‘Big fiasco as demonetisation’: Expert flags SGB, warns of surge in govt liabilities to Rs 1.13 lakh crore

Amid raging debate over India’s Sovereign Gold Bonds (SGBs), A Ok Mandhan, a monetary planner and SEBI registered analysis analyst, has slammed the scheme, terming it as a lot 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 authorities liabilities, which have ballooned by 930% in simply six years, reaching ₹1.13 lakh crore at present gold costs.

“The poor design of SGBs led to a 930% enhance in govt. liabilities in simply the final 6 years which, at at the moment’s Gold worth, stands at a whopping 1.13 lac crores,” Mandhan wrote. He additional warned, “And with each passing tick in Gold worth, this can hold inflating. And you realize who pays for presidency liabilities…”

Mandhan’s claims echoes a current report by The Print that mentioned SGBs had led to a staggering 930 per cent enhance in authorities liabilities on this borrowing by 2023-24. The liabilities, the report mentioned, have the potential to develop 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 federal government’s personal actions, such as its enhance of gold import duties to 15 per cent by July 2022.

What are SGBs?

Launched in 2015 as an alternate to bodily gold funding, SGBs enable people to make investments in gold in a paper kind whereas incomes 2.5% annual curiosity. The scheme was designed to scale back India’s reliance on imported gold, which strains the nation’s commerce steadiness. Nonetheless, the federal government additionally ensures to redeem these bonds at prevailing market charges, which means its liabilities rise with each enhance in gold costs.

The rising burden on authorities funds
Gold costs have surged considerably for the reason that introduction of SGBs, crossing ₹64,000 per 10 grams in 2024 from round ₹26,000 in 2015. This enhance has led to an enormous rise in the redemption price for the federal government. Since SGBs are backed by sovereign assure, taxpayers finally 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 ship on their guarantees.

Nonetheless, whereas some economists and market analysts argue that SGBs present a secure funding choice and assist curb the demand for bodily gold, others agree that the rising price of redemption may pose a long-term fiscal danger.

With gold costs anticipated to stay risky amid world financial uncertainties, the talk over SGBs is unlikely to fade anytime quickly. For now, as Mandhan warns, “with each passing tick in gold worth, this can hold inflating.”