Customs duty on gold and retail prices of diesel could see another increase, if the recommendations of the Planning Commission are accepted, as concerns are being raised in some quarters over financing of the current account deficit (CAD) in 2013-14.
In a presentation to the Commission’s chairman, Prime Minister Manmohan Singh, the panel had suggested that the duty of eight per cent on gold imports be increased in three-six months.
The Planning Commission also suggested that the government assess the impact of the recent measures on gold imports before going in for an increase in the Customs duty.
It also recommended that the Reserve Bank of India be asked to make the gold deposit scheme more attractive to reduce dependence on imported gold by channelising domestic privately held gold stocks in circulation.
The Planning Commission also wanted oil marketing companies to raise diesel prices by Rs 2-3 a litre to restrain demand.
The companies had increased diesel prices by 0.50 a litre last month, after being authorised to go for a small increase every month. Even then, the under-recoveries of these companies were Rs 9.29 a litre.
Oil and gold had accounted for 45 per cent of India's imports bill in 2012-13. Imports of petroleum, oil and lubricants rose nine per cent to $169.3 billion in 2012-13 from $155 billion a year earlier.
India’s imports bill rose moderately 0.3 per cent to $491 billion in 2012-13 from $489.3 billion a year earlier. However, this increase was enough to raise the trade deficit to over $190 billion, against $183.35 billion, over the period, as exports contracted 1.76 per cent to about $300 billion from $305 billion in 2011-12. This raised the CAD to a record 4.8 per cent of GDP in 2012-13 from 4.2 per cent in the previous financial year.
The government had announced a hike in Customs duty on gold from six per cent to eight per cent in June to curb imports. It had doubled the Customs duty from four per cent to eight per cent within the first six months in this calendar year.
The Reserve Bank of India, too, had announced measures to curb gold imports by prescribing export obligations while importing the precious metal.
The measures did have an impact on reducing gold imports in recent times. Gold imports fell to $2.45 billion in June from $8.4 billion in May. This was the biggest reason for narrowing the trade deficit to $12.25 billion from $20.1 billion over this period.
However, trade deficit in the first quarter of 2013-14 rose to $50.2 billion from $42.2 billion in the corresponding period of 2012-13. As such, trade deficit grew 18 per cent in the first quarter. With GDP growth expected to remain muted in the first quarter of the current financial year, trade deficit may be quite high as percentage of GDP.
So, the government will have to rely on invisibles, including remittances, to narrow the current account deficit.
The Planning Commission said with the rupee depreciating to historic lows against major currencies, it would be an opportune time for non-resident Indians and other investors to remit foreign currency to India. It suggested the Reserve Bank of India look at foreign inward remittances and related policies, procedures, and encourage banks to attract foreign remittances through a mix of policy inputs and aggressive marketing by banks.
While remittances are included in the CAD, non-resident Indian accounts are part of the capital account, which will help finance the current account deficit. Similarly, foreign travellers to India would also get better deals and could be aggressively targeted, the Planning Commission suggested.