India's Silver Shortage Crisis: Causes, Impact, and Market Adjustments During Festive Season

India, the world's largest silver consumer, is experiencing a significant supply shortage during the festive season. The country primarily uses silver for silverware, jewellery, coins, and bars across various applications.

Currently, silver is trading at a substantial premium in India, reaching up to 10% above global prices. This price disparity has forced physically backed exchange-traded funds to halt new subscriptions while jewellers struggle to fulfill the heightened demand before Diwali, when silver purchases traditionally increase.

The global silver market has been facing supply deficits for four consecutive years, depleting the surplus generated in the previous five years. Even in 2025, production is unable to meet demand since approximately 70% of silver is produced as a by-product of mining other metals, limiting the ability to quickly increase output despite price rises.

During this supply constraint, industrial demand continues to grow, particularly from renewable energy and technology sectors. The widening gap between supply and demand has attracted significant investment in physically backed ETFs, coins, and bars, further intensifying the structural deficit and driving prices to unprecedented levels.

Market pressure increased when silver shipments to the United States surged following its inclusion in a draft U.S. critical minerals list in September.

As the world's largest silver consumer, India utilizes the metal across numerous applications including silverware, jewellery, coins, bars, and industrial uses from solar technology to electronics. The country imports more than 80% of its silver to meet domestic demand.

In the first eight months of 2025, India's silver imports declined by 42% to 3,302 tons, while investment demand, particularly from ETFs, reached record heights. This investment surge absorbed the surplus imported in 2024, creating a shortage that now requires additional international shipments.

Normally, the substantial premium at which silver trades over futures prices would encourage banks to increase imports to capitalize on the cash premium. However, limited availability from major producing countries, robust industrial and investment demand, and logistical challenges have constricted the physical market in key trading centers. In London, silver lease rates have soared beyond 30%.

Silver ETFs in India experienced unprecedented inflows of 53.42 billion rupees in September, a trend that continued into October. Under regulatory requirements, physically backed ETFs must maintain physical silver equivalent to subscription amounts, typically sourced from banks and bullion dealers.

When attempting to acquire silver last week, these funds encountered excessive premiums, increasing acquisition costs for new subscribers. To protect investors from paying inflated prices, ETFs have temporarily suspended new subscriptions.

The shortage has created significant challenges for manufacturers producing silverware, while coins and bars—popular gifts during festivals—are selling at considerable premiums. With investors anticipating further price increases, few are willing to sell existing holdings, keeping scrap supplies limited as well.