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* Permission for 5 banks to ship gold seen lifting imports
* Gold imports expected to ease in Q2 as elections begin
* Smuggling of gold "increased manifold" - trade body
By Siddesh Mayenkar and Jan Harvey
MUMBAI/LONDON, April 2 (Reuters) - Indian gold imports likely jumped in March from around 25 tonnes in February after the central bank allowed more private banks to ship the metal, triggering a correction in premiums, the head of the country's biggest jewellery trade body said on Wednesday.
India, the world's second biggest buyer of the metal after China, moved to curb gold imports last year in a bid to reduce a record current account deficit, levying a record 10 percent duty on the yellow metal and linking import volumes with exports.
However, in mid-March, the central bank allowed five more private banks including HDFC Bank and Axis Bank to import the metal, in what many saw as a first step towards easing of tough restrictions.
"All the five banks have a good presence across India and hence the availability factor will improve greatly ... March imports are estimated to be on a higher side compared to February," Haresh Soni, chairman of All India Gems and Jewellery Trade Federation (GJF), a trade body which groups more than 300,000 jewellers, told the Reuters Global Gold Forum.
As a result, premiums have fallen 85 percent to $25-30 an ounce on London prices, from a peak of $160 in December last year, he said. He declined to give an estimate for March or June quarter imports.
Imports may slow in the June quarter from last year's extremely high 338 tonnes, he added. Jewellers rushed to buy in the second quarter of 2013 after government officials sounded the alarm on the current account deficit due to rising imports of gold, the second biggest import item after crude oil.
"As general elections commence from April 7, we may see a further reduction, keeping in mind the code of conduct, (which restricts the) mobility of valuables and cash," Soni said. During elections, cash movements of more than 60,000 rupees ($1,000) require documentation.
"Now, when the current account deficit is under control, the government should take cognizance of the same and should ease the pressure applied on gold imports," Soni said. "This policy should be withdrawn, as the gem and jewellery industry in India is facing survival issues."
Managing inventory is a "Herculean task" for jewellers, he said. Many are incentivising the use of scrap gold and importing finished pieces of jewellery, while others make use of smuggled gold.
"Smuggling has increased manifold," Soni said. "One reason is the consistent hike in import duty and the procedural hurdles of the 80:20 rule. Also the scarcity factor played its part, as high premiums were charged and raw material was not available."
$1 = 59.8050 Indian Rupees Reporting by Siddesh Mayenkar in Mumbai and Jan Harvey in London, editing by David Evans