[MUMBAI] The value of India's gold imports could plunge over 18 per cent to US$28 billion this fiscal year due to lower prices and despite likely higher volumes, the head of the country's biggest gold refiner said, helping to narrow the trade deficit.
Gold is India's second-biggest expense on the import bill after oil, and purchases of US$54 billion two years ago forced the government to raise the duty on the metal to 10 per cent.
"Since prices have fallen and could drop further, I think imports will be around US$28 billion," Rajesh Khosla, managing director of MMTC-PAMP India Pvt Ltd, told Reuters on the sidelines of a conference.
India, the world's second-biggest gold consumer after China, paid US$34.32 billion to import around 930 tonnes of gold in the year ending March 2015.
Gold prices are hovering around a 5-1/2-year low of US$1,077 an ounce hit in late July.
Mr Khosla said prices could fall below US$1,000 in the next few months as the US Federal Reserve is likely to raise interest rates. Higher US interest rates would increase the opportunity cost of holding gold, an asset that does not earn interest.
"The impression of uncertainty reflects on the prices of gold," Mr Khosla added. "Right now everybody seems to think the problems of the world have been sorted out. So there is no risk (to drive up gold prices)."
Gold is typically regarded as a good investment in times of financial and economic uncertainty.
In volume terms, the country's imports in 2015/16 are likely to be between 900 and 1,000 tonnes as lower prices will boost demand during the festive season at the end of the year, Khosla said.
Demand for gold jewellery is usually robust in India in the last quarter as it celebrate festivals such as Diwali and Dussehra when buying gold is considered auspicious.
India's July imports are expected to be between 70 and 75 tonnes, up from 57 tonnes in June, Mr Khosla said.
"Imports in August would be higher than July. Jewellers are stocking up for the festive season," he said.