Import compression through duty hikes may halt for time being

Hike in custom duty of non essential items will not have considerable impact in containing CAD

Import compression may take a breather as the government finds limited impact of import duty hike in non essential items like consumer goods and electronic items on the current account.

According to officials, though electronic items and building materials like tiles, cement, marble, granite are under scanner, hike in these custom duty will not have considerable impact in containing the current account deficit (CAD).

Further as per the study conducted by the finance ministry, the items with substantial impact are precious metals - gold on which the government has been consistently taking measures to make imports expensive.

The idea is not to hike duties for the sake of it unless the impact on current account is substantial, said officials.

The government in the beginning of this week hiked the customs duty on gold, platinum and silver to 10%, a step that could rein in deficit to the tune of around additional revenue of Rs. 4,830 crore as per official statements of the ministry. This is the fourth round of customs duty hikes on the yellow metal in the last 20 months.

While the import duty on gold and platinum has been increased to 10% from 8%, the duty on silver has been raised by 4 percentage points to 10%.

The additional duty of customs (CVD) on gold dore bars and on gold ore/concentrate is thus being increased from 6% to 8% and on silver dore bar from 3% to 7%.

Officials however added that the government is still working on proposed hike in non essential items and has even sought a view from the law ministry. The view is regarding empowering the ministry to alter tariff rates on certain items without exercising emergency powers.

The government has pledged to reduce the deficit from 4.8% of gross domestic product in the year that ended in March to 3.7% of GDP in the current fiscal year.

The import compression exercise is being taken by the finance ministry with the objective of restricting import of high value non essential items . officials added barring precious items, there is no other item which has a overbearing impact on the current account from the point of view of the deficit

Ironically, the government was looking at some compression in non-oil and non-gold imports, especially of non-essential goods and had even cited examples of electronic hardware and consumer durable as the likely candidates to face duty hike.

In addition, some foreign fund raising plans were also discussed including prodding blue chip public sector companies to raise funds from overseas markets.