India continues its defense of the rupee by hiking import duties on 19 products

• In order to reduce imports and lower the trade deficit, India’s finance ministry has announced a hike in import tariffs on 19 categories of products it deems as “non-essential”.
  
• The items in question ranged from large household appliances like washing machines, ACs and refrigerators to radial tyres and aviation turbine fuel to jewelry, footwear, tableware, furniture fittings and suitcases.
  
• Taken together, these products comprised ₹860 billion worth of imports in 2017-18.
  

Earlier this month, the Indian government unveiled a host of measures to halt the freefall of the rupee and contain its widening current account deficit, which stood at 2.4% of GDP at the end of June.

This included a relaxation in overseas borrowing restrictions for Indian manufacturers, tax benefits for investors purchasing rupee-denominated bonds and allowing overseas banks to underwrite these bonds and finally, a reduction in “non-essential” imports.

In order to reduce imports and lower the trade deficit, India’s finance ministry has announced a hike in import tariffs on 19 categories of products it deems as “non-essential” or to put it bluntly, products purchased by relatively well-off households. This will result in a ₹40 billion increase in tax revenues for the government.

The items in question ranged from large household appliances like speakers, washing machines, ACs and refrigerators to radial tyres and aviation turbine fuel to jewelry, footwear, tableware, furniture fittings and suitcases. Taken together, these products comprised ₹860 billion worth of imports in 2017-18.

The import hike on household electronic appliances, a significant portion of which come from China, could dampen sales slightly this festive season. Also, the levying of a 5% duty on aviation turbine fuel is expected to add to the woes of the aviation sector, which is already struggling with high prices of crude oil. This will likely result in higher airfare for passengers. Meanwhile, the hike in duties on jewelry will likely hurt importers of diamonds, but will benefit domestic gold jewellers, as the duty on gold has been left unchanged at 10%.

The tariff hikes will be effective today. In order to further curtail the trade deficit, the Indian government will also try and boost exports. Suresh Prabhu, India’s commerce and industry minister, has reportedly asked the finance ministry to devise measures to increase the flow of credit to exporters. In addition, the commerce and industry ministry is said to be reviewing a plan to increase exports by as much as 20% by promoting key sectors such as agriculture, pharmaceuticals and textiles.