The GOVERNMENT of INDIA – home to the world's heaviest consumers of physical gold – has acted as many industry watchers feared, and raised gold import duties once again.

This will shift gold inflows to "unofficial channels" according to analysts at brokerage Nomura, quoted today by the India Express.

"In our view imposing import duty tackles the symptom, not the cause," they say.

India has virtually no domestic gold mining production. The finance minister recently blamed gold imports for last year's record-wide deficit on India's current account.

"The widening current account deficit has increased India's need for foreign capital inflows," says NDTV today, "and evoked memories of the 1991 balance of payments crisis, when the Reserve Bank of India (RBI) sent 47 tonnes of [state-owned] gold to Europe as collateral for a loan to avert a sovereign default."

Gold imports fell 28% in the 12 months to Oct. 2012 however, after New Delhi quadrupled the import duty on refined Gold Bullion from 1% to 4% between January and March last year.

In a move designed to favor India's under-utilized refining industry – and also aimed to encourage recycling of existing gold holdings – the duty on unrefined "dore" bars and mining ore was only doubled to 2% in 2012.

But after raising refined bullion duty for 2013 from 4% to 6% on Monday night, New Delhi on Tuesday morning took the unrefined rate from 2% to 5%, sharply cutting the relative advantage enjoyed by India's domestic refiners.

"Over the medium term, we think the duty increase may dampen import demand only moderately," says a note from Credit Suisse's precious metals team.

Estimating a further 10% drop in India's gold imports during 2013, "The strength of the Rupee, the absolute level of domestic prices, and the overall health of the Indian economy will continue to be a greater determinant of gold demand, in our view."

Commenting on the finance ministry's recent discussion of alternative ways to reduce India's gold bullion imports, "We think the proposed changes to bank gold deposit schemes and ETF rules will have little effect," says Credit Suisse.

Gold imports accounted for 11.5% of India’s total imports by value in fiscal-year 2011-12, says LiveMint – the Wall Street Journal's Indian offering.

"In value terms, that grew from 6.9% in 2008-9."

The fundamental reasons for Buying Gold, says Amresh Acharya, director of investments at market-development body the World Gold Council's Mumbai office, is "to hedge against inflation and currency risks," reports Reuters.

"They remain as strong as ever."

Mohit Kamboj, president of the Bombay Bullion Association, believes that with these latest import duty hikes, "The government's revenue will increase, but imports won't diminish."