Gold Demand in India Seen Rising as Government to Ease Curbs

May 20, 2014 9:04 am ET

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May 20 (Bloomberg) -- Gold consumption in India, the world’s second-largest user, will probably increase in the second half as import restrictions are relaxed by the new government, according to the World Gold Council.

Demand may climb as high as 1,000 tons this year, said Somasundaram P.R., the managing director for India. That compares with 974.8 tons in 2013 and a record of 1,006.3 tons in 2010, according to data from the London-based WGC. Imports plunged 52 percent in the first quarter from a year earlier, the group said in a report today.

The Bharatiya Janata Party, led by Narendra Modi, secured a majority of 282 seats in the parliamentary elections, the biggest victory for a single party since 1984, enabling it to pursue an agenda without being constrained by coalition politics, results showed last week. A move to ease curbs would improve supplies to jewelers before the main festival season, which begins in August and lasts until October.

“India demand will pick up very fast this year,” Albert Cheng, the managing director for Far East Asia, told a media briefing in Singapore today. “Indian people don’t buy gold to speculate, it’s a necessity.”

Inbound shipments declined after the government increased the import tax three times last year and introduced rules requiring importers to supply 20 percent of their bullion to jewelers for re-export. The moves were designed to reduce a record current-account deficit and reverse a slump in the rupee. Gold for immediate delivery climbed 7.3 percent this year to $1,289.18 an ounce by 2:01 p.m. in London.

Import Taxes

“With the election of the BJP and its declared pro- business approach, there is an expectation that the short-term curbs on gold will be removed,” said Somasundaram, without specifying when he expects the curbs to be lifted.

Authorities may be careful in easing rules all at once, as they will try to balance the current-account deficit and the needs of the industry, Cheng said.

Imports declined to 129 tons in the first quarter, the report showed. Demand fell 26 percent to 190.3 tons with consumption of bars and coins tumbling 54 percent to 44.7 tons and sales of jewelry sliding 9 percent to 145.6 tons.

Official imports dropped 4.1 percent to 825 tons last year and unofficial inflows were probably toward the upper end of 150 tons to 200 tons, according to the WGC.