Swansy Afonso Mumbai

Gold shipments into India, the biggest user after China, probably fell 77 percent in the first half as government restrictions to contain a record current account deficit raised costs and deterred buyers.

Purchases tumbled to about 150 tons in the six months to June from 650 tons a year earlier, Bachhraj Bamalwa, a director at the All India Gems & Jewellery Trade Federation, said yesterday. Imports in the second half would depend on government policies, he said.

India lifted the import tax on bullion three times to 10 percent last year and linked purchases to re-exports to narrow the deficit and reverse a decline in the rupee to an all-time low. Prime Minister Narendra Modi’s government, which took office in May, might cut the duty in the federal budget scheduled on July 10, Bamalwa said.

Macquarie Group said official imports might increase in the second half as the government might ease the curbs.

Bamalwa said: “A tax reduction will not smoothen the process of getting gold into the country because traders are not in a position to import gold on their free will. There won’t be much demand in July as there are no weddings and festivals.”

In July last year the government required shippers to supply 20 percent of imported gold to jewellers for export and sell 80 percent on the local market, known as the 80:20 rule.

The step resulted in a drop in demand, helping China surpass India as the top buyer last year.

The curbs helped narrow the current account deficit to $32.4 billion (R343bn) in the financial year to March, from a record $87.8bn a year earlier, the Reserve Bank of India said in May. The rupee has rebounded about 13 percent since touching an all-time low of 68.845 tot the dollar last August.

While the government would make some changes to the import policy as it was unpopular with a majority of the electorate, it remained debatable how far it would move, Macquarie analysts led by Matthew Turner wrote in a report last week. Modi’s government might not want imports to return to pre-intervention levels, they said.

Bullion is bought as part of a bridal trousseau for marriages or given as a gift in the form of jewellery during festivals.

As long as “the restrictions are in place, it is very difficult to import in huge quantities”, Madhavi Mehta, an analyst at Kotak Commodity Services in Mumbai, said.

“We are still seeing pent-up demand and people are ready to buy. It all boils down to what the government will do to ease import norms.” – Bloomberg