Expect Import Tariffs On Electronics To Curb Current Account Deficit

India may slap additional tariffs on electronics to curb the ballooning import bill, according to Upasna Bharadwaj, economist at Kotak Mahindra Bank.

“The current account deficit is widening because of the demand-side pressures as India is growing fast and that is causing an increased discretionary demand, especially in electronics,” said Bharadwaj. “The sector has seen a huge surge in imports in the last two years.”

Rising fuel prices and a weaker rupee pushed India’s trade and current account deficits higher. That threatens to put strain on the government’s finances and stoke inflation, besides adding further pressure on the Indian currency which has been hitting fresh lows. The Narendra Modi administration has decided to curb imports stem the slide.

Yet, according to Bharadwaj, import tariffs could only offer temporary relief and, in the long run, ramping up a manufacturing base for goods that cannot be domestically produced is necessary.

The current account deficit is expected to be USD 80 billion of which about USD35 billion can be met by FDI. But the rest has to be met by volatile components of capital. That remains quite a worrying trend (Upasna Bharadwaj, Economist, Kotak Mahindra Bank)―Bloomberg Quint

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