The wedding season that extends to May typically raises gold demand, but many had delayed purchases expecting a cut in the 10 per cent tax.
Buying had been muted in the past few weeks in the otherwise buzzing jewellery centres, Zaveri Baazar in Mumbai and Karol Bagh in New Delhi.
"Gold prices were declining on expectations of a duty cut but now prices would rise and premiums would shoot to $3 to $4 an ounce," said Rahul Gupta, director at PP Jewellers in New Delhi.
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Keyur Shah, head of precious metals at retailer Muthoot Pappachan, reckons jewellers and manufacturers will replenish their inventory from Monday, boosting premiums to $5 an ounce.
"Inventories with jewellers and manufacturers are low as everyone was waiting for the duty cut to place fresh orders," Shah said. "Next week we would see big purchases from them."
Jaitley instead proposed introducing gold deposit accounts to make use of the more than 20,000 tonnes held in households and temples in the country, and launched a state gold bond to temper imports.
Shares of major jewellers such as Gitanjali Gems and Titan Company fell after Jaitley's speech, though the higher prices looked unlikely to significantly dent demand.
Instead, clarity around the duty will cause reluctant buyers to finally end their indecision, industry players said.
India could buy more than 90 tonnes in March compared with an estimate of more than 50 tonnes for this month, according to Sudheesh Nambiath, an analyst at precious metals consultancy GFMS, owned by Thomson Reuters.
Although the government of Prime Minister Narendra Modi did not cut the import duty imposed in 2013, it has been relaxing some other curbs.
Image: Gold bars are stacked in the safe deposit boxes room of the Pro Aurum gold house in Munich. Photograph: Michael Dalder/Reuters
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