The absence of any sovereign gold bond (SGB) issuances lately has led to a buzz that the government might discontinue this instrument. The issue and redemption price of these bonds are linked to those of gold so as to wean buyers away from physical purchases of the foreign exchange-draining yellow metal.
But SGBs have apparently burnt a hole in the pocket of the exchequer as gold prices have shot up since their first issuance around 2015. In addition, bond holders got an annual 2.5% interest. Together, the cost to the government is high enough for it to recalculate if it might be better off tapping the regular bond markets where rates are lower.
If gold prices follow the recent trend, the government might just end up lowering its interest burden by making the switch. Besides, India’s current account is in good shape now, and no longer needs the aid of import-curbing instruments.
That said, small savers would be dismayed. As it is, the choice of investment avenues available to them to earn market-level returns safely has been shrinking. Stopping sovereign gold bond issuances would shut down one more door for them.
