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Indian duty hikes on imports divides a nation grappling with a weak rupee

Indian duty hikes on imports divides a nation grappling with a weak rupee

Employees work on the outdoor units of split system air conditioners on an assembly line at the Daikin Air Conditioning India Pvt. factory in Neemrana, Rajasthan, India. Bloomberg India’s efforts to prop up the rupee by raising duties on several “non-essential” imports, ranging from fridges to gemstones and shoes, is causing alarm among some business leaders who believe the move could do more harm than good to the economy.

“Reducing imports artificially – to what extent does that make sense?” says Parimal Shah, the vice president of MK Jokai Plantation, one of India’s largest manufacturers and exporters of Assam tea. “It will make the manufacturing sector of the country lazier, less quality oriented and less competitive. Markets mature when they are fluid, deregulated and highly competitive.”

The Indian finance ministry on Wednesday evening announced it was raising import tariffs on 19 items, coming into effect that night. India imported close to $12 billion (Dh44bn) worth of these goods in the last financial year, it said. Custom duties on fridges, and air conditioners, for example, have been doubled to 20 per cent, while aviation turbine fuel customs duty, which was previously not imposed, has been added at a rate of 5 per cent. Some plastic items and suitcases are also among the affected products. There are also expectations that there could be more steps to reduce imports.

New Delhi is hiking duties to try to support the Indian rupee, which has slumped to a series of record lows against the US dollar in recent weeks. It is Asia’s worst performing currency this year, down some 13 per cent.

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Apart from the strength of the dollar, another factor contributing to the rupee’s weakness is India’s widening current account deficit. With the country importing far more products than it […]

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