India is the world's biggest gold importer, and purchases of the precious metal have contributed to widening the current account deficit to a record high 5.4 percent of gross domestic product in the July-Sept quarter of the current 2012/13 fiscal year.
The government hiked import duties by 2 percentage points to 6 percent on January 21 to discourage gold imports, and the official with state-run purchaser MMTC (MMTC.NS) expects duties to be raised further.
He also said the government may cap imports or cut the number of companies authorised to import gold if purchases have not slowed down by the time it announces the 2013/14 budget on February 28.
"We are consciously reducing our gold imports from our portfolio because the government wants it that way," the MMTC official told reporters. He declined to be identified as he is not authorised to speak to the media.
The 2012/13 fiscal year ends on March 31, 2013.
The official said MMTC's gold purchases this fiscal year were down to around 30-40 tonnes from last year's 160 tonnes.
India's total gold imports in January rose to 100 tonnes -- their highest in 18 months -- as traders stocked up ahead of the duty hike, according to industry group the Bombay Bullion Association.
"A further rise in import duty is very much likely. Just see the price movement," said a Mumbai-based dealer with a private bullion importing bank. Indian gold futures have fallen nearly two percent so far in 2013.
"Despite the higher duty, local prices have gone down due to the drop in overseas prices. The government wants to make gold unattractive," the trader added.
Indians' passion for gold, seen by many as a hedge against persistently high inflation, means bullion comes second only to oil in the import bill of Asia's third-largest economy.
India is also concerned that buyers sit on gold, with 20,000 tonnes -- more than the stocks of the U.S. Federal Reserve -- kept outside the broader economy.
Much of rural India, however, lacks adequate banking to offer alternative investment options, keeping gold popular. Less than 10 percent of the total number of villages in India have banks, the MMTC official said.
Indian gold demand could rise nearly 12 percent to as much as 965 tonnes in 2013, the World Gold Council said last week, without giving an estimate for imports. In 2012, imports accounted for almost all the 864 tonnes of Indian gold demand.