Silver Imports Collapse as India’s Currency Defense Measures Cripple Demand
Last October, India imported more than 1,500 tonnes of silver. By May, that figure had plunged below 50 tonnes—not because demand disappeared, but because government policy effectively shut the market down.
The catalyst was a surge in oil prices and mounting pressure on the Indian rupee. As authorities moved to stabilize the currency, precious metals became a target. Higher import duties and tighter licensing requirements made silver significantly more expensive and harder to bring into the country, causing activity in the world’s largest silver-consuming market to slow dramatically. The timing is particularly noteworthy now because the oil prices that triggered these measures have recently reversed course.
Silver is currently trading near $62.17 per ounce, having gained nearly 6% over the past two days, while gold sits around $4,268 per ounce, its highest level in seven weeks. The rally has been fueled by easing geopolitical tensions after Iran and Oman advanced discussions on a framework for shipping through the Strait of Hormuz. As a result, oil prices have fallen roughly 10% over the past week to three-week lows, while markets have reduced the probability of a September rate hike to 55% from 67%. Lower energy costs, softer inflation expectations, and a more accommodative interest-rate outlook have all supported precious metals.
The Numbers Behind the Collapse
India imported just 46.8 tonnes of silver in May 2026, compared with 534.3 tonnes in May 2025. Industry participants reported that June imports were even lower. The decline represents a staggering 91% year-over-year drop and marks the weakest monthly import level since July 2023.
The contrast with late 2025 is striking. During the period when silver borrowing costs in London surged to record highs, India was importing more than 1,500 tonnes per month. Those elevated borrowing costs reflected tight physical supply, as traders who sold silver forward scrambled to secure metal. India was a key source of demand during that squeeze, making its subsequent disappearance from the market particularly significant.
To put the impact into perspective, the approximately 487 tonnes of silver India did not import in May equates to roughly 15.7 million ounces. According to forecasts from Metals Focus and the Silver Institute, the global silver market is expected to record a deficit of 46.3 million ounces in 2026. In other words, a single month of reduced Indian imports accounts for roughly one-third of the projected annual global shortfall.
Why It Happened—And Why Silver Wasn’t the Real Target
The underlying issue was not silver demand but India’s external balance. During the Iran conflict, crude oil prices climbed toward $118 per barrel in April. As a major energy importer, India felt the impact immediately. Oil imports jumped 53% in a single month, while the country’s merchandise trade deficit widened 37.3% to $28.38 billion. At the same time, the rupee weakened sharply, falling around 7% during 2026 and touching a record low near 96 per U.S. dollar.
Precious metals compounded the problem. Gold and silver imports reached $102.5 billion during the 2025–26 fiscal year, a 26.7% increase from the previous year. Their share of India’s total import bill rose to 14% from 11.8%, while silver imports alone hit a record $12 billion, totaling 7,335 tonnes.
In response, the government moved aggressively. On May 13, import duties on gold and silver were increased to 15% from 6%, shortly after Prime Minister Narendra Modi urged citizens to avoid buying bullion for a year. Authorities then introduced a licensing regime, restricting most forms of silver imports in mid-May and extending controls to silver grain and powder in June. Many banks remain unable to import precious metals because they have yet to receive the required permits.
The result has been a near standstill in silver imports. The sharp decline was not driven by a collapse in consumer interest but by deliberate policy measures aimed at reducing pressure on the rupee. Silver became collateral damage in India’s broader effort to defend its currency and manage its trade balance.
What the Situation Looks Like Inside India
Conditions in India’s domestic silver market paint a very different picture from the apparent weakness in import data. By early July, dealers were charging premiums of as much as $6.50 per ounce above official domestic prices, according to Reuters. Just two months earlier, buyers were receiving discounts of up to $5.50 per ounce. The shift highlights a market that has moved rapidly from oversupply to scarcity.
The premium is particularly significant because official domestic prices already incorporate both the 15% import duty and the 3% sales tax. Any additional premium reflects genuine supply tightness rather than taxation. In other words, buyers are paying extra simply because physical silver has become difficult to obtain.
Several buffers that initially eased the shortage have now largely been exhausted. Outflows from Indian silver exchange-traded funds released metal into the market and temporarily helped satisfy demand, but dealers indicate that those supplies have since been absorbed. As a result, consumers and traders have increasingly turned to Hindustan Zinc, India’s largest silver producer, despite its limited capacity to replace lost imports on a national scale.
The nature of India’s silver demand is also important. Record imports during the previous fiscal year were driven primarily by investment demand rather than jewelry consumption. Investors sought silver as a hedge against economic uncertainty, making this a category of demand that can return rapidly once restrictions are lifted.
Implications for Silver Investors
There are three major takeaways for investors.
The first is that the near-term impact is arguably bearish for silver prices. The disappearance of roughly 15.7 million ounces of Indian buying in a single month reduces pressure on global supply. If import restrictions remain in place through the key restocking period ahead of India’s October and November festival season, the global silver deficit could end up smaller than the currently projected 46.3 million ounces for 2026. From that perspective, India’s absence temporarily eases the strain on the physical market.
The second point is more constructive. Demand curtailed by regulation is generally postponed rather than permanently eliminated. India’s affinity for silver has not changed, nor have the cultural and investment drivers that support long-term consumption. What has changed is government policy. Should those restrictions be relaxed, demand could return quickly.
Data from Metals Focus and the Silver Institute underscore the scale of that potential rebound. Physical silver investment in India climbed 33% to 79.2 million ounces in 2025, while exchange-traded products attracted another 68.3 million ounces. Combined investment demand reached a record 147.6 million ounces. That substantial pool of buyers remains sidelined rather than absent.
The third and most important factor to monitor is oil. The restrictions were introduced when crude prices approached $118 per barrel, creating intense pressure on India’s trade balance and currency. Today, oil trades in the $70 range. If prices remain at these lower levels, the pressure on the rupee should continue to ease, helping narrow the trade deficit and weakening the rationale for maintaining punitive import duties on bullion. The very conditions that prompted the restrictions are now moving in the opposite direction.
Investors should pay particular attention to domestic Indian premiums. Any meaningful easing of import controls is likely to appear first through declining shortages and changing premiums before becoming visible in official import statistics.
One additional observation deserves caution. London’s silver market has appeared considerably more stable in recent months. According to Metals Focus and the Silver Institute, only 17% of London’s silver inventories remained unallocated to exchange-traded funds by the end of September 2025, compared with nearly 35% at the end of 2024, and available inventories have since improved. India’s retreat from the market may be one factor behind that stabilization, though it is not the only explanation. Softer solar-sector demand, ETF outflows, and increased recycling have likely contributed as well.
What can be stated with confidence is that the buyer that played a central role in the previous supply squeeze has largely been removed from the market by government policy rather than by changing fundamentals. Because those policies can be reversed, the situation remains fluid.
Over the longer term, the investment case for silver continues to rest on a structural supply deficit that has persisted for six consecutive years and has repeatedly been bridged by drawing down above-ground inventories. India’s absence may alter the timing of that supply-demand equation, but it does not fundamentally change it.