KATHMANDU(BullionStreet): Nepal, which lies between the two Asian giants of India and China has become the new route of illegal gold supply to India from China.

Gold prices in China is much lower than in India at Rs 48,000 per ten grams while the same cost around Rs 50,500 in India,prompting smugglers to buy in China and sell it in India.

Analysts said major buyers of smuggled gold are Indian exporters to Nepal as some of the export items are under-invoiced and cannot be paid back legally.

Nepali importers are paying Indian traders with gold from China. Smugglers are supplying gold to traders as the yellow metal become a new form of currency for traders looking to pay for illegal imports from India.

Analysts added that buying gold in Nepal and selling it in India is not profitable due to lesser customs difference and tight supply of gold in the Nepali market.

Meanwhile, Nepal remained under gold short supply after a short pause as gold is being widely used as a mode of payment for under-invoiced goods from India.

A large number of goods imported to Nepal from India are under-invoiced. Importers do not reveal the actual amount of goods being imported to pay less customs duty.

Banks provide Letter of Credit and drafts to pay for the imports based on customs documents. Thus, to pay for illegally imported goods, traders face a tough time channeling money from Nepal to India.

Nepalese government is desperate to end the illegal trade involving gold after reports indicated that even imported precious metals were being smuggled to India .

Nepal's Department of Customs has asked the different customs points between Nepal and China to be more and seek Chinese help.

The Himalayan nation is going through largest ever balance of payments deficit in the history due to high imports of gold and silver.

Due to the deficit, Nepal has allowed only commercial banks to import gold with a quota of 15 kg per .Bullion traders have complained that 15 kg per day is not enough to meet the market demand.