The Fading Glitter Of The Golden Nightmare: Sovereign Gold Bond!

In a startling twist, India’s government finds itself on the hook for a whopping ₹1.5 lakh crore via the Sovereign Gold Bond (SGB) scheme; the very investment it pitched as a win-win for citizens and the nation. Introduced in 2015 to let ordinary Indians “buy gold without the hassle,” SGBs promised investors two benefits: the full upside of rising gold prices plus a fixed 2.5% annual interest.

In practice, the government collects cash up front (instead of physical gold) and in 8 years must repay investors the then-market price of that gold. This sounded clever as fewer gold imports and “secure” savings for people, and for years it worked as advertised. But when gold surged to record highs, that promise began to look like a ticking time bomb for the exchequer. Today, critics warn, the scheme has become a hidden budget liability, forcing India’s finance managers to ask: can we really afford this golden debt?

What Are Sovereign Gold Bonds?

Sovereign Gold Bonds are government-issued securities denominated in grams of gold. Instead of buying jewellery or coins, an investor pays cash to the Reserve Bank of India (RBI) and receives a bond certificate. Each bond is tied to one gram of gold (999 purity). Investors earn a fixed 2.5% interest per annum on their investment, paid semi-annually, in addition to any gain in gold’s market price. At maturity (after 8 years), the bond is redeemed in cash: the holder gets the prevailing market value of gold for their bond’s grams. Importantly, the bond’s capital gains and interest are tax-efficient: if held to maturity, the gains are tax-free.

• No Physical Gold, No Storage Hassles: You pay money to the RBI, get a paper bond backing a certain amount of gold. No purity checks or lockers needed.
• 2.5% Fixed Interest: On top of gold’s rise, every year you get an extra 2.5% (the coupon was 2.75% initially and then set at 2.5%).
• Market-Linked Redemption: After 8 years (or earlier if you exit after 5 years), you get cash at the market price of gold at that time.
• Reduce Gold Imports: The government touted SGBs as a way to tame India’s enormous gold appetite. In theory, money invested in SGBs would divert demand from imported bullion, saving precious foreign exchange.

Originally, the pitch was irresistible to many Indians: “it’s like gold you can’t stash under your mattress, plus you earn interest,” as one early investor put it. Financial blogs boasted “gold without the glitter, earning interest” and analysts praised SGBs as a move toward “financialising” India’s gold savings. Banks, post offices and exchanges eagerly sold them. By the end of 2020, over 4 lakh investors had bought SGBs across dozens of tranches, amounting to about ₹46,000 crore in subscriptions. At that time, gold was roughly ₹2,600 per gram – manageable payments for the government and attractive returns for investors.

When Gold Prices Went Bonkers

All of that calm changed when gold prices skyrocketed. Global crises, inflation fears and a weak rupee sent gold on a steep bull run. By 2025 gold was trading above ₹7,000 per gram, nearly three times its 2015 price. (In FY2025 alone, gold jumped over 35%.) For SGB investors, this meant huge windfalls – exactly what the scheme promised. But for the government, every rise in gold meant a larger future bill.

Each outstanding SGB represents a promise: at maturity, the RBI must pay the then-market price of gold for that bond’s grams, plus 2.5% interest accrued each year. In other words, someone who bought 10 grams at ₹26,000 (₹2,600/g × 10) in 2015 will cash in at ₹70,000 per 10 grams today – plus the interest earned on that investment. The effect on government accounts has been dramatic.

According to RBI data and market analysts, India now has 126 tonnes of SGBs outstanding. At current prices (about ₹1,241 crore per tonne), that adds up to roughly ₹1.5 lakh crore of liability. In short, the government’s “gold debt” – the amount it will have to pay if all bonds were redeemed at today’s gold rates – has quadrupled from the amounts originally collected. In fact, analysts note this liability has jumped over 200% relative to the issued prices, thanks to accumulating interest and higher gold prices.

Kotak Mahindra Bank’s president Shekhar Bhandari sums it up: “The Indian government faces significant liability due to SGBs… rising gold prices. This liability has increased by 930% since 2017-18”. (Another analysis similarly found the total SGB liabilities soared by 780% between 2019–20 and 2024–25.)

