Axe on non-essential imports

The Centre on Friday announced the first set of measures designed to tamp down on the soaring current account deficit and ratchet up dollar inflows as it struggles to stem the dramatic 6 per cent slide in the rupee against the greenback since August.

By Our Special Correspondent
  • Published 15.09.18
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Arun Jaitley. Picture by Prem Singh

New Delhi: The Centre on Friday announced the first set of measures designed to tamp down on the soaring current account deficit and ratchet up dollar inflows as it struggles to stem the dramatic 6 per cent slide in the rupee against the greenback since August.

The government said it would slash imports of non-essential commodities but did not divulge which items it intended to target. In the past, the government has clamped down on gold imports.

"The list of non-essential items will be decided in consultation with the concerned ministries to ensure that the measures we take are in consonance with our obligations under the multilateral trade agreement of the World Trade Organisation," finance minister Arun Jaitley told reporters after a meeting of officials of the RBI, the finance ministry and the PMO.

The meeting forms part of the consultations that Prime Minister Narendra Modi will be holding over the weekend.

Jaitley said the government had reached agreement on other measures but did not spell them out immediately as these were market sensitive. The announcements will be made at the appropriate time.

Jaitley announced a first set of five specific measures:

• Non-essential imports to be cut.

• Steps to be taken over the next few days to boost exports.

• Mandatory hedging conditions for infrastructure loans to be reviewed.

• Manufacturing sector entities to avail of external commercial borrowings (ECBs) - a source of cheap dollar credit for India Inc - of up to $50 million with a maturity tenure of one year against three years at present.

• Exposure limit of 20 per cent on foreign portfolio investors' corporate bond portfolio to be removed.

• Removal of the levy of withholding tax on masala bonds during this financial year that ends on March 31. Masala bonds are issued on overseas exchanges but are denominated in Indian rupees rather than the local currency of the country where these are floated.

Restrictions will be removed on Indian banks that act as market makers for masala bonds. They will also be permitted to underwrite these bonds if they are not fully subscribed.

The rupee touched an all-time low of 72.91 against the dollar on Wednesday. On Friday, it clawed back to 71.84.

India's current account deficit ballooned to $15.8 billion in April-June this year, about 2.4 per cent of the GDP, prompting global credit rating agencies to raise red flags.

The surge in the dollar's value and the resurgence in the US economy have prompted foreign institutional investors (FIIs) to pull money out of the emerging markets, including India. RBI data reveals that the net investment position of FIIs in India turned negative in April-June to minus $8.8 billion. In the same period last year, the net investment position of FIIs was positive at $12.9 billion.

Economic affairs secretary S.C. Garg said the measures announced would have an impact of around $8-10 billion.