India gold demand seen falling 16% in 2011: Morgan Stanley

Gold appetite in India, which imported a record quantity of the metal last year, is likely to fall in 2011 by 16%, as near-record prices dent demand in the world's largest consumer, resulting in a positive impact on banks' deposit growth, Morgan Stanley said.

"We believe that the current account deficit can surprise on the downside with positive implications on growth," said Ridham Desai, Head of India Research at Morgan Stanley, in a report on Tuesday.

The current account deficit can fall by 12 basis points to 59 basis points purely due to the fall in gold consumption, Morgan Stanley said.

India imported a record of a little over 900 tonnes in 2010 as consumers expected a further rise in prices. The yellow metal has gained about 1% so far in the year, building on the previous year's 25% gains.

The report noted that strong demand for gold since 2003 has coincided with negative real interest rates, which is the gap between the wholesale price index inflation and 91-days yield.

Gold, which gave a yearly return of 25%, outperformed other asset classes, including equities with just 7% returns.

Deposit growth in India, Asia's third-largest economy, is expected to be roughly at 20% in the next fiscal year to April 2012 as the Reserve Bank of India has taken steps to make the saving instrument more attractive, it said.

Gold currently accounts for 10% of Indian household saving, and the consumption accounted for 2.3% of the Gross Domestic Product in 2010.