Ask customers not to buy gold, but invest in financial assets: FM to banks

P Chidambaram has asked banks to advise their customers not to buy gold but to invest in financial assets that will encourage economic growth, arguing that surging imports of the yellow metal are unsustainable.

A day after the government made purchase of gold more expensive, Chidambaram on Thursday said while addressing the AGM of the Indian Banks' Association, "Banks have a role to play in dampening the enthusiasm for gold. I would urge all banks to please advise their branches that they should not encourage their customers to invest in or buy gold."

Gold is just another metal, albeit one that shine a little more than copper or glass, the finance minister sought to reason amid widening fiscal deficit on account of the growing imports of gold.

On Wednesday, the government had raised import duty on gold to 8% from 6%, the second such hike within six months.

Expressing concern over the rising Current Account Deficit, Chidambaram said at the IBA meet, "The gold imports have been a major contributor to the CAD. With the sharp drop in gold prices, millions were happy. I am afraid I was not among the millions. I told the (RBI) Governor that the drop in gold prices internationally is a bad news for India. Our fears came true."

Imports of gold surged in April and May following the fall in prices in the international market.

In April, India imported 142 tonne gold while in May the figure rose to 162 tonne, the finance minister said. The monthly average last year was 70 tonne, he said, while in the first two months of the current fiscal, imports have surged to 152 tonne a month on average. "How do we sustain? How can we finance these gold imports?" Chidambaram asked.