Gold importers offer widest discounts in 17 months on hopes of duty cut

Gold importers are offering a discount of up to US $16 an ounce versus London prices, the widest in 17 months, as jewellers curtail purchases ahead of a possible cut in the import duty on the precious metal.

The country, which vies with China as the world's top gold consumer, raised import taxes on the metal to 10 per cent in a series of hikes to August 2013 as policymakers scrambled to narrow a gaping current account deficit and arrest a free fall in the currency.

Now a falling trade deficit has stoked expectations that the government will slash the import duty in the Union Budget for the 2015-16 financial year, which is to be presented on February 28.

A drop in the duty could reduce smuggling and increase demand, supporting a rebound in global prices of the yellow metal.

"Jewellers are keeping lower inventory. They are not making big purchases expecting an import duty cut," said Daman Prakash Rathod, director with Chennai-based wholesaler MNC Bullion.

The gold discount varied from US $4 to US $16 per ounce in different cities, with the highest being offered in the southern part of the country. Importers generally charge a premium over London prices.

"This is the right time to cut the import duty. The trade deficit has come under control due to sharp fall in crude oil prices," Bachhraj Bamalwa, director at the All India Gems and Jewellery Trade Federation, told Reuters.

The country's trade deficit shrank to a 10-month low in December.

Bamalwa, whose federation represents more than 300,000 jewellers, met commerce ministry officials earlier in January to press industry's demands ahead of the budget.

"The commerce ministry officials were convinced and have forwarded our proposals to the finance ministry," he said.

Finance Minister Arun Jaitley on Tuesday declined to comment on gold import duty.

Industry officials say the reduction in the duty is quite possible as gold imports plunged to US $1.34 billion in December from US $5.61 billion in November despite scrapping the 80:20 rule, which mandated traders to export a fifth of all imported gold.

"The imports in January will be lower than last month," said Rathod.

(Reuters)