Rising Gold Prices Turn SGBs into Fiscal Burden
India’s Sovereign Gold Bond (SGB) scheme, once praised for its innovation and potential to curb gold imports, is now turning into a fiscal challenge for the government. As global and domestic gold prices continue to rise sharply, the liabilities linked to the scheme have ballooned, forcing policymakers to reconsider the future of this gold-linked investment vehicle.
SGB Liabilities Surge with Gold Prices
Introduced in 2015, the SGB scheme was designed to provide an alternative to physical gold, offering investors returns linked to gold prices along with a fixed 2.5% annual interest. The idea was to reduce the country’s dependency on gold imports while encouraging financial investments. However, gold prices have risen steeply—from around ₹26,300 per 10 grams in 2015 to over ₹84,000 in 2025—significantly increasing the government’s redemption obligations to bondholders.
With approximately 132 tonnes of gold equivalent already issued under the scheme, the total liability has crossed ₹1.12 lakh crore. Unlike traditional debt instruments, these bonds are unhedged, meaning the government bears the full risk of gold price appreciation.
New Issuances Put on Hold
Given the mounting financial burden, the government has quietly paused fresh issuances of SGBs since February 2024. This decision reflects a growing concern that the scheme, while beneficial for investors, may no longer be economically viable for the state.
The core issue lies in the mismatch between the scheme’s intended goal and its actual outcomes. While it has offered a solid return to investors, it has failed to significantly reduce physical gold imports, which remain strong due to cultural preferences and demand for jewelry.
Investor Benefits Continue Amid Uncertainty
Existing bondholders continue to enjoy the dual benefit of capital appreciation and fixed interest, making SGBs one of the most lucrative long-term investment options in recent years. However, with no new tranches being issued, future investors will have to turn to other instruments like gold ETFs, digital gold, or physical bullion.
Need for Strategic Reassessment
The current situation signals a need to reassess gold investment policy in India. While investor appetite for gold remains high, the fiscal cost of supporting such schemes without adequate risk mitigation has become too steep. Policymakers may need to explore new financial products that offer gold exposure with lower fiscal risk or find innovative ways to share the price risk with market participants.
As gold continues to glitter, the government now finds itself in the difficult position of balancing investor interests with long-term economic sustainability.
