MUMBAI (Reuters) - India's gold demand could fall as much as 24 percent in 2016 to the lowest level in seven years due to higher prices and increased smuggling as the government seeks to bring transparency to bullion purchases, the World Gold Council (WGC) said.
Lower demand from the world's No.2 gold consumer could hurt global spot prices that have risen a fifth so far in 2016, but help the South Asian country to reduce its trade deficit. Gold is one of India's biggest expenses on its import bill.
India's gold demand in the first three quarters of 2016 fell 29 percent from a year ago to 441.2 tonnes, hit by price rises and government moves such as the mandatory disclose of tax code for high-value jewellery purchases, Somasundaram PR, managing director of the WGC's Indian operations, said on Tuesday.
He estimates in 2016 demand to fall to between 650 to 750 tonnes, the lowest since 2009 and far lower than last year's 858.1 tonnes.
The government measures to improve transparency also boosted smuggling of gold, which is likely to rise up to 160 tonnes in 2016, from 100 to 120 tonnes in 2015, Somasundaram said.
Smugglers were offering gold at heavy discount during the third quarter and forced many refiners to scale down operations, the WGC said in a report released on Tuesday.
In the third quarter the country's imports of dore, a semi-pure alloy made by miners, fell 84 percent from a year ago to 11.1 tonnes, it said.
The price rise provided Indian consumers an opportunity to liquidate their stocks, said the WGC, adding scrap supplies of gold more than doubled in September quarter from a year ago to 39 tonnes.
"Sudden drop in prices before Diwali, good monsoon rains and trade activity back in normal fashion means demand in the fourth quarter would be the higher compared to the first three quarters," he said.
The quarter ending in December typically accounts for about a third of India's gold sales since it includes the start of the wedding season and festivals like Dhanteras and Diwali, when buying gold is considered auspicious.
Indian celebrated Diwali in the last week of October. Two-thirds of demand in India comes from villages, where jewellery is a traditional investment.
(Reporting by Michael Perry)