According to EY Chief Policy Advisor DK Srivastava, the government may explore raising import taxes in the upcoming Budget to address the considerable decrease in rupee value seen in recent months. The respected economist suggested that increasing import levies would reduce importers' demand for dollars and help stop the rupee's slide, which reached a historic low of 86.70 per dollar on January 13.
In an interview with PTI, Srivastava stated that the rupee's abrupt depreciation versus the US dollar will present a challenge for policymakers, including budget makers on the fiscal side and the RBI on the monetary side. The hope is that the US economy will rebound, thus a lot of financial resources are flowing to the world's largest economy. Srivastava, a member of the 15th Finance Commission's Advisory Council, also stated that other European currencies are under comparable pressure as the rupee.
"In the Budget, they do not have a very powerful fiscal instrument to influence the movement of exchange rates, but they may examine tariff rates a little more closely, and they may possibly take the Indian economy towards a greater degree of protection for domestic industry, resulting in increased import duty revenue. In addition, the demand for dollars from importers may decrease," Srivastava said.
On January 13, the rupee fell the most in a single day in nearly two years, closing 66 paise down at 86.70 against the US dollar. The currency's previous record one-day drop of 68 paise occurred on February 6, 2023. The local unit has fallen more than Rs 1 in the last two weeks, from a closing level of 85.52 on December 30. It broke through the 85-per-dollar barrier for the first time on December 19, 2024. There may be some changes to import tariffs. As a result, demand for imports may fall, and home production may be used to replace imports.
"There may be some savings in terms of demand for dollars and additional import duty income. Because of all of these factors, there may be some movement toward tariff rises and rationalisation," Srivastava stated.
