Increase in import duty of 19 items

Context
Recently, the government has decided to increase customs duty on 19 items including jet fuel, air conditioner and refrigerators. This decision will be effective from midnight on September 29, 2018. According to the finance ministry, the total import bill of these 19 products in the last financial year was Rs 86,000 crore. It is notable that the government has taken this step to curb the current account deficit (CAD) and to reduce the rupee fall.
Current account deficit (CAD)
  • Three types of transactions under the current account, in which the first goods and services are import-export and the other employees and income and expenditure received from foreign investment and third-rate transfer (grants received from abroad, gifts and workers settled abroad). The amount of remittance sent by) is included.
  • It is noteworthy that the difference between the end and the external flow of foreign currency is called the current account deficit (CAD). 
  • If this difference is negative, then it is called the current account deficit (CAD) and when it is positive, it is called Surplus of the current account.
  • The fluctuation in the current account deficit also has an impact on the growth rate of GDP. This is the main reason that it is expressed as a GDP percentage. It is worth mentioning that the biggest share of CAD is the trade deficit.
Purpose 
  • According to the ministry, the central government has increased the original customs duty to charge charges.
  • The main objective of which is to reduce the import of some imported items so that these changes can be limited to the current account deficit (CAD) and the growing CAD will be able to establish comprehensive measures to promote exports.
  • After the review meeting of the economic situation under the chairmanship of Prime Minister Narendra Modi, Finance Minister Arun Jaitley had said, "To tackle the issue of increasing cadre, the government will reduce the import of non-essential commodities and increase exports".
Import duty on which commodities increased 
  • According to the finance ministry, the total import bill of 19 products in the last financial year was Rs 86,000 crore. 
  • In total, import duty on 19 items has been increased. It may be mentioned that they include speakers, refrigerators and washing machines, radial car tires, jewelery products, some plastic goods and suitcases.
  • Similarly, import duty on compressors, speakers and footwear has been increased to 10, 15 and 25 percent respectively.
  • Import duty on radial car tires has been increased to 10 to 15 percent. Artificial and polished, semi-processed and imported on imported colored gems from 5% to 7.5%.
  • Similarly, import duty on jewelery, goldsmiths and silver utensil items has been increased from 15 to 20 percent.
  • There will be customs duty of 15% instead of 10% in bathroom items, packing materials, kitchen accessories, office stationery, decorative sheets, beads, bangles, trunk, suitcase and travel bag.
Effect of the current decision
  • Decision to increase the import duty up to 20% on a group of commodities can reduce the consumption of these products, especially when the rupee slide against the dollar already makes these items costlier.
  • It would be interesting to see here whether the government's move turns into a psychological 'tiping point', which may change the consumption behavior by increasing the duty on imported commodities.
  • If this happens, then some of these items can lead to more investment in domestic production.
  • It is noteworthy that the tariff on aviation turbine fuel has been increased from zero to 5%, which can increase the problems of domestic airline operators, as well as rupees and rising oil prices are already hurting the CAD margin.
  • On the other hand, the rise in global crude oil prices and the restriction on Iran could make India look for other oil suppliers.
Forward path 
  • Policy makers need to adopt innovative efforts to promote export trade.
  • It is to be noted that due to GST, the working capital shortage of small exporters has been severely affected.
  • In such a situation, there is a need to work to woo some labor-intensive supply chain of countries like Vietnam and Bangladesh which come out of China.
  • It is an irony that despite the abundance of coal reserves, thermal coal is one of the fastest growing imports of India. This is the result of less investment in modernization of complete coal production and utilization chain which should be taken in quick succession.
  • Oil prices will be expensive due to rising oil prices, which is likely to cause inflationary pressures in India. The increased inflation rate will also affect the basic and other infrastructure.
  • Therefore, the government will need to make CAD more readily to reduce structural imbalance to increase more than 3% of GDP or more.
Source: The Hindu 

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