Government hikes customs duty on more products to rein in CAD

NEW DELHI: The government on Thursday increased customs duty on a host of items, including telecommunication equipment, to 20% from the existing 10%, in a bid to reduce India’s current account deficit. This is the second round of increase in custom duties as the government looks to cut down on non-essential imports in the face of a weakening rupee and massive outflows.

On a day the benchmark Sensex fell more than 1,000 points and the rupee touched an all-time high of 74.50, the government sought to assure investors about India’s strong macro-economic fundamentals and its intent to react quickly to address any problem.

“Our main worry is the current account deficit, balance of payments gap and the rupee. These are the three things which we are watching...We have a strategy in place. If need be, the government can sort of intervene in different ways also to remove the balance of payments gap,” said the official, who did not wish to be identified, adding that the government will take more action if required.

India’s CAD worsened to 2.4% of gross domestic product (GDP) in the first quarter of 2018-19 and economists expect it to worsen to 3% for the full year. With largescale capital outflows, financing the deficit is also a challenge, though India’s forex reserves are more than adequate.

The rupee has also weakened by more than 16% so far this year, according to Bloomberg, as foreign investors sold $3.69 billion and $7.65 billion in the equity and debt markets, respectively.

India’s fiscal deficit target is also at risk on account of weak indirect tax revenue collections.