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A sales person shows a gold ring to customers at a jewellery showroom during Dhanteras, a Hindu festival associated with Lakshmi, the goddess of wealth, in Ahmedabad, India, October 28, 2016.Reuters file

Discounts offered on gold in India, the second-biggest gold consumer, have widened to an over 5-year-high, but have not cut ice with the customer. Consequently, purchases of gold are lagging even after prices have rebounded.

Gold consumption in the country has been on a sluggish recovery path after plunging to a seven-year low of 666 metric tonnes in 2016.

Dealers in India have been offering discounts of up to $3.5 an ounce this week over official domestic prices, the highest since the last week of December.

Traders, however, said that business typically comes down in June. As prices of gold have been rising, the metal is trading at discount. The market is expected to trade in discount over the next few days, with most traders carrying more stock than justified by demand.

Increasing discounts on the yellow metal have not helped buying decisions. Dealers in India have been offering discounts of up to $3.5 an ounce this week over official domestic prices, the highest since the last week of December, according to Reuters.

Over the last few days, shares of jewellers have been climbing after the government set the rate for gold under the uniform goods and services tax below expectations, signalling a potential recovery in demand in the world's second largest market.

Gold was put under the three percent tax bracket by the Goods and Services Tax (GST) Council, much to the consternation of sellers, who fear a fall in gold demand. However, the World Gold Council (WGC) has seen the impact as "disruptive" with consumer behaviour changing in coming days. "But the net impact is expected to be positive," according to WGC.

Analysts also expect the impact of the new goods and services tax (GST) in India to be less severe as the lower-than-expected tax rate from GST may encourage a higher level of imports than what was earlier anticipated for the second half of this year.

The total tax on gold remains elevated as the metal also attracts a 10 percent import duty, and this will continue to impact the jewellery industry, P R Somasundaram, managing director for World Gold Council India, said in a statement on the weekend. The government should cut the import tax so that unauthorised imports are totally eliminated, he said.