In that context, the Reserve Bank of India panel's suggestion seems more rational.
While recommending restrictions on gold imports by banks and agencies such as Metals and Minerals Trading Corporation of India (MMTC), which control about 56 per cent of gold imports, it has also acknowledged that the answer to the problem lies not in just curbing the demand but in providing alternatives that give real returns, adjusted for inflation.
Indeed, the finance minister's push for lower interest rates has increased investors' preference for gold.
With real interest rates already close to zero, any further cut in interest rates could encourage a further shift to gold.
So, a better option would be to convert the demand for gold into investment in gold-backed financial instruments through dematerialisation of gold.
Currently, there are some options such as gold exchange-traded funds (ETFs), gold fund of funds, e-gold and others, most of which are doing reasonably well.