India being the world's second biggest consumer of the precious metal is attempting to dampen demand and bring down the trade deficit.
The rise in duty would eventually result in a increase in the prices and moderate demand in India, which could weigh on global prices. However, according to officials, it may also stoke under-the-counter buying and increase appetite for precious metal smuggled into the country.
Reuters quoted managing director of RiddiSiddhi Bullions, Prithviraj Kothari, "The sudden rise in prices could bring down jewellery demand this month."
Dealers were offering a discount of up to $40 an ounce over official domestic prices after the duty hike, which includes 12.5% import and 3% sales levies. While global gold prices fell 0.5% after the duty hike, local gold prices rose around 3%.
