Gold demand in India seen falling to lowest in 8 years in 2017

By Rajendra Jadhav

MUMBAI (Reuters) - India's gold consumption is likely to drop to its lowest in eight years in 2017, hit by government moves to make bullion trading more transparent and by faltering demand from some rural areas, the World Gold Council (WGC) said on Thursday.

Evidence of weaker appetite in a country where gold is used in everything from investment to wedding gifts could drag on global prices that have been hovering near their highest in three weeks. India is the word's No.2 consumer of gold behind China.

Indian demand is likely to be around 650 tonnes in 2017, compared to a 10-year average of 845 tonnes, Somasundaram PR, Managing Director of WGC's India operations, told Reuters. Demand was 666.1 tonnes in 2016.

"In the September quarter, the newly introduced Goods and Services Tax (GST) and anti-money laundering legislation around jewellery retail transactions deterred gold buyers," he said.

As part of a new nationwide sales tax regime introduced in July, the GST on gold jumped to 3 percent from 1.2 percent previously.

Indian authorities in September tightened anti-money laundering rules for jewellers, although the new regulations have since been temporarily shelved.

The nation's gold demand in the July-September quarter dropped 24 percent from a year ago to 145.9 tonnes, the WGC said in a report published on Thursday.

In the October-December quarter, demand will be more "robust than the September quarter" as Indians brace for the wedding season and festivals such as Diwali, when buying bullion is considered auspicious, Somasundaram said.

Two-thirds of India's gold demand comes from rural areas, where jewellery is a traditional store of wealth.

But monsoon rains did not fall evenly around the country this year, hitting incomes in some farming areas, said the WGC, adding that "this could have a knock-on effect on jewellery demand in these areas over coming quarters".

Industry officials previously said India's gold imports in the last quarter of 2017 could drop by a fourth from a year ago as investors seek better returns from riskier assets like equities.

(Reporting by Rajendra Jadhav; Editing by Joseph Radford)