Home Insights End Of An Era: Why India Discontinued The Sovereign Gold Bond (2024)

End Of An Era: Why India Discontinued The Sovereign Gold Bond (2024)

By
IMPRI
-
0
0
Bond

Policy Update
Sruti Halder

Background

The Sovereign Gold Bond (SGB) scheme was conceived as part of a broader strategy to curb India’s heavy reliance on physical gold imports, which were seen as a drag on the current account deficit and a source of unproductive household savings. The scheme was first announced in the Union Budget 2015-16 by then Finance Minister Arun Jaitley, approved by the Union Cabinet on 9 September 2015, and formally launched by Prime Minister Narendra Modi in New Delhi on 5 November 2015, alongside the Gold Monetisation Scheme and the Indian Gold Coin (PMO India, 2015).

The rationale was straightforward: India imported roughly 300 tonnes of physical gold every year purely for investment purposes, and shifting even a portion of this demand into a paper-gold instrument would reduce import dependence while giving savers a safe, government-backed alternative (PIB, 2015).

The bonds were issued by the Reserve Bank of India (RBI) on behalf of the Government of India, carrying a sovereign guarantee, and were denominated in grams of gold. Investors paid cash to subscribe and received the redemption value in cash based on prevailing gold prices, thereby eliminating the risks of storage, theft, and purity associated with physical gold (RBI).

Bonds carried a fixed tenor of eight years, with premature exit permitted after the fifth year on interest payment dates, and an assured interest rate of 2.5% per annum paid semi-annually. Subscriptions were capped at 4 kg for individuals and Hindu Undivided Families and 20 kg for trusts and similar entities per financial year, and the instrument was open to resident Indian individuals, HUFs, trusts, universities, and charitable institutions (SBI).

Between the first tranche in November 2015 and the last tranche in February 2024, the government issued 67 tranches and raising ₹72,274 crore against 146.96 tonnes of gold equivalent. Over the years, the scheme saw periodic tweaks including discounts for online subscribers, revisions to interest crediting, and, in Budget 2016, tax exemptions on capital gains at maturity for original investors. However, no new tranche was issued after February 2024, and the Finance Ministry confirmed during the post-Budget 2025 briefing that the scheme had effectively been discontinued for fresh subscriptions, even though existing bondholders remain unaffected and their bonds will continue until maturity (Upstox, 2025).

Functioning

Institutionally, the SGB operated through a tightly coordinated mechanism between the Ministry of Finance, the RBI’s Internal Debt Management Department, and distribution partners such as scheduled commercial banks, the Stock Holding Corporation of India (SHCIL), designated post offices, and recognised stock exchanges (NSE and BSE). The RBI decided the actual quantum of each tranche in consultation with the Finance Ministry, within the government’s overall market borrowing programme for the year, meaning SGB issuances were treated as a component of public debt rather than a standalone welfare scheme (PMO India, 2015).

Pricing of each tranche was based on the simple average closing price of 999-purity gold for the last three business days of the subscription period, as published by the India Bullion and Jewellers Association (IBJA). At redemption, the same methodology applied using prices prevailing just before maturity or premature encashment (Upstox, 2025). Distributing banks and post offices earned a commission for mobilising subscriptions, reimbursed by the government, which added a further layer of administrative cost on top of the 2.5% interest liability.

Funding-wise, the risk arising from gold price movements was intended to be absorbed through a dedicated Gold Reserve Fund, with any reduction in borrowing costs relative to conventional government securities meant to be transferred to this fund (PMO India, 2015).

In practice, however, gold prices rose far beyond initial projections from around Rs 2,684 per gram at the first tranche in 2015 to over Rs 11,000 per gram by late 2025, turning what was meant to be a cost-saving borrowing instrument into one of the government’s most expensive liabilities (Moat Investing, 2025; Belong, 2025). Economic Affairs Secretary Ajay Seth publicly acknowledged that the scheme had become “a rather fairly high-cost borrowing” relative to plain government securities, and that the anticipated reduction in physical gold imports had not materialised as hoped (GoldenPi, 2026).

