Silver imports from UAE route are sharply increasing in India

UAE Route Boosts Silver Imports into India

The India-UAE Comprehensive Economic Partnership Agreement (CEPA), inked in 2022, has sparked a significant uptick in silver imports through the UAE route in recent months. Data reveals that in the first quarter of the calendar year 2024, over 40% (1,542 tonnes) of silver imported into India has come through the UAE route.

Rise in Silver Imports via UAE Route Fueled by India-UAE CEPA Agreement

This surge can be largely attributed to the substantial duty difference. While silver imports through other routes incur a 15% duty, those under the CEPA route attract only 8%. Until March 2023, the duty stood at 9%, showcasing the favorable conditions offered by the CEPA route.

The spike in silver imports via the UAE route coincides with a notable increase in overall silver imports into India. Data from Metal Focus, a London-based bullion research firm, indicates that India imported 3,730 tonnes of silver in the first three months of 2024 alone, surpassing the total imports for the entire year of 2023 (3,475 tonnes). This surge follows the record high of 9,450 tonnes imported in 2022.

The World Silver Survey 2024 predicts that the duty differential on imports from the UAE will continue to widen, with a 1% reduction annually. Consequently, barring any policy changes or reductions in Indian silver import duties for other countries, the UAE is poised to remain the primary supplier of silver to India in the foreseeable future.

However, certain conditions must be met for silver imports via this route. Indian importers must provide documentation proving that the silver has been refined in the UAE, accompanied by a Certificate of Origin (COO) certifying a 3% value addition. Since the UAE does not mine silver, local refineries are tasked with converting bars into grain and processing the metal to meet the 3% value addition requirement. The bullion trade then purchases this imported silver in grain form.

Despite the surge in industrial usage of silver, investment demand appears to be waning. The World Silver Survey report highlights a decline in physical silver investment in India, from 3,435 tons in 2015 to 1,534 tons in 2023 – a 38% decrease from 2,740 tons in 2022. However, Chirag Sheth, principal consultant at Metal Focus, notes that while investment demand may seem low in terms of quantity, the value has doubled since 2015. This suggests that although silver may not be perceived as a wealth protector like gold, rising prices often lead to profit booking, resulting in a seemingly lower net investment.