Policy makers in India are justifiably rattled by the soaring gold demand, which has pushed the current account deficit in the second quarter of 2012-13 to a record 5.4% of gross domestic product.
Gold is the biggest contributor to imports after crude oil, widening the country's trade and current account deficits.
In the absence of adequate foreign capital flows, it also raises questions about India's foreign exchange reserves buffer and its external vulnerability.
Thus, Finance Minister P Chidambaram hinted at an increase in gold import duties.
Yet it is debatable whether choking supply channels is the appropriate way to reduce demand.
It didn't help much in the past year.
In January 2012, gold import duty was raised to four per cent; still, after a blip in the first quarter, India's gold demand rose nine per cent in volume terms in the July-September quarter - a period that saw global demand fall 11 per cent.
Also, further curbs on imports increase the fear of smuggling.
Text: Business Standard