Gold bars
Gold bars Reuters

Despite an import duty hike and gold prices climbing an eight-month high on Saturday at 31,000 per 10 grams at the domestic bullion market, there still remains a strong consumer appetite in India for gold.

According to the latest report by World Gold Council (WGC) on demand trends, bar and coin investment rose by 116 percent while jewellery demand was up by 51 percent during the second quarter this fiscal, as compared to the same period last year.

Overall consumer demand rose by 51 percent to 310 tonnes during the months of April and June this year. Moreover, WGC expects consumer demands in India and China to cross over the 1,000 tonne mark in 2013.

"Once the monsoon is over, rural incomes will rise and that will have its own impact on demand. There are also a lot more marriage and festival dates in October and November in the fourth quarter," Somasundaram PR, WGC's India managing director, told Reuters.

The rising demand for the precious metal has foiled government efforts to curb imports that boomed in July after a drop in June.

The government imposed a series of duty hikes this year to restrain supplies of the yellow metal in order to control the current account deficit (CAD).

Import duty on precious metals, including platinum, was revised and raised from 8 to 10 percent on August 13. The decision was taken to gain an additional ₹4,830 crore for the exchequer.

Along with duty hikes, a sliding rupee has added to the woes of the consumers.

The dollar-denominated metal prices are surging as the Indian rupee hit a record low of 62 against the US dollar on Friday.

Gold of 99.5 per cent purity rose by ₹630 at ₹31,325 per 10 grams from ₹30,695 on Friday. Pure gold of 99.9 percent purity rose to ₹31,470 per 10 grams from the Friday's closing price of ₹30,830.

"Melting equities and depreciating rupee have left no other option for the investor fraternity but to park their funds in bullion," Surender Jain, vice president of All India Sarafa Bazar, told PTI.

Meanwhile, the huge shortage of gold in the Indian market and government's tightening noose has left the retailers tempestuous.

"We were working with the government to control CAD. We appealed voluntarily to our jewellery retailers to stop selling gold coins and bars, which brought the bullion's sales almost to zero. But every time we tried to help the government, we got strict norms through increase in import duty. We are not going to bear the brunt now. We will protest the move and call on an indefinite strike, if need be, to raise our voice ," All India Gems and Jewellery Trade Federation (GJF) Chairman Haresh Soni told Business Standard. GJF is the apex body that monitors over 600,000 jewellery retailers.

Even Indian analysts claim that neither the government efforts nor the local prices, which are above London spot prices at $50 an ounce, would stifle consumer demands in India this year.