KOLKATA (miningweekly.com) - The Reserve Bank of India (RBI) is working on a proposal to introduce inflation-indexed bonds (IIBs) and permitting commercial banks to buy back gold, in an effort to offer investors alternative instruments and check rapidly rising import of gold into the country.

“We introduced IIBs some years ago but these did not take off because of certain flaws. We shall redesign the instruments,” RBI governor D Subbarao said on Tuesday in the course of announcing the mid-term review of monetary policies.

He said that if attractive investment instruments were available, it could be possible to wean people away from investing in gold, which was taking a heavy toll on the economic fundamentals of the country.

The RBI was also considering permitting commercial banks to buy back gold from their customers. According to the RBI governor, existing banking regulations did not permit banks to buy back gold, but he noted that the central bank was examining these provisions and the possibility of amending them to enable buy-back and offer opportunities to monetise gold stocks held by households across the country.

Earlier this month, the Indian government hiked the import duty on gold from 4% to 6% in a bid to check the huge negative impact that the import of the yellow metal was having on India’s current account deficit (CAD).

The Finance Ministry has, over the past few months, been persistently expressing concern over the country’s worsening CAD, aggravated by rising gold imports and falling export earnings. The CAD increased to 5.4% of India’s gross domestic product, resulting in the rupee weakening and making imports more expensive.

According to the Finance Ministry, gold imports into the country was estimated at $20.25-billion during the first six months of the fiscal year ending March 2013, and was expected to touch $40-billion by the year's close.