By Siddesh Mayenkar
MUMBAI (Reuters) - Silver imports into India, the biggest consumer of the white metal, are likely to decline up to 27 percent this year on expectations of volatile prices, despite import duty remaining unchanged, the head of the country's biggest bullion importer said on Monday.
Sunil Kashyap, head of Asia at Scotia Mocatta, a unit of Bank of Nova Scotia , said investors in India were averse to steep and volatile changes in prices of silver, which could dent imports.
Silver imports are likely to fall to 3,500-4,000 tonnes in 2012, down from 4,800 tonnes imported last year, Kashyap said.
The federal government, in its annual budget in March, kept the import duty on silver unchanged at 5 percent on value. It abolished the excise duty on silver, often considered as poor man's gold. Silver prices have risen 112 percent since 2009.
The budget, however, doubled the import tax on gold to 4 percent of value, which led to a prolonged shutdown by jewellers who have urged for a rollback of the duty.
"Import taxes increase the cost of (the yellow) metal to the final consumer and so the higher price may dampen demand for 2012," said Kashyap.
Gold imports could fall 38 percent to 600 tonnes in 2012, he said.
Scotia is the largest bullion importer in India, with about 35 percent marketshare. The bank operates in collaboration with wholesalers across the country.
Kashyap said a slew of taxes on gold could revive smuggling routes and government revenues may fall on account of lower imports.
"If they are trying to stop imports, well they have succeeded, but what will have happen to the revenues?" Kashyap said.
Investor interest in gold may decline globally due to rising risk appetite on the back of revival in the U.S. economy.
However, the yellow metal's status as a safe haven, an asset diversification tool and a store of value still remains unshaken, said Kashyap.
"This (reduction in rise of unemployment in the U.S.) has in turn resulted in higher equity values and there as been some rotation of funds out of the precious metals into equities," said Kashyap.
Gold reserves held by central banks have increased more than 500 tonnes over the last two years driven by purchases mostly in the developing world as they sought to diversify reserves from the U.S. dollar.
Gold has gained 5 percent so far in the year, lower than 7 percent gains in equity markets due to signs of improvement in the economy and stabilization of Europe's debt crisis.
In the current year, most of the banks have been on the sidelines because "either reached their targeted levels of gold reserves or they are waiting for the right levels to re-enter the market," said Kashyap.
Gold demand in China is expected to remain volatile. Gold demand from China, which is touted to overtake India's gold consumption, stood at 811.2 tonnes in 2011, up 22 percent on year.
"The last two months of the current year have seen a slower growth of demand than the same period in last three years. We expect some increase in off take later this year but overall the growth of demand will be a fraction of the rate we saw last year," said Kashyap.
(Reporting by Siddesh Mayenkar; Editing by Subhadip Sircar)