Customs duty on gold and retail prices of diesel may witness another hike, if recommendations of the Planning Commission are accepted as concerns are being raised in some quarters over financing of current account deficit (CAD) in 2013-14.
In a presentation to its chairman Prime Minister Manmohan Singh, the Planning Commission suggested that gold imports be imposed higher duty than eight per cent at present in 3-6 months.
However, the Commission also suggested that the government makes an assessment of the impact of recent measures on gold imports before going for a hike in customs duty.
It also recommended that RBI be asked to make gold deposit scheme more attractive to reduce dependence on imported gold by channelizing domestic privately-held gold stocks for circulation.
The Commission also wanted the oil marketing companies to raise diesel prices by Rs 2-3 a litre to restrain its demand. Last month, the companies had hiked diesel prices by 0.50 a litre after these firms were authorised to go for small increase every month. Even then, under recoveries of these firms were Rs 9.29 a litre.
Oil and gold had accounted for 45 per cent of India’s total imports bill in 2012-13. Imports of petroleum, oil and lubricants rose nine per cent to $169.3 billion in 2012-13 from $155 billion a year before. Gold imports, though, marginally fell from $56.5 billion in 2011-12 to $53.8 billion in 2012-13.
India’s total imports bill rose moderately by 0.3 per cent at $491 billion in 2012-13 from $489.3 billion a year earlier. However, this rise was enough to raise trade deficit to over $190 billion against $183.35 billion over the period as exports contracted 1.76 per cent to almost $300 billion dollars from $305 billion.
The government had announced a hike in customs duty on gold from 6 per cent to eight per cent in June to curb gold imports. In a matter of six months in this calendar year, the government had doubled the customs duty from four per cent to eight per cent.
The RBI, on the other hand, has announced measures to curb gold imports by prescribing the export obligations while importing the precious metal.
The measures did have an impact on reducing gold imports in recent times. For instance, gold imports fell to $2.45 billion in June from $8.4 billion in May of the current financial year. This was the single most reason to narrow down trade deficit to $12.25 billion from $20.1 billion over this period.
However, trade deficit in the first quarter of 2013-14 already rose to $50.2 billion from $42.2 billion dollar in the corresponding period of 2012-13. As such, trade deficit grew 18 per cent in the first quarter. With GDP growth expected to remain muted in the first quarter of the current financial year, trade deficit may be quite higher as percentage of GDP.
So, the government will have to rely on invisibles including remittances to narrow down India’s current account deficit.
The Commission suggested that with Rupee depreciating to historic lows against major currencies, it would be opportune time for NRIs and other investors to remit foreign currency to India. It suggested that RBI may look at foreign inward remittances and related policies, procedures and encourage banks to attract foreign remittances through a mix of policy inputs with aggressive marketing by banks.
While remittances are included in CAD, NRI accounts are part of capital account that will help finance CAD.
Similarly, foreign travelers to India would also get better deals and can be aggressively targeted, the Commission suggested.