New Delhi: India will issue sovereign gold bonds from Nov. 26, offering an annual interest rate of 2.75 percent to domestic investors, a government statement said on Friday.

The bonds will be sold through banks and designated post offices and will be part of New Delhi’s market-borrowing programme. The decision to sell gold bonds is part of the government’s plan to provide an alternative to purchasing the yellow metal. Gold is India’s second-biggest expense on the import bill after oil as the country consumes nearly 1,000 tonnes of the metal every year.

Although the government hasn’t provided any estimate for the expected investment under the bond scheme in the latest notification, the draft sovereign gold bond scheme, released in June, had pegged the targeted investments to the tune of 50 tonnes, worth around Rs 13,500 crore, in the first year of introduction.

The bonds will be for a period of eight years with exit option from the fifth year, to be exercised on the interest payment dates. The price of the bond will be determined in the rupee term on the basis of the previous week’s (Monday–Friday) simple average of the closing price of gold, with 999 purity, published by the India Bullion and Jewellers Association, it added. The same principle would be followed for calculating the redemption price for the bonds.