Lead

On May 16, 2024 the Directorate General of Foreign Trade notified that most silver imports would shift from “free” to “restricted” status, requiring a government licence. The move follows a 15% customs duty increase on precious metals that took effect on May 13, and raises the effective tax burden on imported silver to over 18%. The policy is aimed at curbing a 150% rise in silver import value during FY 2025‑26 and limiting the widening current‑account deficit.

Background

India has been one of the world’s largest consumers of silver, with an import bill of roughly $12 billion in the fiscal year ending March 2026. In the past two years, the government had deliberately lowered duties on precious metals to undercut smuggling and support the jewellery sector. However, global bullion prices and a weakening rupee have pushed import spending dramatically higher, prompting a reassessment of the tariff strategy.

What Happened

The May 16 notification moved most silver imports from “free” to “restricted” status, meaning importers now need a government licence to bring bullion across the border. The change came just days after customs duties on precious metals jumped from 6% to 15%, effective May 13. When combined with the Integrated Goods and Services Tax, the effective tax burden on imported silver now exceeds 18%. Silver imports surged 150% in value during FY 2025‑26, with volumes climbing 42% over the same period. The restrictions apply broadly, with narrow exemptions carved out only for certain Export Oriented Units and Special Economic Zones; those exempted entities cannot sell into the domestic market, so jewelers and bullion dealers face the licence requirement. Domestic silver prices responded predictably, jumping approximately 7% after the new duties took effect.

Market & Industry Implications

The higher import costs are expected to compress margins for Indian jewelers and bullion dealers. A 7% domestic price increase does not automatically translate into higher retail prices if consumer demand is elastic, squeezing profitability across the supply chain. For the global silver market, India’s import restrictions remove a significant source of demand; India’s $12 billion annual import bill makes it a market mover. The policy reversal from a two‑year period of tariff cuts signals that the earlier calculus—lower duties to starve smuggling networks—no longer applies when import values are ballooning by 150% year over year. The higher barriers may not eliminate demand; when legal import costs exceed 18%, the margin for gray‑market operators widens considerably, potentially allowing the smuggling networks that the earlier tariff cuts were designed to starve to re‑emerge.

What to Watch

  • Upcoming customs and tax compliance reports to gauge how quickly importers obtain licences and adjust volumes.
  • Monthly silver price data to track whether the 7% domestic price increase holds or reverses as supply constraints play out.
  • Any further policy announcements from the Ministry of Finance or DGFT that may refine the exemption list or adjust duty rates.