Concerns about India’s trade and current account deficits are likely to dissipate in view of the recent decline in global commodity prices, a top government official said on Thursday, asserting that criticism which equated the country’s import duties to a protectionist approach in trade was misplaced.
“Most of the foreign exchange guzzlers that have led to a wider trade deficit for India are seeing a decline in prices in the last few days, be it crude oil, fertilizers, or even coal and gold. When prices are down, the current account deficit will also go down over time,” the official explained.
India’s monthly goods trade deficit has hit record highs in the past few months, peaking in July, when it crossed $31 billion. With exports growth slowing down and imports continuing to rise sharply, driven by higher prices of commodities with inelastic demand, economists expect the current account deficit to cross 3% of GDP this year from 1.2% in 2021-22.
On the imposition of import duties on goods over the last couple of years, the official stressed just counting the items since the unveiling of the AtmaNirbhar Bharat programme was misleading as it suggested an ‘inward looking’ stance.
“Unlike in the past, when customs duties were tweaked in an indiscreet and uncalibrated manner, often to suit just one business or another, our approach to imposing tariffs is driven by item-wise data analysis. Broadly, goods whose demand can be met locally will attract customs duties,” the official said.
The Centre plans to devolve more funds to the States from their share of the divisible pool of taxes whenever it is possible, in a bid to drive faster spending on capital projects at the ground level, the official added.
Tax transfers to States
On Wednesday, the government released more than ₹1.16 lakh crore to States as their share for August, equivalent to two monthly instalments of tax devolution.
“If we are able to give even 50% more funds to States than their monthly instalment, we will give it right away. This is vital because action happens in the States and the Centre is not interested in keeping their funds in its accounts for even a single extra day,” the official said.