Centre hikes import duty on 15 items as Rupee, stocks fall
New Delhi: On a day when the benchmark indices, BSE Sensex and NSE’s Nifty 50, closed over two per cent lower amid a sell-off in global markets, the government hiked import duty on around 15 items up to 20 per cent, effective Friday.
The latest step follows an earlier move to hike customs duty on 19 items, including air-conditioners and refrigerators, from 10 per cent to 20 per cent.
Earlier Thursday, two senior Finance Ministry officials told The Indian Express that more measures to curb imports and a possible issue of bonds to Non-Resident Indians are options that could be considered to contain the rising current account deficit (CAD). In April-June 2018, the CAD widened to $15.8 billion —2.4% of GDP — compared with $15 billion during the same period last year.
The latest hike mainly targeted communication items. Import duty on “populated, loaded or stuffed printed circuit boards” of eight goods, other than mobile phones, has been raised to 10 per cent. Duty has also been raised from 10 per cent to 20 per cent for base stations and for machines for reception, conversion and transmission or regeneration of voice, images or other data, including switching and routing apparatus other than modems, voice frequency telegraphy, digital loop carrier systems and multiplexers.
The late evening decision came after a sharp fall in stock, bonds and rupee markets, with traders cautious ahead of retail inflation and Index of Industrial Production data due Friday.
Finance Ministry officials attributed the fall in markets to global factors. “Stock markets have their own way of going up and down. (But) our main worry is current account deficit, balance of payments gap and the rupee. These are the three things which we are watching and we will find ways for them. We have a strategy in place. If the need be, the government can intervene in different ways also to remove the balance of payments gap,” an official said.
For the first time in six quarters, the balance of payments turned negative in the April-June quarter – a deficit of $11.3 billion, compared to a surplus of $11.4 billion last year.
The rupee has lost more than 13 per cent since the beginning of 2018. On Thursday, the rupee hit yet another record low of 74.45 against the US dollar. The BSE Sensex crashed 1,030 points to slip below the key 34,000-mark in the opening trade, tracking a global sell-off as. The Sensex ended 759.74 points, or 2.19 per cent, lower at 34,001.15.
In the global markets, the biggest stock slide since February impacted indices from the US through Europe and Asia on Thursday, triggered, in part, by fresh fears over countries imposing controls on global trade. While China’s Shanghai Composite gauge tumbled more than 5 per cent intra-day, the losses in the European stock markets were far more subdued. Oil prices fell to a two-week low as global stock markets slipped.
”We do have pressure on CAD, we do admit it but the government is not oblivious to it. On CAD and capping our balance of payments, we have got quite good (forex) reserves now compared to 2013, so that way also we don’t need to worry…It is our attempt to take actions in time and we will take more actions if need be. The government is alert about the situation, we are always discussing, we are finding the strategy and we will do what it requires us to do at an appropriate time,” a senior official said.
Asked whether the government will launch NRI bond issue, the official said: “I can’t tell about future. It may happen tomorrow, it may happen after one month, it may not happen. All options are available with us and we will see what time we will get into the market.”
Attributing the fall in markets to global factors, the official said: “What happened in US yesterday had a ripple effect here today. IMF downgraded global growth rate, US growth rate for next year, both these had impact on markets…(But) India’s (growth) is impressive and stable. They have downgraded not only global GDP growth rate but they have also downgraded two specific countries, which will have a competitive effect vis-a-vis India, that is, US and China.”
India’s inflation is “under control” and growth is “picking up”, but rupee is and current account deficit are turning negative mainly due to rising global crude oil prices, the official said. The finance ministry does not expect the crude oil prices to rise above $85 to a barrel in the international markets, and oil marketing companies are unlikely to be asked to share further burden of subsidising prices.
“Oil prices are now coming down, so that is a reason for rupee to appreciate. It’s possible that some people might have taken positions in rupee, with some kind of different outlook, but now I think it is time for them to reconsider also. They may lose money if they…but we believe that rupee should only appreciate from this level. At least, it should start appreciating. That’s our estimate,” the official said.