Yes, but the CAGR of gold price in INR for the past 48 yrs is 12.15%. Add 2.5% to that and you get a whopping 14.65% for an 8 year bond. Just compare this level of interest vs 10yr yield graph. 
Gold price chart I generated for this study.
Arthapedia article clearly says it is not to be used to hedge.
As per the present provisions, the gold deposit will not be hedged and all risks associated with gold price and currency will be borne by the Government of India through the Gold Reserve Fund.
I apologise if I drift too far. But I’m not saying the sky is falling. I’m just disappointed to see the Gov taking up this unsustainable course of action. Afterall, the cost of unsustainable or inefficient moves of Gov are borne by taxpayers.
Proceeds received aren’t put into any productive purpose. All of it goes into Gold reserve fund and paying interest. Quoting Arthapedia.
Gold Reserve fund is created by depositing the notional savings enjoyed by the Government in the costs of borrowing from GMS and SGB, as compared with the existing rate on government borrowings.
(I appreciate and thank everyone who contributed to this thread making it a decently exhaustive information on the topic, for many people to see)