India, the world’s biggest silver consumer, imposes a 15% import duty on the metal.
But the Comprehensive Economic Partnership Agreement, signed between India and the United Arab Emirates (UAE) in 2022, allows private traders to import silver through the India International Bullion Exchange (IIBX) at a 9% duty, and an extra 3% tax for value addition.
IIBX, India’s first international bullion exchange was set up in 2022, and by mid-December, the government had issued clearance that allowed dealers to trade silver.
Volumes have steadily grown and traders have imported 827 metric tons of silver via the IIBX platform so far this year, said a senior IIBX official. Like the other sources, he declined to be named as he is not authorised to talk to the media.
IIBX did not respond to a Reuters email seeking comment. In 2023, India imported 3,625 tons of silver. The lower import tax has enabled traders to offer silver imported via IIBX at a discount of around 2%, a Mumbai-based bullion dealer with a private bank said.
Silver imported via the IIBX platform has traded at discounts to the domestic benchmark price of around 1,700 Indian rupees ($20.52) per kilogram in recent weeks, another bullion dealer said.
On the international market, silver is trading close to $25 per ounce, around its highest this year, largely tracking gold and influenced by movements in the dollar.
Banks are unable to offer discounts because they need to pay a 15% import tax on silver. Banks’ inability to offer discounts has led to a sharp drop in demand, prompting them to stop importing silver, both dealers said.
Most banks have turned their focus to gold rather than silver, they said. None of the main banks approached by Reuters had any public comment.
The government provided concessions on imports to make the newly launched IIBX viable. But, this practice has raised concerns about potential trade distortions and a loss of import duty revenue for the government, said a senior industry official.
In the last two months, the UAE has become the primary source of silver imports, he said.
India also imports silver from Britain, China, Russia and Switzerland.
($1 = 82.8478 Indian rupees)
(Reporting by Rajendra Jadhav; editing by Mayank Bhardwaj and Barbara Lewis)