India's passion for gold is putting such a strain on state finances that the government may slap higher import taxes on the precious metal, but demand buoyed by heady inflation and meagre savings will blunt the impact of any rise in duties.
Initial success from a tax hike in March last year was stifled by the arrival of major festivals such as Diwali, when gold is a must-give present, and the winter wedding season.
That has scuppered New Delhi's goal of reining in spending on gold by around a third to $38 billion in the fiscal year that ends in March, prompting Finance Minister P. Chidambaram to say another tax increase could be on the cards.
But market participants say that would do little to dull gold's lustre for most Indians, especially with bullion prices heading north.
And the finance ministry would ideally like imports to be around $30 billion, an economic adviser there has told Reuters, with industry experts dismissing this as little more than wishful thinking.
India is challenged only by China in its appetite for gold, and with nearly all demand covered by imports, the country's purchases are a major factor in global prices.
The latest figures show the volume of imports jumped 48 percent in July-September from the quarter before and were only 8 percent down on 2011.
"It is the disease that needs to be cured rather than the symptom," said Munish Dayal, a partner at Baring Private Equity Partners India Limited.
With inflation above 7 percent and the Reserve Bank of India keeping key rates at 8 percent, it's no wonder that a 13 percent rise in domestic gold prices in 2012 looked attractive to so many.
Add to that a near total lack of banking facilities in rural areas, where about 69 percent of the 1.2 billion population lives, and it's easy to see why Indians would rather invest in bangles than bonds.
India wants to reduce gold's share of its import bill from 11.5 percent -- the second-highest outlay after oil.
The petroleum bill, while inflated by subsidies, is largely unavoidable for such a huge economy that imports 80 percent of its oil needs and is growing around 5.5 percent a year, but the government sees money tied up in gold as dead investment.PORTABLE DOWRY
Jewellers Gitanjali Group, which bills itself as a $2.5 billion multinational and features Bollywood movie stars Shah Rukh Khan and Kareena Kapoor in its adverts, writes off the duty hike, which a senior finance ministry official said could be to 5 or 6 percent on standard gold bars from 4 percent now.
"A duty hike of 1 to 2 percent won't make any difference ... It won't impact our sales at all," said the firm's head, Mehul Choksi.
And entrenched traditions will ensure gold's appeal remains strong.
The winter wedding season is in full swing and parents will snap up gold to shower their daughters, to show off their wealth and give her the traditional portable dowry as she moves into her husband's house.
"We will have to buy gold for weddings despite duty hikes as we have to stick to the customs followed by our great-grandfathers," said 52-year old Ramesh Madhani, eyeing jewellery in Mumbai's chaotic Zaveri Bazaar, India's biggest gold market.
The threat of more expensive imports has sent buyers into a frenzy, with traders estimating 40-50 tonnes of gold could have been imported in the first week or so of January -- nearly a month's worth in just a few days. That is despite near record-high domestic prices above 30,000 rupees per 10 grams.
The spurt could be nipped by a duty hike, but demand should bounce back, particularly with spot gold currently around $1,670 an ounce after gaining 6 percent in 2012, its 12th straight year of gains and one of the longest bull runs ever in a commodity.
Akshaya Tritiya, one of the biggest festivals for giving gold, will spice up buying further in early May.
The fundamentals supporting demand have helped spur Indians to squirrel away 20,000 tonnes -- about three times the holdings of the U.S. Federal Reserve -- in jewellery, bars and coins.
Only a tiny fraction of this has been tempted out by high prices and hiked import duties to be recycled, which can mean anything from turning grandma's lobe-lengthening earrings into fashionable nose rings or trading in "imitation" coins often used as a kind of gold gift voucher.
Attempts by the government and the RBI to encourage use of alternative investments such as gold bonds, deposit schemes and gold-based funds have gained little traction.
Hoisting the import duty on gold also has the side-effect of increasing smuggling, which government officials say has grown three-fold since the tax was last raised.
But Chidambaram may have few other politically palatable options to handle the record current account deficit -- which hit 5.4 percent of gross domestic product in the September quarter -- ahead of an election likely in 2014.