Scrap gold supply in India could race to at least 300 tonnes - topping flows seen in recent years - two major industry bodies said on Tuesday, as government moves to curb bullion imports lead to a jump in premiums on fast shrinking supplies.
Rising incentives could help mobilise sales of an estimated 20,000 tonnes stored in Indian households, and minimise the impact of the 80/20 imports principle, which effectively puts an upper cap on shipments.
Harmesh Arora, director with the Bombay Bullion Association, said scrap gold supply could reach 300-400 tonnes this year. Estimates of the amount of gold recycled last year vary.
Bachhraj Bamalwa, director of the All India Gems and Jewellery Trade Federation, also saw supply of recycled gold in India rising to 300 tonnes this year compared to an average of 200 tonnes per annum.
"(Jewellers) will need more gold to manufacture jewellery, as imports have been heavily restricted," Bamalwa said. "If I sell today and (am) not in a position to replenish my stocks, then I'll have a problem and then I'll have to source gold from somewhere else."
"Jewellers will have to offer incentives to get old jewellery," he said. "If jewellers offer incentives, people will bring in their old jewellery more and more." These could include discounts on fashioning old pieces into new ones, he said.
India has long been the world's biggest gold consumer, with fabrication demand of 736 tonnes last year, according to GFMS.
In the domestic market, gold surged 10 percent from the start of the month to 30,820 rupees on Tuesday to trade near its highest level in eight months, helped by a weaker rupee.
Kumar Jain, vice-chairman of the Mumbai Jewellers Association, which groups more than 7,000 members, said he had seen a marked increase in customers exchanging old gold jewellery for new.
"People are getting old gold jewellery and taking new instead (for) the last 25-30 days," he said.
This trend for scrap supply is expected to be sustained until government eases restrictions and give "relief to people" on its imports policy, he said.
The Indian government has been on the offensive to curb shipments to contain a record trade deficit, that has triggered record weakness in the rupee.
On August 14, the federal government also hiked import duty on gold for a third time in 2013