On Tuesday, statistics on consumption released by the World Gold Council showed that the Chinese demand rose 32 percent on year to a record 1,066 tonnes in 2013. Indian consumers, in comparison, bought 975 tonnes - a 13 percent rise from the previous year.

Now, the reason for the Chinese overtaking India in consumption in 2013 has more to do with the Indian rupee than anything else.

In 2013, the Indian rupee was volatile and fell to a historic low of 68.81 against the dollar. The current account deficit was in shambles and the way the rupee moved lower against the dollar was petrifying. Now, to strengthen the rupee, India had to reduce its trade deficit and hence current account deficit.

Trade deficit is the excess of imports over exports. The one item that adds heavily to imports is gold, after crude oil and the government to reduce the trade deficit, the current account deficit and hence tame the rupee, initiated a number of measures to reduce gold consumption.

There were various duties levied by the government. The government raised the import duty on gold to 10 per cent, doing so thrice during the year. It also restricted imports by linking imports with exports under the 80:20 rule.

Even private institutions, including jewellers chipped in, while the rupee was sinking. Some of them decided to ban the sale of gold coins and bars. The government itself in August 2013 completely banned the sale of gold coins and medallions.

Companies like Reliance Capital, decided to suspend sale of gold in physical form (including inter alia supply of gold coins for sale through India Post), and also as an investment product, across all its businesses and subsidiaries.

The results was that consumption in India fell dramatically to 148 tonnes in the quarter ended September 2013, after the curbs were placed, compared to 310 tonnes in Q2 of 2013. In fact, there were roumours that gold lying idle in temples would also be unlocked. To check gold rates in your city click here

All this bought down the total consumption in 2013, pushing Chinese consumption more than India. If the rupee shows signs of stability, the government might lift some restrictions on gold imports and demand may revive. After all, for Indians all that glitters is gold.

GoodReturns.in