India's decision to double gold import duty to four percent could cut gold imports by a third in 2012 to their lowest level in two years, allowing China to overtake it and become the world's biggest buyer of bullion, a Reuters poll revealed.
Shipments could drop to 655 tonnes in 2012 after imports were broadly flat at a record 969 tonnes in 2011, according to the median of a poll of 10 respondents, which included importers, jewellers and brokerages.
"The initial reaction from the market is not good. Doubling of duty within three months is heavy for consumers to digest," said Pinakin Vyas, assistant vice-president with IndusInd Bank, a large gold importer.
Vyas expects a 30 percent fall in imports in 2012. Imports were at 535.88 tonnes in 2009 due to high supplies of recycled gold as investors cashed in on a 22 percent rise in prices.
The government's budget last week doubled the import duty and imposed a levy on unbranded jewellery as measures to limit the current account deficit.
Jewellers in India, many of whom sell individual, tailor-made items in tiny market stalls, have shut shop for 10 days so far and plan to extend their strike over the duty. The finance minister has refused to change plans.
Gold demand in India had already faltered due to a rally in global gold prices. Gold spot prices touched their highest level for this year at the end of February at around $1,790 per ounce.
"Last year we had good imports but looking at the pace of the fall so far we are heading for a big fall in 2012," said Prithviraj Kothari, president of the Bombay Bullion Association, who estimated imports at 450 tonnes in 2012, the lowest in the survey.
Analysts and traders feel over the medium term consumers will be forced to accept the tax hike, which could trigger further strictures from the government, although six respondents did not expect another duty hike this year.
"I foresee very limited impact (of high taxes) over a period of time. Consumers will always ask for the price of gold and not tax ... the market will always adjust to prices over a period of time," said a dealer with a private bank importing bullion.
Many Indian families buy gold as an investment in a climate of high inflation and crimped real interest rates. Gold is also an integral and important part of weddings, often representing the wealth of a bride and acting as her security.