MUMBAI - India's gold imports in August nearly tripled from a year ago, despite sluggish domestic demand as a recent tax change that allowed importers to ship in the yellow metal from South Korea without paying customs duty saw some traders purchasing heavily from the country, provisional data from consultancy GFMS showed.
Higher purchases by India, the world's second biggest consumer, could support global prices, trading near their highest level in a year. It could also widen the South Asian country's trade deficit.
The country's August gold imports climbed to an estimated 60 tonnes from 22.3 tonnes a year ago, GFMS said. In the first eight months of 2017, the country's imports rose to 617.5 tonnes, up 158 percent from a year ago.
"Trade houses imported nearly 20 tonnes from South Korea as they were not required to pay import duty," Sudheesh Nambiath, a senior analyst with GFMS, a division of Thomson Reuters, said on Monday.
India imposes a 10 percent import duty on gold, but this does not apply to countries with which it has Free Trade Agreements (FTAs), like South Korea. To avoid duty-free imports from those countries, India had previously imposed a 12.5 percent excise duty.
This was scrapped along with other local taxes when a goods and services tax (GST) was introduced on July 1, allowing buyers to import gold from South Korea without paying import tax.
However, after realising the loophole the government on August 25 restricted imports of gold from South Korea.
In August, traders were selling South Korean supplies at hefty discounts as demand was weak, said Daman Prakash Rathod, director at wholesaler MNC Bullion in Chennai.
Dealers in India were offering a discount of up to $13 an ounce in mid-August over official domestic prices that includes import tax.
Imports usually rise in September due to festival demand, but this year imports could stay around the August levels due to weak demand, said bullion head of a Mumbai-based private bank.
"Demand has been softening due to price rise. There is sufficient stock in pipeline due to last month's imports," he said.