Finance Minister P Chidambaram on Friday asked countrymen to contain their "uncontrolled passion" for gold and instead save in financial instruments.
"Have faith in our financial sector. Unfortunately, we have difficulty shedding our old habits and put our money in gold," he said while speaking at an event to mark the platinum anniversary celebrations of state-run Dena Bank.
"The uncontrolled passion for gold must be contained," Chidambaram said and reeled out data to show how increasing gold imports are hurting the Current Account Deficit (CAD).
People should rather switch to financial products to funnel their savings, the Minister said and added the soon-to-be-luanched inflation indexed bonds is a very lucrative option.
He also sought to demolish gold as a hedge against inflation, saying many such investors are finding the going difficult ever since the price of gold plummeted to Rs. 26,000 from over Rs. 33,000 per ten grams last year.
He said that last year the country bought USD 50 billion worth gold and fortunately, it was able to finance the CAD of USD 90 billion on the back of higher foreign flows and could maintain the foreign exchange reserves level at around USD 290 billion.
However, if the flows were to stop completely, it would have a negative impact on the forex reserves, the minister warned.
Explaining the difficulties of financing a high CAD, which hit a record high of 6.7% in the Decmeber quarter of last fiscal, as against the fiscal deficit, another problematic point, he said, the government can borrow from its people for the latter but has to depend on external flows for the latter.
The CAD, which is the excess of foreign exchange spent than earned, is likely to be over 5% last fiscal.