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India's imports of gold and silver nearly doubled in September from August, defying record high prices, as banks and jewellers rushed to build inventories ahead of festivals and escape higher taxes on imports, trade and government sources said.

 

Higher imports by India, the world's second-biggest consumer of the precious metal, are set to support gold prices that hit records this week, even as demand languishes in top buyer China. 

The surge in imports could widen India's trade deficit and weigh on the weaker rupee, however. 

"Jewellers and banks have been clearing a lot of gold from customs over the past two weeks," said a government official, who sought anonymity as he was not authorised to talk to the media. "We haven't seen such a rush in years." Customs authorities have cleared a much larger volume of imports in September compared to August, he said, with even higher clearance expected on the last day of the month, ahead of a likely increase in the base import price of gold and silver. 

The base import price is used to calculate import duty, and the Indian government revises it every 15 days. 

Banks and bullion dealers are rushing to clear imports before the new base price takes effect on Wednesday, as it is likely to be higher after the recent global rally in prices, said Chirag Thakkar, chief executive of Amrapali Group, a leading precious metal importer in the western state of Gujarat. 

"Even with gold and silver hitting record highs, buyers kept chasing them, and investment demand surged," said Thakkar, whose company more than doubled its gold and silver purchases in September from the previous month. 

India spent $5.4 billion to import 64.17 tons of gold and $451.6 million for 410.8 tons of silver in August, trade ministry data shows. 

The government will release trade data for September in mid-October. 

Indian gold futures hit a record high of 116,900 rupees per 10 grams on Tuesday, while silver futures climbed to an all-time high of 144,330 rupees per kg. 

Jewellers, who had stayed away from gold and silver in recent months awaiting a price correction, are now paying a premium to stock up ahead of the festival season as prices hit fresh highs, said a Mumbai-based dealer at a private bullion-importing bank.

In October, Indians will celebrate Diwali, the festival of lights, when it is considered auspicious to buy gold. 

Indian dealers this week quoted a premium of up to $8 per ounce over official domestic prices, inclusive of 6% import and 3% sales levies. 

"Strong buying from India is surprising the market, especially as China remains inactive at these levels," said a Singapore-based bullion dealer. 

In China, dealers widened discounts this month to $31 to $71 per ounce against global benchmark prices, the highest in several years.