February 28, 2013 – Demand for gold remains strong in India, the world’s largest consumer of the precious metal after the Indian government declined to raise the import tax. The government had been expected to raise the import tax further, reported Bloomberg.

In 2012, India tripled the import tax on gold, bringing it to six percent, in an effort to curb its citizens’ appetite for the precious metal and slow the outflow of money from the country.

An Indian trade federation of gold traders, retailers, and exporters had anticipated that the import tax would be increased to eight percent.

Bachhraj Bamalwa, the federation’s chairman, reported that maintaining the tax “status quo” was a healthy sign for the industry and will attract new buyers to gold.

With an international gold market looking like it will be bearish in the short term, and taxes not increasing as expected, analysts project that the demand for gold from the world’s largest consumer will rebind.

In January 2012, India’s import taxes on gold were just two percent. After the tax was tripled, overseas purchases dropped a dramatic 11 percent, from a record high in 2011, according to the World Gold Council.

In February, India’s gold imports dropped by 50 percent from their January levels, decreasing to 40 tons.

“Gold prices have eased in the overseas market, making gold available at the cheaper rate on domestic bourses,” said Badruddin Khan, vice president at Indiabulls Commodities Pvt. Ltd. “Raising import duty in the current scenario may not have been a good idea to control the demand.”

The government also announced its decision to introduce inflation-linked bonds and certificates, which may make investments in gold less attractive and curb imports for investments, said Khan.

“If the duties were raised further imports would have become unviable,” said Rajesh Mehta, chairman of Rajesh Exports Ltd. (RJEX), India’s biggest gold jewelry exporter. “Demand has been improving because of a price fall and this will give it a further boost.”