Indian authorities could slash record high import duties on gold and ease export rules later in the month to help reduce the country's trade gap and the threat of gold smuggling.
The decision to cut the import duty could be out anytime this month, an unnamed government source with direct knowledge of the deliberations told Reuters.
India's current account deficit (CAD) could hover below the $50bn mark in the year to 31 March, 2014, a $20bn reduction from previous estimates, a second unnamed source told the news agency.
A lower CAD and the limited impact of the US Federal Reserve's QE taper decision on the rupee could compel New Delhi to ease restrictions on gold imports and exports.
Jewellers, who estimate India's monthly demand to hover at 60 tonnes, have asked for the duty to be reduced to 8%. They have the backing of the main opposition Bharatiya Janata Party, which is looking to end South Asia's longest serving prime minister's reign in the 2014 elections.
However, a final decision rests with Finance Minister P Chidambaram, who said last week that he favoured extending "some restraint" on imports.
Earlier, central bank chief Raghuram Rajan warned that smuggling would increase if restrictions on gold imports, India's second most expensive import after oil, continued for too long.
N R Bhanumurthy, an economist at Delhi-based think-tank the National Institute of Public Finance and Policy (NIPFP), said: "We have unaccounted imports of gold that are much more damaging for the overall monetary system. It actually creates a huge problem for monetary policy."
"Now when they have come close to a comfort level on the current account deficit, there is definitely a need to review this import duty."
Rajan said in December: "Once we feel more comfortable with the current account deficit, once we have a sense the tapering, at least the threat of it is behind us, we will certainly consider unwinding some of these distortionary actions."
The short-supply of gold pushed up Indian premiums to a record high of $160 an ounce over London prices in early December, against about $130 to $150 an ounce in Singapore.
Three upward revisions to the import duties on gold in 2013, to a record 10%, and restrictions tying purchases to exports, resulted in an almost 90% drop in imports in the six months to November.
That helped China, the world's top producer of gold, dislodge India as the world's top buyer of the precious metal in 2013.
India's Gold Imports
India's official imports were 21 tonnes in November, down from 2012's monthly average of 72 tonnes and markedly below the record of 162 tonnes struck in May, according to Thomson Reuters GFMS.
Between April and September, customs officials seized nearly double the amount of illegal gold taken in 2012.
Gold and silver imports soared 138% to $7.5bn in April 2013 when compared to the year-ago period, as shoppers loosened their purse strings when prices fell.
The World Gold Council estimated that about 150 to 200 tonnes may have been smuggled into Asia's third-largest economy in 2013, in addition to the official demand of 900 tonnes.