Smuggled gold could account for more than a third of demand this year in India - the world's second-biggest buyer of the metal after China - potentially costing the government over $1 billion in lost revenue.

Smuggled gold into India could double to as much as 300 tonnes in 2016, said Bachhraj Bamalwa, director at All India Gems and Jewelry Trade Federation, although the World Gold Council (WGC) has put the figure at 160 tonnes. At 300 tonnes, the government would forego about $1.3 billion at current gold prices.

India's official gold imports fell 57 percent in the first seven months of 2016 to 215 tonnes, and could fall more than 60 percent for the year to 350 tonnes to 400 tonnes, the lowest level in two decades, said Sunil Kashyap, managing director, Global Banking and Markets at Scotiabank.