Editorial: Supply-side matters

Aug 12 2013, 00:47 IST
Comments 0
SummaryImport curbs won’t help rupee, exports will

Over the next few days, to bolster RBI’s third series of steps—the first was on July 15—to keep the rupee under check, chances are the government will raise import duties on what are termed luxury products, iPhones or iPads for instance. What’s not clear, however, is how this is expected to help and, if so, by how much. For one, what can be considered consumer imports don’t really add up to much. For FY13, electronic goods added up to $31.5 billion and if you add, at the outside, “other commodities” of $20 billion, that takes you to a little over 10% of all imports. How much of a compression an import duty hike will make is not clear—hike it on other imports, and the industrial slowdown will get even worse. India’s current financing gap is in the region of $20-25 billion for FY14, shaving a couple of billion from electronic goods isn’t going to help much. In any case, imports of electronics products—they total around 6.5% of all imports—have been falling thanks to the erosion in the value of the rupee. In FY13, they fell 4% while overall imports grew 0.5% and in the first quarter of FY14, monthly imports of electronic goods have been constant at around $2.5 billion; in other words, imports of such goods are already falling anyway. And while compressing electronic goods imports is one thing, the exact impact will depend on whether the imports are iPads for final consumption or intermediates for Indian producers—in the latter case, the precarious industrial growth will further suffer.

The larger problem is not so much with high imports, though that is what the government’s focus has been for many months—gold imports were not taking place because individuals wanted to consume gold, it was because the existing investment options were losing their value. While there is little doubt the current account deficit would be better were there no gold imports, the larger problem has been the export contraction for a very long period of time. In FY13, for instance, exports fell 2% and in the first quarter of FY14 exports have slowed even more, to around $72 billion as compared to $82 billion in the previous quarter. Focusing on gold and electronic imports is all very well, but the larger focus has to be on getting exports back on track by fixing supply-side issue—while it is important to get the ban

Single Page Format
Ads by Google

More from Edit & Columns

Reader´s Comments
| Post a Comment
Please Wait while comments are loading...