The World Gold Council has said that curbing gold import may have short-term benefit in containing demand, but cautioned that consumers' appetite for yellow metal will ultimately be fulfilled by the unauthorised grey market.
It suggested that the government should treat gold as strategic assets, while advocating monetisation of the country's huge gold stock to support economic growth.
"We understand that part of the rationale for seeking to curb gold imports is to reduce the current account deficit and we recognise that a large current account deficit is unsustainable and needs to be checked," WGC India managing director Somasundaram PR said in a statement on Tuesday.
However, he said that there are number of factors which influence the current account deficit and gold is one factor. Noting that people buy gold as a long term investment to protect their wealth, he said, "Addressing this demand by curbing supply may have a short term benefit but this demand will be met by the unauthorised grey market and this will not be positive for either the economy or for society."
Somasundaram was reacting to the government's measures to curb gold imports, which have risen significantly in last two months.
The Reserve Bank on Tuesday extended the restrictions on gold import to other agencies in addition to banks, a move aimed at curtailing demand for the precious metal for domestic use amid widening current account deficit.
Import of the yellow metal during the first two months of the current fiscal year is estimated at $15 billion. Gold imports by India, the world's largest consumer, stood at 860 tonnes in 2012.
"While recognising the immediate imperative, incremental, short term measures that do not address the underlying issues will result in negative unintended consequences," Somasundaram said.
India is a significant stakeholder in the gold market with over 20,000 tonnes in the hands of millions of people, the WGC India chief said.
"Policy direction should view gold as a strategic asset for India and its citizens and we support the objective to monetise the nation's gold stock to support economic growth," Somasundaram said.
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