The government has hiked import duty on high-end consumer items including washing machines, air conditioner, footwear, diamonds, jet fuel as a part of its plan to get foreign funds flowing back to India and to reduce current account deficit (CAD) as it seeks to stabilise the domestic currency.
The change in rates will be effective from 27 September, the finance ministry said in a release today, adding that the total value of imports of these 19 items in the year 2017-18 was about Rs 86,000 crore.
Basic customs duty of radial car tyres, jewellery items kitchen and tableware, some plastic goods, as well as suitcases have also been increased.
Import duty of aviation turbine fuel (ATF) or jet fuel has been increased to 5 percent from zero, a move that is expected to make air tickets more expensive.
“The significant increases in customs duties of selective items which the government perceives to be non-essential imports appears to be aimed at reducing the drain of currency reserves and boost domestic demand,” Prashant Deshpande, a partner at Deloitte India said.
Another expert said that the government’s decision, though significant, is not surprising as India is looking at discouraging import of white goods and other items perceived to be used more by the affluent class.
“Message is clear - local is a new global and if local market is to be accessed then more value addition should take place in India," Pratik Jain, partner and leader at PwC India said.
The development comes after the government announced a five-point strategy to arrest the rupee’s slide, after meeting that the Prime Minister Narendra Modi took with Finance Minister Arun Jaitley and officials Reserve Bank of India (RBI) among others on 14 September. Modi met also top finance ministry officials to review the current economic scenario to work out a strategy to bolster the market’s confidence and improve the macroeconomic scenario.
The measures included removal of withholding tax on masala bonds, relaxation for foreign portfolio investors, and curbs on non-essential imports, to contain the widening CAD, which has widened to 2.4 percent of the GDP in April-June and check the rupee’s fall.
These measures are likely to have a positive impact to the tune of USD 8-10 billion.
Despite robust GDP growth and falling inflation, India is facing the threat of a widening twin deficit—current account and fiscal deficit—led by a clamour for an excise duty cut on fuel as the falling value of rupee against dollar has made petrol diesel more expensive for the common man.
Weakening domestic currency against the dollar has also hardened benchmark bond yields that have surged their highest in four years, apart from escalating import bill and depleting forex reserves.
Source: moneycontrol.com