Limit the appetite for gold by making financial assets more attractive, the PMEAC suggested in its economic review report, as imports of the precious metal are set to rise 76 per cent this fiscal.

Calling gold imports an idiosyncratic element of India’s current account deficit, the report emphasised that imports of the yellow metal need to be controlled.

Gold imports in value term are expected to rise 76 per cent to $58 billion this fiscal, from $33 billion last year. Indian buyers view gold as an investment object, forming a large component in overall imports in CAD. Dynamics that influence the import demand for gold seem to be most closely related to those which influence asset holding, rather than those which influence merchandise imports, it said.

C Rangarajan, chairman of PMEAC, said gold is being hedged against financial assets. But, he said, banning gold imports is not an option, as it leads to smuggling.

Gold imports are expected to go down with macroeconomic conditions stabilising at home. The gold imports, PMEAC said, will come down to $38 billion in 2012-13.

It called for improving domestic growth and investment conditions, and making investment in life insurance and mutual funds schemes at least as attractive as it was till March 2010, where the net inflows were sizeable and sustained, to reduce gold imports.

Source: business-standard.com