(Updates prices in penultimate paragraph.)
April 28 (Bloomberg) -- Gold jewelers in India, the world’s largest consumer after China, are banking on a surge in demand at the country’s second-biggest bullion buying festival this week to end a sales slowdown caused by import curbs.
“Everyone is prepared with their stocks, particularly the smaller jewelry that moves faster,” Haresh Soni, chairman of the All India Gems & Jewellery Trade Federation, said by phone from Rajkot, India on April 25. “Sales have been slow in the first three months of this year, and we expect demand to be better” at Akshaya Tritiya on May 2, he said.
The government is restricting imports to tackle a record current-account deficit and stop a decline in the rupee after housewives and retail investors rushed to buy gold at the same festival last year as prices slid into a bear market. Imports may not exceed 25 metric tons to 30 tons in April, compared with 118 tons a year earlier, Soni said. The festival is considered by the country’s more than 900 million Hindus as a traditional day to buy precious metals.
“We cannot compare sales to last year as it was a different story then,” Soni said. “This year we have government restrictions, raw-material shortages and volatile premiums. But you cannot stop Indians from buying gold, so overall people are positive about Akshaya Tritiya.”
During Akshaya, a Sanskrit word meaning “that which never diminishes,” Indians begin a new venture or buy value items with the belief it will bring luck and prosperity. The date is based on the lunar calendar and changes every year, and it’s the biggest gold festival after Dhanteras in October. Bullion is bought during festivals and marriages as part of the bridal trousseau or given as a gift in the form of jewelry.
“It’s an auspicious day, so people who have to buy will buy, but they will have to deal with unnecessarily high premiums,” Prithviraj Kothari, vice president of the India Bullion and Jewellers Association Ltd., said by phone from Mumbai on April 25.
Jewelers are paying banks $50-$80 an ounce over the London cash price to secure gold and the premiums may climb as imports are low and a new government after the national elections conclude next month may not rush to ease curbs, Soni said.
India increased the tax on imports three times last year to 10 percent, required buyers to supply 20 percent of purchases to jewelers for export and sell 80 percent on the local market. The measures may contribute to a narrowing of the current-account deficit to about $32 billion in the year ended March 31 from a record $87.8 billion a year earlier, according to Finance Minister Palaniappan Chidambaram.
“Jewelers say that there is an interest in gold despite the shadow of 20:80 policy and higher taxes, and the anti-gold sentiment among policy makers has also softened,” P.R. Somasundaram, managing director for World Gold Council in India, said in a phone interview from Mumbai on April 25. “Because of elections this year, a lot of money has been pumped into the system and some of this will flow into gold.”
Elections to India’s parliament started on April 7 and will end on May 12 with results to be announced on May 16. Spending on election campaigns may also help boost demand for jewelry during Akshaya Tritiya, Somasundaram said.
The election will be the most expensive in the nation’s history, with the government, political parties and candidates spending 300 billion rupees ($5 billion), according to estimates from the New Delhi-based Centre for Media Studies. While the election commission caps spending for each candidate at 7 million rupees per constituency, often much more is spent.
“Consumer confidence is improving and the buying mood is buoyant right now,” Colin Shah, managing director of Kama Schachter, which retails diamond jewelry from India to Japan and Hong Kong, said in an e-mailed statement. “As a manufacturer, our order books have been fairly good for the season.”
Futures on the Multi Commodity Exchange of India Ltd. have slumped 17 percent from a record high of 35,074 rupees per 10 grams in August last year and were trading at 28,938 rupees today. London spot gold was at $1,300.32 an ounce.
“Demand has been trending up with Akshaya Tritiya around the corner and pre-bookings have been good this time,” Rajeev Sheth, chairman of Mumbai-based Tara Jewels Ltd., said in a April 21 interview.