New Delhi: The commerce ministry is considering the feasibility of a renminbi-rupee trade with China in order to tackle the sharply depreciating rupee and a widening trade deficit. India’s trade deficit with its northern neighbour stood at $63 billion in 2017-18.

Trade minister Suresh Prabhu, in an inter-ministerial meeting on Thursday asked officials of eight departments —including economic affairs, petroleum, steel, coal, electronics and information technology and pharmaceuticals— to identify measures needed to ramp up domestic production through better capacity utilization, capacity creation and expansion in the short and medium-to- long term.

“Directed key ministries to examine measures on diversification of export base and increase domestic production in order to promote economic growth and address our merchandise trade deficit," Prabhu tweeted.

The commerce ministry is also consulting the Reserve Bank of India and the finance ministry to finalize arrangements with countries like Russia for imports on deferred payment or increasing barter possibilities for balanced trade involving diamond.

“The possibility of rupee or barter trade with countries from where India is buying crude oil such as Iran, Venezuela and Russia is also being considered," a commerce ministry official said speaking on condition of anonymity.

On Monday, Prabhu held a separate meeting with secretaries of various departments to fine-tune the government’s export strategy. The commerce ministry is focusing on nine sectors—gems and jewellery, leather, textile and apparel, engineering, electronics, chemicals and petrochemicals, pharma, agriculture and allied and marine products—to boost exports.

The move comes in the backdrop of the World Trade Organization last week downgrading global trade growth to 3.9% from 4.2% in 2018 estimated earlier as a result of escalating trade tensions between the US and China.

During the April-August period, Indian exports rose 16.1% while imports grew 17.3%, causing a trade deficit of $80 billion. Last year, during the same period, the trade deficit was $67.1 billion. India’s current account deficit in the June quarter of FY 2019 rose to a four-year high of 2.4% of GDP, or $14.3 billion, which has put further pressure on the weakening rupee.

The government had on 26 September raised import duties on 19 non-essential items, including refrigerators, air conditioners, jewellery, diamonds and jet fuel, accounting for annual imports worth 86,000 crore, to arrest a widening current account deficit (CAD) and a weakening rupee. The official said further increases in import duty on more such items are unlikely.

The government, however, did not raise customs duties on imports of gold or electronic goods. While gold imports surged at an average 65% to $3.3 billion in July and August, those of electronic items rose 15% to $2.47 billion during the April-August period.

The reason the government decided against imposing additional import duty on gold may have been that the yellow metal already attracts a 10% import tax and the commerce ministry and Niti Aayog had sought a reduction to cut smuggling.

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