India reduced custom duties on imports of gold and raw gem stones in its 2003-04 budget on Friday, a move industry officials said would boost jewellery exports and restrict gold smuggling.

The customs duty on gold bars and coins has been cut to a historic low of 100 rupees per 10 grams from Rs 250, Finance Minister Jaswant Singh told parliament in his budget proposals.

The government also abolished customs duty on coloured, rough gem stones and semi-processed, half cut and broken diamonds. The import tariff on polished diamonds and gem stones has been cut to five per cent from 15 per cent.

"The move will help India in emerging as a global trading centre for diamonds and jewellery," Sanjay Kothari, chairman of the Gem and Jewellery Export Promotion Council, told Reuters.

He said it would now be viable for jewellery makers to import expensive, large-size diamonds and export them in the form of ornaments.

India, the world's largest diamond cutting and polishing centre, is likely to export gems and jewellery worth $9.58 billion in 2003, up from $8.71 billion a year ago and $7.13 billion in 2001.

Until now, Indian firms have largely been importing small and medium sized stones while imports of large stones have been low because of higher duties.

"This will certainly improve our competitiveness in the global market. We will be able to export more and offer attractive rates to buyers," said Dinesh Navadia, secretary of the Surat Diamond Merchants Association.

Surat, in Gujarat, is the country's main diamond cutting and polishing centre.

Demand sluggish

Traders said the gold duty cut was unlikely to boost bullion imports as international prices remained volatile on fears of a US-led war against Iraq.

"The reduction in duty will not make a huge difference in prices, so any impact on local demand and imports is unlikely until global prices fall," said Mukul Sonawala of the Bombay Bullion Association.

"Smuggling will no longer be lucrative because the duty has been cut to a very low level," a New Delhi-based trader said.

India imports 75 per cent of its annual gold needs of about 800 tonnes, but purchases fell more than 30 per cent to 410 tonnes in 2002 from the year before due to high global prices, according to the industry-funded World Gold Council.

Gold was quoted at $347.90 an ounce at 11:22 GMT on Friday against around $381 in the first week of February.

Reuters