Gems and jewellery constitute almost 20% of India's exports, and until now precious metals importers have had to use state agencies for supplies.

The government said it was introducing the new rules because they "could not wait" until after the election due in the coming weeks.

But some observers saw the move as an tactic to help gain votes.

Unlike some previous elections, the government is running as much on its economic record as on its Hindu nationalist credentials.

The economy is on course to grow 7% in the year to March 2004, with exports up more than 40% in December over the previous year.

Easing

Precious metals are not the only commodity whose import has been freed up.

Offices and professional establishments will be able to bring in equipment they need duty-free.

Most hotels are also to be allowed to bring in alcohol without paying massive customs duties of 100% or more - as long as the savings are passed straight on to customers.

Fuel will be importable duty-free by businesses with manufacturing export licences.

Cars, dairy products and agriculture, however, are specifically excluded from any of the new liberalisation.