Sovereign Gold Bonds: How Much Liability Does the Govt Face for 130 Tonnes of Gold?

When the government launched the Sovereign Gold Bond (SGB) scheme, it was initially seen as a lucrative investment opportunity for individuals while reducing India’s dependence on gold imports.

However, the scheme has turned into a financial challenge for the government due to soaring gold prices. While investors have reaped significant returns, the government is now grappling with increasing liabilities, raising concerns about the future sustainability of the scheme.

Rising Debt Burden and RBI’s Gold Reserves at Record High

The Reserve Bank of India (RBI) currently holds 879 tonnes of gold, the highest ever, accounting for 11.5% of its total foreign exchange reserves. This highlights the growing financial strain on the government and RBI due to the SGB scheme.

According to recent disclosures in Parliament, the government has issued 67 tranches of sovereign gold bonds totalling 146.96 tonnes of gold until FY 2024-25. However, no new gold bonds were issued in FY 2024-25, indicating a potential pause due to financial constraints.

Escalating Liabilities: A 930% Increase in Seven Years

Government liability on outstanding SGBs has skyrocketed over the years. As of April 1, 2025, the total liability for all issued gold bonds stood at Rs 67,322 crore. Minister of State for Finance Pankaj Chaudhary confirmed that the liability from 130 tonnes of gold bonds issued until March 20, 2025, has reached this staggering figure.

According to budget documents, the government’s SGB liability was only ₹6,664 crore in 2017-18. By 2023-24, this had surged to ₹68,598 crore—an alarming 930% increase. The total liability of the government for SGBs has now reached ₹1.2 lakh crore ($13 billion), covering 132 tonnes of gold, with bonds set to mature by 2032.

Policy Instability and Its Impact on the Gold Market

Despite launching the SGB scheme to curb gold imports, India’s annual gold import cost remains around $37 billion. In 2022, the government increased customs duty on gold to 15% to control imports, but this move backfired, leading to a rise in gold smuggling.

Recognising the issue, the government reduced the duty to 6% in 2023, but by then, significant damage had already been done. This policy inconsistency further weakened the SGB scheme’s intended impact and added to the government’s financial burden.

Future Uncertainty Over the SGB Scheme

With liabilities surging and financial pressures mounting, the government may reconsider the continuation of the SGB scheme.

The increasing redemption costs and fluctuating policies have made it difficult to sustain, raising concerns about how the government will manage these obligations in the coming years.

As gold prices continue to rise, the financial strain on the exchequer is expected to intensify, making the future of the scheme uncertain.

Conclusion 

The Sovereign Gold Bond (SGB) scheme, initially launched to reduce gold imports, has become a financial burden due to soaring gold prices. Government liabilities surged 930% in seven years, reaching ₹1.2 lakh crore.

Despite efforts to curb imports, policy inconsistencies weakened the scheme’s impact. With rising redemption costs and financial pressures, the government faces uncertainty over SGB’s future sustainability amid mounting fiscal challenges.

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