India Eases Silver Import Restrictions Ahead of Diwali Festival

India is preparing for a surge in silver imports just in time for Diwali, the country's major jewelry-buying season, as the government has granted a significant number of new import permits. These approvals, which cover up to 6,000 tonnes of silver, mark a notable easing of restrictions that had previously constrained imports into one of the world's largest silver markets.

Sources familiar with the developments, who requested anonymity due to confidentiality, confirmed that these licenses will remain valid for six months. This move should help alleviate the supply bottlenecks that have elevated silver premiums across the Indian market.

Harshal Barot, principal consultant at Metals Focus Ltd, a consultancy specializing in precious metals, remarked that the new permits are sufficient to accommodate any spike in demand during the festival season. He added that the market is no longer expected to be tight and that premiums are likely to decline significantly as Diwali approaches.

India relies heavily on imported silver, with domestic production covering only a small fraction of demand. Earlier this year, the government imposed new licensing rules in May to manage foreign exchange reserves and support the rupee. Under these regulations, buyers must obtain permits before importing silver, and shipments must be accompanied by certificates verifying the country of origin. Additionally, import duties on gold and silver were more than doubled, increasing costs for traders and consumers alike.

These measures initially caused silver imports to drop sharply. In June, shipments plummeted to a three-year low of just 37 tonnes. By September, imports had recovered somewhat to an estimated 328 tonnes as limited permits were issued.

The timing of the permit issuance is critical as demand for precious metals typically spikes during the months leading to Diwali, a festival known for heavy gold and silver purchases. The fresh influx of permits is expected to ease the premium that buyers have been paying, which had recently surged due to supply shortages.

Monal Thakkar, managing director of Ashoka Global FZCO, a precious metals trading firm, noted that Indian silver premiums dropped to about 50 cents an ounce over the global benchmark on Thursday. This is a marked reduction from roughly $2 an ounce just a week prior, according to Metals Focus data.

Last year, India’s silver imports exceeded 7,000 tonnes, fueled by robust demand that contributed to a historic short squeeze in global silver markets. Prices soared, reaching a record high of over $121 an ounce in January before falling amid inflation concerns driven by rising energy costs linked to the conflict in West Asia. On Thursday, spot silver was trading near $56 an ounce.

Although demand has increased in anticipation of the festival, consumption levels this year are expected to be considerably lower than last year. Barot explained that both retailers and wholesalers have maintained modest inventory levels, and fewer consumers are purchasing silver as gifts. He also pointed out that many investors are hesitant to buy more silver despite price corrections, as they are still holding losses from purchases made last year.

The recent relaxation of import restrictions represents a significant policy shift aimed at balancing the need to conserve foreign currency reserves with the commercial realities of the domestic silver market. By issuing these permits, the government is enabling traders and banks to better meet seasonal demand without the severe supply constraints experienced earlier this year.

These developments come amid broader trends in the global precious metals market, where fluctuations in currency values, geopolitical tensions, and inflation concerns continue to influence demand and prices. India's adjustment to silver import policies reflects an effort to stabilize its domestic market while navigating these external pressures.