NEW DELHI: While the hike in import tariffs on 19 ‘non-essential’ commodities by the Centre on Wednesday is set to impact prices in categories like refrigerators and ACs just as the festive season kicks off, analysts say the move is likely to have minimal effect on reducing imports or strengthening rupee.
The rupee finished Thursday’s trading session flat at 72.59 per US dollar, compared to the previous day’s close of 72.62.
Analysts in firms like Nomura and Bank of America Merill Lynch, point out that the 2.5-10 per cent increase in customs duties won’t move the needle by much. “The government has chosen consumer goods over capital ones, banking on the robust and resilient consumption growth over the past year. Given these are a small share of overall imports, the measures would help reduce imports by only ~$500 million (0.1 per cent of total imports), which is quite small,” observed Nomura analysts in their note.
For instance, India’s airlines import only a small portion of Aviation Turbine Fuel (ATF), which found a place on the list. Only 4-5 per cent of ATF requirements are imported, with the item constituting just 0.13 per cent of the total oil import bill in the current financial year, according to Care Ratings. In fact, all 19 items on the list cumulatively constituted just 2.5 per cent of $460 billion in total imports last year.
Nomura believes that the rupee depreciation will have a greater effect in curbing imports than the duty hike. Sources also say the Centre is likely to see a rise in revenue of just about Rs 4,000 crore from the hike.
With the impact on imports negligible, traders do not see the rupee reversing its downward trend. Abhishek Bansal, founder and chairman of ABans Group, says that while the mild recovery in the rupee was attributed to the import duty hike, he expects the rupee to weaken further due to high crude prices. “It may sustain above 73 levels in the near term..,” he said.
However, analysts also expect the tariff hike to work incrementally along with other measures. “We believe more such steps are in the offing as the government has decisively moved from the first line (allowing currency depreciation, forex intervention, positive comments) to the second line of currency defence,” Nomura noted.