Silver Prices: There has been a tremendous rise in the prices of silver in recent months and this pace is still showing no sign of stopping. Amidst the continuously increasing demand, there has been a sharp increase in the import of silver. India fulfills a large part of its silver needs through imports from abroad. To curb this rising import bill, the market is hopeful that Finance Minister Nirmala Sitharaman may increase the import duty on silver in the upcoming general budget. This fear has already created a stir in the market and due to this silver is now trading at a huge premium.
According to the data, silver import in December increased by 79.7 percent from the previous month to reach $0.76 billion. At the same time, during the period from April to December, the import of silver jumped by about 129 percent on an annual basis to $ 7.77 billion. Whereas in the same period a year ago, this figure was 3.39 billion dollars. Usually, silver import is at its peak during the festive season, but this year, even after the festive season is over, such a sharp increase has raised concerns.
In last year’s budget, the government had reduced the import duty on silver from 12 percent to 6 percent. Its objective was to curb smuggling and make the metal more attractive for the domestic market. At present, the landed cost of silver is decided by adding 6 percent custom duty and 3 percent GST, at which it is bought and sold in the country.
However, due to the sharp surge in demand, the import of silver has suddenly increased. In view of this, there is a strong discussion in the market that the government may increase the import duty. However, there are no clear indications regarding this yet. Bhavik Patel of Tradebulls Securities says that considering the current situation, the possibility of increase in import duty cannot be ruled out. “It is because of this apprehension that bullion dealers are already charging a premium on prices,” he said.
Nitin Kedia, National General Secretary of All India Jewelers and Goldsmiths Foundation, fears that the import duty may go up to 15 percent. According to him, “Earlier there was a rumor in the market about 3-4 percent duty increase, but when the premium on silver reached around 13 percent, then some people started talking about 15 percent duty.”
On January 21, silver futures on MCX were trading at a premium of over Rs 40,000 per kg over spot and landed prices. In view of this unusual situation, All India Jewelers and Goldsmiths Foundation has written a letter to the Finance Ministry demanding an investigation into the alleged price manipulation.
“Silver is trading at an extraordinary premium of around Rs 40,000 on MCX. There is a perception in the market that this is a result of rumors of an upcoming import duty hike. If this rumor is even partially true, it indicates that price sensitive policy information has been leaked, posing a serious threat to market transparency,” the letter said.
While talking to Moneycontrol, Kedia said that the sharp premium seen on MCX indicates that the duty may increase in the budget. However, he also warned that if the import duty was increased to 15 percent, it could lead to the problem of duty arbitrage.
Before writing a letter to the Finance Ministry, the Foundation had also urged market regulator SEBI to investigate the abnormal fluctuations in silver prices. However, there has been no response from the regulator yet.
The high premium has also affected the working capital of jewelers and bullion traders. According to Kedia, “We generally hold physical silver stock and hedge by selling positions on the exchange. But when the premium reaches Rs 40,000, there is a huge pressure on working capital. Silver prices have already tripled in the last seven-eight months, so it becomes difficult to manage the position.”
Meanwhile, today silver futures prices on MCX once again reached a new record high of Rs 3,39,927 per kg. Now the eyes of the market are fixed on whether the budget will put brakes on this rally or the shine of silver will remain intact for now.
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