India's central bank said yesterday it will consider more steps to restrict gold imports and help stem the country's widening current account deficit.
Gold purchases are one of the biggest contributors to the deficit in the current account, the broadest measure of trade. It hit a record $ 22.3 billion, or 5.4 percent of GDP, in the July-September quarter, as imports outpaced exports.
"The need to contain the demand for gold imports is critical in a country with insatiable demand for the yellow metal," a Reserve Bank of India (RBI) report said yesterday.
"Given the precarious global economic situation and its impact on the Indian exports, there is a clear need to reduce the current account deficit considerably."
India imports about 900 tonnes of gold each year, mainly through designated banks. The government last month increased the import duty on gold to six percent from four percent earlier.
The RBI said yesterday it would consider introducing gold-linked financial instruments to divert savings of people from gold bars and coins into bonds.
India is the world's biggest consumer of gold, with purchases an essential part of religious festivals and weddings.
Many Indians especially in rural areas where there are few banks — purchase gold in the form of jewelry, bars and coins as a hedge against inflation.
"Creation of an alternative asset class that may provide returns comparable to that in physical gold with similar flexibility is important," the RBI said.
The bank said it may consider setting up a "Gold Bank" or Bullion Corporation of India, which can pool the large amounts of scrap gold in India to reduce imports of the precious metal.