Performance

Assessing performance over the last five years requires looking at both subscription trends and the government’s growing balance-sheet exposure. Investor appetite rose sharply in the final years before discontinuation: subscriptions increased from 12.26 tonnes worth Rs 6,551 crore in FY 2022-23 to 44.34 tonnes worth Rs 27,031 crore in FY 2023-24, driven by rising gold prices and tax-free maturity gains (Business Standard, 2024). Yet this same price rally that boosted investor returns simultaneously inflated the government’s redemption liability.

Fiscal YearSGB Liability (Budget Documents)Remarks
2017-18Rs 6,664 croreEarly years of the scheme
2023-24Rs 68,598 crore~930% rise since 2017-18
2024-25 (Revised Estimate)Rs 60,566 croreCut by 28.7% from earlier BE of Rs 84,999 crore
2025-26 (Budget Estimate)Rs 55,056 croreReflects wind-down of the scheme
As of April 2025~Rs 1.2 lakh crore (~132 tonnes)Total outstanding government liability
As of October 2025~Rs 1.5 lakh croreRecord high amid 35%+ gold price rise in FY26

Source: Union Budget documents (Government of India); Angel One (2025); The Wire (2025); Moat Investing (2025).

The last SGB tranche (2023-24 Series IV) opened on 12 February 2024 and closed on 16 February 2024, raising Rs 8,008 crore (Business Standard, 2024). No tranche has been floated since, and no issuance calendar has been announced for FY 2025-26 or FY 2026-27 (ClearTax, 2026). Parliamentary disclosures confirm that as of March 2025, cumulative issuance stood at 67 tranches totalling 146.96 tonnes of gold, with the Minister of State for Finance, Pankaj Chaudhary, placing the outstanding liability figure on record in the Lok Sabha (Angel One, 2025).

Notably, redemption returns for early investors have been extraordinary, an investment of Rs 1 lakh in the 2017-18 Series III fetched roughly Rs 3.11 lakh on premature redemption in April 2025, excluding accumulated interest (GoldenPi, 2026), underscoring the scale of the mismatch between what the government raised and what it now owes.

Impact

Judged against its original twin objectives: reducing physical gold imports and offering a low-cost borrowing avenue for the government, the scheme delivered on neither in the way intended. India’s gold import bill has remained substantial, running at roughly $37 billion annually even after a decade of SGB issuance, suggesting limited displacement of physical gold demand (Angel One, 2025). On the fiscal side, rather than lowering borrowing costs, the scheme became markedly more expensive than plain-vanilla government securities once gold’s price appreciation and the 2.5% annual coupon are combined, effectively making SGBs one of the costliest instruments in the government’s debt portfolio (Moat Investing, 2025).

For investors, the picture is starkly positive: SGBs delivered some of the best risk-adjusted returns among government-backed instruments, combining tax-free capital gains at maturity for original subscribers with assured interest income, completely insulating retail investors from storage and purity risks associated with physical gold (Business Standard, 2024). This divergence, a resounding success from the investor’s standpoint but a mounting liability from the exchequer’s standpoint, is central to understanding why the scheme was wound down even as it remained popular.

The government’s own fiscal consolidation commitments compounded the pressure: with a stated goal of bringing the debt-to-GDP ratio down from 58.2% in FY24 to 56.8% in FY25 and further thereafter, continuing an instrument whose repayment obligations track an appreciating and volatile commodity price was seen as incompatible with predictable debt management (Business Standard, 2024). The parallel reduction in customs duty on gold from 15% to 6% in the Union Budget 2024-25 signalled a shift in strategy from discouraging physical gold purchases through a substitute financial product to managing gold demand directly through trade policy (StackWealth, 2025).

