There is an urgent need to contain gold imports to keep current account deficit within prudent limits. The recent surge in gold demand is however creating some distortions and needs to be rolled back to boost growth by reversing the trend of declining financial savings and keeping CAD within prudent limit by contain gold demand.
As a first step, India the world's largest consumer of gold, needs to bring down demand from the current level of 1000 tonne per year to 700 tonne, taming inflation and enhancing the real rate of return on financial products are best way to contain gold demand, that government must ensure financial products from bank deposits to mutual funds give adequate returns so that investors shift to these products from gold.
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