India may restrict non-essential imports to check rupee fall
The government may put curbs on non-essential imports such as gold and electronics goods, while boosting exports
New Delhi: After Friday’s measures to increase capital inflows to check a falling rupee and curb the rising current account deficit (CAD), the next in line could be trade-related measures to curb non-essential imports and boost exports.
On Friday, finance minister Arun Jaitley said a broad policy decision has been made to take necessary steps to cut non-essential imports and increase exports, in the backdrop of the CAD touching 2.4% in the June quarter. “The items will be identified in consultation with the line ministries in the next few days and necessary decisions will be taken. We will also keep in mind that the decisions are WTO-compliant,” he said.
Among non-essential items, imports of gold and electronic goods have picked up significantly in recent months. While imports of gold in July and August grew at an average 65% to $3.3 billion, that of electronic items during April-August period was up 15% to $24.7 billion. However, gold already attracts a high 10% customs duty, and both commerce ministry and NITI Aayog have been demanding reduction in customs duty to ensure better tax compliance and reduce smuggling of gold into India. Gold is also used as a raw material by the gems and jewellery sector whose exports have started to pick up after a prolonged dip.
Among electronic items, telephone sets including mobile phones constitute the major portion, growing at 16.2% to $17.2 billion during April-July. Other items registering high growth include colour TV sets of screen size more than 105cm (101%), digital cameras (153%), digital processing units (42%), memories of electronic integrated circuits (1,515%) and monolithic integrated digital circuits (291%) among others. Many of the electronic items have zero customs duty under WTO’s first Information Technology Agreement, and the government may not be able to hike duties on those products.
Ajay Sahai, director general and chief executive officer, Federation of Indian Export Organisations (FIEO), said the list of non-essential imports need to be carefully chosen as they should not be raw materials or intermediaries for the industry. “If it is finished products, that can be looked into and that too, luxury-end items can be targeted. India should also not be seen as a country which is indulging in protectionism,” he added.
While exports have been growing at double digits consecutively for the last four months, sectors like ready-made garments have been contracting for more than a year now. Exports of ready-made garments fell 12.1% to $6.6 billion during the April-August period. However, the government may find it difficult to directly provide export incentives to such sectors as the US has challenged India’s entire exports subsidy regime at the WTO, claiming that India no more qualifies to provide such subsidies.
Sahai said if the intention is to support the exports sector, then the government should ask banks to lend to exporters. “Liquidity is a big challenge for exports. Banks are not lending to any sector and exports sector is a victim of that,” he added.
Sahai claimed exporters’ funds up to ₹10,000-12,000 crore are also locked up due to delay in goods and services tax (GST) refunds which can be released in an expeditious manner. “States also need to play a pivotal role in refund of input tax credit,” he added.
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