Emerging Issues

  • Cost overrun on the Sovereign Gold Bond scheme:The Ministry of Finance stated that SGBs issued since 2015 have cost the government ₹6,055.39 crore in cumulative interest outgo and ₹11,801.12 crore in redemption liability (through 2024-25, provisional). The Minister of State for Finance confirmed the government has set up a Gold Reserve Fund to meet SGB redemption obligations, and separately noted that the rise in gold prices has increased the cost of borrowing through this route.
  • Debt sustainability concerns: With outstanding liability estimated between Rs 1.2 and 1.5 lakh crore and bonds maturing progressively through 2032, the government faces a prolonged, price-linked repayment schedule that complicates medium-term fiscal planning.
  • Limited import substitution: Despite a decade of issuance, physical gold import volumes and India’s gold import bill have not meaningfully declined, raising questions about whether the core policy objective was ever achievable through this instrument alone.
  • Tax treatment changes creating investor uncertainty: Budget 2026 altered the tax treatment for SGBs bought in the secondary market, restricting the capital-gains exemption to original subscribers holding to full maturity, a change that could dampen secondary market liquidity for existing bonds.
  • Absence of a clear exit or transition communication: The government has not issued a formal policy document confirming permanent discontinuation, creating ambiguity for both investors and market intermediaries such as banks and post offices that built distribution infrastructure around the scheme.
  • Distributional concentration: SGB uptake has skewed toward financially literate, urban, and digitally connected investors, meaning the scheme’s benefits were not broad-based across the intended retail investor base.

Way Forward

Rather than treating discontinuation as a permanent solution, the government should use this pause to redesign the SGB instrument before considering any resumption. A future version could incorporate a ceiling on redemption liability, partial hedging through gold derivatives, or a coupon structure that adjusts for gold-price movements, so that the scheme’s original goal of curbing physical gold demand is not permanently abandoned simply because the current design proved fiscally costly. Some other recommendations include:

  • Issue a formal policy statement: A clear notification or white paper from the Ministry of Finance confirming the scheme’s status, rationale, and implications for future gold-linked instruments would reduce market ambiguity.
  • Explore lower-cost gold-linked alternatives: Gold Exchange Traded Funds, Gold Deposit Schemes, and exchange-traded gold spot contracts (such as those introduced by SEBI) could be strengthened as substitutes that do not create direct sovereign repayment liability.
  • Strengthen the Gold Monetisation Scheme: Reviving and redesigning gold deposit schemes to mobilise India’s estimated household gold holdings could achieve import-substitution objectives without the fiscal exposure inherent in SGBs.
  • Build in price-risk hedging mechanisms: Any future gold-linked sovereign instrument should incorporate proper hedging or reinsurance structures, rather than relying on an underfunded reserve fund, to prevent recurrence of open-ended liability.
  • Ensure orderly redemption management: With a large number of tranches maturing through 2032, the RBI and Finance Ministry should publish a transparent, forward-looking redemption calendar to help both markets and fiscal planners anticipate cash-flow requirements.
  • Protect existing investors’ interests: Communication to bondholders on premature redemption windows, taxation changes, and market-linked pricing should be timely and accessible, particularly for retail and NRI investors.
  • Draw lessons for future financial inclusion products: Future retail-investment schemes tied to commodity prices should undergo more rigorous long-term liability stress-testing before launch, incorporating scenarios of sustained price appreciation.

References  

About the Contributor

Sruti Halder is pursuing an MSc in Economics at the Gokhale Institute of Politics and Economics. She is committed to leveraging data-driven research and evidence-based policymaking to promote inclusive and sustainable socio-economic development. 

Acknowledgment

I am writing to express my sincere gratitude to IMPRI (Impact and Policy Research Institute) for providing me with the opportunity to prepare this policy update article and for fostering a rigorous learning environment that connects research with public policy practice.

Reviewers: Kavin, Dolly Kaushik

Publisher: Vishal Kumar

Disclaimer

All views expressed in the article belong solely to the author and do not necessarily represent the views or policies of the organisation.

Read More at IMPRI:

National Mission on High-Yielding Seeds (2025): Seeds for Growth

India’s Coastal Regulation Zone (CRZ) Rules, 2019: Balancing Development, Ecology, and Coastal Community Livelihoods

RELATED ARTICLESMORE FROM AUTHOR