Why India Is Facing a Severe Silver Shortage Ahead of Diwali?

Silver is trading at a steep premium in India, reaching as much as 10% above global prices. The surge comes as the country faces robust festive and investment demand, straining already tight global supplies. Jewellers are struggling to meet orders ahead of Diwali, traditionally a peak season for silver purchases.

Global Shortage Worsens the Crisis

The silver market has been in deficit for four consecutive years, depleting the surplus stock accumulated earlier. In 2025, supply continues to lag behind demand, with about 70% of silver being a by-product of mining other metals, limiting output flexibility. Industrial usage, especially from renewable energy and electronics sectors, has risen sharply.

The situation worsened when the U.S. included silver in its draft list of critical minerals, prompting a surge in shipments to the U.S. and tightening global availability.

Why India Is Hit the Hardest?

India, the world’s largest silver consumer, relies on imports for more than 80% of its needs. Between January and August 2025, silver imports plunged 42% to 3,302 tons, even as investor interest surged. Strong inflows into silver exchange-traded funds (ETFs) and high demand for coins and bars have depleted domestic reserves built up in 2024.

Import Challenges and Soaring Premiums

Normally, high local premiums would encourage banks to import more silver. However, supply constraints from major producers, strong global demand, and logistical issues have restricted shipments. Lease rates in London—the cost of borrowing physical silver—have climbed to over 30%, reflecting extreme market tightness.

ETFs Suspend New Subscriptions

Indian silver ETFs saw record inflows of ₹53.42 billion in September, but when they attempted to buy silver, they faced steep acquisition costs. To protect investors from inflated prices, fund houses like Kotak Mutual Fund have temporarily suspended lump-sum and switch-in investments in their Silver ETF Fund of Funds until premiums normalise.

Also Read: SBI, UTI, Kotak Halt Lump-Sum Investments in Silver FoFs Amid Soaring Prices!

Conclusion

India’s silver market is caught in a global supply crunch worsened by festive demand and rising industrial use. Until international supply stabilises and premiums cool, investors and jewellers may continue to face challenges accessing physical silver at reasonable prices.

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