Why India’s silver merchants are praying to rain gods

Last Updated : 25 July 2011 at 16:00 IST

MUMBAI(Commodity Online): Silver notes—notes made of silver—sales are picking up in urban India and given the business potential it holds for rural India, merchants are praying to the rain gods.

Rural India is a major consumer of the white metal silver. With poor penetration of banking channels and the absence of other savings/investment options, rural India generally directs surplus money to either Gold or silver. But all these developments warrant single pre-requisite! Normal monsoons!

If the monsoons are erratic, crop output would be poor and rural India generally retreats into the shell. Result: Silver party can lose its DJ (Disc Jockey)!

Add to this the hopes of silver merchants to sell silver-notes too in rural India.

“Jewellers are minting notes of various denominations such as Rs 500 and Rs 1,000 to cater to an ever-increasing demand of a rising number of aspirational middle-class Indians looking for unique gifting options for marriages and birthdays. The denomination of the note is equivalent to silver weight. For example, Rs 50 note is equivalent to 50 grams of silver.” reported, The Economic Times.

With Gold prices shooting up, Silver has emerged as a hot substitute and the traders think rural India would accept these notes with open arms

India's silver demand averages 2,500 tonnes per year and the country produces around 7.3 million ounces a year (206.95 tonnes). Back in 2010, normal monsoons had added to the silver appetite of rural India.

But this time around, the monsoons have been erratic, though initially it was not so.

The month of June recorded deficient rainfall of 60 mm against the normal figure of 237.4 mm with past three weeks of July registering 266.48 mm. For the monsoons to reach its normal mark of 386 mm, 120 mm of rains is additionally required in one week!

But in India, not even the hard-core astrologers can predict the rain!

Despite the high prices of silver, the consumption of the metal has been rising in India. Silver sales have picked up in India during festivals. Further, silver is a hedge against inflation!

Now, with a slew of festivals waiting in wings, India’s silver merchants are praying to rain gods!

As published in: http://www.commodityonline.com/news/Why-Indias-silver-merchants-are-praying-to-rain-gods-41033-3-1.html