India has taken a decisive step to protect its vital domestic jewellery industry. The Directorate General of Foreign Trade (DGFT) has immediately imposed strict restrictions on the import of specific categories of silver jewellery. This significant move aims to curb the rampant misuse of Free Trade Agreements (FTAs) and safeguard local manufacturers.
The DGFT’s decision directly addresses an alarming, multi-fold surge in plain silver jewellery imports. The overwhelming bulk of this inflow originated suspiciously from Thailand.
Policy Change: From ‘Free’ to ‘Restricted’
The recent DGFT notification changes the import policy for certain Harmonised System (HS) codes. These codes cover articles of plain silver jewellery. Their import status has shifted instantly from ‘Free’ to ‘Restricted’.
- Licensing Mandate: This change means importers must now obtain a valid import authorisation or license from the DGFT. They cannot bring these items into the country without this required documentation.
- Duration: These strict restrictions will remain in force until March 31, 2026. This gives the government time to stabilize the trade flow and reinforce the domestic market.
The Root Cause: An Alarming Spike from Thailand
The action follows a steep and unusual spike in silver jewellery imports. Data analysis revealed a major problem. Silver jewellery imports soared by over 270% in the April-June quarter of the current financial year. This spike is compared to the same period in the previous year.
The surge was most pronounced from Thailand. Thailand is a member of the Association of Southeast Asian Nations (ASEAN). India shares an FTA with ASEAN, the AITIGA (ASEAN-India Trade in Goods Agreement). Thailand is not a major silver-producing nation itself. Imports from Thailand reportedly increased by hundreds of per cent during this period. This immediately raised serious red flags for the Commerce Ministry.
The Duty Circumvention Loophole
Officials quickly identified the massive inflow as a case of duty circumvention. High-purity silver was reportedly being imported under the guise of finished or unstudded jewellery. The importers did this to exploit the zero or preferential duty benefits available under the FTA.
The suspected scam works like this:
- Exploiting the FTA: Importers bring in silver disguised as jewellery, paying zero or very low duty.
- Melting Down: Once inside India, the imported ‘ornaments’ are allegedly melted down.
- Evading Higher Duty: The melted silver is converted into pure silver bars. This process bypasses the higher Basic Customs Duty applicable to direct imports of silver bars. This practice creates an unfair market advantage.
Protecting Indian Livelihoods and SMEs
The government made its intentions clear. These restrictions are a defensive move. They aim to provide a level playing field for domestic silver manufacturers.
Unchecked imports that misuse FTA provisions were severely affecting local silver jewellery producers. Many of these producers are small and medium-sized enterprises (SMEs). The silver jewellery sector is labor-intensive, providing significant employment. A senior official noted that the import surge was directly threatening these jobs.
- Curbing Arbitrage: By requiring an import license, the DGFT can now distinguish between genuine commercial trade and transactions designed purely for duty arbitrage.
- Seasonal Timing: The timing of the restriction is also strategic. It comes just before the country’s peak festival and wedding seasons. Demand for silver ornaments traditionally hits its highest during this period. The restriction will allow domestic manufacturers to fully capitalize on this seasonal demand. They will no longer face unfair price undercutting from duty-evading imports.
Maintaining Genuine Trade Flows
While the policy is now restricted, the DGFT emphasized that it does not intend to stop legitimate business. The new licensing framework is a filter. It allows genuine, compliant trade to continue through a regulated mechanism. It effectively plugs the loopholes that allowed for the large-scale, unregulated entry of silver under the guise of finished jewellery.
This regulatory action on silver jewellery is not an isolated event. It follows similar decisive steps taken by the government previously. For instance, the government has acted to prevent the misuse of trade agreements for the duty-free import of other precious metals, such as gold. The DGFT’s latest decision underscores a broader governmental commitment. It aims to enhance transparency and security in the bullion and precious metals trade flows across India. This is a clear message: the government will protect its trade agreements from exploitation.