Put bluntly, the scheme’s cost “got ugly fast” once gold went vertical. In FY2025 alone, the first wave of redemptions from early tranches jumped to about ₹8,040 crore – compared to only ₹260 crore paid out in FY2023. With more issues maturing each year (hundreds of tonnes more is still locked in bonds), some estimates say the total tab could well exceed ₹1.5 lakh crore. For context, that’s still only a fraction of India’s ₹600 lakh crore annual budget, but it isn’t “pocket change” either.

Investor Windfall: Sky-High Returns

Meanwhile, SGB investors are elated. The very things straining the government’s finances – plummeting interest rates and soaring gold – have made SGBs one of the best bets of the last decade. Headlines have even called them a “goldmine” for investors. For example:

• Nov 2015 issue (Series I): Bought at ₹2,684 per gram, matured Nov 30, 2023 at ₹6,132/gram. That’s ~128% total return (≈10.9% annualized), plus 2.75% interest each year.
• Feb 2016 issue (Series I): Bought at ₹2,600/gram, matured Feb 8, 2024 at ₹6,271/gram. Gain of ~141% (≈11.4% annualized), plus interest.
• Nov 2016 issue (Series III): Bought at ₹3,007/gram, matured Nov 30, 2024 at ₹7,788/gram. Gain of ~159% over 8 years.

These examples from market reports show investors more than tripling their money over the bond terms. Another analysis put it simply: “Investors in the first tranche of SGBs [2015‑I] are striking gold: they will have earned a 10.88% CAGR on these bonds.” (This includes the fixed coupon.) Unlike physical gold or many low-return bank fixed deposits, these returns come entirely risk-free (the government guarantees repayment) and with tax exemptions on gains.

One financial blogger quipped that for citizens, SGBs have been “a jackpot” with “solid returns, and no tax headaches”. Retail investors and even trusts and universities have piled in, especially as alternative gold investments (coins, jewellery) gave none of these yields. The 25-year rise in gold prices has been a boon for them. Even the fixed 2.5% annual interest on top of that is like icing on the cake, added regularly to bank accounts.

The Government’s Predicament: High Borrowing Costs

From the government’s side, the script flipped. What was meant to be an inexpensive way to borrow in a pinch has become one of the costliest financing tools on record. In Budget after Budget, officials quietly slashed SGB expectations. For FY2024–25 the government planned only ₹18,500 crore of SGB issuances (down 37% from an earlier target) – a clear signal that it was shifting gears. In fact, by late 2024 the Finance Ministry announced an end to new SGB tranches, openly citing the “high cost of borrowing” via this scheme. (Angel One’s analysis notes the last SGB tranche was floated in Feb 2023, raising just ₹8,008 crore.)

Officials have lamented that SGBs were supposed to curb imports, but did not do enough of that job. Even with bonds worth 126 tonnes outstanding, India still imports 700+ tonnes of gold per year. In one frank remark, an Indian Finance Ministry official noted SGBs had turned out to be “a relatively expensive borrowing mechanism” – a far cry from the “win-win” originally promised.

One budget analysis concluded the SGB, which began as a clever fiscal dodge, has become “one of the most expensive tools for government borrowing.” In the words of bullion expert Prithviraj Kothari, with gold up exponentially and bonds paying fixed interest and offering tax-free gains, “the centre may choose not to rely too much on this avenue for its borrowings”.

Faced with this scenario, the government has effectively hit pause. New SGB issuances have dried up, and as of late 2025 no fresh tranches were announced. Internal memos (reflected in budget documents) show the expected inflows from SGBs being slashed by tens of thousands of crores. In practical terms, this means the scheme is now closed to new buyers. Existing investors will continue to earn their interest and get paid at maturity as promised, but the government is simply not taking on more SGB debt. As one blogger dryly observed, “the SGB scheme isn’t dead, it’s just not the darling it once was”.

How Will the Government “Pay” for All This Golden Nightmare?

This is the heart of the worry in the question. When these bonds mature, where will the money come from? The short answer is: from the same sources governments always use. The RBI/Government will honor its commitments by drawing on the treasury — essentially, taxpayers’ money — and by managing its debt financing. In practice, when each bond matures, the RBI simply pays cash into investors’ bank accounts. Those payments have already been budgeted (they show up as liabilities in government accounts and must be financed in the year of redemption).

