Given that the sovereign gold bond (SGB) scheme is one of the most expensive instruments to fund the fiscal deficit, the Central government will take a "holistic call" on whether to continue with SGB scheme going ahead, a senior government official said.
The official added that the Centre is not looking to replace SGB with an alternate scheme as of now, if they decide to discontinue the scheme.
"As of now, not looking at an alternative scheme to replace sovereign gold bond scheme if we at all decide to discontinue the scheme," the official said.
This thinking coincides with the Union budget cutting customs duties on gold and silver to 6 percent from 15 percent.
Recently, there has been some level of anxiety among SGB investors following market corrections and Centre's move to cut of customs duty on gold by 9 percentage points, announced in Budget 2024. Investors fear that their investments on the gold scheme may provide diminished returns.
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However, revenue secretary Sanjay Malhotra on July 30 had assured that SGBs will get at least 12 percent total return.
The Centre has already scaled back on issuances of sovereign gold bonds.
There hasn’t been an issue of Sovereign Gold Bonds since February this year. Import duties on gold have been consistently raised from 2 percent in 2012, to 4 percent in the Budget 2012-13. In 2013, the government increased the import duty on gold jewellery to 15 per cent from 10 per cent. The government cited several reasons for the hike in customs duty including a move to bring down smuggling of gold and to reign in the rising currant account deficit.
The official elaborated that the cost of funding fiscal deficit via sovereign gold bonds was higher than the benefit of reducing dependence on physical gold via the scheme, adding that the scheme is not a social sector scheme, rather an investment plan.
"We will take a call in September if we should issue a trance of SGB this year because it should benefit both the investor and the government," the official added.
In the full Budget for 2024-25, the government has reduced borrowings through gold bonds, in comparison to the amount pegged in the interim budget presented back in February.
After repayments, the net borrowings via gold bonds are estimated at Rs 15,000 crore this fiscal.
The Centre funds its fiscal deficit via a range of instruments, including through borrowings from the bond market and the small savings fund.
The fiscal gap is seen at 4.9 percent of the GDP for FY25.
Rejecting claims that the prices of the yellow metal has risen recently because of high customs duty, the official said, the increase was because of geopolitical reasons.
"Not willing to accept argument that fluctuations in gold prices was due to higher customs duty," the official cited above said.
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