By Prarthana Mitra
In a bid to assist in reducing the current account deficit (CAD) and arrest any further fall of the rupee, the government has decided to increase the import duty on 17 select items starting Friday, October 12.
The list of commodities includes smartwatches and telecom equipment amongst others. The hike was conveyed via a finance ministry notification which was released late on Thursday night.
Here’s what happened, and why
Other listed products include base stations, optical transport equipment, a combination of one or more of Packet Optical Transport Product or Switch (POTP or POTS), Optical Transport Network (OTN) products and IP radios. The products named in the circular have witnessed an increase in basic customs duty, from the current 10% duty to 20%, since Friday morning. Besides, a host of telecom products that hitherto enjoyed zero duty would now face a customs duty of 10%.
A separate but related notification from the Central Board of Indirect Taxes and Customs also increased duties on imported electronic intermediate goods like printed circuit boards used to make telecom equipment, in an effort to bar the use of imported material in local manufacture. This is expected to boost the Narendra Modi government’s Make in India project.
Assumed impact on CAD and rupee
In September, finance minister Arun Jaitley first announced that the ministry would levy higher import duty on some goods in order to shrink the current account deficit. The recent measures come off the heels of a recent increase in import duty on consumer goods including air-conditioners, refrigerators, washing machines, footwear, jewellery, furniture fittings, tableware, even on aviation turbine fuel.
Although the revenue impact of the duty increase isn’t immediately clear or quantifiable, India reportedly imported about $21 billion worth of telecom equipment in FY18 (up from $16.2 billion in FY17), which tends to suggest a considerable impact on CAD. The current account deficit has worsened from 0.6% to 1.9% of GDP in FY18, and is projected to scale to 2.8% by the end of this calendar year.
Additionally, in light of the Indian currency losing 7% over the last month, this move will compel telcos to procure critical network gear locally and reduce the sectors import dependence at a time when the rupee has hit a cavernous low.
Prarthana Mitra is a staff writer at Qrius