DHIRAJ SINGH / Bloomberg / Getty Images Selling gold at a jewelry store in Mumbai on May, 13, 2013

Nine years ago, I visited Alappuzha, a small town in Kerala in South India. In the middle of this quaint seaside resort, with its small, mostly one- or two-storied buildings and unhurried pace of life, were a number of enormous gold stores totally at odds with the sleepy surrounds. I was told that during wedding season, townspeople would purchase kilograms of gold to match the weight of their daughters as part of the bridal trousseau — an ancient tradition known as streedhan (woman’s wealth) — that forms most Indian women’s financial security blanket for marriage. Despite its time-honored cultural role, the Indian government has striven in the new millennium to move away from such unsophisticated hoarding and bring most of its population under the formal banking system. Nevertheless, the national veneration of gold continues undeterred, seriously imperiling the wider economy.

From Tata Motors gilding its much hyped Nano people’s car in 80 kg of gold in 2011 to Pune-based businessman Datta Phuge spending $250,000 on a gaudy shirt spun from 3 kg of the shiny metal, India’s obsession with gold is inexorable. So when last month India’s Finance Minister Palaniappan Chidambaram urged people to stop buying gold, he was hit with a blanket of incredulity. “Not buy gold? But why?” asks Dipali Ghosh, who works as a housekeeper in Delhi. When she gets her bonus every year during Diwali, the first thing she does is buy a piece of gold. “I can show it off at social functions. But I can also sell it when I need money. It’s my only saving.”

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The driving force behind Chidambaram’s appeal is the millions of dollars India is paying every year to import gold. With the rupee weakening to its lowest since November — and losing 9% of its value against the dollar over the past 12 months — the cost of imports is putting undue pressure on the country’s current account deficit, which is expected to be above $65 billion for the 2011–12 fiscal year. Meanwhile, oil and gold make up 70% of India’s $175 billion trade deficit. “I understand Indian people’s attraction to gold,” Chidambaram tells TIME. “In normal times one would not worry too much, but given our current account deficit and the need to conserve foreign exchanges to import other important essential items, like oil, gas, coal, edible oil, machinery etc., we should temper our appetite for gold.”

But India’s appetite appears insatiable. According to the World Gold Council, India consumed 963 tons of gold in 2010, amounting to one-third of global demand. In the financial year ending March 31, 2012, India imported $58 billion of gold compared with $38 billion over the previous 12 months. In 2013, India imported 1,017 tons, up from 471 tons in 2000–01. The government’s target of bringing this down to 700 tons a year seems ambitious considering how intertwined the metal is with India’s social fabric. In addition, most Indians are blithely unaware that gold is not locally sourced but actually imported from countries such as Switzerland and the United Arab Emirates. “Indians think they are buying gold in rupees and not in dollars,” Chidambaram says. “Once it sinks in that we cannot afford to import so much gold, a large number of people will moderate their demands.”

Chidambaram believes a year of minimal gold consumption will notch India’s current account deficit off the red. However, many experts counter that while buying gold should be curbed in the short term, it might not necessarily be an inherently bad thing for the economy. While current account and trade deficits are negatively affected by importing gold and so buying less makes sense, “there is a difference between a current account deficit notched up by importing consumables and that caused by importing durable goods like gold,” Kaushik Basu, chief economist at the World Bank and India’s former chief economic adviser, tells TIME. “Buying and storing gold is like saving money. This creates room for the government to spend more without creating inflationary pressure.”

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But New Delhi remains chary. With general elections due in March next year, the United Progressive Alliance, India’s ruling coalition, is desperate to turn around the flagging economy. Yet the Finance Minister has ruled out a total ban on gold imports, mindful of past headaches. Between 1947 and ’66 India banned gold imports and then later introduced a licensing system. Neither had the desired effect, and instead saw the sprouting of illicit smuggling rings. Therefore, Chidambaram has instead increased import duty on gold from 2% to 8% in four phases since the start of 2012. The Reserve Bank has also restricted jewelry stores from buying gold on credit. Gold stores are considering a ban on selling of gold bars and coins for the coming few months.

These measures already seem to be bearing fruit. Demand for gold, Chidambaram says, declined to around 41 tons in June, from 141 tons in April and 162 tons in May. However, it would be foolish to gloat just yet. “Regardless of market sentiments, retailers prefer investing in buying physical gold on auspicious days [of which] there are 20% more this year as compared to 2012,” explains Somasundaram P.R., the World Gold Council’s India managing director. The looming wedding season in the last quarter of the 2013 financial year means the demand outlook remains strong, he adds.

During festivals like Akshaya Tritiya in April and Diwali in November, when buying gold is a ritual in India, there is an almost 500% increase in footfall at stores across the country. At the three-story Ranka Jewelers in Chinchwad, in the Pune district, western India, more than 5,000 people — ranging from farmers to middle-class professionals — flock to buy gold during these propitious occasions. Even on normal days they receive around 250 customers, most of whom are farmers who have sold their land to developers. “After selling up, their first instinct is to invest in gold,” says Tejpal Ranka, one of the store owners. “Even middle-class people put away a portion of their earnings this way. An Indian housewife will cut corners and save money to buy a piece of gold. It’s a different sentiment altogether.”

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And it’s a tough sentiment to fight. When my own parents decided to buy a house in the 1980s, they didn’t approach a bank but rather mortgaged my mother’s jewelry for the money. And despite the easy availability of bank loans, even today gold is a bolt-hole for millions of Indians. “Gold has a special status socially, culturally and economically in the minds of Indians,” Somasundaram says. “India’s love for gold is timeless.” Indians privately hold more than 20,000 tons of gold that is rarely traded in the domestic market. India’s household gold consumption, according to a 2011 Morgan Stanley report, went up from $19 billion in 2009 to $45 billion in 2011. Gold currently accounts for 10% of Indian household savings. Private ownership of gold is a whopping $900 billion, while gold consumption accounted for 2.3% of the GDP in 2010.

With so much gold in private hands, experts say, policy direction should view gold as a strategic investment asset for the country. India’s long-term policy objective should therefore be to monetize the nation’s gold to support its economic growth. Chidambaram agrees and is looking for ways to “bring out the hidden gold,” while also ensuring access to the formal banking sector for almost half of India’s population. This means housekeeper Ghosh, who works in the informal sector, has no access to financial portfolios and hence falls back on gold as a viable saving option. “The best way to curb the hunger for gold is to expand our banking system and create opportunity for safe and efficient financial investments,” says Basu.

It’s not that India hasn’t tried. Nevertheless, the 100 million bank accounts that were opened under India’s drive to bring its entire population under the formal banking system in the 2000s remain mostly unused. Meanwhile, at least Chidambaram is practicing what he preaches to his compatriots — there is a strict embargo on buying gold in his household. “I have never bought gold at any point of time in my life. I don’t wear any jewelry — be it a ring or a chain,” he reveals. “For me gold is just another metal, it just shines a little bit more.”

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