"No doubt, a hike in duty in gold imports would curb demand for gold in the short run. But from a long term perspective it is counterproductive as it would encourage smuggling of the precious metal," CII Director General Chandrajit Banerjee said in a statement.
The government today hiked customs duty on gold, silver and platinum to 10 per cent in the third revision this year in a bid to curb the surging imports and burgeoning current account deficit (CAD) in India.
While the duty on gold and platinum was raised from 8 per cent to 10 per cent, the levy on silver was hiked by 4 per cent.
Banerjee said people should be discouraged from investing in gold and the government should encourage financial savings by households.
"A better option to discourage the diversion of financial resources into unproductive assets like gold, in near to medium term would be to encourage financial savings by households," he added.
He said that it would be appropriate to launch attractive, innovative and reliable inflation adjusted instruments which would yield 1.5-2 per cent higher returns than long term average inflation.
"Besides, an action plan for dematerialization of gold is desirable to reduce its physical imports. Thirdly, government should take steps to keep inflation rate as low as possible as gold is seen as a hedge against inflation," he added.