India’s import duty hikes may be too late

Impact on reversing rupee decline and narrowing current account deficit will be marginal

India upped the ante in its efforts to restore investor confidence, with its central bank taking measures to ease liquidity for lenders a day after the government raised import tariffs to support the battered rupee. The Reserve Bank of India (RBI) allowed banks to dip further into statutory liquidity reserves to help them meet their liquidity coverage ratio needs, a step that would boost cash available for lending.

The government also raised import taxes on $12 billion (Dh44 billion) of goods, as it seeks to narrow the current-account deficit from a five-year high.

The coordinated policy moves come as Asia’s thirdlargest economy faces a barrage of bad news, from elevated oil prices and a tumbling rupee to the debt crisis at a lender and a cash crunch in the banking system.

Foreigners have pulled $8.6 billion from local shares and debt this year, adding to the weakness in the currency that’s already Asia’s worst performer.

Not enough

The measures may not go far in lifting the despondency that has settled over the markets. “The measures announced are positive on the margin in the short term, but not really gamechanging stuff to reverse the trajectory of the rupee and the financial markets,” said Ashish Vaidya, head of trading at DBS Bank Ltd in Mumbai.

Recent measures to shore up the currency have underwhelmed and pressure is building on the authorities to do more to curb the yawning trade- and current-account deficits. The move to raise import tariffs on 19 items — from air-conditioners to jet fuel — follows similar steps taken by Indonesia, which also runs a current-account gap.

“The additional duties will not serve to reduce the current-account deficit by more than 0.2 per cent of GDP,” said Teresa John, an economist at Nirmal Bang Equities Pvt. The increases will likely be countered by the recent jump in oil to above $80 a barrel, she said, forecasting the rupee to likely decline further.

Oil woes

Elevated prices of oil — India’s top import — and a weak rupee are likely to fan inflationary pressures, pushing the central bank to raise rates as early as next week.

The authority borrowing costs year.

“The monetary policy committee could still play its part in moderating the current-account deficit by extending a tightening bias,” Citigroup Inc economist Samiran Chakraborty wrote in a note. There’s a 65-75 per cent probability for a 25-basis point hike next week, he said. has raised twice this