New Delhi: The government should focus primarily on boosting exports to check the widening current account deficit (CAD) as imposing curbs on imports may not have a significant impact, exporters’ body Federation of Indian Export Organisations (FIEO) said on Saturday. FIEO President Ganesh Gupta said the government should not restrict imports to address rising current account deficit (CAD) and fall in rupee. “I do not think that we should restrict imports unless we want to join bandwagon of protectionism and hope that it will spur Make in India,” he told PTI.
He also said that CAD at 2.5% of GDP should not be a cause of concern as anything below 3% is not alarming. “We have sizeable forex reserves to cover 10 months of imports,” he added.
The government Friday announced an array of steps, including removal of withholding tax on Masala bonds, relaxation for foreign portfolio investments, and curbs on non-essential imports, to contain the widening CAD and check the rupee depreciation.
FIEO director general Ajay Sahai said the government should immediately ease liquidity for exporters. He said that if the government wants to impose curbs on non-essential items, they can consider products such as high-end electronics goods, refrigerators, watches, gold, and high-end footwear and garments.
However, trade experts raised concerns over imposing import restrictions on goods like gold as it will not help in checking trade deficit. “It’s very unlikely to help. The government has to consider the pros and cons carefully about such steps,” professor Biswajit Dhar of Jawaharlal Nehru University said. He said that knee-jerk solutions will not help and the government should take medium term view, for instance steps for revival of the manufacturing sector.
The CAD, which is the difference between inflow and outflow of foreign exchange, widened to 2.4% of the GDP in the first quarter of 2018-19. Large trade deficit and rupee decline against the US dollar are putting pressure on the CAD.
The rupee touched an all-time low of 72.91 against the US dollar on 12 September and it closed at 71.84. The domestic currency has declined around 6% since August. Petrol and diesel prices have also touched record highs. Trade deficit soared to a near five-year high of $18 billion in July, but dipped slightly at $ 17.4 billion in August.