It was only during the much vaunted liberalisation process, kicked off in 1992, that the government rolled back this Act and allowed the import of gold for a duty payment of Rs 250 per 10 gram. The decision was taken largely on account of the unorganised market for gold that had emerged during the period, and gave way to smuggling and black marketing in the precious metal.
Today, years later, the government seems to be doing just the same, though in an alleviated fashion by mulling over schemes like gold deposits, accumulation plans, gold-linked accounts and pension products, which dissuades the investor from putting in their money in buying physical gold.
In its Mid-Year Economic Analysis tabled in Parliament today (December 17), the government said the gold-backed products, which it is considering, will help the investor enjoy the benefits of investment in the metal without investing in the physical commodity.
The government contends that the schemes are being considered mainly due to rising imports of the yellow metal which is to blame for the high current account deficit.
The current account deficit (CAD), which occurs when a country's total imports are greater than total exports, has been rising on the back of record trade deficits, which in October jumped to a 12-year high of $21 billion on the back of rising oil and gold imports.
"Now, gold-backed financial instruments in the form of modified gold deposits and gold accumulation plans, besides gold-linked accounts and pension products linked with the precious metal, are some measures being considered to reduce the attraction of a direct investment in bullion and jewellery in the domestic market and check a substantial rise in imports," the Mid-Year Economic Analysis said.
However, gold-linked investments would have to be monitored to see whether the overall demand for the metal actually falls, it said.
Speaking on the proposed moves to curb gold imports, Finance Ministry's Chief Economic Advisor Raghuram Rajan said: "We are worried about gold imports. It is an unproductive instrument. The way to curb holding of gold is to create more attractive financial instruments.
"Some gold-linked instruments have been talked about by the RBI but potentially there could be other financial instruments to attract investment."
"We are worried about CAD. We want to take steps to monitor it," Rajan said on the government's worry on high CAD," Mr. Rajan said.
It is not that the government's need to curb gold imports is newfound. Earlier, the Reserve Bank levied a slew of curbs on gold purchase and financing as imports touched a record high last year, pushing up the current account deficit to a historic high of 4.2 per cent during the period.
The government is confident that investors will turn to non-physical form of the metal as the size of assets held through recently floated gold ETFs (Exchange Traded Funds), or paper gold, rose to an all-time high of Rs 11,918 crore at the end of November 30, 2012.
In the last financial year (2011-12), India's gold imports stood at $60 billion and the quantum of import was 1,067 tonne.
A Finance Ministry official said the imports have shown signs of moderation and that gives the government hope that the current account deficit will be lower this fiscal year.
In the April-June quarter of the current fiscal year, however, gold imports had contracted by 18.4 per cent year-on-year to Rs 71,912 crore ($13 billion).
Gold imports into the country has risen considerably in the last three four years.
However, now the question arises if the planned and recent moves by the government to rein in import of the precious metal may again give way to unofficial market like it happened after the enactment of Gold Control Act in 1962, given country's obsession with the metal with experts world around sometimes referring to Indians as incurable gold bugs.