Commerce and industry minister Suresh Prabhu will chair a crucial inter-ministerial meeting on Thursday to discuss how best to reduce imports without resorting to another round of tariff hike, and contain the current account deficit that has exerted pressure on the rupee. Prabhu will meet senior officials of the ministries of finance, industry, petroleum, steel, pharma, coal and electronics and IT. “The discussion will also centre around how to substitute imports through higher local production,” said a senior government official.
The meeting comes a day after the rupee hit an all-time low of 73.74 against the dollar. The weak rupee, coupled with a rise in global crude oil prices, added to the import bill in recent months and widened the trade and current account deficits. This, in turn, has weighed on the bond yield amid pullout by foreign portfolio investors triggered by emerging market sell-off. The trade deficit had touched a five-year high of $18 billion in July before easing marginally to $17.4 billion in August.
The rupee has emerged as the worst-performing Asian currency, having shed around 13% in 2018, even though some analysts believe the domestic currency is still a tad overvalued. Last week, the government raised basic customs duties on 19 products, including aviation turbine fuel, gold jewellery, semi-processed diamonds, air-conditioners, refrigerators, washing machines (up to 10 kg), footwear, certain car tyres and plastic products.
This was part of the government’s efforts to curb “non-essential imports” and contain their damaging impact on the CAD. However, analysts have expressed scepticism about the efficacy of the duty hike, saying demand is unlikely to fall meaningfully due to the upcoming festival season. Also, at Rs 86,000 crore, imports of these items accounted for only 2.5% of total merchandise imports and 0.5% of the nominal GDP in 2017-18. However, the move sends a signal that the country is willing to act to curb “non-essential imports”, they said.