Need and assessment to be the keys for considering proposal for fresh tranche of Sovereign Gold Bond (SGB), Finance Ministry sources said on Thursday.

“A floatation will be considered based on need and assessment of market conditions as it has the highest cost of borrowing and it is not a social security scheme,” a source told businessline. The last tranche of SGB (FY 2023-24 Series IV) was issued on February 21. The aggregate sum raised during 2023-24 amounted to ₹27,031 crore (44.34 tonne). Since the inception of the SGB scheme in November 2015, a total of ₹ 72,274 crore (146.96 tonne) has been raised through 67 tranches

Sources have maintained that SGB has been one of the most expensive tools to bridge the fiscal deficit. This is one of the key reasons that a number of issues are coming down. In FY21, there were 12 issuances, which came down to 4 in FY24. However, there is has not been a single issue this fiscal as of now. “This is not a social security scheme. Any decision of fresh issuance will be based on the assumption that it should not just benefit the customer, but the government too,” said another source.

The secondary market got the sense on no decision on fresh tranche and this was reflected in the demand for these bonds in this segment during last couple of months. SGBs are traded on the RBI’s Retail Direct online portal. Trading in SGBs rose in August, with the traded volume at ₹53 lakh (as on August 26) against ₹15 lakh for the previous month (as on July 29) and ₹1 lakh in June (as on June 30, 2024), per data compiled by ARWL from the portal. As per data for the current month, trading volume was ₹22 lakh as on September 16.

The fate of SGB came into light after the government lowered import duty on gold to 6 per cent from 15 per cent, making physical gold purchases more attractive than investments in SGB. At the same time, the second-year issuance of SGB is nearing redemption, and the expectation is that the government will have to bear higher outgo as gold prices have almost doubled in the last 8 years. In fact, the RBI has already announced premature redemption of 30 tranches (issued between May 2017 and March 2020) to take place between October 1 and March 31, next year.

SGB was introduced to bring down the physical import of gold and the consequent reduction in the current account deficit,. Such bond is denominated in multiples of gram(s) of gold with a basic unit of 1 gram. The tenor is 8 years with an exit option in the 5th, 6th and 7th year. While the minimum permissible investment is 1 gram, the maximum is 4 kg. The investor receives an interest of 2.50 per cent per annum payable, semi-annually, on the nominal value.

While the interest on gold bonds shall be taxable, capital gains tax on the redemption of SGBs for individuals has been exempted. The redemption price will be in Indian rupees based on the simple average of the closing price of gold of 999 purity of the previous 3 working days, published by IBJA.

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