India is raising import tariffs on items such as air conditioners, refrigerators, footwear, speakers, luggage and aviation turbine fuel. The move is aimed at reducing its widening current account deficit and tackling a sharp slide in the rupee. It could hit imports from countries like China and South Korea, which manufacture some of the high-end washing machines, refrigerators and air conditioners sold in India.
The rupee has weakened by more than 12 per cent this year and is Asia’s worst performing currency. But there are doubts if the move can rein in the rupee weakness since the demand for the high-end goods is largely price inelastic. It is felt the central bank needs to intervene more actively in the forex market to support the rupee and that tariff measures won’t help in the long term.
The decision could also sting India’s gem and jewelry sector as the tariffs have been raised on imported diamonds and gemstones. The current account deficit last stood at around 2.4 per cent of the GDP, in the April-June quarter, and it is expected to widen to 2.8 per cent for the year ending March 2019. The effective import duty may also be raised on some steel products.