India's surprise move to abolish high-value bank notes has started to disrupt cash-based gold smuggling and should benefit official importers of the metal in the world's second biggest consumer, industry officials said.

A drop in smuggling will allow banks and refiners to charge a premium over official local prices, which include a 10 percent import tax. For most of 2016 gold traded at a discount in India as smugglers undercut officialimporters.

Official importers welcomed Prime Minister Narendra Modi move this week to declare 500 and 1,000 rupee bills illegal and make them worthless for holders of unaccounted wealth.

Dealers charged a premium of up to $6 an ounce over official domestic prices on Thursday, compared to a discount of $3 an ounce last week. "Smugglers grabbed market share by offering discounts," said Surendra Mehta, the secretary of the India Bullion and Jewellers Association. "Now banks and refiners can claim back the business."

Smugglers offered a discount as

high as $ 100 an ounce in July, forcing banks and refiners to scale down their operations. That resulted in an 84 percent dive in imports of gold-silver alloy, dore, to 11.1 tonnes in the third quarter from a year ago.

Gold smuggling could rise up to 160 tonnes in 2016 from 100-120 tonnes in 2015, the World Gold Council estimated earlier this week.

But Bachhraj Bamalwa, director of the All India Gems and Jewellery Trade Federation, said that will now change as he expects smuggling to fall sharply in the next few months.