Sovereign Gold Bond (SGB) is becoming a ‘fairly expensive’ borrowing for the government and thus it is likely to be discontinued soon, said Ministry of Finance during the post budget media interaction.
In this budget , there has been no mention of the SGB and no tranche has been issued either in the last few quarters. When asked if it indicates the end of the scheme , Finance Minister Nirmala Sitharaman replied, “Yes, in a way”.
To this, Ajay Seth, Secretary, Department of Economic Affairs (DEA) also confirmed that the gold bonds proved to be a very high-cost borrowing for the government and thus the government decided to not continue issuing tranches further.
“ The recent past experiences have been that this has been a rather fairy high-cost borrowings for the government. As a result, the government has chosen not to follow that path,” added the DEA Secretary.
The SGB scheme, launched in 2015, represents a form of debt security issued by the Reserve Bank of India (RBI) on behalf of the government, with each bond corresponding to a gram of gold. These instruments offer investors the option to trade in the secondary market and provide a fixed annual interest rate of 2.5% on the initial investment. Interest payments are typically made semi-annually, with the final instalment, along with the principal, disbursed upon maturity. Redemption proceeds are settled in Indian rupees, calculated based on a three-day average closing price of 999-purity gold, as published by the India Bullion and Jewellers Association.
The most recent issuance of SGBs took place on February 21, 2024, marking the fourth tranche of the 2023-24 series. The programme was introduced to encourage financial investment in gold rather than physical purchases. However, the government’s move to lower gold import duties in the Union Budget for 2024-25 aligns with this goal and has contributed to rising demand for the metal.
Initially conceived as a tool to curb the country’s appetite for physical gold, SGBs remain a key component of India’s broader financial strategy. The scheme continues to serve as an alternative for investors looking to gain exposure to gold without the challenges associated with holding the metal in its physical form.
