India's higher import duty on precious metals has drained physical silver from the market, pushing domestic premiums to six-month highs. Silver imports collapsed to 47 tonnes in May, and analysts expect the squeeze to tighten as festive demand builds.
India's decision to raise the import duty on precious metals has triggered a shortage of physical silver and pushed domestic premiums to six-month highs. The government announced the 9 percent duty increase in May, lifting the tax on gold and silver from 6 to 15 percent.
According to Metals Focus, the move was meant to stabilize the rupee as oil prices spiked. Elevated oil prices had widened India's current account deficit, and precious metals rank as the country's second-largest import category by value after crude oil, accounting for 7-10 percent of total merchandise imports.
Imports collapse after the tax hike
The policy worked. Silver imports crashed to just 47 tonnes in May, the lowest monthly total since July 2023 and a steep drop from a peak above 1,500 tonnes in October last year during the first silver squeeze. So far in 2026, India has imported 1,837 tonnes of silver, a 16% year-over-year decline, running about 3% below the five-year average.
That slowdown has left the domestic market tight. The premium rose from 10 cents an ounce in the first week of June to $6.30 on July 3, approaching the levels seen during the squeeze. Metals Focus analysts say the situation will likely worsen in the coming months as demand picks up during the festive wedding season.
Confusion over import licensing is adding to the strain. Metals Focus says there is little clarity about the DGFT's license requirements, a hurdle the firm expects to push the local premium higher.
A market already short of metal
The Indian squeeze underscores a broader strain on supply and demand in silver. The market recorded a supply deficit for the fifth consecutive year in 2026.
Last year, demand outstripped supply by 40.2 million ounces, lifting the five-year deficit to 716 million ounces against total mining output of 846 million ounces. Metals Focus forecasts a 46.3-million-ounce deficit this year. With the physical market this tight, small shifts can move the price, and India's solar and electronics sectors still depend on a reliable flow of metal.
Source: Money Metals
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