Dr Vijaya C, Assistant Professor, Finance, Accounting and Quantitative Finance, IFMR GSB recently presented a case study titled, ‘Sovereign Gold Bonds: To be or not to be’, at the IIM Nagpur IVEY Case Conference held at IIM Nagpur in December 2024.
In November 2024, Reserve Bank of India (RBI) was in a dilemma whether to continue or stop the issue of Sovereign Gold Bond (SGB). In November 2015, RBI, in consultation with the Government of India, had introduced the SGB scheme to reduce the widening current account deficit primarily due to the import of physical gold. It also enabled investors to divert their savings to digital gold which had the advantages of safety, low risk, regular interest income and tax benefits. With stable gold prices in the past, the Government had looked at SGB as a cheaper source of financing compared to traditional bonds. However, the COVID-19 pandemic had upset the SGB cart as the significant surge in gold prices meant redemption costs much higher than what the Government had estimated. There were no issues of SGB in the financial year 2024-25 and speculation was rife among investors and analysts as to whether RBI had decided to stop any more issues of SGB. The onus was now on RBI to take the correct decision on the future of SGB and propose the same to the Government with a detailed analysis. The question remained about SGB – to be or not to be!
