As trade deficit falls, Centre may reduce import duty on gold: Official

India's falling trade deficit is giving the world's second-biggest gold consumer room to lower its import duty on bullion, a commerce ministry official said on Thursday.

A reduction in import duty would make gold cheaper in the local market and could boost demand, supporting global prices now trading near their highest in six weeks. Spot gold prices are rebounding this month after posting their first monthly loss for 2017 in June.

A lower import duty would also help in curbing gold smuggling, which the industry says is likely to rise after the hike in sales tax on gold jewellery from July 1.

"Now the current account deficit is improving and this decision (to reduce import duty) should be taken into the budget," Manoj Dwivedi, a joint secretary at India's commerce ministry said on the sidelines of a conference.

The commerce ministry is recommending a reduction in the gold import duty to the finance ministry, Dwivedi said, although it was not clear how soon a decrease could be enacted.

A finance ministry spokesman declined to comment on the matter.

India raised import duties on gold to 10 percent in a series of hikes to August 2013, looking to curb demand to narrow a gaping current account deficit.

India's trade deficit narrowed more-than-expected to $12.96 billion in June as gold imports nearly halved from a month earlier.

The commerce ministry has "been saying the ideal rate for the industry would be 2 percent. It can be brought down in a phased manner or in one go," Dwivedi said.

Gold smuggling has been rife since India raised the import duty on the metal. The World Gold Council estimates that up to 120 tonnes of gold was smuggled into India in 2016.

India's legal imports typically stand at around 800 tonnes a year, with gold and gold jewellery used as religious donations, and wedding and holiday gifts, or as investments that can be readily turned into cash.