Mumbai, May 20: Gold demand is set to soar with the restrictions on imports likely to be eased by the new government.
Consumption of the yellow metal had ebbed because of curbs imposed by the UPA government to check the ballooning trade deficit.
In 2013, the government imposed a record high duty of 10 per cent on overseas purchases of gold, the second-biggest expense in its import bill, and introduced a rule tying import quantities to export levels.
Gold demand in India declined 26 per cent to 190.3 tonnes during the first quarter of this calendar year from 257.5 tonnes in the same period last year, according to the World Gold Council (WGC).
Jewellery demand during the period fell to 145.6 tonnes from 159.5 tonnes a year ago. The demand for bar and coins slumped to 44.7 tonnes from 98 tonnes. The WGC said along with the import restrictions, the elections dampened sentiments.
“These (elections) created an atmosphere of uncertainty, particularly with respect to the import curbs and whether these may be lifted in the second half of the year, which left many consumers reluctant to buy until a clear post-election picture emerges,” the WGC said in its gold demand trends for the first quarter of 2014.
It said the restrictions were imposed on the free movement of cash and other assets, such as gold, during the elections. This dampened genuine cash purchases of gold and had a negative impact on demand.
However, the new government may ease the import restrictions which should lift demand.
“We continue to view India as a source of strong latent demand, which will be unleashed as and when the government restrictions on gold are eased.
“Indicative of this is the strength of demand in the UAE, which can be taken as a proxy for Indian demand given the prevalence of non-resident Indians among the gold-buying populace. The demand of 22.1 tonnes from the UAE was the highest quarterly total since the record in the third quarter 2008,” the WGC said.
According to Somasundaram P.R, managing director of WGC India, demand for gold in the country for this calendar year is likely to be between 900 tonnes and 1,000 tonnes as it could pick up in the second half.
The WGC said that premiums (landed cost over international prices) in India, which hit a record high late in December of over $150 per ounce, declined throughout the quarter as demand entered its usual lull ahead of the key Akshaya Tritiya festival in May.