‘Curbs on non-essential imports will have limited impact’

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SummaryThe government's plan to curb the trade deficit by putting a lid on some to-be-identified “non-essential imports” would serve little purpose other than making the policy intent clear, analysts said.

The government's plan to curb the trade deficit by putting a lid on some to-be-identified “non-essential imports” would serve little purpose other than making the policy intent clear, analysts said. The most prominent among non-essential imports, that of gold with a 17% share in the country's total imports, has anyway been restricted with taxes and central bank regulations and there's little room here for further curbs. Importers of electronic goods, the third largest item in India's import list and which could be considered “non-essential” in some cases, are enjoying the benefit of zero import duty under the information technology agreements with several countries that cannot be revoked unilaterally.

The scope for clamping down on imports is seen more in consumer goods, which include luxury items like imported cars, watches, alcohol, etc. Sources say the government's ability to make any meaningful difference in the trade deficit and, thereby, the current account deficit, by suppressing demand for these items would be limited. This is because in the overall trade value, these items don't account for a very significant share, besides the demand being largely price-inelastic.

“Gold is the prime candidate to be labelled a non-essential commodity, along with finished diamond products that are not for re-exports. But the government has already put some restrictions on its imports. However, most of our imports continue to be of essential commodities, such as crude and edible oils, coal, fertilisers, etc, and apart from precious metals, non-essential commodities constitute a negligible portion of overall imports,” said KT Chacko, former director general of foreign trade.

Chacko added that barring gold, which the government has already targetted, the plan to curb imports of other non-essential items may have some value for public consumption in the sense that the government will be seen as doing something to trim the trade deficit, but the tangible results of any such move may not be much to take note of.

Analysts said since gold imports have already dropped significantly to 31.5 tonne in June from 162 tonne in May and 142.5 tonne in April, the scope for curbing the purchases further has been significantly squeezed. Moreover, gold demand in the country has remained subdued due to government crackdown and absence of festivals and imports are expected to be around 70 tonne in the next two months, said Ashok Minawala, board member of the All India Gems and Jewellery Trade

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