Government’s Gold Bond Liability Reaches ₹1.5 Lakh Crore Amid Soaring Prices and ETF Boom

India’s sovereign gold bond (SGB) liability has climbed to an all-time high of ₹1.5 trillion, driven by a steep surge in gold prices this financial year. Data from the Reserve Bank of India (RBI) indicates that despite prices rising more than 35%, there has been minimal premature redemption of these bonds, reflecting investors’ strong confidence in the scheme.

Rising Gold Prices Amplify Government’s Debt Load

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The total outstanding gold under SGBs currently stands at 126 tonnes. At today’s prices, each tonne of gold is valued at approximately ₹1,241 crore. The government, which pays a fixed annual interest of 2.5% on the purchase price, is now facing a debt burden nearly 200% higher than at the time of issue. The average issue price for the 58 tranches still within their eight-year maturity period stands at ₹4,227 per gram.

An experience analyst highlighted that the government’s liability on SGBs has expanded sharply—rising by nearly 930% since 2017–18, when it stood at ₹6,664 crore. He noted that, Indian government faces a significant liability due to rising gold prices. However, SGBs can be both a liability and an asset, depending on perspective.

SGBs Help Reduce India’s Gold Imports and Currency Pressure

The last tranche of SGBs was issued in February 2024 at ₹6,263 per gram before the scheme was discontinued for the financial year 2024–25. Since then, gold prices have almost doubled, exceeding ₹12,000 per gram. The price rally has elevated the government’s exposure but also underscored the scheme’s role in reducing physical gold imports.

Experts note that SGBs have effectively helped India cut down gold imports by nearly 150 tonnes, the total quantity of bonds issued by the RBI since the programme’s inception. This reduction has indirectly supported the rupee by easing pressure on the exchange rate.

At the same time, the Reserve Bank has continued to build its gold reserves, adding to foreign exchange holdings as a form of indirect hedge against rising liabilities. SGBs have remained a preferred investment choice for retail investors, Hindu Undivided Families (HUFs), trusts, and universities seeking a secure, interest-bearing exposure to gold.

Gold ETFs Witness Growing Popularity Among Indian Investors

Meanwhile, demand for gold exchange-traded funds (ETFs), often considered paper gold, has also surged amid the rally. According to the World Gold Council’s latest report, India’s total gold ETF holdings now stand at 77.3 tonnes, valued at nearly $10 billion. Though smaller than SGBs in volume, ETFs have seen a steady inflow due to systematic investment plans (SIPs), which provide consistent accumulation across all price levels.

Experts observed that gold and silver have outperformed all other asset classes this year, driving stronger investor interest. We expect gold’s share in portfolios to rise from 5% towards 10–15% as more investors recognise its diversification benefits, they said.

Conclusion

While the government’s gold-backed liability has ballooned, the twin growth of SGBs and gold ETFs reflects India’s deepening shift towards formal, paper-based gold investments. This trend, analysts suggest, enhances financial stability by reducing import dependency while giving investors efficient exposure to the enduring appeal of gold.