Sovereign Gold Bond Scheme Turns into a Fiscal Nightmare for the Indian Government
The Sovereign Gold Bond (SGB) Scheme, launched in 2015 by the Indian government, aimed to curb gold imports and offer investors a secure alternative to physical gold. Priced initially at ₹2,500–₹3,000 per gram, the bonds offered 2.5% annual interest and redemption linked to gold’s market price after eight years, with tax-free gains if held to maturity. However, by March 26, 2025, it has become a financial burden due to soaring gold prices, now exceeding ₹9,000 per gram—a 200–300% rise.
The government raised ₹72,274 crore through SGBs, but with 132 tonnes of gold equivalent outstanding, the redemption liability has ballooned to ₹1.2 trillion ($13 billion). This, plus interest payments, makes SGBs far costlier than traditional borrowing. The scheme also failed to reduce India’s $37 billion annual gold imports, missing its economic goal. Policy missteps, like fluctuating customs duties, worsened the situation, fueling smuggling.
With redemption waves looming 25,000 kg in 2028 and 35,000 kg in 2031, the government halted new issuances in 2024, officially ending the scheme in February 2025. Investors rejoice with returns nearing 200% on early bonds, but for the government, it’s a fiscal disaster as gold prices keep climbing.
