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India's commerce ministry has backed a long-standing demand from the jewellery industry to reduce import tariffs on gold bars, government and industry officials said, amid concern the duties were further harming the country's faltering jewellery exports.

The commerce ministry's support for lowering the tariffs comes ahead of the federal budget due next week. If a reduction in the taxes is accepted, Finance Minister Nirmala Sitharaman could announce the decision in her interim budget on Feb. 1.

The Gems and Jewellery Export Promotion Council (GJEPC) has urged the government to reduce import tariffs on all types of gold to 5% from 15%, and lower the customs duty on cut and polished diamonds, to reduce costs for India's jewellers.

"India's customs duty on gold is among the highest globally," said Vipul Shah, chairman of the GJEPC.

Lower duties would boost exports and reduce imports through illegal channels, he said.

Earlier this week, the government raised the import duty on gold and silver findings - hooks, clasps and other fittings used in making jewellery - to 15% from 11% to keep importers from bringing in gold classified as findings to save on taxes.

Millions of Indians visiting Dubai and Singapore have also been bringing gold jewellery back home to escape the relatively high local prices due to the import taxes, industry leaders said, hurting local industry and cutting into state revenue.

The commerce ministry has supported the industry's demand for lower taxes, said a senior trade ministry official with direct knowledge of the matter, but noting that the finance ministry "has many other considerations".

He asked not to be identified as discussions between the government departments were private.

Lower costs would help the viability of India's large gold and diamond jewellery processing industry and help exports, the trade ministry official said.

The finance and commerce ministries did not reply to emails seeking further information on any discussions over the import taxes.

In mid-2022, the world's second-biggest gold consumer raised the import duty on gold to 15%, a decision that industry officials say led to smuggling worth billions of dollars.

Jewellery exports were dragged down by the resulting higher costs and by falling demand in the United States and China, said GJEPC's chairman, Shah.

India's jewellery industry - which employs over 4.3 million and accounts for more than 10% of India's goods exports - saw a 16% fall in exports for April-December 2023 compared with the same period a year earlier, according to commerce ministry estimates.

Still, gold imports rose by more than 25% to nearly $36 billion during the same period reflecting strong local demand, government data showed.

There's a risk a cut in the gold import duty could increase this propensity to consume gold and put pressure on India's trade deficit, said Madhavi Arora, economist at Emkay Global Financial Services, and the net economic costs of any such move would have to be kept in mind.