Gold prices crashed in bullion markets across India following the scrapping of a 27-year-old gold control act that restricted the sale, purchase and possession of gold, traders said last week.

Prices in the Bombay, New Delhi and Madras bullion market crashed in a week by about 11 percent to 305 rupees (US$20.55) per gram after the central government scrapped the Gold Control Act of 1963 in the fiscal 1990- 91 (April-March) proposals presented to parliament April 19.The surprise decision has been welcomed by traders and jewelry exporters, who said the now-defunct act was irksome and stifled the bullion market.

The abolition of the act will break the monopoly of the handful of certified goldsmiths and dealers and bring competition into the trade.

The government has not unveiled its gold policy following the abolition of the act, but traders believe it will introduce liberal legislation in parliament to boost the export of jewelry.

Gold prices have crashed in anticipation of the government allowing limited import of gold by non-resident Indians and relaxation of tourist baggage rules, allowing Indians to bring in small quantities of gold.

Traders believe this would bring down gold prices to a level closer to the international bullion price and discourage smuggling.

Gold worth 30 billion rupees is estimated smuggled into the country annually because of vast price differences between the international and domestic markets.

The government has estimated that the current Indian demand for gold is 200 metric tons a year and that smugglers meet more than 80 percent of the requirements and the balance by re-cycling old jewelry.

Import of gold is not allowed and the country barely produces a ton of gold annually. Officials have estimated that from April 1988 to March 1989, 150 tons of precious metal was smuggled into India from the gulf region.

The demand for gold is high in this impoverished nation of 820 million people because of social obligations that necessitate Indians give gold to daughters as wedding gifts, and also the tendency to keep gold as a security, although this habit is declining.