In the midst of an unleashed debate on the sovereign Golden Obligations (SGB) of India, AK Mandhan, financial planner and registered research analyst of SEBI, criticized the program, describing it as “fiasco” that demonetization and manufacturing in India.
Sunday to X on Sunday, Mandhan argued that the erroneous design of the SGB led to an unbearable increase in government responsibilities, which increased 930% in just six years, reaching 1.13 Lakh crore from ₹ at current gold prices.
“The poor design of the SGB has led to a 930% increase in government liabilities in the past 6 years which, at the price of today’s gold, is a huge 1.13 lake crores,” wrote Mandhan. He also warned: “And with each ICT passing through gold, it will continue to swell. And you know who pays government liabilities …”
Mandhan’s statements echo a recent printing report which said that the SGB had led to an astonishing increase of 930% of the government’s responsibilities on this loan by 2023-24. The responsibilities, according to the report, have the potential to increase to Rs 1.12 Lakh crores by 2032, according to market estimates. He had blamed the fiasco in part to the design of the SGB program and in part to the government’s own actions, such as his increase in gold import rights to 15% by July 2022.
What are the SGBS?
Launched in 2015 as an alternative to the physical investment of gold, SGBs allow individuals to invest in gold in paper form while gaining 2.5% of annual interest. The program has been designed to reduce India’s dependence to imported gold, which supports the country’s trade balance. However, the Government also guarantees to buy these obligations at market rates in force, which means that its liabilities increase with each increase in gold prices.
The growing government’s finance burden
Gold prices have increased considerably since the introduction of SGB, crossing 64,000 ₹ per 10 grams in 2024, against around 26,000 ₹ in 2015. This increase led to a massive increase in the cost of redemption for the government. Since SGBs are supported by a sovereign guarantee, taxpayers ultimately support the burden of these responsibilities.
Mandhan’s tweet highlights this concern, establishing parallels with demonetization and the brand in India, which many criticisms support did not hold their promises.
However, while some market economists and analysts argue that SGBs offer a safe investment option and help limit the demand for physical gold, others agree that the increase in the cost of the repurchase could present a long -term budget risk.
Gold prices should remain volatile in the midst of global economic uncertainties, it is unlikely that the debate on the SGB will be done soon. For the moment, as Mandhan warns, “with each gold crossing tick, it will continue to swell.”
