When the Indian government launched the Sovereign Gold Bonds (SGBs) scheme in 2015, it was said that the programme would be instrumental in encouraging an alternative mode of gold investment and lowering overall imports of the precious metal in the country. The scheme kicked off well and exhorted people to invest in SGB instead of buying gold coins and jewellery. But the ultimate goal of reducing the country’s gold imports could not be achieved. Almost a decade later, India remained one of the top importers of gold in the world, with inward shipments worth Rs $49 billion in the financial year 2023-24, a rise of 30% y-o-y.
Leave aside the failure to curb the gold import bill, the government is grappling with another big challenge arising out of a miscalculation with regard to the flagship scheme launched a decade ago.
SGB roll out good idea, but wrong calculation
Under this scheme, the government promised investors 2.75% interest every year, which was later reduced to 2.5%. The government thought that this would encourage people to buy bonds instead of physical gold. But in India, gold is not just an investment, but also has a deep connection with sentiment and tradition. People started investing in SGB, but also continued to buy gold jewellery and coins. As a result, gold imports increased instead of decreasing.
Also read: Sovereign Gold Bond alert! RBI opens early exit window – Check if you’re eligible!
Gold prices increased, government’s problems also increased
When the first SGB came in November 2015, the price of gold was Rs 2,500 per gram. But today it has crossed Rs 9,000 per gram — that is, an increase of more than 3.5 times! Even in the international market, gold which was available at $1,150 per ounce in 2015 has reached over $3,000 per ounce by 2025.
When the government issued SGBs, it probably did not think that gold prices would increase so fast. Now when the time comes to return the money to the investors, the government will have to pay at the current rate, which is going to put a heavy burden on its pocket.
Increasing liabilities of the government: Big concern!
So far, the government has issued SGB equivalent to a total of 147 tonnes of gold 67 times. At present, the government’s liabilities have reached 132 tonnes (Rs 1.2 trillion or $13 billion).
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