To relieve some pressure on rupee and check Current Account Deficit, the government is likely to announce a hike in custom duty for a limited period of time on a list of non-essential commodities.
The list may include gold, electronics, finished steel, mobiles, and certain food items. The government is also looking at import substitution in some sectors.
Government on Friday announced measures to infuse more dollars into the economy through external commercial borrowings, masala bonds and foreign portfolio investors.
There are concerns regarding ability of the government to finance the widening CAD due to the accelerating oil prices. The CAD for India is expected to rise to 2.8% of GDP this year from 1.9% of GDP in 2017-18. “Increasing import duties is not the answer to the current currency crisis,” said Sunil Kumar Sinha, principal economist at India Rating and Research. But in the short term, measures such as import curbs could be the one of the only options for narrowing the current account front.
#CNBCTV18Exclusive | Govt sources to CNBC-TV18: @cbic_india not in favour of import duty hike on coal, steel, gold; Revenue Department cautions against Import Duty hike on goods that may hit Make In India & Digital India programs pic.twitter.com/ArmPaXeqlF
— CNBC-TV18 (@CNBCTV18Live) September 18, 2018
With US announcing 10% tariff on $200 billion of imports from China, and China retaliating with tariffs between 5% and 10% will apply to $60 billion of imports from the US, chairman of Aditya Birla Group Kumar Mangalam Birla said, “I see there is some risk in terms of Chinese goods coming into the economy.” Aluminium, on which the US has imposed a 25% duty for Chinese imports, he said, a lot of the products will not be able to go to the US and may end up here where the consumption story is still strong.
Government’s move to curb imports is seen as a protectionist signal. Tushar Arora, senior economist at HDFC Bank said, “I think there could be some retaliatory measures from some other countries as well, and protectionist gestures, in general, are not taken well by the global investors.” It could be a tough policy move to defend.
Another viewpoint by chief economist at Crisil, DK Joshi is that focus should be to push exports to reign in CAD rather than curbing imports.
ETAuto | India considers raising import duty on steel to support rupee: Document https://t.co/DIFeqjwmke
— ET Auto (@ETAuto) September 19, 2018
B Prasanna, group head, global markets group at ICICI Bank said, “This measure itself is not good on a long-term basis as it is going against free trade agreements, but the bigger problem right now is to arrest the rupee depreciation beyond a fair value,” offering support to the government’s decision.
Indian growth story will not be affected because of the trade wars. “A lot of our growth is propelled by domestic consumption and not much by exports,” Kumar Mangalam Birla said.
Trade tussle can infuse positive sentiments in the Asian stock markets, effects of which will be visible on the Indian stock exchanges, sooner or later. We will benefit if we follow a more open policy.
Exposed to the fluctuations of US economic policy, the world needs to drift away from its dependence on dollar. A new alternate global financial structure is the utmost need of the hour.