The All India Gems and Jewellery Federation has also asked the government to retain duty on jewellery imports in order to boost the domestic manufacturing.
"We met with the Commerce Secretary on Wednesday to discuss the issues regarding the sector and on gold imports," the association's chairman Haresh Soni told PTI.
"We have suggested that the customs duty should now be reduced to 2 per cent from the current 10 per cent to help check the smuggling of the precious metal, which is impacting the government coffers, now that the current account deficit is under control," he said.
Keeping in mind the Prime Minister's vision of 'Make in India' domestic manufacturers should be encouraged, he added.
The trade body has asked for developing jewellery parks, wherein artisans will be exposed to the best of technologies and quality can be maintained.
There was also a suggestion of promoting fashion jewellery with lower usage of gold.
"The promotion of reduced gramme of gold in fashion jewellery will help in lower consumption of the yellow metal while creating consumer interest with new trendy designs," he added.
The gems and jewellery sector employs nearly 3.5 million people.
The Commerce Ministry had called a meeting of gems and jewellery players on Wednesday to discuss issues regarding gold imports.
The government recently removed the '80:20' scheme, under which 20 per cent of the imported gold had to be exported before bringing in new lot.
Gold imports surged by over six-fold to $5.61 billion (over Rs 35,000 crore) in November.
Higher gold imports have pushed up trade deficit to one-and-a-half year high of $16.86 billion in November as against $9.57 billion in the same month last year.
Last week, the Reserve Bank of India (RBI) had said the current account deficit widened to $10.1 billion, or 2.1 per cent of GDP, in July-September. It cited higher trade deficit due to rising gold imports as the primary reason for the spike in current account deficit.
Current account deficit, which is the excess of foreign exchange outflows over inflows, touched a historic high of 4.8 per cent of GDP in 2012-13, mainly due to rising imports of petroleum products and gold.
However, it narrowed sharply to 1.7 per cent of GDP in the April-June quarter of this fiscal year due to decline in gold imports.
Gems and jewellery export grew 44.2 per cent year-on-year to $3.69 billion in November.
Gold import in December was at 39 tonne and 7 tonne in January so far.