In what could give nightmares to the Modi government on the current account deficit (CAD) front, the demand for gold jewellery spurted by 78.81% to 211.1 tonnes in the quarter ended September 2015, from 118 tonnes in the April-June quarter 2015.

Falling gold prices are likely to spur demand for the yellow metal in the current quarter, spiking gold imports, say two jewellery companies, though they reported a 30% drop in business during July-September 2015 on a year-on-year basis, for varying reasons.

"The metal is reasonably priced and it's the best season to buy gold; sentiments are positive," says Sandeep Kulhalli, Senior Vice President-Retail & Marketing-Jewellery Division, Titan Company. The division goes by the name Tanishq.

A Bangalore-based jeweller also shares the optimism. "Drop in prices in the last few weeks has been good as customers have been buying," says Pratap Kamath, CEO, Abaran Jewellers.

Paradoxically, both of them reported a 30% drop in business in the second quarter (July to September 2015) on a year-on-year (yoy) basis, though India's gold jewellery demand during the quarter at 211 tonnes was up 15% compared to 184.2 tonnes during the same period last year, according to the World Gold Council (WGC).

While Tanishq reported a 32% decline at Rs 1,981 crore during the second quarter of financial year 2015-16, from Rs 2,929 crore during the corresponding quarter last year, Abaran Jewellers's Kamath said business was "down 30%."

While Kamath said the contentious gold harvest scheme (GHS) was not the reason, Tanishq's Kulhalli said the premature redemption of the scheme during the second quarter of 2014-15 had contributed to about 54% of the revenues in that quarter.

He exuded optimism for the current quarter. "From October (this year), we don't have the baggage of the gold harvest scheme," said Kulhalli.

Kamath is not so gung-ho. "Business is likely to be slow because online marketing promotions and offers have tempted consumers to spend their disposal income on white goods, cars, phones, leaving nothing in the end. Earlier, a major share of this disposal income was invested in jewellery."

The gold monetisation scheme (GMS), launched amid fanfare on 5 November by Prime Minister Narendra Modi, aimed at bringing out gold hoarded by households and institutions, may not be that successful, according to Kulhalli and Kamath.

Individuals wouldn't want to part with their jewellery, which, besides fulfilling their ornament requirement, also is ATM, as in easy liquidity in times of distress. Also, the KYC norms are not encouraging," says Kamath.

The scheme is "noble" and in the right direction, but how it pans out needs to be seen, says Kulhalli, while raising a pertinent question" "Why should people with gold expose themselves?"

The increase in gold imports is also bound to widen the current account (CAD), as was the case in the second quarter last financial year when soaring gold imports resulted in the CAD widening to 2.1% of the GDP, from 1.7% in the first quarter.

The CAD was at a comfortable 1.2% of the GDP in the first quarter. The deficit is likely to increase to about 1.6% for the first six months of 2015-16, according to Radhika Rao, Economist, Group Research, DBS Bank, Singapore. But a spurt in gold imports in the current quarter, coupled with declining exports, could widen the deficit further.