In order to curb the rising current account deficit (CAD) the government recently raised import duty on gold. However, this has had very little impact on gold consumption. In fact, in the June quarter, India's gold consumption rose to 310 tons. This figure registered in June quarter is the highest ever seen in the last 10 years. It is true that the impact of current increase in duty will be evident in the future quarters. But considering India's huge gold appetite, this may not be the case. India is the world's largest buyer of gold. In fact, India and China accounted for 60% of the world's total demand in June ending quarter. Increase in jewellery demand predominantly due to falling prices was one of the reaso ns of increase in consumption. Apart from that, demand for gold bar and coins was also buoyant.

It may be noted that India almost entirely depends on imports to meet its domestic demand for gold. And in 2013, the demand is expected to be in the region of 900-1000 tons. As such, rise in duty may not have the desired impact considering India's appetite is so high. Thus, we believe if government continues with its policy to increase import duty it may well lead to gold smuggling rather than curbing the demand.