After the announcement of reduction in custom duty on gold in the budget, the Central Government may close the Sovereign Gold Bond (SGB) scheme, the final decision of which is expected to be taken in September.
According to sources, the Sovereign Gold Bond Scheme was introduced as an investment option rather than a social security measure but this scheme is seen as one of the most expensive means of funding the government deficit. At present, the government is not looking for any alternative to the Gold Bond Scheme.
Gold prices fall, but demand rises
Let us tell you that since July 23, domestic gold prices have fallen by about 5 percent. This decline happened when Finance Minister Nirmala Sitharaman reduced the customs duty on gold from 15 percent to 6 percent. This reduction reduced the price of gold but the demand increased.
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The official also said that the SGB scheme is one of the more expensive instruments to finance the fiscal deficit. A comprehensive decision should be taken on its continuation, as it is not a social sector scheme but an investment option.
However, some analysts believe the cut is aimed at curbing gold smuggling, which has risen recently due to high gold prices. In the July 23 Budget, the government reduced the gross SGB issuance to Rs 18,500 crore from Rs 29,638 crore in the February 1 interim Budget. Net borrowing through SGBs has also been reduced to Rs 15,000 crore from Rs 26,138 crore estimated earlier.
126.4% return in 8 years
Sovereign gold bonds were issued on August 5, 2016 and are due for redemption in the first week of August. Due to the reduction in custom duty, these investors are expected to get lower returns than expected. These bonds were issued at a price of Rs 3,119 and given the current gold prices, the price increase, along with the interest earned in eight years, has been more than 100 percent. The SGB Series II bonds of 2016 were redeemed in March this year. It gave a return of 126.4 percent along with interest in eight years of holding.
