Plunging rupee prompts India to raise taxes on goods worth Rs 860 billion

Import duty raised on 19 items from jet fuel to jewellery

India raised customs duties on products ranging from aviation fuel to footwear as it seeks to narrow the current-account deficit and support the rupee.

The taxes on 19 items, imports of which were valued at Rs 860 billion ($12 billion) in the financial year ended March, will be effective Thursday, the finance ministry said in a statement Wednesday.

A current-account deficit at a five-year high is a key vulnerability for the economy and one of the reasons why the rupee has been the worst-hit in Asia amid an emerging-market rout this year. The move follows similar steps taken by Indonesia -- which also runs a current-account gap -- to raise taxes on imports of luxury goods like cars to consumer products and delay import-heavy infrastructure projects.

While Indonesia’s rupiah has lost about 9 per cent against the dollar this year, India’s rupee has dropped more than 12 percent, as rising oil prices push the nation’s trade deficit wider and fuel inflation.

Prime Minister Narendra Modi’s government had asked ministries to finalize plans to reduce inbound shipments of electronic goods such as mobile-phone components and some petroleum products and capital goods, people familiar with the development said Tuesday. The plan is to reduce imports of these items by 1.5 per cent to 4 per cent, the people said.

Citigroup Inc. economists Samiran Chakraborty and Anurag Jha estimated the goods targeted with higher taxes represent 0.5 per cent of gross domestic product and could be beneficial in helping to rebalance demand, depending on how responsive consumers are to higher prices and whether the products can be replaced with domestic goods.

“That said, with the fiscal 2019 current-account deficit quite wide at $88 billion or 3.2 per cent of GDP, more efforts may still be needed including on the exports front to get the current account deficit into the comfort zone,” they said.
@2018Bloomberg