Indian banks have ceased silver imports following a surge in private traders purchasing significant quantities of the precious metal from the United Arab Emirates to capitalize on a lower duty rate, according to insights from five dealers and industry sources.
As the world’s largest silver consumer, India imposes a 15% import duty on silver. However, under the Comprehensive Economic Partnership Agreement inked between India and the United Arab Emirates in 2022, private traders can import silver through the India International Bullion Exchange (IIBX) at a reduced 9% duty, along with an additional 3% tax for value addition.
Established in 2022, the IIBX serves as India’s inaugural international bullion exchange, with government approval granted by mid-December to facilitate silver trading activities for dealers. Notably, silver imports via the IIBX platform have surged this year, totaling 827 metric tons thus far, as confirmed by a senior IIBX official.
The availability of silver at a discounted rate of around 2% through imports via the IIBX platform has reshaped the market dynamics, with traders benefiting from lower costs compared to domestic prices. This trend has led to silver imported via IIBX trading at discounts of approximately 1,700 Indian rupees per kilogram relative to the domestic benchmark price in recent weeks.
While international silver prices hover close to $25 per ounce, reaching yearly highs and closely tracking gold fluctuations, Indian banks have faced challenges in offering competitive pricing due to the 15% import tax on silver. Consequently, banks have witnessed a decline in demand and subsequently halted silver imports, redirecting their focus towards gold trading activities.
The strategic shift by banks underscores the impact of duty differentials on market dynamics, prompting concerns about trade imbalances and potential revenue loss for the government. Despite government concessions aimed at fostering the viability of the IIBX, questions have emerged regarding the sustainability of such practices and their implications on import duty revenues.
With the UAE emerging as a primary source of silver imports in recent months, India continues to receive silver shipments from various countries including Britain, China, Russia, and Switzerland. The evolving landscape of silver trade in India reflects a complex interplay of regulatory frameworks, market dynamics, and global trade partnerships shaping the country’s precious metals sector.