G Padmanabhan, executive director of the Reserve Bank of India (RBI), has defended the bank's stance on investing in gold, saying it is entirely different from private agents.
The RBI has long been preaching against investment in gold as high investment in gold is one of the main reasons for high Current Account Deficit (CAD) is gold imports. But the central bank has diversified its own assets into gold.
Defending the bank's decision to invest in gold, Padmanabhan said, "A central bank diversifying its dollar reserves into gold is entirely different from private agents., as it has the same effect of allowing such assets to be held in foreign currency."
He explained that that in the case of private investments in gold, the economy loses the benefit of accumulated savings that make significant contribution to the country's gross domestic product (GDP).
He also said that the ongoing craze for gold has made it essential that gold linked products are introduced in the country. Doing so will lead to the existing gold in bank lockers getting altered as financial products rather than unabated import of the precious yellow metal.
In July-September period of 2012, the current account deficit (CAD) jumped to an all time high of $22.4 billion or 5.4 per cent of the country's GDP, and gold imports accounted for 47 per cent of the CAD.