India permits large silver imports despite weak domestic demand

India has granted permits to import approximately 6,500 metric tons of silver over the next six months, as the world's largest consumer of the precious metal aims to satisfy festive-season demand, according to four bullion dealers who received the permits from Reuters. This significant increase in imports, which rely on overseas purchases to meet more than 80% of India's silver needs, could potentially lift global prices and alleviate the substantial domestic premiums that have increased due to limited supplies.

In mid-May, India imposed import restrictions on silver in nearly all forms, followed by further tightening in June to include silver grain and powder, necessitating prior import authorization. Chirag Thakkar, CEO of Amrapali Group Gujarat, a leading silver importer, noted that the government has permitted a much larger quantity of silver to be imported than the country is expected to require over the subsequent six months, suggesting that this move should assist in reducing domestic premiums.

In August, India's goods trade deficit narrowed as gold imports declined. To address pressure on its foreign exchange reserves and support the rupee, the government has recently increased import duties on gold and silver to 15% from 6%. The heightened import allocation for the next six months has come as a surprise to the market, as domestic demand for silver jewelry and investment has remained subdued amid falling prices.

A Mumbai-based dealer from a bullion importing bank commented that while the festive season is underway, demand for silver has yet to pick up, and many investors have suffered losses in the recent sharp price correction, leading them to remain cautious.