The government on Monday announced a slew of measures including a hike in import duty on gold and platinum, from earlier 4% to 6%, to discourage their consumption. It also eased the terms of gold deposit schemes of banks to encourage individuals to deposit their idle gold, which will help increase domestic supply.
India's current account deficit widened to a record 5.4% of gross domestic product in the first half of the current fiscal as gold and crude oil imports remained high, increasing the country's dependence on foreign capital inflows.
India imported $56.5 billion worth of gold in 2011-12, and by the end of December 2012, the country had already made purchases worth $38 billion.
The current account deficit is the difference between exports of goods and services and inward remittances, and import of goods and services and transfers to outsiders. A country running high current account deficit will need steady capital flows to bridge the gap or else it will run down its reserves that will depreciate currency and cause serious economic trouble.