Imported ACs, refrigerators to cost more as customs duty hiked to reduce widening CAD, stem rupee slide
Mumbai: The government said on Wednesday it is raising import tariffs on 19 “non-essential items,” marking a further tilt toward protectionism as it tries to reduce its widening current account deficit and tackle a sharp slide in the rupee.
The new tariff structure, which goes into effect Thursday, will see the government raise customs duties on items such as air conditioners, refrigerators, footwear, speakers, luggage and aviation turbine fuel, among other items.
The move could hit imports from countries like China and South Korea, which manufacture some of the high-end washing machines, refrigerators and air conditioners sold in India.
Amid a growing climate of protectionism, India had earlier said it was contemplating such a move to take pressure off the rupee, which has weakened by more than 12 percent this year and is Asia’s worst performing currency.
“This is positive news for the rupee given that it will help reduce India’s current account deficit,” said a forex trader at a foreign bank.
Other bankers were more sceptical about whether the move can rein in rupee weakness, noting that demand for the high-end goods is largely price inelastic.
“This is a sentiment booster for the rupee,” said SBI Chief Economist Soumya Kanti Ghosh, adding that the overall impact on current account deficit will be muted.
“The central bank needs to intervene more actively in the forex market to support the rupee. These tariff measures won’t help in the long term,” said Ghosh.
The total value of imports of the 19 items in last fiscal year ended March was about 860 billion Indian rupees ($11.84 billion), the government said in a circular.
Indian imports in the same period totaled $459.67 billion.
The hike in import duties on the identified non-essential items is likely to have a modest impact on curtailing the size of the current account deficit in fiscal 2019. The deficit last stood at around 2.4 percent of GDP, in the April-June quarter, and it is expected to widen to 2.8 percent for the year ending March 2019.
The latest move could impact companies like South Korean electronics giants Samsung Electronics Co and LG Electronics Inc, along with the likes of big name brands such as footwear maker Nike Inc, luggage maker Samsonite International SA and audio products maker Bose Corp.
The companies were not immediately reachable for comment.
The decision could also sting India’s vast gem and jewellery sector as the government has raised tariffs on imported diamonds and gemstones, along with increasing tariffs on jewellery items.
The move is the Narendra Modi-led government’s latest toward protectionism, as it promotes its ‘Make in India’ programme.
India announced higher import tax on electronics products such as mobile phones and television sets in December, and then on 40 more items in the budget in February. These included goods as varied as sunglasses, juices and auto components.
Reuters earlier this month has also reported that India’s steel ministry is mulling increasing the effective import duty on some steel products.
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