PM appeal, import duty hike: Could Sovereign Gold Bonds have eased strain on forex reserves?

📌 Summary:

• A rapidly falling rupee has pushed policymakers towards quick fixes: PM Modi called for austerity to cut import spending, and the government hiked import duty on gold, silver and platinum
• Economists (Nomura) say duty hikes have a mixed record — the 2013 hike to 10% cut imports initially but boosted smuggling
• Sovereign Gold Bonds (SGBs), launched in late 2015 and discontinued in early 2024, are one tool not being revived; the public had bought bonds equal to 147 tonnes of gold (Rs 72,275 crore), now yielding over 200% returns plus 2.5% interest and tax-free redemption
• SGBs were discontinued because the government found them too costly: global geopolitical unrest pushed up gold prices and hence the cost of borrowing; total interest and redemption liability of all SGBs (2015 to 2024-25) was ~Rs 18,000 crore — small versus Rs 14 lakh crore FY27 interest outgo
• SGBs eased the import bill and reduced the need to spend forex reserves; India imported $72 billion of gold in FY26 (up 24%), over 9% of all imports
• In SGBs' absence, Indians shifted to gold ETFs — in January 2026, gold ETF inflows (Rs 24,040 crore) exceeded equity mutual fund inflows for the first time, forcing a record 15.52-tonne gold import; the World Gold Council notes a structural shift, with investment now ~70% of gold demand

🎯 UPSC Relevance: GS3 — government borrowing instruments and debt management; gold imports, the trade balance and pressure on forex reserves; managing the rupee and current account.

📝 Prelims Facts:

• Sovereign Gold Bonds were launched in late 2015 and discontinued in early 2024
• SGBs carry 2.5% annual interest and zero long-term capital gains tax on redemption (if held to maturity)
• India imported about $72 billion of gold in FY26

🔑 Key Term: Sovereign Gold Bond (SGB) — a government security denominated in grams of gold, issued by the RBI on behalf of the government, designed to meet investment demand for gold without physical gold imports.