India’s bullion market is undergoing a major transition after the government sharply raised import duties on gold and silver and imposed fresh restrictions on silver imports, triggering concerns around domestic pricing, ETF supply and future demand trends.
According to a report by Mirae Asset Mutual Fund, the recent measures are aimed at curbing imports, preserving foreign exchange reserves and stabilising the rupee during a period of global uncertainty and elevated crude oil prices.
The report noted that India raised import duty on gold and silver from 6% to 15% effective May 13, 2026, including 10% Basic Customs Duty and 5% Agriculture Infrastructure and Development Cess (AIDC). Since India imports nearly all of its gold demand and a significant portion of its silver requirements, the duty hike has directly increased domestic bullion prices.
“Prices of precious metals in India are dependent on International Prices, Forex Rate, Custom Duty, and Domestic Premium/Discount, which depends on local supply and demand,” Mirae Asset Mutual Fund said in its report.
Silver import restrictions raise ETF supply concerns
The report also highlighted concerns emerging from the government’s decision to place silver bar imports under the restricted category from May 16, 2026.
Gold and silver ETFs are backed by LBMA-certified physical bullion, which means asset management companies must procure and store physical metal for every ETF unit created. Restrictions on silver bar imports may therefore affect the supply chain for silver ETFs if approvals are delayed or imports slow meaningfully.
“While there is a reasonable supply and presence of these bars in India as of now, if demand sustains or increases, the physical silver and Silver ETFs may face supply issues, which may lead to discount compression or higher premiums in the domestic market,” as per Mirae Asset Mutual Fund.
According to the report, the market has already started witnessing discount compression in silver ETFs between May 15 and May 18, 2026. The domestic premium-discount gap narrowed sharply from negative ₹11,840 per kilogram to negative ₹5,000 per kilogram during the period.
The report also pointed to similarities with India’s gold import restrictions during 2012-2013, when repeated duty hikes and the “80:20 rule” led to supply bottlenecks, sharply higher domestic premiums and a rise in smuggling activity.
“Demand suppression policies do not necessarily reduce demand, but shift it to informal channels. Domestic prices tend to rise due to restricted legal supply,” it added.
Furthermore, the report stated that India remains one of the world’s largest consumers of gold and silver, which means any sharp reduction in imports could influence both domestic and global bullion markets. However, the long-term impact remains difficult to predict because supply constraints, domestic demand trends, ETF flows and global pricing dynamics may all influence prices going forward.
What should investors do now?
Market participants are closely monitoring whether the import restrictions eventually affect the functioning and pricing of silver ETFs.
“The impact on Silver ETFs remains a wait-and-watch situation for now. Supply conditions are currently comfortable, but there is still limited clarity on the exact implications of moving Silver Bars from the ‘free’ to the ‘restricted’ category,” said Anil Ghelani, CFA, Head of Passive Investments and Products at DSP Asset Managers.
According to Ghelani, the latest policy change could potentially affect broader silver imports, including industrial demand, and not just investment-linked demand through ETFs and silver bars.
The expert also pointed out that the market may gradually adjust if the restrictions are largely procedural and involve additional approvals before imports are cleared. He added that RBI-authorised banks, which are among the key suppliers of bars used by silver ETFs, are still awaiting greater operational clarity from regulators.
“Silver ETFs could potentially trade at a premium to their net asset value if sourcing challenges intensify over time and fresh unit creation becomes difficult,” stated the expert. However, he said it remains too early to draw firm conclusions because demand has remained moderate in recent weeks.
Moreover, the Mirae Asset report also noted that MCX futures trading is expected to continue normally because adequate silver inventory is available against open contracts and existing settlement mechanisms remain intact.
Global silver prices are still expected to be largely driven by broader international macroeconomic factors rather than India-specific developments, added Ghelani.
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