Lower imports by the world's No.2 buyer of gold after China could hurt a recovery in global prices of the precious metal after a sharp 28 percent drop last year.
"Indian demand for gold is lower as it is difficult for consumers to carry cash given election-related curbs. They are resisting unnecessary buying at the moment," said Bachhraj Bamalwa, director with All India Gems and Jewellery Trade Federation (GJF), which groups more than 300,000 jewellers.
Gold arrivals in both April and May could plunge to 20 tonnes, Bamalwa said, from March imports of 50 tonnes.
To guard against bribes or vote buying during the ongoing elections, the Election Commission has made it mandatory for individuals carrying more than Rs. 50,000 ($830) to provide documentation, such as a proof of identity and an explanation for the source of funds.
For jewellers, the cap is Rs. 200,000 in cash.
This has hit jewellery sales, which have already been squeezed by a 10 percent gold import duty imposed last year to reign in India's ballooning current account deficit.
Rural buyers, who account for about 70 percent of India's gold demand, pay in cash for jewellery as they have limited access to banking facilities like cheques and credit cards.
"The Income Tax department is very strict on the movement of cash and has opened a 24x7 call centre to receive complaints on violations, so people are scared to carry cash or gold," said Kumar Jain, vice-president with Mumbai Jewellers Association, which groups more than 10,000 jewellers.
In previous elections, political workers suspected of trying to bribe voters were caught with suitcases packed with cash and stowed in car trunks, ambulances and even hearses.
Jewellers are unwilling to transport huge stock and cash due to the curbs, GJF's Bamalwa said, adding that about 58 kilograms of legal gold was seized by income tax officials in the western state of Maharashtra earlier this month.