Gold demand in India is likely to pick up during the second half of the year, as restrictions on imports of precious metals are be expected to ease by country’s new government, senior officials at the World Gold Council (WGC), said Tuesday.
Striving with a widening trade deficit, India in 2013 set a record high duties of 10 percent on foreign purchases of gold, the second largest expense in its total import bill, and a rule that binds import quantities to be brought export levels.
Any roll back on such restrictions and higher demand from India, the world No2 gold buyer after China, might supporting a recovery in world prices of the precious metal tumbled 28 percent last year – the first knockdown in 13 years.
“The change (in policy gold) is unavoidable because Modi appears to be in favor of gold,” said Albert Cheng, head of the East Asia region of WGC, referring to Narendra Modi, who easily won a landslide victory in the recent general elections in India. “It’s only a matter of when it will do so.”
Modi, who directs the pro-business BJP, has said that any action in gold must consider the interests from the public and merchants, not only to the economy and politics.
Gold demand in India declined by a quarter to 190.3 tons in the quarter to March as the curbs and have sent local premiums at record levels, the WGC said as their Quarterly Reports on Tuesday.
Analysts, however, said that while it Modi’s victory is a welcome for gold, and he might not make changes immediately.
The trade deficit of India has been falling in recent months, largely due to the fall in gold imports and any steps to ease the rules would be picked up with caution, some have claimed.
PR Somasundaram, WGC chief of operations in India, reaffirmed forecasts industry body of gold demand for the year in India, paying little heed the sharp drop in demand in the first quarter.
“We continue to maintain 900-1,000 tonnes (annual demand in India), since it is expected to rebound in the second half,” Somasundaram said.
“In the second half, particularly in the fourth quarter, if policy relaxation, then it could be a strong quarter.”
WGC continued to take outlook for the largest buyer of China, where demand is expected to be 1,000-1,100 tonnes for the campaign.
Bearing in mind that gold imports are a drain on the trade balance of India, Somasundaram said the government would must seek long-term solutions and sustainable strategies for overseas purchases of the precious metal after relaxation of current curbs.
“Changes in policy will not be the alpha and omega of policy. Gold will need to be taken a more formal way in the financial industry, if it has to play a role in the long term, otherwise it shall be deemed an asset households buying and it costs us precious foreign currency, “Somasundaram said.
Gold is seen auspicious as gifts or offering weddings and religious festivals in India. It is also a popular form of investment.
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