Pouring in: Duty hikes in September 2018 fail to check imports

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Updated: May 6, 2019 6:59:57 AM

Importantly, defying the duty hike, imports of household refrigerators rose by 12.9% between October and February last fiscal, those of compressor for ACs and refrigerators increased by 19.9%, washing machines (less than 10 kg) by 6.8%, and suitcase and travel bags etc 17.4%, footwear 9.3%, speakers 40.6% and plastics items 8.2%.

Duty hikes, imports, export, current account deficit, CAD, NITI Aayog, economy, newsHardly a hurdle: Duty hikes in September 2018 fail to check imports

The government raised basic customs duties on scores of products in September last year to crack down on “non-essential imports” and contain their debilitating impact on current account deficit (CAD), but the move has barely paid off. As many as eight of the 13 product segments witnessed a rise in purchases from overseas since the tariffs went up, according to the Directorate General of Commercial  Intelligence and Statistics (DGCIS) data.

Between October 2018 and February 2019, imports of these items — ranging from air conditioners (ACs) and refrigerator to footwear — rose an average 5% to $2,343.41 million (excluding gems and jewellery). Though such imports had witnessed a 15% jump up to September last fiscal, the latest rise came even off an unfavourable base (imports had jumped as much as 21% a year earlier), which points at the inefficacy of the move.

Also, sales of some of the products that witnessed a fall in imports since October 2018 are typically seasonal by nature (ACs) or price-inelastic ( ATF). While imports of ACs dropped 7.5% from October to February in FY19 from a year earlier, those of ATF dropped by almost a half (mainly due to a drop in global oil prices).

Importantly, defying the duty hike, imports of household refrigerators rose by 12.9% between October and February last fiscal, those of compressor for ACs and refrigerators increased by 19.9%, washing machines (less than 10 kg) by 6.8%, and suitcase and travel bags etc 17.4%, footwear 9.3%, speakers 40.6% and plastics items 8.2%. This is despite the fact that sales of some of these items (like refrigerators) typically pick up during summer and not winter.

As for the gems and jewellery segment, the imports, which were already down by 10.8% up to September last fiscal, dropped further (by almost 27%) between October and February. The imports of this segment are anyway volatile and prone to seasonal demand/price fluctuations.

In November last year, eminent economist and former vice-chairman of NITI Aayog Arvind Panagariya had told FE that the government’s move to raise import duties could be counter-productive. Making a case for keeping trade as free as possible, Panagariya had said: “My view is that it (raising import duties) won’t help the economy because only after removing protective tariffs did India grow at a reasonable pace….If we go back to protectionism, it’s not right.”

Analysts, too, were critical of the government’s move, saying at `86,000 crore, purchases of these items accounted for only 2.5% of total merchandise imports and 0.5% of nominal GDP in FY18. Of course, higher duties fetched the government extra customs revenue last fiscal when it was battling a fall in GST collection.

The government had targeted “non-essential imports” as part of its battle to save the rupee from sliding further. It had doubled the import duty on ACs, refrigerators and washing machine to 20%, while the indirect tax on gold jewellery was raised to 20% from 15%. Similarly, the duty on diamonds (semi-processed ones) was raised to 7.5% from 5%. Footwear attracted a 25% import duty, against 20% earlier, while the duty on ATF was hiked to 5%, against nil earlier. The CAD had worsened to 2.6% of GDP in the first three quarters of FY19 against 1.8% a year before, thanks to elevated global oil prices that had inflated the import bill.

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