Amid raging debate over India's Sovereign Gold Bonds (SGBs), A K Mandhan, a financial planner and SEBI registered research analyst, has slammed the scheme, terming it as much of a "fiasco" as demonetization and Make in India.
Taking to X on Sunday, Mandhan argued that the flawed design of SGBs has led to an unsustainable surge in government liabilities, which have ballooned by 930% in just six years, reaching ₹1.13 lakh crore at current gold prices.
"The poor design of SGBs led to a 930% increase in govt. liabilities in just the last 6 years which, at today’s Gold price, stands at a whopping 1.13 lac crores," Mandhan wrote. He further warned, "And with every passing tick in Gold price, this will keep inflating. And you know who pays for government liabilities…"
Mandhan's claims echoes a recent report by The Print that said SGBs had led to a staggering 930 per cent increase in government liabilities on this borrowing by 2023-24. The liabilities, the report said, have the potential to grow to Rs 1.12 lakh crore by 2032, going by market estimates. It had blamed the fiasco partly on the design of the SGB scheme and partly on the government’s own actions, such as its increase of gold import duties to 15 per cent by July 2022.
What are SGBs?
Launched in 2015 as an alternative to physical gold investment, SGBs allow individuals to invest in gold in a paper form while earning 2.5% annual interest. The scheme was designed to reduce India’s reliance on imported gold, which strains the country’s trade balance. However, the government also guarantees to redeem these bonds at prevailing market rates, meaning its liabilities rise with every increase in gold prices.
The rising burden on government finances Gold prices have surged significantly since the introduction of SGBs, crossing ₹64,000 per 10 grams in 2024 from around ₹26,000 in 2015. This increase has led to a massive rise in the redemption cost for the government. Since SGBs are backed by sovereign guarantee, taxpayers ultimately bear the burden of these liabilities.
Mandhan's tweet highlights this concern, drawing parallels with demonetisation and Make in India, which many critics argue failed to deliver on their promises.
However, while some economists and market analysts argue that SGBs provide a safe investment option and help curb the demand for physical gold, others agree that the rising cost of redemption could pose a long-term fiscal risk.
With gold prices expected to remain volatile amid global economic uncertainties, the debate over SGBs is unlikely to fade anytime soon. For now, as Mandhan warns, "with every passing tick in gold price, this will keep inflating."