India sharply raised import duties on gold and silver to 15 percent and placed new restrictions on silver imports, triggering supply concerns for exchange-traded funds and stoking price volatility in the world’s second-largest bullion market.
"The impact on Silver ETFs remains a wait-and-watch situation for now," Anil Ghelani, CFA, Head of Passive Investments and Products at DSP Asset Managers, said. "Supply conditions are currently comfortable, but there is still limited clarity on the exact implications of moving Silver Bars from the ‘free’ to the ‘restricted’ category."
The new 15 percent duty, a steep increase from the previous 6 percent, took effect May 13. According to a report from Mirae Asset Mutual Fund, the move is intended to curb non-essential imports and stabilize the rupee. The restrictions on silver bars, effective May 16, have already seen the domestic discount compress from -₹11,840 per kilogram to -₹5,000 per kilogram between May 15 and May 18. Year-to-date, domestic spot gold has climbed 18.7 percent, while silver is up 16.2 percent.
The policy shift raises significant questions for India’s silver ETFs, which are backed by physical, LBMA-certified bullion. Any delay in import approvals could disrupt the supply chain needed for asset managers to create new ETF units, potentially causing the funds to trade at a premium to their net asset value. The situation mirrors India’s 2012-2013 import restrictions, which led to sharply higher domestic premiums and an increase in smuggling. While global prices on exchanges like COMEX will continue to be driven by international factors, the new rules are expected to keep domestic Indian prices elevated.
This article is for informational purposes only and does not constitute investment advice.
