Indian gold importers are offering discounts of up to $16 an ounce versus London prices, the highest in 17 months, as jewellers have curbed purchases in anticipation of a likely cut in record-high gold import duties.

A falling Indian trade deficit has sparked expectations that New Delhi will cut import duty in the budget to be tabled in parliament on 28 February.

Lower import duties could reduce smuggling and boost demand, supporting a rebound in global prices. India is the world's second-largest gold consumer after China.

The gold discount varied from $4 to $16 per ounce in different India cities, with the highest being offered in southern India, Reuters reported. Importers usually charge a premium over London prices.

Daman Prakash Rathod, director with Chennai-based wholesaler MNC Bullion, told the news agency: "Jewellers are keeping lower inventory. They are not making big purchases expecting an import duty cut."

Bachhraj Bamalwa, director at the All India Gems and Jewellery Trade Federation, said: "This is the right time to cut the import duty. The trade deficit has come under control due to sharp fall in crude oil prices.

Industry officials believe a reduction in the duty is possible as gold imports plunged to $1.34bn (£886m, €1.16bn) in December, from $5.61bn in November 2014.

India's trade deficit dropped to a 10-month lower of $9.43bn in December, from November 2014's 18-month high of $16.86bn, thanks to weaker crude oil prices. Oil represents a third of all imports.

Last November, India scrapped a rule tying gold imports to exports despite rising inbound shipments. The so-called 80:20 rule had demanded that traders export 20% of all gold imported into the country.

The previous Congress Party-led government made three upward revisions to the import duties on gold in 2013, to a record 10%, and rolled out restrictions tying purchases to exports to battle an inflating current account deficit and stem a free fall in the rupee.