In an attempt to shore up the sliding rupee, the government has unveiled a multi-pronged strategy to increase inflow of dollars and check outflows. The measures include a planned increase in import duty on several red-hot imports like gold and silver, allowing three public sector financial institutions to raise dollar funds through bonds, making NRI deposits more attractive and easing foreign loan norms. Taken together, these steps are expected to bridge the forex gap by $18 billion.
Through the measures announced Finance minister P Chidambaram is hoping to pare imports by $7 billion, while increasing dollar inflows by around $11 billion. This, he said, would help contain the current account deficit (CAD) at $70 billion or 3.7% of the gross domestic product, lower than last year’s 4.8%. CAD has been blamed as the key factor behind the sharp volatility of the rupee against the US dollar.
CAD has widened as exports have remained sluggish, while gold and silver imports have spurted. India needs more dollar flows, through foreign investment, to fill the gap.
Industrial output declined by 2.2% in June Exports rose 11.64% to $25.83 billion in July; imports down 6.2% CPI inflation eased to 9.64% in July from 9.87% in June
The government raised the import duty on gold for the fourth time in more than one year to curb the inflow of the yellow metal and help narrow the widening current account deficit, which has triggered a sharp slide of the rupee against the dollar. Revenue Secretary Sumit Bose said the import duty has been raised on gold and platinum to 10% from 8% and on silver to 10% from 6%.
India imported 845 tonnes of gold in 2012-13, resulting in an outflow of $50 billion or Rs 2,45, 862 crore in foreign exchange. The quantity of silver imported during 2012-13 was 1,963 tonnes worth Rs 10,691 crore.
Bose said the revenue department was working on other measures to curb imports of some non-essential items but declined to give any time frame. The finance ministry also said as part of the changes in customs duties on gold and silver, excise duty on refined gold bar produced from gold ores/concentrate, gold/silver dore bar or from copper smelting would be increased to 9% from the current 7%.
Experts said the duty hike will raise domestic prices and motivate more people to buy.
The government and RBI have taken several measures to curb gold imports in a bid to tackle the problem posed by the widening CAD (current account deficit). The latest move comes ahead of the festival season, when demand for the yellow metal is expected to surge. Finance minister P Chidambaram has appealed to citizens to refrain from buying gold and help in the government’s efforts to trim the CAD.
Import duty on gold was first raised to 2% on January 17, 2012 and again to 4% in the Union Budget for 2012-13. It was soon raised to 6% on January 21, 2013 and again to 8% in June. The latest moves were also triggered by the sharp volatility in the foreign exchange market.
Through the measures announced Finance minister P Chidambaram is hoping to pare imports by $7 billion, while increasing dollar inflows by around $11 billion. This, he said, would help contain the current account deficit (CAD) at $70 billion or 3.7% of the gross domestic product, lower than last year’s 4.8%. CAD has been blamed as the key factor behind the sharp volatility of the rupee against the US dollar.
CAD has widened as exports have remained sluggish, while gold and silver imports have spurted. India needs more dollar flows, through foreign investment, to fill the gap.
Industrial output declined by 2.2% in June Exports rose 11.64% to $25.83 billion in July; imports down 6.2% CPI inflation eased to 9.64% in July from 9.87% in June
The government raised the import duty on gold for the fourth time in more than one year to curb the inflow of the yellow metal and help narrow the widening current account deficit, which has triggered a sharp slide of the rupee against the dollar. Revenue Secretary Sumit Bose said the import duty has been raised on gold and platinum to 10% from 8% and on silver to 10% from 6%.
India imported 845 tonnes of gold in 2012-13, resulting in an outflow of $50 billion or Rs 2,45, 862 crore in foreign exchange. The quantity of silver imported during 2012-13 was 1,963 tonnes worth Rs 10,691 crore.
Bose said the revenue department was working on other measures to curb imports of some non-essential items but declined to give any time frame. The finance ministry also said as part of the changes in customs duties on gold and silver, excise duty on refined gold bar produced from gold ores/concentrate, gold/silver dore bar or from copper smelting would be increased to 9% from the current 7%.
Experts said the duty hike will raise domestic prices and motivate more people to buy.
The government and RBI have taken several measures to curb gold imports in a bid to tackle the problem posed by the widening CAD (current account deficit). The latest move comes ahead of the festival season, when demand for the yellow metal is expected to surge. Finance minister P Chidambaram has appealed to citizens to refrain from buying gold and help in the government’s efforts to trim the CAD.
Import duty on gold was first raised to 2% on January 17, 2012 and again to 4% in the Union Budget for 2012-13. It was soon raised to 6% on January 21, 2013 and again to 8% in June. The latest moves were also triggered by the sharp volatility in the foreign exchange market.
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