Gold discounts widest in 17 months, anticipates duty cut

By Rajendra Jadhav

MUMBAI (Reuters) - Gold importers are offering a discount of up to $16 an ounce versus London prices, the widest in 17 months, as jewellers curtail purchases ahead of a possible cut in the import duty.

India, which vies with China as the world's top gold consumer, raised import taxes on the metal to 10 percent 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 the government will cut the import duty in the budget to be presented on Feb. 28.

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

"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 $4 to $16 per ounce in different India cities, with the highest being offered in southern India. 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.

India'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 this month 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 imports plunged to $1.34 billion in December from $5.61 billion in November despite scrapping the so-called 80:20 rule mandating traders to export a fifth of all imported gold.

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

(Additional reporting by Manoj Kumar in New Delhi; Editing by Michael Urquhart)