India's gold imports in May surged four-fold from a year ago to 103 tonnes as jewellers increased purchases to replenish inventory and stock up ahead of the rollout of the Goods and Services Tax (GST), provisional data from consultancy GFMS showed.
The rise in imports by the world's second-biggest consumer of the precious metal will likely support global prices that are near their highest in six weeks, but could widen the South Asian country's trade deficit.
"Jewellers were aggressively buying after good sales during Akshaya Tritiya," Sudheesh Nambiath, a senior analyst with GFMS, a division of Thomson Reuters, said on Monday.
Indians in the last week of April celebrated the annual Hindu and Jain holy festival of Akshaya Tritiya, when buying gold is considered auspicious.
India had imported 25.3 tonnes gold in May 2016.
"Some jewellers were building inventory fearing a higher GST (Goods and Services Tax) rate," said a Mumbai-based dealer with a private bank.
On Saturday, India said it will tax gold at a rate of three per cent under the GST, which was lower than industry expectations of around five per cent.
The long-awaited GST is hailed as the country's biggest tax overhaul since independence in 1947. The GST will replace a slew of central and state levies from July 1, transforming Asia's third-largest economy into a single economic zone with common indirect taxes.
The price correction also prompted jewellers to raise purchases in May, said Harshad Ajmera, the proprietor of JJ Gold House, a wholesaler based in Kolkata.
In the second week of May gold prices dropped to an eight-week low as safe-haven demand softened in the wake of Emmanuel Macron's victory in the French presidential election.
India's gold imports in the first five months of 2017 surged 144 per cent from a year ago to 424.1 tonnes, according to provisional data from GFMS.
The country's gold imports could plunge during the traditional period of peak demand in the second half of the year, after jewellers have aggressively restocked inventory ahead of the new national sales tax.