Think big

Think big

Article

1. Recent decision of Centre to increase customs duty on 19 “non-essential” items is just improving the margins and not addressing the structural macroeconomic issue.

Important Analysis

2. Using tariffs to curb imports of these items will not have a significant impact on narrowing the current account deficit (CAD) as these imports constitute less than 3% of the country’s merchandise import bill in 2017-18.
3. Impact of the move

• Doubling import duties on consumer durables could dampen consumption of these products
• 5% custom duty on aviation turbine fuel further adds to stress of domestic airline operators

4. Long term measure required

Boost exports and reduce the import-intensity of the economy

Conclusion

In the wake of rising global crude oil prices and sanctions on Iran that may affect India’s energy import bill, the government will need to act without delay to address the structural imbalances to restrict the CAD under 3% of GDP level.