A day after the government raised import duty on gold to 8 per cent, Finance Minister P Chidambaram today said the surging imports are unsustainable and advised the banks to tell customers not to invest in the precious metal.
"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", he said while addressing the annual general meeting of the Indian Banks' Association (IBA).
The Reserve Bank, Chidambaram said, has already "advised banks they should not sell gold coins...I hope a day will come when we regard gold as any other metal, it just shines a little more than copper or bronze."
In view of the spiralling gold imports putting huge pressure on the current account deficit (CAD), government last night hiked the import duty on gold, besides platinum to 8 per cent, up by 2 per cent.
This was the second hike in the duty within six months.
The government had last raised the import duty on gold from 4 per cent to 6 per cent in January.
Expressing concern over rising CAD, Chidambaram said, "the gold imports have been a major contributor of 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."
The gold import surged in April and May following fall in prices in the international market.
"In April we imported 142 tonnes of gold, in May we imported 162 tonnes of gold. Last year's monthly average was 70 tonnes of gold, this year in the first two months, the average is 152 tonnes of gold", he said, questioning "how do we sustain? How can we finance these gold imports."
'Rupee fall not a cause of alarm; will soon stabilise'
Unfazed by the rupee touching psychological level of 57 against the US dollar, Finance Minister P Chidambaram today said there is no cause for alarm and the currency will soon find its stable level.
"There is no alarm bell on the Rupee front. I think rupee will soon find its stable level. (Foreign) Inflows are good in past two months, it was extremely good," he told reporters on the sidelines of an event here.
In the past eight days, rupee has weakened by over 150 paise against the dollar, amidst concerns of withdrawal of stimulus by the US administration.
It moved in a range of 56.89 per dollar and 57.00 per dollar during the morning trade today.
The rupee today hit the 57-level in the late morning trade after 11 months on persistent dollar demand from importers and banks.
The domestic currency had touched a record low of 57.32 in late June last year.
Supported by portfolio capital inflows and various reform measures announced during the period, the rupee remained strong during December 2012 to early-February 2013.
However, the rupee witnessed some weakness during the second week of February to early March. It gained some strength to remain largely range-bound and saw subsequent appreciation during April 2013.
Rupee started its downward journey against the dollar in May and hit 11-month low levels.