* Indian demand to stay near 1,000 tonnes in 2014 - WGC
* Demand to be met by smuggled goods if import curbs are not
* Chinese demand expected to be 1,000-1,100 tonnes in 2014
By Siddesh Mayenkar and A. Ananthalakshmi
MUMBAI/SINGAPORE, Feb 18 Gold demand in India is
expected to be robust in 2014, likely leading to a further jump
in smuggling if curbs on bullion imports remain, the World Gold
Council (WGC) said.
Indian gold consumption is expected to be 900-1,000 tonnes
in 2014 on strong jewellery and investment purchases, according
to the WGC, still slightly behind top buyer China, whose demand
is expected to be 1,000-1,100 tonnes.
Bullion demand in India rose 13 percent last year to 974.8
tonnes, according to the WGC's quarterly report issued on
Tuesday, in a sign that consumer appetite has been largely
unaffected despite restrictions on gold imports.
Struggling with an unprecedented high trade deficit and a
plunging rupee, India was forced to impose curbs on gold - the
second-biggest expense in its import bill.
A record high import duty of 10 percent and a rule tying
import quantities to exports have crimped supply in what was
until a year ago the world's biggest bullion consumer, prompting
a sharp jump in smuggling.
"Despite all the curbs, demand has come in at 975 tonnes.
The question obviously is where the supplies came from," said
Somasundaram PR, the WGC's managing director for India. "We have
seen anecdotal evidence of smuggling. Our estimate is 150-200
tonnes, more towards the upper end."
Smuggling could have been even higher as Indian gold imports
have sagged in recent months to 20-30 tonnes a month, compared
with the record 162 tonnes in May. Scrap gold is also being used
to meet demand.
India's official gold imports in the first 11 months of 2013
totaled about 655 tonnes.
"If supply restrictions continue, then we will see a much
higher figure for smuggling," Somasundaram said, declining to
provide an estimate.
Indian gold smugglers are adopting the methods of drug
couriers to sidestep the government curbs, stashing gold in
imported vehicles and even using mules who swallow nuggets to
try to get them past airport security.
Customs officials have said though the number of seizures
they have made has increased, they have been able to catch only
a fraction of the illegal shipments into the country.
The Indian finance ministry and the central bank have
acknowledged that smuggling has increased considerably but have
said they will not ease the rules until they have a better grip
on the trade deficit.
"All pointers are towards some kind of relaxation," said
Somasundaram. "One possibility is that they will wait for the
current account deficit figure till March end. The next
possibility is that they may wait till elections (in May) but
our expectation is that it will happen sometime before."
Reducing the import duty alone will not be enough to ease
supply constraints, the WGC executive said. Easing of the
central bank's 80/20 rule, which requires a fifth of all imports
to be re-exported, will have more of an impact, he added.
Global gold demand fell 15 percent in 2013 as huge outflows
from physically backed investment funds outweighed record
consumer demand, London-headquartered WGC said in the report.
In contrast to India, top buyer China will likely introduce
more reforms to make it easier for consumers to access gold in
the growing market, said Albert Cheng, WGC's head of the far
China made a string of changes last year, granting approval
to its first gold-backed exchange traded funds and import
licences to foreign banks for the first time.
"It is a measure to make sure that there are more suppliers.
I think there will be a further opening up of the market," Cheng
said, though he didn't elaborate.
Chinese demand in 2013 - which soared 32 percent to 1,065.8
tonnes last year - was supported by significant growth in both
manufacturing and retail network capacity and that will continue
this year, Cheng said.
(Editing by Muralikumar Anantharaman)