This refers to the report "Govt to increase import duty on gold, luxury goods" (August 13). The steps announced by the FM seem to be an act of desperation. Many of the announcements are about funding the current account deficit (CAD) and not reducing it. No one can argue against imposing higher duty on luxury imports, though India's flexibility in that aspect, too, is limited by its commitments via the World Trade Organisation and free-trade agreements. Financing the CAD through quasi or direct government exposure bonds, tax breaks and higher interest rate carrying deposit is quite detrimental even in the medium-term, since most of the CAD can be linked to revenue account imports such as energy, gold and defence. There is no increase in the domestic manufacturing capability that can alter the fundamental trade deficit by replacing imports and boosting exports. The government can consider steps such as auction of trade-available foreign currency for all but energy and defence importers, or give a bigger tax benefit to those generating incremental net exports. Reducing revenue account remittances by citizens is another step that can be considered.
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P Datta Kolkata
Letters can be mailed, faxed or e-mailed to:
The Editor, Business Standard
Nehru House, 4 Bahadur Shah Zafar Marg
New Delhi 110 002
Fax: (011) 23720201
E-mail: letters@bsmail.in
All letters must have a postal address and telephone number