Source: FE
Context:
The sharp rise in gold prices over 35% in this financial year has seen the government’s outstanding debt on sovereign gold bonds (SGBs) spiralling to a record Rs 1.5 lakh crore.
What are SGBs?
- Sovereign Gold Bonds (SGBs) are government securities denominated in grams of gold.
- Issued by the Government of India through the RBI.
- Investors can buy bonds instead of physical gold, earning 2.5% annual interest on the purchase price.
- Bonds mature in 8 years, with an option to redeem after 5 years.
- Benefits: no storage issues, earn interest, hedge against inflation, reduce gold imports.
Redemption Trends:
- Despite higher gold prices, premature redemption remains low.
- Government discontinued SGB issuance from FY25. Last tranche issued in Feb 2024 at ₹6,263/g, and gold prices have nearly doubled since then.
Economic Impact:
- SGBs help reduce gold imports (about 150 tonnes), easing pressure on the rupee.
- RBI has been buying gold for reserves, indirectly hedging this liability.
