Total holdings of the top eight gold ETFs have risen by 3.8 million ounces so far this year
Gold discounts in India, the world's second-biggest consumer, widened this week as dealers struggled to offload stocks amid sluggish demand.
Silver, platinum and palladium all declined.
For easy and wide access, the government plans to market the bond through post offices and various brokers.
Gold demand will go up in the second half of this year.
Global gold prices held below $1,200 an ounce this week.
Concern would kick in if imports stay at or over 100 tonnes a month.
Key to Modi's plan will be the interest rates offered for gold deposits.
Prices of buffaloes and cattle have fallen by 20-30%.
The effect of the beef ban has yet to show up in prices.
Buying had been muted in the past few weeks.
Hindu nationalists in India have stepped up attacks on the country's beef industry, seizing trucks with cattle bound for abattoirs.
It was unclear how bankers were deciding which jewellers to support
Sales of gold coins and bars should be curbed after reaching around 300 tonnes
Based on the estimate, a courier bringing in 1 kg of gold currently worth around $40,000 at world prices could earn $470 if not caught.
Gold demand in India is expected to be robust in 2014, likely leading to a further jump in smuggling if curbs on bullion imports remain, the World Gold Council (WGC) said.
By tying gold imports directly to export volumes, India is effectively trying to cap how much bullion can be brought into the country, tightening supplies and driving up local prices.
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