India raises tariffs on non-essential imports
India has raised import tariffs on 19 items — including gemstones, jet fuel, plastics, home appliances and shoes — as it seeks to curb ‘non-essential imports,’ narrow its widening current account deficit and ease pressure on the rupee.
The new customs duties, scheduled to take effect on midnight on Wednesday, make India the latest country to turn to protectionist measures as it seeks to strengthen its domestic economy.
Announcing the import duties, India’s finance ministry said that the country had imported around $11.8bn worth of the specified goods during the last financial year.
Prime Minister Narendra Modi’s government decided this month to curb imports it deemed ‘non-essential,’ to shore up confidence in its currency, which has fallen around 13 per cent against the dollar so far this year.
In the 10 days since, industry associations have been engaged in frantic lobbying to try to prevent the duties from being imposed on the items they use as inputs. The finance ministry said the goods targeted were cut down to 19 items from what was originally a longer list.
Nevertheless, the new tariffs hit India’s financially struggling airlines with a 5 per cent customs duty on jet fuel, previously imported duty free.
They also raise a customs duty on diamonds and other gemstones used in inputs for jewellery-making from 5 per cent to 7.5 per cent. India’s gem and jewellery industry employs around 5m workers and is estimated to contribute about 7 per cent of gross domestic product. Recommended Watches & Jewellery: Asia Scandal-scarred Indian banks squeeze loans to diamond trade
Imported air-conditioners, refrigerators and small washing machines will also become more expensive, with their import duties doubling from 10 to 20 per cent. Other items that will now be subjected to higher import duties include tyres, speakers, shoes, suitcases and travel bags and a wide range of plastics, including dishes and kitchen items.
Indian economists have been split on the effectiveness of the plan to curb imports.
The recent rapid depreciation of the rupee, coupled with a surge in oil prices, has been a troubling development for an economy that relies on imports for around 80 per cent of its energy needs.
Underpinning India’s currency weakness has been a surge in its current account deficit, which widened to $15.8bn — ｏｒ 2.4 per cent of GDP — from April to June, up from $13bn during the first three months of 2018.
New Delhi has also vowed to bolster exports, although few specific measures have been announced. It has also eased some restrictions, and announced tax breaks, aimed at making foreign portfolio investment into India more attractive.
The foreign exchange reserves of the central bank have dropped by around $26bn since mid-April as it has sought to shore up the currency.