Sovereign Gold Bond Scheme: Why is SGB becoming a loss-making deal for the government? Understand the whole thing here..

Buying gold or investing in gold is the first choice of Indian people. India is also among the top countries in the world in terms of importing gold. But, a large amount of money goes abroad in the import of gold.

In such a situation, the government adopted a strategy to promote digital gold and launched Sovereign Gold Bond (SGB) in November 2015. It is a safe and simple option to invest in it instead of buying physical gold. In this bond, the investor also gets the benefit of interest along with the increase in the price of gold. This means that investors get a double benefit.

Now the first series of gold bonds is going to mature in November this year. After 8 years, investors will become rich after the maturity of the bond, but it is becoming a loss-making deal for the government. It is expected that the burden on the government treasury will increase due to this.

How will the government incur a loss?
The government was hoping that they would not have to spend much money on returns in SGB. There was only one way to solve this, the price of gold should increase slowly and over a long period. But, since the year 2015, there has been a huge jump in the price of gold.

In 2016, the price of gold rose by 8.65 percent. Similarly, the price of gold rose by 12 percent in 2019 and 38 percent in 2020. Understand it like this, where the price of gold was Rs 28,623 per 10 grams in 2016, it rose to Rs 71,510 in 2024.

The government will have to pay a huge amount
In the year 2015, the Reserve Bank of India (RBI) issued bonds in the SGB first series at Rs 2684 per gram. Through this series, the government had raised more than Rs 245 crore. For investors who held the bond for 8 years, the redemption price became Rs 6,132 per gram.

Due to the rise in bond prices, the government will pay around Rs 560 crore to the investors. Apart from this, interest of about Rs 49 crore will also have to be paid.

Many problems are facing the government
The government regularly pays interest to investors on sovereign gold bonds. Although this interest rate is only 2.5 percent, when lakhs of investors invest in it, this interest payment can put a big burden on the government treasury. This burden of interest increases over time, especially when gold prices rise.

If a large number of investors come together to redeem their bonds, it may be difficult for the government to maintain cash flow. Due to this, the government may have to cut down on its other schemes and financial priorities.

If interest rates rise in the market, investors may prefer to invest in other more profitable instruments than sovereign gold bonds. This may cause the government to face difficulty in issuing new bonds and may have to increase the interest rates on existing bonds, which may further increase the financial burden.