The Rs 55,80,000 crore question
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The operational nitty-gritty is not difficult. The GCI will have to pay gold-linked returns to investors and buy "at the money" (a situation where an option's strike price is identical to the price of the underlying security) American call options on gold in global markets. Buying gold options in the offshore market gives the benefit of historically low interest rates. The GCI can invest residual money in gilts or PSU bonds to provide much-needed alternative funding sources for the government.
The positive impact will be that lower government borrowing will release banking sector liquidity for private sector investments, which will support growth. The benefits of lower gold imports will be reflected in a stronger rupee, lower interest rates, higher liquidity, lower trade and fiscal deficits, and higher credit ratings, among other things. The NGPS can't become a success overnight. But if executed well, it can rewrite India's growth story.
The author is director, Axis Direct. Views are personal
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