July 9, 2026
The global silver market is watching India closely: although local consumer demand has been rather subdued recently, premiums for the precious metal are currently skyrocketing on the subcontinent. The cause of this physical shortage in the world’s largest silver market is not a sudden surge in demand, but massive regulatory intervention by the government. The drastic import restrictions have brought foreign inflows to a virtual standstill and are driving local premiums to a six-month high.
Import ban drains the domestic market
India traditionally meets more than 80 per cent of its silver requirements through imports. The reactions to the restrictive trade policy have been correspondingly fierce. In mid-May, New Delhi drastically restricted imports of the metal in almost all forms and tightened the rules further in June by introducing a mandatory licensing requirement for silver granules and powder. The impact on trade figures is striking: whilst imports in May had already fallen year-on-year from 534.3 to just 46.8 tonnes, the volume fell further in June, according to industry insiders.
This artificial shortage is now forcing buyers to pay huge premiums. Whilst silver was still trading locally at discounts of up to US$5.50 in May, premiums over the official world market prices have recently soared to a whopping US$6.50 per ounce – a premium of more than ten per cent.
Currency protection meets dwindling stock levels
Behind this crackdown lies the clear macroeconomic objective of reducing pressure on foreign exchange reserves and supporting the domestic rupee. Alongside the import restrictions, the government had already massively increased import duties on gold and silver from six to 15 per cent. The fact that the physical shortage did not escalate immediately was solely due to profit-taking by local ETF investors, who liquidated their holdings in the wake of the duty increases in May, thereby temporarily injecting liquidity into the domestic market.
However, these buffers have now been exhausted. At present, the Indian market is almost entirely reliant on supplies from Hindustan Zinc, the country’s largest silver producer. As sectors such as the electronics and solar industries, as well as the traditional jewellery sector, are already signalling a resurgence in demand, premiums are likely to climb further if import licences are not granted. For the global market, this presents a mixed picture: on the one hand, the absence of India – a major buyer – from the world market could put downward pressure on international prices in the short term. On the other hand, the situation impressively demonstrates how quickly government intervention can lead to physical shortages in markets for raw materials essential to industry.
