20/02/2015 12:14 PM IST | Updated 15/07/2016 8:25 AM IST

Indian Gold Imports Might Surge As RBI Removes Curbs

In this Thursday Oct. 11, 2012 photo, an Emirati woman discusses her purchases with a salesman at a jewelry shop in gold suq in Dubai, United Arab Emirates. With low customs on gold imports, low labor charges, cheap prices and high quality, Dubai has become one of the world's best retail gold jewelry markets. (AP Photo/Kamran Jebreili)

MUMBAI -- Gold imports to top consumer India are set to jump in coming months after the central bank eased gold import curbs, ahead of an expected cut in import duty in next week's federal budget.

The Reserve Bank of India said on Wednesday banks would again be allowed to import gold on a "consignment basis", under which they act as intermediaries and don't pay for the stock until a buyer has been found, which is usually quickly.

Trading houses will be allowed to bring in gold with no conditions attached.

Gold flows into the country have slowed despite the removal in November of the so-called 80-20 rule that required importing agencies to re-export a fifth of total imports, as importers and customs officials waited for more clarity.

"These clarifications were pending for a long time and should boost sentiment. Gold imports may increase to 75-90 tonnes in coming months as against about 40 tonnes in recent months," said Prithviraj Kothari, executive director of the India Bullion & Jewellers' Association.

Imports had dropped despite the reversal of the rule as the industry was taken aback by the sudden change in the central bank's position and banks remained wary, fearing customs officials would hold up incoming shipments.

"Some imports had been stuck at the airport, but not huge quantities, as customs officials were awaiting clarification from the RBI. They will be cleared now," said Sudheesh Nambiath, an analyst at precious metals consultancy GFMS, owned by Thomson Reuters.

Nambiath said imports could average 80 tonnes a month, boosted by the RBI move and expectations of a duty cut.

The central bank acted just days ahead of the government budget, due on Feb. 28.

Expectations are high that Narendra Modi's government will reduce the import duty on gold from a record 10 percent, set in 2013 by the previous government as part of efforts to cut the current account deficit.

"We view the clarification by the RBI on the 80-20 rule relaxation as positive for the bullion market as it is a step in the right direction towards the possibility of a relaxation in gold import duty," HSBC analyst James Steel said in a note.

"Indian gold demand would undoubtedly benefit if the government decided to cut gold import tariffs in response to the big drop in its current account deficit," he said.

The deficit has narrowed recently due to the drop in gold imports plus a sharp slide in oil prices.

Gold is a popular gift at weddings in India and is also bought for auspicious occasions.

Demand should therefore pick up from March for the wedding season, which continues until July, while Akshya Tritiya, a major festival associated with gold-buying, falls in April.