India’s gold imports will reach a “substantial” two per cent of gross GDP in the next few years, and there is a need to offer alternative instruments with “gold-like qualities,” Subir Gokarn, Deputy Governor, Reserve Bank of India, said.

“People are buying gold despite the high price. This in some ways challenges the supply-demand dynamics,” he said at the Indian Banks’ Association’s annual Bankers Conference here.

Gold imports grew 39 per cent in financial year 2012 and accounted for almost three-fourths of current account deficit (CAD). India’s current account deficit was 4.2 per cent of GDP, or $80 billion, in FY 2012.

According to Gokarn, “India imports about one-fourth of the total global supply of a little over 4,000 tonnes, and this excess gold demand is creating stress on the system, particularly on the balance of payments.”

The reasons for the huge imports are: Indians’ affinity for gold; the perception that the yellow metal provides a hedge against inflation; and the relatively high returns — in the last three years, investment in gold has given a whopping 70 per cent return.

“People cannot be denied an opportunity to invest in gold. Gold returns have been higher than those of the Nifty, one-year bank deposits and 10-year-government bonds over the last few years,” he said.

The challenge, he stressed, is to find products which can give people gold-like qualities and, thereby, reduce the physical possession of the metal.

The Reserve Bank of India will bring out a draft paper shortly to propose alternatives such as gold-linked account, gold-accumulation plan, modified gold-deposit scheme, and gold-pension scheme.

The public can offer their comments and suggestions on the draft paper.

> satyanarayan.iyer@thehindu.co.in

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