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The government may raise the import duty on gold and silver in the Union Budget, according to traders.

The reason, they say, is that despite high prices, the demand for precious metals has been rising and so are their imports.

Industry representatives say the government may be tempted to raise the duty on gold and silver by Rs 100 per 10 gram and Rs 500 per kg, respectively, to earn extra revenue at a time the economy is facing several challenges.

If this happens, it will be the third consecutive year when import duties on precious metals will be raised.

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"I will not be surprised if the government raises the import duty on gold and silver as the increase in 2010 did not deter consumers from investing in precious metals," said Ajay Mitra, managing director, India and West Asia, World Gold Council.

Despite a manifold increase in prices, the duties were not reviewed between 2004 and 2009. In 2009, the government raised the duty on silver from Rs 500 to Rs 1,000 per kg. The duty on gold bars was raised from Rs 100 per 10 gram to Rs 200 per 10 gram and on other forms of gold (excluding jewellery) from Rs 250 per 10 gram to Rs 500 per 10 gram.

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Next year, the import duty on gold was raised by Rs 100 to Rs 300 per 10 gram. Similarly, the duty on silver was raised by Rs 500 to Rs 1,500 per kg.

Assuming a similar increase this year also, the government's kitty is expected to swell by nearly Rs 3,000 crore (Rs 30 billion), based on a projection of 1,000 tonnes gold and 1,200 tonnes silver imports next year.

WGC has estimated 2010 gold imports at 918 tonnes. The Bombay Bullion Association expects that 1,200 tonnes silver will be brought into the country in 2010.

"The government may revise the import duty on both gold and silver this year as the last increase in 2010 did not deter consumers from buying precious metals," said Prithviraj Kothari, president of the Bombay Bullion Association and director of Riddi Sidhi Bullions.

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Kothari does not rule out the possibility of an increase in smuggling if the price difference between global and Indian prices widens.

He says non-resident Indians may play a big role in bringing gold to India in case the government raises the duties further.

"We have urged the government to plough back the money, at least 50 per cent of it, to develop the sector, which needs massive investments after coming out of the downturn," said Vinod Hayagriv, the chairman of the All India Gems and Jewellery Trade Federation.