The good news is that the actual redemptions are spread over many years. Bonds were sold in tranches from 2015 onward, each with its own 8-year schedule. The first wave of big redemptions (from 2015‑16 issues) only started in 2023–24. Most of the ₹1.5 lakh crore liability will come due gradually, not all at once. For example, if gold stays at today’s levels (around ₹12000/g), a 1 kg bond yields ₹1.2 crore on maturity. Multiply that by 126 tonnes (total outstanding), and you get the ₹1.5 lakh crore liability. But it isn’t due immediately; it trickles out as bonds mature. The government must plan these outlays, just as it does for any debt instrument.

It’s important to note India’s fiscal scale: an extra ₹1.5 lakh crore over, say, 8–10 years, is not insurmountable. By comparison, the total budget each year is around ₹600 lakh crore. That SGB debt represents a tiny fraction of government receipts. As one analysis put it, even ₹1 lakh crore is “still a drop in the bucket” relative to the national budget.

Moreover, the RBI has been quietly hedging its bets. In recent years it has been adding gold to India’s reserves – effectively matching the SGB liability with actual bullion in its vaults. Financial Express notes the RBI “bought more than enough gold to match this liability,” calling it an “indirect hedge” against paying cash out later. This means that if future redemptions all come due, the central bank already holds equivalent gold that can be sold to cover the costs.

Investor sentiment has reflected this: many retail buyers brag about tripling their money. One columnist noted, “Skyrocketing 159% returns [on SGBs] leave FDs and equities in the dust”. There have been anecdotes of early adopters retiring with much larger nest eggs than expected. Even minor investors have enjoyed healthy windfalls. As one commentator put it, those holding original tranches have effectively “struck it rich”.

The Worrying Flip Side

All this buzz about investor gains only sharpens the spotlight on government finances. Every rupee of return to an investor is a rupee out of the government’s pocket down the line. Financial bloggers warn that India has swapped its gold-import bill for a gold-export-style bill payable in rupees, and now must foot that tab. In the words of one finance blogger: “They wanted to tame India’s gold addiction, but instead they’ve got a tab they can’t dodge”. Another analyst quipped the SGB scheme has “morphed from a clever fix into a pricey commitment”.

Indeed, behind the scenes many in Delhi are uneasy. Budget analysts have lowered their SGB assumptions, and economists note the Centre is now “furiously backtracking” on what was once a flagship scheme. In the 2025 Budget speech, the government publicly acknowledged SGBs are too expensive, and it will no longer rely on them to raise funds. In effect, the Gold Bond experiment has been shelved until further notice.

That doesn’t erase the liability, though. India will continue paying interest on all outstanding bonds and will repay principal at maturity. For now, many notes remain “till the bill comes due”. The RBI’s existing reserves hedge and budgetary planning can handle these payments, but they do crowd out other spending. Critics worry that relying on volatile gold prices for such a large debt instrument was risky. If gold continues climbing, the ultimate government payout could rise even more than current estimates.

In summary, India’s SGB program delivered precisely what it promised to citizens: high returns and gold gains. But it may have delivered a disturbing bill to taxpayers. As one analysis starkly put it, the scheme “glittered until the bill came due”. Today, with a record ₹1.5 lakh crore obligation backed by rising gold prices, the government is taking no chances: new bonds are off the table, and every rupee of redemption is being carefully budgeted.

Despite the scary headline figures, experts emphasize context. The outstanding SGB debt (~₹1.5 lakh crore) is small relative to total government borrowings and is spread over many years. That liability will be met from the consolidated fund just like any other government debt. As Finance Minister and analysts have noted, SGBs helped absorb only a small slice of India’s gold demand (around 150 tonnes), and the remaining gold imports continue. In short, this “gold debt” is a concern to be managed – not an insolvency risk.

Nonetheless, the abrupt pivot away from SGBs is a striking reversal. In just a decade, what began as a patriotic-sounding scheme to fight India’s gold habits has left a sizable legacy debt. The “disturbing” lesson, analysts say, is that powerful bull markets can make government promises expensive. Investors won their gold bet handsomely; now the government must honor its promise in cash. Only time will tell if rising gold prices or further economic shocks will widen this balance-sheet gap. For now, the government is watching the gold price nervously – because when those bonds are redeemed, every extra rupee over the issue price must come straight from the public treasury.