Mumbai, May 17 - Gold demand in the country declined by 29 per cent at 207.6 tonne during the first quarter of this year due to new tax on gold jewellery, increased import duty and weakness and volatility in the rupee, a World Gold Council report today said.

India's first quarter gold demand decreased by 29 per cent in volume at 207.6 tonne, on a year-on-year quarterly basis, while dipped by 3 per cent at Rs 56,650 crore terms of value, the report said.

"The beginning of 2012 has been a challenging period for the Indian gold market. Despite all the challenges - price rises, economic slowdowns, rapid social change, gold retains its lustre for consumers. We are optimistic that demand levels will normalise in the upcoming months as Indian consumers adjust to the new gold landscape," WGC Managing Director, India and Middle East, Ajay Mitra said in a release issued here.

There was a 21-day nationwaide strike by retailers after the government proposed one percent excise duty, and increased the custom duty from two percent to four percent.

The government later rolled back the decision of imposing excise on jewellery.

Gold has been a strong performing asset and as Indians have always had a very deep emotional affinity towards the yellow metal, this will continue to fuel demand, he explained.

"We believe that the encouraging levels of demand seen during Akshaya Tritiya and the recent wedding season will flow through into the second quarter, as more consumers build gold purchases into their budgets," he added.

The jewellery demand in volume terms also fell by 19 per cent to 152 tonne from Q1 2011. However, in value it increased by 10 per cent year-on-year to a record high of Rs 41,480 crore. Gold investment demand stood at Rs 15,170 crore, a 27 per cent year-on-year decline, in value terms. Investment demand tonnage was down 46 per cent from the previous year at 55.6 tonne, it added. PTI