The Indian government’s ambitious Sovereign Gold Bond (SGB) scheme, launched in 2015 to curb physical gold imports and offer a safe, interest-paying alternative, is facing an unexpected twist. Investors are celebrating windfall gains, but the Centre now finds itself stuck with a hefty bill.
The Idea Was Solid — The Execution? Not So Much
When the government first introduced SGBs, the plan seemed foolproof. Offer investors 2.75% annual interest (later trimmed to 2.5%) and the promise of returns linked to rising gold prices. In theory, this would nudge people away from buying physical gold — the emotional, traditional favorite — and lower India’s ballooning gold import bill.
It worked. Well, sort of. People did buy into SGBs. But they didn’t stop buying gold jewellery, coins, and bars either. Instead of reducing imports, the scheme ended up creating an extra avenue for gold-linked investment. By 2023-24, India still imported a massive $49 billion worth of gold, up 30% year-on-year. The scheme wasn’t enough to break the country’s deep-rooted love affair with the yellow metal.
Gold’s Skyrocketing Prices: A Double-Edged Sword
Back in November 2015, when the first tranche of SGBs launched, gold was priced at Rs 2,500 per gram. Fast forward to 2025, and gold’s price has soared past Rs 9,000 per gram — more than a 3.5x jump. Internationally, gold’s price leapt from $1,150 per ounce to over $3,000 per ounce.
For investors, that’s a dream. For the government, though, it’s a nightmare. Since SGBs promise to repay investors at prevailing gold prices when they redeem the bonds, the government is now on the hook for massive payouts it never saw coming.
The Government’s Growing Payout Problem
The numbers are staggering. Over 67 tranches, the Centre has issued SGBs equivalent to 147 tonnes of gold. Current liabilities sit at 132 tonnes — valued at roughly Rs 1.2 trillion ($13 billion). And with these bonds maturing by 2032, the repayment clock is ticking.
Here’s a breakdown of the growing burden:
| Year | Total Gold Issued (Tonnes) | Current Liability (Tonnes) | Approximate Value (INR) |
|---|---|---|---|
| 2015-2025 | 147 | 132 | Rs 1.2 trillion ($13B) |
| Estimated 2032 | TBD | Projected to hit 150+ | Unknown, depends on gold prices |
The higher gold climbs, the heavier the financial load.
Policy Fluctuations Added Fuel to the Fire
The SGB scheme wasn’t helped by a rollercoaster of policy changes. In 2022, the Centre hiked gold import duties to 15% to curb demand — but this only drove up prices and encouraged smuggling. By 2023, the duty was slashed to 6%, but by then, damage was done. The policy U-turns added instability to an already struggling strategy.
One thing’s clear: what began as a smart, revenue-friendly alternative to physical gold investment has now ballooned into a multi-billion-dollar liability. Whether the Centre can pull off a financial course correction — or whether investors will continue reaping the benefits — remains to be seen.
