Govt scrutinises imports as rupee weakens, trade gap widens. All you need to know

Indian Market
by 5paisa Research Team Last Updated: 2022-12-09T12:20:33+05:30

As the rupee continues to slide, making imports costlier, it looks like the government is looking to rationalise the country’s import bill.

If news reports are to be believed, the government has stepped up scrutiny of imports to identify irrational spikes in any segment. A report by The Financial Express newspaper said that if the situation demands, the government could target non-essential imports.

This comes even as the finance ministry told Parliament on Tuesday that the government and the central bank were closely monitoring inflation and were “ready to take appropriate action”.

What more has the government done in this regard?

The government has also tightened its vigil of the global price movements of various commodities and their impact on the Indian economy through trade, minister of state for finance Pankaj Chaudhary said in a written reply in the Rajya Sabha.

The overall impact of the exchange rate depreciation on domestic prices “depends on the extent of pass-through of international commodity prices to the domestic market”, he added.

The imports of which commodities could the government curb first?

The government may target imports of gold and diamond jewellery, select consumer electronics products and plastics. It has already raised the import tax on raw gold to 15% from 10.75%.

India, the world's second biggest consumer of the precious metal, had raised import taxes on gold on July 1 to control the rupee’s slide. India meets most of its gold demand through imports. That has put pressure on the rupee.

How is India doing as far as its trade deficit goes?

India's May trade deficit widened to $24.29 billion from $6.53 billion a year ago as gold imports in the month surged to $6 billion from $678 million a year ago.

But have any import control measures worked in reducing imports from China?

Not really. India’s imports from China reached a record $57.51 billion in the first half of the year, according to China’s trade figures released on July 13.

Imports of Chinese goods are on track for yet another record year, and set to surpass last year’s $97.5 billion figure.

The trade imbalance is also on track for another record, with India’s exports to China down by 35% and accounting for only $9.57 billion of the $67.08 billion two-way trade. Imports this year are up 34.5% from the same period in 2021.

Two-way trade in 2021 crossed $100 billion for the first time, reaching $125.6 billion, with India’s imports accounting for $97.5 billion. Trade declined in 2020 on account of the pandemic but is now significantly up from pre-pandemic levels.

What does India primarily trade with China?

India’s largest imports from China in 2021 were electrical and mechanical machinery, chemicals used in industrial production, active pharmaceutical ingredients and auto components. India has also imported large quantities of medical supplies during the pandemic.

Start Investing in 5 mins*

Get Benefits worth 2100* | Rs. 20 Flat Per Order | 0% Brokerage

About the Author

Our research team is composed of some highly qualified research professionals, their expertise range across sectors.

Open Free Demat Account

& get benefits worth 2100*

Resend OTP
Please Enter OTP
  • Have Promo code?
  • Use code ACT2100
Enter Promo code
Account belongs to

By proceeding, you agree to the T&C.

Start Investing Now!

Open Free Demat Account in 5 mins

Enter Valid Mobile Number