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The rising price does reduce demand but each festival and wedding season brings sales back up again. Industry experts say there are signs that higher import taxes have encouraged smuggling, which hasn't been a problem since India lifted strict gold controls more than 20 years ago. Few expect a return to those draconian measures. Potentially more effective is a new scheme to get the vast amounts of gold already in India back into circulation. "India is not only the world's biggest importer of gold, it's the biggest hoarder of gold," said Albert Cheng, a managing director of the World Gold Council, which estimates there are some 18,000 tons of gold locked up in bank vaults and family homes around the country. Standard Chartered's Chakraborty said such "non-productive" gold in India is worth some $1 trillion, about half of India's GDP. The government's recently stopped requiring gold-backed exchange-traded funds to hold physical gold in the amount of their sales. Instead, the funds will be allowed to deposit some gold with banks who in turn can lend it to jewelers, which in theory should reduce imports for a time. "Up to now, both jewelers and ETF's have been driving the rise in import demand. Now, maybe they can start to cancel each other out," Chakraborty said. The funds have combined assets of about $1.8 billion, a small proportion of India's gold purchases, so progress might be slow. "Gold is considered pure in our culture, and giving it is a virtue. Certain amount of gold must be bought," said 26-year-old Rohini, a Mumbai physiotherapist as she browsed in a jewelry shop. Her mother, Jaishri, agreed. "Of course, nobody can afford as much as we used to. Once upon a time, we used to buy gold by the kilo," she said. "But the price is so high now, we just buy what we can for the necessary things."
[Associated
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