No silver lining for buyers in the India-UAE treaty
Aduty differential in silver imported under an India-UAE treaty is being exploited by unscrupulous jewellers to short-change unsuspecting buyers, according to an official from nodal trade body India Bullion and Jewellers Association (IBJA).
The differential can also queer the pitch for silver exchange traded funds (ETFs) in India, he said.
Surendra Mehta, national secretary of IBJA, told Mint it was imperative for stock exchange MCX and the Securities and Exchange Board of India (Sebi) to consider allowing contracts and ETF units backed by Dubai silver to be traded on the exchanges.
This is because quota-free silver imports from UAE have ballooned thanks to the IndiaUAE Comprehensive Economic Partnership Agreement (Cepa) of April 2022, he said.
“Currently, MCX allows delivery of only LBMA silver, while mutual fund ETF units are also backed by LBMA silver, which trade at a premium to the spot market price because silver from the UAE is imported at 9% duty under the Cepa against LBMA silver imported at 15% duty,” said Mehta.
The London Bullion Market
Association (LBMA) oversees the wholesale gold and silver markets in London.
“While both importers and customers should benefit from access to cheaper imports, there is a tendency among certain jewellers to display the MCX silver price in their shops and pass off Dubai silver as LBMA silver to unsuspecting customers, making a neat 6% gain in the bargain,” Mehta said.
He contended that even mutual funds that have launched silver ETFs will have a problem at redemption as they will “perforce” have to sell the silver backing the units at a discount in the spot market. Sebi should consider allowing funds to offer silver ETFs backed by Dubai silver in addition to LBMA silver, Mehta added.
The polled price of silver in the spot market as per IBJA was ₹75,045 per kg at closing on Thursday, while the intraday price of the May contract on MCX was ₹76,130, a 1.4% premium, attributable partly to storage and insurance costs.
The Axis Silver ETF listed on NSE quoted at ₹75.80 a unit, translating to a price of ₹75,800 per kg.
An executive with a private bank that imports silver on consignment basis cited customs data to show that Indian silver bullion imports hit a monthly record of 2,212 tonnes in February, which was 64% of total silver imports (3,475 tonnes) in 2023.
A substantial portion of this could be silver imported from the UAE under Cepa because of cheaper duty, this executive said. An MCX official was not immediately available to comment on whether an internal advisory committee of the exchange could debate on allowing delivery of silver from the UAE on the exchange.
A query sent to Sebi on allowing mutual funds to offer silver ETF units backed by Dubai silver has also remained unanswered.
Indian silver bullion imports hit a monthly record of 2,212 tonnes in February