Notes

After import duty cut on gold, govt to decide future of Sovereign Gold Bonds scheme in September

Contact Counsellor

Last Updated03/08/2024

The government plans to make a final decision regarding the future of the Sovereign Gold Bonds (SGB) scheme in September.

Sources indicate that the cost of financing the fiscal deficit through SGBs is quite high and does not align with the benefits accruing to investors from the scheme.
This disparity may lead the government to decide on discontinuing the scheme, which will also determine the official borrowing amount for the second half of the financial year.
Earlier, we used to have 10 tranches in a year, then we came down to four and then to two.
Domestic gold prices have fallen by nearly 5 per cent, from when Finance Minister Nirmala Sitharaman reduced the customs duty on gold from 15 per cent to 6 per cent
- the lowest in over a decade.
While this duty cut led to a decrease in gold prices, it also resulted in increased demand for the metal.
SGBs were brought in as an investment (instrument) with a specific objective of curtailing gold imports and holdings.
- But now that we have reduced the duty, the scheme need to be relooked.
Some analysts believe the customs duty reduction aims to curb gold smuggling, which has increased due to recent high gold prices.
Although the duty cut might dampen demand for these bonds, they remain an attractive investment due to the fixed annual interest rate of 2.5 per cent, payable semi-annually.