The new licensing regime implemented by the central government in India is having a direct impact on the precious metal silver market. Due to these strict rules, silver imports in the country have witnessed a sharp decline, resulting in the premium in the domestic market reaching the highest level in several months. According to a Bloomberg report, most banks and financial institutions have not yet received the necessary permits or licenses to import silver and are waiting for government approval.
According to a report by consultancy firm ‘Metals Focus’, the government had made licensing mandatory for silver imports in May in order to save foreign exchange. Due to which silver shipments in June plummeted to just 29 tonnes, while in January this figure was around 474 tonnes. This total import figure in June is estimated to be less than 1 per cent of the country’s annual silver demand.
Harshal Barot, principal consultant at Metals Focus, said that this sudden drop in supply has pushed the 30-day average premium rate (i.e. the extra amount paid by buyers over benchmark prices) to its highest level since 2019. Renisha Chinanani, head of research at Mumbai-based gold trading firm Augmont Enterprises Ltd, said that the halt in imports has led to a severe shortage of physical silver, while demand in the market remains intact.
Confusion among businesspeople and government standards
According to a government official with knowledge of the matter, the committee that approves import licenses meets only once or twice a month, which is delaying the process. The main objective behind this new arrangement is to prevent an unusual surge in silver imports from free-trade agreement countries like Thailand and the United Arab Emirates (UAE).
However, the new licensing system has created a lot of confusion among traders and importers. There is a lack of clarity on how the quota is allocated and what happens after it is exhausted. In addition, the government has now made it mandatory to submit a ‘Certificate of Origin’. According to a spokesperson for the Ministry of Commerce, silver imports now fall under the ‘restricted import’ category and all applications are being processed as per the rules.
Clouds of danger loom over the upcoming festivals and wedding season
The stringent measures come at a time when the government had earlier hiked import duty on gold and silver in response to rising energy prices and pressure on the rupee due to ongoing conflicts in West Asia.
But the shortage could become a major problem ahead of India’s busiest shopping season. Jewellers usually start replenishing their stocks from July itself for the October-November festivals and the wedding season that runs from November to March. Experts say that if imports do not start on time, the problems for consumers could increase in the coming days.