India's current account deficit hit a record high of 6.7 percent of GDP in Q3, according to the latest release by the Reserve Bank of India.
This is up from 5.4 percent of GDP the previous quarter.
While exports didn't register "any significant growth", imports were up 9.4 percent driven by imports of gold and oil.
The central bank didn't quantify the increase in gold imports but the government has for sometime blamed them for the rise in the nation's current account deficit.
Last year's budget saw the government double gold import taxes for the second time in a year, to curb demand. This caused India's gold demand to plummet at the time.
India's former finance minister Pranab Mukherjee said last year that the country needs more "financial literacy" and people need to move their money into other assets. At the time, he said:
"Quantum of import of gold ... is a clear indication (that) large section of community...want investment in dead asset only with expectation that value would appreciate
"…My request to financial analysts and other experts and leaders in this field is to ensure than we can create confidence in market, spread financial literacy, and merit of investment could be widely spread."
In a report last month, Moody's warned that "external debt has been the major source of current account financing," and that the country's external debt was rising and is "now growing faster than GDP."
This chart from Moody's shows the rise in both gold and oil imports in India:
Some analysts argue that the contribution of gold and oil imports to current account deficit is overstated, but that they do weaken the rupee. Some economists expect the current account deficit to narrow in coming quarters.
Gold bugs should however watch how India, currently the world's largest gold market, responds to its current account deficit.
SEE ALSO: SocGen: Gold Is Going To Tank To $1,375 This Year >
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