India's gold demand is expected to rebound in calendar year 2021 after dropping to the lowest in over two decades last year, according to the World Gold Council statement on Thursday.

The optimistic outlook on the back of pandemic-led pain stems from the fact that the second largest consumer of gold in the world imported 164.4 tons of yellow metal in the October-December quarter, up 19 percent on year, the highest in the past six quarters led by festive demand.

However, the overall demand for the fourth quarter at 186.2 tons was down by 4 percent in volume terms, but up by 21 percent and 26 percent in U.S. dollars and domestic currency rupee terms respectively.

"We could see a strong spurt in gold demand for the next few years, a repeat of what happened after a sharp drop in 2009," said Somasundaram PR, the managing director, India, World Gold Council, referring to the aftermath of the global financial crisis of 2009.

The year 2021 will likely set a trend of long-term growth in Indian gold demand and the benefits of such growth can be explicitly captured if coordinated policy measures are sustained, making gold a mainstream asset class, Somasundaram said.

He was referring to the high import duties levied by the Indian government, which is currently prevailing at 12.5 percent.

"The current high tax on gold increases the lure of smuggling, so a duty cut to reasonable levels is absolutely necessary, along with tax concessions for recycling gold, innovations and digital interventions," he said ahead of the country's federal budget scheduled on Monday.

Asia's third largest economy saw its gold demand dropped by over a third in calendar year 2020 settling at 446.4 tons compared to 690.4 tons in 2019, on the back of COVID-19-induced lockdowns and lifetime high prices.

The drop in demand of 446.4 tons valued at 25.4 billion U.S. dollars during 2020 was 35 percent lower in volume terms and 18 percent and 14 percent in U.S. dollars and rupee terms, respectively, though the prices were up 34 percent hovering around 684 U.S. dollars for 10 grams in the domestic market last year, he said.