When Tarun Bajaj, Secretary of the Ministry of Finance of Government of India disclosed that the liability on the Sovereign Gold Bonds (SGB) programme has ballooned to roughly ₹1.5 lakh crore, the figure sent a chill through Wall Street‑type investors and stirred a fresh debate in New Delhi about the country’s debt strategy. The surge is directly linked to gold’s historic price rally – the metal fetched $4,000 an ounce for the first time on 14 October 2025, and domestic 24‑karat rates climbed past ₹1,17,460 per 10 grams, a jump of about 50 % over the same period last year.
Historical background of the SGB programme
The SGB programme was introduced by the Government of India in 2015 with a dual aim – curb the country’s ever‑growing gold import bill and provide Indian savers with a low‑risk, tax‑free investment vehicle. Under the scheme, investors buy bonds issued by the Reserve Bank of India, receive a 2.5 % annual interest, and get the gold’s market value back at maturity. The idea was that by redirecting savings into paper gold, physical demand – and thus import pressure – would fall. What the policymakers didn’t fully anticipate was the scale of price volatility, which now threatens to flip a virtuous tool into a fiscal liability.
Gold price surge and its drivers
Gold’s meteoric rise has been fueled by a cocktail of global headwinds. Analysts point to the prolonged U.S. government shutdown, expectations of Federal Reserve rate cuts, the lingering Russia‑Ukraine conflict, and political turbulence in Japan and France as key triggers. Meanwhile, central banks – especially China, which holds 2,303.5 tonnes, and India, with about 770 tonnes – have been buying in bulk, propping up demand. The domestic market felt the heat too: on 15 October 2025, dealers in Delhi, Mumbai and Pune quoted 22‑carat gold at ₹1,15,200 per 10 grams, while 24‑carat hovered at ₹1,17,460, a level unseen since the early 2000s.
Fiscal impact on the exchequer
The numbers are not just eye‑catching; they translate into a real fiscal strain because SGBs are repaid based on the market value of gold at maturity, not the original issue price. As RBI data show, more than 352.78 tonnes of gold‑equivalent bonds have been issued since the scheme’s launch, and today that stock is worth about ₹1.5 lakh crore. That means the government could be on the hook for a cash outflow of roughly $17 billion when the next tranche of bonds matures next year. India’s total central‑government debt stood at about ₹116 lakh crore in March 2025, so the SGB liability now represents roughly 1.3 % of the overall figure – modest in percentage terms, but critical given the timing of the 2025‑26 budget.
Official responses and expert views
In a press conference on 15 October 2025 in New Delhi, Tarun Bajaj said, “We are reviewing the SGB framework and will consider adjustments that protect the exchequer without penalising genuine investors.” Shaktikanta Das, the RBI governor, echoed the sentiment at a Mumbai banking summit on 12 October 2025, noting, “We continue to monitor global market dynamics and their impact on our liability profile.” Adding a third voice, Dr. Arvind Pant, chief economic adviser at Crisil Limited, warned, “If gold prices keep climbing at the current pace, the SGB debt could breach ₹2 lakh crore by the end of fiscal 2026‑27.”
Potential policy adjustments
Experts suggest several ways to tame the looming debt spike. One proposal is to tighten the coupon rate or introduce a price‑cap mechanism that would limit the redemption value. Another is to issue a new tranche of bonds linked to a basket of commodities, thereby diversifying risk. Some policymakers even floated the idea of allowing early redemption at a modest discount, which could help the government avoid a massive lump‑sum payout later. However, each option carries trade‑offs – lower returns could dampen investor appetite, while price caps might be seen as retroactive tampering.
Future outlook
The finance ministry has set 30 November 2025 as the deadline for a comprehensive review of the SGB scheme. A detailed report is expected to be tabled before the next parliamentary session, with recommendations ranging from a modest price‑adjustment clause to a complete overhaul of the bond‑issuance process. Meanwhile, market participants are keeping a close eye on the Federal Reserve’s policy signals and geopolitical developments, both of which will continue to sway gold’s trajectory.
Frequently Asked Questions
How will the rising SGB liability affect India’s overall debt picture?
The SGB liability, now at about ₹1.5 lakh crore, adds roughly 1.3 % to the central‑government debt stock. While the percentage seems modest, the timing coincides with a budget already under pressure from higher subsidies and a widening fiscal deficit, meaning any further jump could tighten fiscal space and prompt rating agencies to reassess India’s credit outlook.
What are the main reasons behind the recent gold price surge?
A mix of global uncertainty – a U.S. government shutdown, expectations of Federal Reserve rate cuts, the ongoing Russia‑Ukraine war, and political unrest in Japan and France – has pushed investors toward safe‑haven assets. At the same time, major central banks, especially China and India, have been buying gold in record quantities, while a weaker US dollar has amplified price gains.
Can the government alter the terms of existing SGBs?
Legally, the terms of bonds already issued cannot be changed unilaterally. However, the finance ministry is exploring options such as introducing a price‑cap on future redemptions, offering voluntary early exits at a discount, or launching a new series with different coupons to offset the risk of the legacy tranche.
Who are the key officials overseeing the SGB review?
The review is being led by Tarun Bajaj, Secretary of the Ministry of Finance, with inputs from Shaktikanta Das, Governor of the Reserve Bank of India, and economic advisers such as Dr. Arvind Pant of Crisil Limited.
How might investors be impacted by potential policy changes?
If the government imposes a redemption price cap or reduces the coupon, existing investors could see lower returns on maturity. Conversely, a new bond series with diversified commodity exposure might attract fresh investors while shielding the exchequer. Any shift will likely influence demand for future SGB issuances and could alter the overall appetite for gold‑linked savings products.