Silver trades at steep premium as markets expect duty hike in upcoming Budget

A sharp rally in silver prices, coupled with a surge in imports, has fuelled expectations of a possible import duty hike in the upcoming Budget, driving futures to record highs and widening premiums on the MCX.

Silver prices have been on a tearaway rally, soaring multiple times over in the recent months. As demand for the metal has picked up, India’s import bill has climbed as well, since silver is largely imported. To cap imports, market participants are now expecting Finance Minister Nirmala Sitharaman to raise duties on silver in the upcoming Union Budget. This, in turn, has fuelled the rally further, with silver now trading at a steep premium.

In December, silver imports surged 79.7 percent month on month to $0.76 billion. For the April – December period, silver imports jumped nearly 129 percent year on year to $7.77 billion, compared to $3.39 billion during the same period last year, even after the festive season, which is when shipments typically peak.

In the previous budget, the Finance Minister slashed the import duty on silver to six percent, down from 12 percent earlier. This was done in an attempt to curb smuggling, and make the metal more attractive to domestic players. The six percent customs duty, coupled with three percent GST on silver, are used to arrive at silver’s landed price: the total price that silver is bought and sold at.

However, with the rising demand, the imports of the metal have jumped substantially. Currently, there is no consensus on how much the hike will be. Bhavik Patel of Tradebulls Securities mentioned that at the current juncture, given the market dynamics, any increase in import duty could not be ruled out. “As a result, bullion dealers are charging premiums over the prices in anticipation of a hike,” he said.

Nitin Kedia, National General Secretary of the All India Jewellers & Goldsmith Foundation (AIJGF) feared that it could rise to 15 percent. “There were rumors that the duty could go up by three to four percent, but some players, when the premium [in silver] was around 13 percent, started saying that the duty will be revised to 15 percent.”