The concept of the Consol bonds was introduced way back in 1751 by the British Government. It was done to reduce the finance cost of the economy and served as an exceptional approach of raising debt without having to repay it.
Consols are fixed-income securities that do not have a maturity period. It is one the rare forms of perpetual bonds, where the issuer is, the central government of the country.
The Bond is in circulation ever since it was introduced. Some countries such as the US and UK have used Consols at times when a severe economic crisis was predicted in the Country.
Did you know that Consols were used to win wars?
As recent as the First World War, in 1917, the British government issued Consols to finance the ongoing war costs. It was marketed to the general public with a sort of patriotic message that said,
“If you cannot fight, you can help your country by investing all you can in 5 percent Exchequer Bonds. Unlike the soldier, the investor runs no risk.”
Apart from World War I, Consols were also issued by the British Government to finance the Napoleon War.

The Invisible Shadow of COVID-19
The coronavirus has brought the entire world to its knees, where the survival of the economy is at stake. No doubt, why global leaders and epidemiologists across the world have compared the current pandemic situation to a War.
The impact is humongous, speaking of which below are some awful events that took place due to the sudden lockdown in India:
- As per CRISIL’s recent report released in May 2020, India is on the verge of facing its worst recession of all time i.e. almost 10% of the real GDP might be permanently lost. According to International Monetary Fund (IMF) data, India’s real GDP growth projection has dropped to 1.9%.
- All the recent fiscal and monetary stimulus packages announced by the Government have a lot of drawbacks, as quoted by the Government the stimulus package of ₹20 lakh crore is approximately 10% of India’s GDP, while the policies worth around 10% of it would be actually helpful in fighting against the COVID-19 pandemic, that will include increasing daily wages of MGNREGA (Mahatma Gandhi National Rural Employment Guarantee Act) workers and providing free food grains to migrants.
- There is a need for additional monetary disbursements in the Economy over and above the already announced stimulus packages. As per a Business Standard article, an additional ₹5 trillion stimulus is required to fight the pandemic.
- The monetary policies announced by the Reseerve Bank of India aimed to provide liquidity in the market by way of providing cheaper loans, reducing repo rate and providing moratorium period to borrowers, but contrary to that banks who are required to push forward these benefits to their customers are trying to protect their own capital due to the fear of survival and the risk of increasing NPAs (Non-Performing Assets). Thus, we can say, these policies are of not much use for MSMEs (Micro Small & Medium Enterprises), street vendors, and many other small businesses.
- As per the latest data released by the Centre for Monitoring Indian Economy (CMIE), the unemployment rate stands at 7.7% as of 28th July 2020.
Unprecedented Financial Storm
The uncontrollable growth of COVID-19 cases and continuous lockdowns in India have raised questions on the survival of human beings, and let’s assume even if the situation gets under control, what will be the scenario post-COVID-19? Is there a plan to save the economy from going into depression? Several theories are revolving on the internet, but none of them are actually able to explain the post-COVID-19 effect from a wider perspective.

As discussed earlier, in such a war-like situation the government needs to use warlike methods to raise funds, and what could be a better option than using Consols to raise huge funds, without any obligation to payback.
Assuming an attractive interest rate of somewhere between 7-10%, which will have only 1/10th burden on the fiscal deficit of the country, the Consols could be a great choice. The assumption is based on the existing perpetual bonds in the market issued by various public and private sector banks. As per NSE data, the yield on such bonds ranges from somewhere between 8.72% to 16.55%.
The bond proceeds could be used to help poor and middle-class people by way of providing direct fund transfers to their account and increasing spending power which will help in reviving the economy.
Will the issue be successful?
What if I ask you to decide whether the issue will be successful or not considering the below facts which are quite interesting and compelling enough to think about the existence of Consols?
- Consols are an easy, fast, and low-cost way to finance the stimulus without having much burden on the fiscal deficit of the country. As they have no rollover cost and no maturity period, the government is not liable to payback. They can redeem them as and when the economy starts progressing. Moreover, the redemption can take place partly as and when required. As a fact, the UK bonds issued to finance World War I, were redeemed after almost a century in 2015.
- Consol bonds can be issued in different denominations, which makes it affordable to the small investors as well, speaking of which, approximately 70% of the UK bonds issued in 1917 were subscribed by small investors, holding bonds worth less than £1000 each.

- Everyone would agree with the fact that Narendra Modi is one of the most liked global leaders and has a strong influencing power over people. Given the fact and from past similar calls, the “Modi” factor could be used to market Consol bonds and attract investors.
- In this highly volatile market, where investors are looking for a safe investment option, investing in such bonds for maybe a century and earning a risk-free return all along is not really a bad idea. Pertaining to safe haven bias, an increase in gold prices could be seen from $41.65 per gram in Q1FY19 to $51.73 per gram in Q1FY20 and an approximately 600% growth in Gold-backed ETFs.

Contributor: Vikas Tiwari
Research Desk | Leveraged Growth
I am a CFA Level 2 candidate and a B.Com graduate from Shankar Narayan College of Arts and Commerce, Mumbai. As a part of my experience, I have worked at CRISIL as an intern on an ESG Project. I have a keen interest in finance and like reading non-fiction books, especially investment-related books. This has impassioned me to always look out for quality stocks in the Indian Market. I am always open to learn and take new challenges. I have recently started blogging, where I try to share my financial knowledge in a simple yet effective way.
