only 6.3%. AAA rated tax-free bonds giving 7.86% are much better option. Yet, the interest is subdued as compared to last year. It could be that investors have not warmed up to the series of tax-free bonds issues or they don’t find it as much attractive as last year. This is especially true for non-retail investors.

User

COMMENTS

srinivasan M

5 years ago

Sir,

You've not mentioned whether (i)bonds will be listed in stock exchanges or not. So investors can move out if needed.
(ii)Users with or without Demat a/c can invest
(iii)How you rate them in decreasing priority for investment purpose(you've selected only IIFCL bonds)
(iv)Allotment is First come basis or not etc. It would be hugely beneficial if you could indicate these as well. Thanks.

REPLY

raj

In Reply to srinivasan M 5 years ago

yes, it will be listed and can be sold without any lock-in period. yes, physical application (no demat) is allowed. Hudco is AA+ and IRFC will be AAA with 0.17% difference in coupon rates. It is up to investor to decide. Allotment will be first come basis.

We are listening!

Solve the equation and enter in the Captcha field.
  Loading...
Close

To continue


Please
Sign Up or Sign In
with

Email
Close

To continue


Please
Sign Up or Sign In
with

Email

BUY NOW

The Scam
24 Year Of The Scam: The Perennial Bestseller, reads like a Thriller!
Moneylife Online Magazine
Fiercely independent and pro-consumer information on personal finance
Stockletters in 3 Flavours
Outstanding research that beats mutual funds year after year
MAS: Complete Online Financial Advisory
(Includes Moneylife Magazine)