Minimum Import Price Among Options to Curb Non-essential Goods
Move seen as more effective than raising duties to cut CAD
New Delhi: India could look at imposing minimum import prices or safeguard duties on some goods as it attempts to cut nonessential imports and compress the current account deficit to halt rupee depreciation.
These measures are seen to be more effective than simply raising duties, which leads to goods being routed via countries with which India has free trade agreements (FTAs), or outright bans that run afoul of the World Cashews 2564 Almonds 884 Apples 252 Whisky etc 323 Water 115 Marble 249 Tyres 481 Leather items 441 Cotton, wool, silk 1777 Man-made fibre 1582 curbs on non-essential imports to check deficit Textiles** Footwear Glass* Iron & Steel Copper* Aluminium* Mobiles Furniture Plastic* 1234 687 1245 14638 4,507 4,523 3,537 1,876 13,926 FTA route after domestic duties were raised.
Finance minister Arun Jaitley had on Friday, after a crucial review meeting of the external sector by Prime Minister Narendra Modi, said that the government will take steps to restrict imports.
“The list of non-essential items will be decided in consultation with the concerned ministries to ensure that the measures we take are in consonance with our obligations under the multilateral trade agreement of the World Trade Organisation,” Jaitley had said on Friday.
India’s current account deficit deteriorated to 1.9% of GDP in FY18 from 0.6% in the year before and is forecast to rise to around 2.8% in the current year. The trade deficit has widened to $80.4 billion in the first five months of the current fiscal year from $67.3 billion in the same period last year. The government had imposed customs duty on smartphones in July 2017 and subsequently raised it in the budget. Customs duty was raised on a host of goods such as inputs used in mobile phones and other hardware, watches and fruit juices.
Indian industry has also been complaining of the dumping of iron, steel, copper and aluminium, and imposing minimum import prices will cool demand. Iron and steel imports rose 25% in FY18, copper by 33% and aluminium was up 30%. India imported mobile phones worth $3.5 billion in FY18. Restricting imports to a port can slow down shipments.
Tax experts say a more long-term solution lies in reviewing FTAs. “Increases in customs duty on imports by sectors or of specific goods in the past few months has had an insignificant impact on the quantum of imports as many of them are imported under FTAs,” said Rahul Shukla, executive director, PwC. “Hence, the government may want to review concessions given as part of FTAs, the Information Technology Agreement simultaneously and use consultative or remedial measures as part of these agreements while continuing to focus on initiatives for Make in India including infrastructure and connectivity.” Customs duty was raised on gold in 2013 to cut imports of the metal.
India’s current account deficit deteriorated to 1.9% of GDP in FY18 from 0.6% in the year before and is forecast to rise to around 2.8% in the current year