Protectionism and Market Volatility Strike India’s Traditional Silver Trade

When global instability prompts investors to seek refuge in precious metals, the cascade of economic consequences rarely stops at financial trading floors. In India, the combination of international commodity rallies and heavy-handed domestic policy has created an artificial market squeeze that is crushing traditional trade.

According to Dr. Salahuddin Ayyub, an economist with India’s Ministry of Commerce and Industry, geopolitical tensions—ranging from the military conflict in Ukraine in 2022 to recent strikes involving Iran—have pushed capital out of equity markets and directly into gold and silver. The resulting surge in demand drove silver prices in India from around 70,000 rupees ($725) per kilogram in 2023 to a brief peak of 450,000 rupees ($4,670), before settling near 250,000 rupees ($2,600). Even after this partial decline, domestic prices remain roughly three times higher than their levels of just a few years ago.

Yet market dynamics tell only half the story. The Indian government’s response to soaring metal demand was textbook state interventionism designed to protect foreign exchange reserves. Because India relies on foreign suppliers for more than 80 percent of its domestic silver demand—and accounts for over 20 percent of global refined silver purchases—rising metal imports put severe pressure on central balance sheets.

In May, New Delhi more than doubled its effective import tariffs on gold and silver. The policy achieved its immediate statistical goal. Silver imports plummeted by 87 percent in a single month, falling from $566.2 million the previous year to just $75.6 million, marking the lowest point in over three years.

However, tariff-driven market manipulation comes at a cost that central planners routinely pass down to domestic buyers. Heavy duties and tight licensing restrictions have driven local silver prices more than 20 percent above the global rate of $2,100 per kilogram. While wedding shoppers can adjust their budgets by turning to artificial jewelry, traditional silversmiths and craftsmen have no such luxury.

In historical craft hubs like Lucknow, famous for intricate bridal metalwork and footwear, artisans are paying the price for state insulation policies. A government mechanism meant to defend fiat reserves has throttled the raw material supply of an entire local industry, demonstrating once again how protective tariffs disproportionately penalize domestic producers.

Written by Thomas Nussbaumer thomas.nussbaumer@alpineweekly.com