New Delhi: The sovereign gold bond scheme may be merely diverting investments from one asset class to another and placing a high cost on the government without any real basis for curbing imports, says World Gold Council's Managing Director for India Somasundaram P.R. "Sovereign bonds are a very urban phenomenon. It's a stock market kind of an asset class, linked to gold. It is probably taking away market share of exchange-traded funds rather than taking away physical gold," Somasundaram said in an interview. Announcing the scheme last year, Finance Ministry Arun Jaitley had said one of its purposes was to develop an alternate financial asset for the purchase of gold. But this is in a paper form, and redeemable in rupee with interest. The interest rate was later fixed at 2.75 per cent. Four tranches have been launched thus far and the Finance Ministry said the amount realised via the latest edition, open during July 18-22, was Rs 919 crore -- the highest so far. The top council executive felt the intended idea of the finance ministry to curb import of the precious metal through the gold bond scheme may not really yield results while also questioning why the government is looking at reducing its inward shipments in the first place. "You can't reduce imports by issuing paper. If we can do it then every government can do it. The problem also is, after you did the first tranche, imagine how prices have shot up. The return in the last six months is 37 per cent," he said. "This means the government has taken money from the people, and it has cost the government 37 per cent for that. Is it worth paying that much to protect the dollar?" he wondered and felt that the redumption should be allowed in physical form of gold and not in rupees. The first tranche of the scheme, launched in November last year, fetched subscription for 915.95 kg of gold, worth Rs 246 crore, while in the second, it fetched Rs 726 crore for 2,790 kg. The March edition this year fetched 1,128 kg for Rs 329 crore. The finance ministry said the aim of the sovereign gold bond scheme is to lower demand, including what is met via imports, for physical gold, and reduce the country's current account deficit in the process. "Seeing the investor response, the government will come up with more tranches," it said. "At the moment the government is positioning it (the gold bond scheme) as a way to curb imports. We believe the objective should not be to reduce import," said Somasundaram, adding: "I don't think import reduction should be an explicit objective." In fact, the World Gold Council in its Gold Demand Trends, released earlier this month, did not expect any major surge in gold imports from India -- but a fall, instead. It estimated imports at around 750-850 tonnes, against 1,000 tonnes last year. Somasundaram said while it was a good idea to give choices to consumers, it can't be done for long. "Then the risk on the government will be too high." Looking ahead, the World Gold Council executive was optimistic over a demand pick-up later this year. "So far monsoon has been good. Chunk of the demand in India -- around 60 per cent -- comes from rural areas," he said, adding good rains should add more disposable income there. "After two years of drought it has rained well this year. This is a huge positive sentiment. The first asset class to benefit from surplus income in the rural areas is gold because the awareness of other product like equities and insurance is low among rural population."