Mumbai: A big shift is needed in people's social and cultural attitudes towards gold to cut its demand, which in turn will help ease the current account situation, Reserve Bank Deputy Governor K C Chakrabarty has said.
"Ninety percent of the gold demand is jewellery or to offer to God. Both have to stop," Chakrabarty said, while speaking at an event here over the weekend.
Sounding sensitive to the fact that offerings at temples come under the realm of faith, Chakrabarty said, "Yes, if it is religious value, it is the faith, (then) why do you require ornaments of 22 carats gold? Why not 2 carat gold? Ultimately, ornament is ornament."
The societal obsession with gold is an archaic idea of the pre-historic times when India was a rich society of abundance, he said.
"Wearing gold as an ornament was a culture when you were a rich society, when you were contributing to 30 percent of the GDP of the world. Sunday, we have become a poor country, we need to change our culture," he said, adding that "social and cultural revolution" was needed in attitude towards gold.
Chakrabarty said there is no "intrinsic value" in the "speculative" investment of gold.
He urged financial wizards like chartered accountants to popularise the non-productivity of investment in gold.
The precious metal can't be used for anything productive and gains in value only because of a "mad rush" for the commodity among speculators and the day this will end, the price will fall sharply, he added.
More than the rich, it is investments by poor which is troublesome, and RBI has already flagged gold loans and sale of gold coins by banks, the Deputy Governor said.
"The problem is that it has become a culture where the poor people are purchasing and ultimately, they are borrowing on that gold at 30 percent. See the tragedy -- this is the thing and for that, unnecessarily our current account is (suffering)," he added.
Chakrabarty also called for need to reduce oil imports that add to the current account deficit, suggesting more use of bicycles.
The current account deficit for fiscal year 2011-12 was the highest in 30 years at 4.2 percent of the GDP, primarily driven by expanding oil and gold imports.
Even during the economically troubled times of 1991, the CAD levels had stood at 3 percent.
According to World Gold Council data, the country's gold imports - it imports nearly its entire requirement - grew 44 percent to 969 tonnes or USD 60 billion in FY'12.
Similarly, government data said oil imports stood at USD 155.6 billion of the total imports of USD 489 billion.
The deficit is expected to widen further given a string of factors like crude prices continuing to be elevated and the record depreciation in the rupee, if the country does not take immediate action on the front.
The government has been proactive and had announced a hike in customs duty on standard gold to 4 percent from 2 percent. The customs duty on non-standard gold was also hiked to 10 percent from 5 percent.
"Our problem of import is only two products -- gold and oil. If we don't import these two products, our problem is over," Chakrabarty said.
On the oil front, the Deputy Governor suggested increased the usage of a bicycle for commuting needs which will also help physical fitness levels, pollution and traffic conditions in a city like Mumbai, infamous for its jams.
First Published: Sunday, July 22, 2012, 17:39