India is likely to cut its gold import duty to 6 per cent from a record 10 per cent in Thursday's budget, leading to a rise in imports in the second half, a senior official at the country's biggest gold trade group said on Wednesday.
Higher overseas purchases by the world's No 2 buyer of the precious metal after China should underpin global gold prices that have risen almost 10 per cent this year, recovering from a 28 per cent plunge in 2013.
The drop to 6 per cent in import duty "is practical and it may be reduced further. A reduction in import duty may encourage more demand from the consumers", Bachhraj Bamalwa, director at the All India Gems and Jewellery Trade Federation, told the Reuters Gold Forum.
Bamalwa, whose federation represents more than 300,000 jewellers, met Finance Minister Arun Jaitley late last month, and said: "He (Jaitley) seemed very positive and we expect some good news about the industry."
Jaitley's maiden budget will be the first major policy event since Prime Minister Narendra Modi's landslide general election win in May.
Finance ministry officials were not immediately available for comment outside business hours.
Gold imports into India are likely to rise 200 tonnes in the second half to December, a 14 per cent increase compared with the first half, Bamalwa said.
However, a weak monsoon could have a negative impact on gold consumption. Nearly 60 per cent of gold demand originates from rural areas in India where more than half of the country's 1.2 billion people live.
India imposed restrictions last year on overseas purchases of gold, its second biggest import item after crude oil, to tackle a balance of payments crisis. The current account deficit (CAD) has since narrowed and gold traders expect Jaitley to ease the curbs in his budget address.
Modi, who leads the pro-business Bharatiya Janata Party, has said any action on gold should take into account the interests of the public and traders, not just economics and policy.
Besides the import duty levied by the finance ministry, India's central bank also imposed a rule last year that required 20 per cent of all bullion imports be re-exported.
The government might remove the 80:20 rule in a gradual, "phased" manner, Bamalwa said.
The rules crimped supply and pushed premiums <XAU-IN-PREM> up to as much as $160 an ounce above London prices in December. The premiums fell to $10 an ounce on Wednesday on expectations of