Ironically in India gold is one of the causes of inflation. A large part of their current account deficit is related to the importation of gold and oil. The account deficit has in turn caused the rupee to drop and resulted in inflation directly.
The other major cause of inflation is the capacity bottlenecks through the economy as the result of underinvestment. There are a few different reasons for this (including bureaucratic incompetence and corruption), but what the finance minister is referring to is the preference by many to sink their wealth into unproductive savings (often in the form of gold) rather than invest in infrastructure, health, education and the other things India desperately needs to improve the quality of life.
The other problem they may face is the social fallout if the gold price does collapse, given that many households hold their entire wealth in the form of gold and are increasingly borrowing against it to fund their lifestyles. This is similar to what many Americans did at the height of the housing boom.
Any way you look at it, there are very good reasons for India's government to want to wean people off their gold habit.
