Uncertainty rises on trade outlook

Last Wednesday, the Finance Ministry raised the import duties on many items with a view to reign in widening current account deficit and arrest further weakening of the rupee. On its part, the Commerce Ministry is reviewing its strategy to boost exports. 

The items targeted for a hike in tariffs include air conditioners, refrigerators, washing machines, compressors for air conditioners and refrigerators, footwear, speakers, radial car tyres, gold jewellery, select diamonds, aviation turbine fuel etc. The government said that duty has been raised on nineteen items.  That is not the case. The four entries of plastics at four digit level attracting higher duties cover sixty-eight entries at the eight-digit level. The plastic items attracting higher duty now include baths, shower-baths, sinks, wash-basins,  bidets, lavatory pans, seats and covers, flushing cisterns and similar sanitary ware, articles for conveyance or packing of goods, caps and other closures, tableware, kitchenware, other household articles and hygienic or toilet articles, office or school supplies articles of apparel and clothing accessories,  fittings for furniture, coachwork or the like, statuettes and other ornamental articles etc. Similarly, four entries of footwear at the four-digit level targeted now cover fifty-four entries at the eight-digit level. 

Whether all these items are indeed non-essential is debatable. It can be contended that footwear is essential to protect the feet, air conditioners help improve productivity, refrigerators help preserve food, radial tyres improve road safety and so on. 

The aggregate value of imports of these items is around Rs 860 billion and the additional revenue due to the duty hikes is estimated around Rs.40 billion.  Whether all this will actually curb current account deficit is far from certain but the government has definitely conveyed its intent to respond strongly to an emerging crisis well in time. However, the tariff hikes hit the aspiring lower middle class who bear brunt of the price increases in these items. 

The Commerce Ministry has constituted a high-level advisory group to work out revised strategy to boost exports in the context of rising oil prices, depreciating rupee, slowing global growth, increasing protectionist measures in developed economies, the diminishing influence of the multilateral trading system and proliferation of regional and bilateral trade agreements. The 12-member group led by noted economist Mr. Surjit Bhalla, expects to meet regularly in the next two months and submit its report. Nothing of note is likely to happen till then.  

In the meantime, the World Trade Organisation (WTO) has downgraded its outlook for global trade growth. It anticipates growth in merchandise trade volume of 3.9 per cent in 2018, with trade expansion slowing further to 3.7 per cent in 2019. It also expects the global GDP to dip to 3.1 per cent in 3018 and 2.9 per cent in 2019. Its report says that some of the downside risks identified in the April press release have since materialized, most notably a rise in actual and proposed trade measures targeting a variety of exports from large economies. The direct economic effects of these measures have been modest to date but the uncertainty they generate may already be having an impact through reduced investment spending. Monetary policy tightening in developed economies has also contributed to volatility in exchange rates and may continue to do so in the coming months. 

So, strong growth in exports may elude us in the coming year also. 

Email: tncrajagolapalan@gmail.com

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