In rural India, Silver is a hedge against inflation

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Commodity Online
MUMBAI: Do you know that India is the largest importer of the silver in the world and the country consumes more than 4000 tons of silver annually with the bulk of sale being made in rural areas. India has emerged as the third largest industrial user of silver in the world after US and Japan.

Know all the facts and figures on India's booming silver market here:

The vast majority of silver in India is used in production of ornamental items like jewelry, utensils and gift articles. Industrial use account for about 1300-1500 tons. In rural areas, silver is considered as hedge against inflation and thus provides an investment avenue.

Indians are known to spend substantial part of their income on purchase of silver, partly as an unavoidable expenditure for weddings and other family celebrations and partly as investment.

Demand for ornamental silver is affected by the festive season and marriage season in February, April, June and December as well as the monsoons between June and August.

While the demand has increased substantially, annual consumption is dictated both by monsoon, with its effect on the harvest, and the marriage season. In a significant move, the government has also liberalised the import of Gold and Silver. This will provide freedom to procure inputs by jewellery exporters and add to the cost competitiveness of the Indian jewellery exports.

The Indian demand for silver is very different from the global pattern of silver demand, where 65% of the demand comes for Jewellery, Ornaments and gift articles. Industrial demand forms a minor share. Indian demand plays a major role on the global silver demand.

Industrial demand for silver in India is in the range of 1300-1500 tons per annum, the bulk of which is in pharmaceuticals, plating, electrical, foils, jari, soldering and brazing.

Rural areas remain the heartlands of silver purchases in India. Out of the 4000 tons that India imports around 2600 tons is used as jewelry and ornaments the demand for which mainly comes from rural India. In rural communities, silver, considered a hedge against inflation, also provides an investment function. Far more affordable than gold, it is purchased by small families in the form of jewellery. Indian silver jewellery must have a minimum purity of 50 %, the rest being made up of alloys that differ from state to state, but commonly involve copper and zinc.

The demand in rural India depends largely on the agricultural income which in turn is depended on Monsoon. So a good monsoon is very much the basis of a demand in rural India.

Jewellery designs can carry a special significance: some are only worn by young children, others denote marriage and still others widowhood. There are also regional variations, so that the style of jewellery worn in one part of the country is completely unknown in another. Even communities living side by side will possess their own distinct pattern. This is clearly visible in places like Banni, Kutch in the west Indian state of Rajasthan, where a huge conglomeration of castes and sub-castes has an enormous range of designs, some of the most spectacular in the country.

One tradition among Indian village communities is the wearing of extremely chunky silver jewellery, and the evolution of this style reveals a great deal about Indian village life. The silversmith tosses repurchased items into the melting pot, from which they will be fashioned into new pieces.

By contrast with United States and Japan, Indian industrial offtake for fabrication in hardcore industrial applications like electronics and brazing alloys accounts for only 15 % and the rest being for foils for use in the decorative covering of food, plating of jewelry and silverware and Jari.

India produce a negligible amount of silver with the production coming as the by product of other metal extraction. The total production in India is around 60 tonnes which is just 1.5% of the total demand.