MUMBAI - India's restrictions on silver imports have created shortages in the world's biggest market for the precious metal, pushing premiums to their highest levels in six months despite weaker-than-usual demand.

Lower imports by India, which meets more than 80% of its silver demand through overseas purchases, could weigh on global prices, while helping narrow the country's trade deficit and ease pressure on its rupee currency.

"Silver imports have nearly come to a halt, creating a shortage in the Indian market," said Chirag Thakkar, CE of Amrapali Group Gujarat, a leading silver importer.

"As a result, silver is trading at a significant premium to global prices."

Silver premiums over official domestic prices surged to $6.5/oz this week, or more than 10% above benchmark prices, compared with discounts of as much as $5.5/oz in May, dealers said.

IMPORT CURBS AIM TO EASE PRESSURE ON FOREX RESERVES

India in mid-May restricted imports of silver in nearly all forms with immediate effect. In June, it further tightened the rules by adding silver grain and powder to the restricted category and requiring prior import authorisation.

Silver imports fell to 46.8 t in May from 534.3 t a year earlier, according to trade ministry data.

India's silver imports fell further in June from May, said Thakkar.

India has been trying in recent months to curb precious metals imports to ease pressure on its foreign exchange reserves and support the rupee.

As part of those efforts, the government has raised import duties on gold and silver to 15% from 6%.

After India raised import duties in May, many investors booked profits and exited silver exchange-traded funds (ETFs), said a Mumbai-based bullion dealer with a private bank.

"That released metal into the domestic market, so there wasn't an immediate shortage despite the tighter import rules. But now those supplies have dried up, and the market is feeling the pinch," the dealer said.

Silver demand in India comes from jewellery, coins, bars and industrial applications such as solar panels and electronics. In the past year, investment demand has surpassed traditional consumption, driven by growing interest in silver ETFs.

At the moment, the market is largely dependent on supplies from Hindustan Zinc, the country's biggest silver producer, said a Kolkata-based dealer.

"As demand continues to recover, which has already begun, premiums are expected to move even higher," he said.

India imports silver mainly from the United Arab Emirates, Britain and China.