* Imports seen falling sharply in June, July
* No further actions planned for now to curb buying
* Not clear if other funds will follow Reliance move
(Adds quotes, context, import levels)
By Siddesh Mayenkar and Krishna N Das
MUMBAI/NEW DELHI, June 21 Reliance Capital
abruptly halted gold sales and investments in its
gold-backed funds on Friday, the latest squeeze on rampant
demand that has prompted India to try to curb imports.
India is the world's biggest gold buyer and soaring imports
have sent its current account to a record deficit. New Delhi has
hiked import duty twice since Jan. 1, doubling it to 8 percent,
but central bank moves to tackle supply have had more impact.
Reliance, controlled by billionaire Anil Ambani, said in a
statement on Friday it was "committed to support all policy
objectives of the government and the RBI."
Imports could fall sharply in June and July, industry
players say, because customers must now pay up front for gold,
making it hard for the millions of small family shops who
account for most of India's jewellery business to buy.
"Sales in June, July, August will be a super-flop. Imports
will be down 50-60 percent from the normal average of 70
tonnes," said Kumar Jain, vice-president of the Mumbai Jewellers
Association, which represents over 10,000 jewellers.
Gold imports, second only to oil for India, hit a record 162
tonnes in May as global prices fell, prompting a surge in retail
buying everywhere. India's big bullion banks and traders stocked
up in anticipation the authorities would move to slow buying.
"Everybody made money during the demand surge in May," said
a Delhi-based importer who requested anonymity. "The margin was
very good. We used to do 10 kilos a day ... double normal
The government last raised import duty on June 5 and in the
same week, the Reserve Bank of India (RBI) tightened measures
further to ban all purchases except with cash.
Gold imports were a record 162 tonnes in May, averaging
around $135 million in the first half before the central bank
halted most credit purchases. After that, they shrank to $36
million a day, the country's finance minister said on June 13.
"Now huge funds are required to import," said the
Delhi-based gold importer. "With funds for 100 kilos, I could
import 1,000 kilos," he added. Previously only a 10 percent
deposit was required to secure supplies.
The government's import duty hike, meanwhile, has been
largely wiped out by price falls, as global weakness drags
domestic futures down. With the rupee at record lows, paying for
Indian gold in dollars is cheaper now than it was in the splurge
of mid-April to mid-May.
On April 16, domestic gold futures hit a contract
low of 25,270 rupees per 10 grams - which then equated to about
$467. Now, they equate to around $452 per 10 grams.
This week, a senior finance ministry source said India was
unlikely to ban gold imports entirely or increase duties
further. Finance Minister P. Chidambaram resorted to urging
Indians not to buy, suggesting six months of abstinence could
help the economy dramatically.
But on Friday, neighbouring Sri Lanka slapped a 10 percent
duty on gold imports to halt smuggling into India - a major
worry when the government raises duties.
And although Reliance's financial services company is a
small player in the gold market with sales of around 5 tonnes of
gold coins in the last financial year, there are indications
other companies may be taking similar action.
"We are helping the government by telling everyone not to
buy gold," Kishore Zaveri, owner of Zaveri and Co which imported
about 2 tonnes in the May frenzy, told Reuters recently. "I
don't do any business, so I'm going to Spain for a holiday."
Demand from retail customers is also likely to be muted in a
lean season for marriages and festivals, traditional times to
give gold as gifts. Any boost to savings from farmers who could
reap the rewards of a heavier-than-normal monsoon will not
filter through until harvests later in the year.
(Additional reporting by Abhishek Vishnoi, Himank Sharma and
Suvashree Dey Choudhury in MUMBAI; Editing by Ruth Pitchford)