NEW DELHI(BullionStreet): India's recent tough stands against gold could only increase smuggling in the world's largest consumer, analysts said.

According to India's Directorate of Revenue Intelligence (DRI), an agency that monitors economic offences, the incidence of gold smuggling in the current fiscal year has zoomed at least eight times compared with the corresponding period the previous year.

They added that the increase in import duty on gold has clearly led to a price differential between Indian and international gold, and that, in turn, has led to an increase in smuggling.

Spot gold prices here are as much as 5.7% higher than in Dubai, compared with a difference of 0.1% in 2008. Typically, gold is smuggled into India from Dubai.

They said about 25 percent of gold flowing into India is coming through irregular channels and further tightening of norms would increase that sharply.

However, the largest consumer is using the duty system to try to hold back demand but gold crazy Indian's cannot be denied for too long as jewelers and traders would approach black markets to get the gold for selling it unofficially to customers.

Gold sales in most jewelery's in India were completed without proper billing, giving jewelers huge profits while customers are getting peanuts and the government nothing.

India last month raised the duty on gold imports to 6% from 4% and also planning several schemes to reduce the usage of physical gold.

India's gold demand surprisingly dropped last year due to the nearly 8% increase in prices but it is likely to climb back this year despite the restrictions,analysts said.

Global gold supply is forecast to rise to 4,601 tons this year from 4,484 tons last year. Jewellery makes up about 85% of demand for gold, apart from the manufacturing of gold coins.