A raid by dozens of tax inspectors on RiddiSiddhi Bullions, one of India's biggest gold traders, this week has tarnished the reputation of an industry worth more than $70 billion a year and put at risk its access to funding, a bullion importers' group said.
"The jewellers' fraternity, be it small or big, is feeling disgraced that we've been made to look so negative," Mohit Kamboj, president of the Bombay Bullion Association, told a news conference in Mumbai on Friday.
Income tax officials this week swooped on about 50 offices of RiddiSiddhi Bullions, a leading gold importer.
The raid was part of a probe into financial transactions for suspected bogus imports and exports, said Swatantra Kumar Singh, director general of investigations at the tax department.
Prithviraj Kothari, managing director of RiddiSiddhi Bullions, could not be reached by telephone for comment.
He said in an emailed statement to news media that he would cooperate fully with the authorities and described their action as a "routine survey".
The probe coincided with a drive by the government to rein in imports of gold by a country that is already the world's largest buyer of bullion. Gold imports, which hit a monthly record of 162 tonnes in May, are largely to blame for a ballooning current account deficit.
Other jewellers and dealers were also raided in Mumbai's Zaveri Bazaar, a maze of narrow streets and dilapidated shops that is home to India's biggest bullion market, Singh told Reuters in a text message.
He said on June 12 that tax officials had seized about $1.4 million from Kothari's head office in the centre of Zaveri Bazaar and other offices of the company across India.
India's appetite for gold is vast, with imports hitting a record 969 tonnes in 2011. The government moved this month to tame demand with a 50 percent hike in import duty to 8 percent.
India used to ban imports of gold and most of it was smuggled into the country until the 1990s, when controls were relaxed.
Kamboj said the sensation caused by this week's raids had damaged relations between jewellers and banks, which are a major source of funding for an industry largely made up of small, family-run shops that cannot afford to carry large stocks.
"If any jeweller goes to a bank then they are treated as if they are frauds or smugglers," the association president said.