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The Sovereign Gold Bond (SGB) scheme launched by the Government of India in 2015 may be discontinued from the upcoming financial year 2025-26. Let us tell you, its objective was to control the import of physical gold in the country. But now, according to media reports, the government is considering ending the scheme as part of its efforts to reduce its loan-to-GDP ratio.
Why can SGB scheme be closed?
According to a Business Standard report, a senior government official has said that the Sovereign Gold Bond Scheme has fulfilled its initial objective. However, due to this the financial pressure on the government is increasing. In fact, SGB investors have to pay the equivalent value of gold at the maturity of the bond, thereby increasing the financial liabilities of the government. For this, 2.5% annual interest is paid every six months on SGB, which puts additional pressure on government financial resources.
Target to reduce loan-to-GDP ratio
The government aims to reduce the loan-to-GDP ratio steadily by FY27. According to media reports, Finance Minister Nirmala Sitharaman may announce the closure of this scheme in the FY26 budget. In the budget speech presented in July, the Finance Minister had reiterated his commitment to keep the fiscal deficit below 4.5% by FY26. The loan-to-GDP ratio is expected to reduce from 58.2% to 56.8% in FY25.
Decline in SGB issuance
Let us tell you, in the budget for financial year 2025, the allocation for SGB has been reduced to Rs 18,500 crore, which is less than Rs 26,852 crore in FY24. The Reserve Bank of India (RBI) last issued SGB in February 2023, the amount of which was only Rs 8,008 crore. No new SGB has been issued since then.
