To achieve greater trade balance by curtailing imports at a time when the rupee is weakening against the US dollar, an inter-ministerial panel under commerce and industry minister Suresh Prabhu has asked 15 import-sensitive ministries/departments to come up with specific suggestions urgently to increase local production within two-three months.
The exercise — touted to be one of the largest ever on “import substitution” — involves various departments, including petroleum, industry, chemicals, heavy industries, IT and electronics, economic affairs, telecoms and coal. Products which come under these 15 departments accounted for close to 80%,
or $402 billion, of the country’s annual imports over the past five years through 2017-18, a senior government official told FE.
For instance, the official said, state-run Coal India may have to scale up its production or Steel Authority of India has to produce more steel, to reduce reliance on imports.
However, Coal India’s production in the first five months of this fiscal stood at only 32% of its full-year target of 680 million tonnes. Similarly, the ability of SAIL, which has reportedly refused to offer any dividend to the government in 2018-19, to raise production is impaired by a “cash crunch”. “We can’t entirely substitute import, but even if it’s reduced by 5%, that should be a good beginning,” he said.
Apart from “import substitution through higher local output”, to reduce demand for the dollar for crude oil imports, the possibility of rupee/barter trade with Iran, Venezuela and Russia needs to be explored by the Reserve Bank of India (RBI) and the department of economic affairs (DEA), the panel has suggested. It has also recommended that the DEA and the RBI weigh the option of trading in local currency with China, with which it incurred a record trade deficit of $63 billion in 2017-18.
The panel also asked the RBI and the DEA to promote gold related schemes — such as monetisation, sovereign bonds and coins. Similarly, arrangements like deferred payment or increasing barter system with Russia need to be considered to improve trade balance in diamonds from that country, the panel suggested.
This was the second part of the government’s efforts to trim imports through higher domestic output, having already raised customs duty on 19 products totalling annual imports of Rs 86,000 crore. Current account deficit (CAD), stoked by elevated trade imbalance, is blamed for the sharp depreciation of the rupee in recent months, apart from global factors including the US interest rate hike.
The panel had its last meeting on Thursday, when the rupee closed at a fresh low of 73.81 to the greenback, having shed over 13% in 2018 and emerging as Asia’s worst-performing currency. The ministries/departments will have to suggest — with specific time-lines — remedial measures, including “better capacity utilisation (locally) by improved input supply” and addressing bottlenecks that dampen domestic production of critical items. Senior officials of these ministries are part of the panel.
The trade deficit had touched an over five-year high of $18 billion in July before easing marginally to $17.4 billion in August. Many analysts have revised up their 2018-19 CAD forecast to 2.8% of GDP, with upside risks, against 1.9% a year before.