To reduce CAD, import duty on apples & cashew nuts likely to be raised.

The government is mulling hiking the import duty on non-essential items, including fruit such as apples, dry fruit and nuts (including cashew nuts), following the skyrocketing import bill, that has led to a ballooning trade deficit and current account deficit (CAD). However, the duty would be applicable only to companies that have an annual import bill of $1 billion or more.

While the move will affect only non-essential items, it is likely to dent the food processing business further, as companies that need to use imported fruit, dry fruit and nuts in their products would find it to be a severe strain on their margins.

Speaking on the condition of anonymity, an official from the finance ministry informed FnB News that a number of steps were being taken to restrict the import of non-essential goods and items like cashew nuts. However, some items, like fruit and nuts, were included in broader categories of import.

“In 2012-13, the CAD was about 4.8 per cent of India's gross domestic product (GDP), which was a record. But in the current financial year, we are aiming to limit it to $70 billion, or 3.7 per cent of the GDP. The finance minister is trying his best, and is committed to achieving the CAD target,” he added.

Trade deficit, which is a part of the CAD, rose to $190.1 billion in 2012-13 (from $183.3 billion the previous year). This was because merchandise imports rose by 0.44 per cent during the year (to $491.48 billion from $489.31 billion the previous year), while exports fell by 1.76 per cent (to $300.05 billion from $306 billion).

When asked what steps the government would take in order to achieve a reduced CAD, the official said, “We are assessing the situation, and upon the completion of the internal assessment process, senior officials from the government would be deciding the items on which import duties would be raised to rein in the soaring import bill.”

A link sent to FnB News via e-mail from the commerce ministry stated that only after a review of the current situation, and an assessment of the trade deficit for the quarter ended September 2013, would the ministry be in a position to increase the import duties. The hike would only come into effect after October 31, 2013.

In response to the government move, Lav Maheshwari, manufacturer, Rudra Agro International, Ahmedabad, said, “It would become very difficult for us to import items like cashew nuts, nuts, fruit and other non-essential items in the near future. We have already limited their import due to the heavy burden of many duties, and now the hike in import duty would further increase our burden.”

An official from Soulfoods India Pvt. Ltd, Mumbai, observed, “Since the rate of the rupee is reducing day by day in comparison with the dollar, we are already facing a burden. Raising the import duty on cashew nuts, nuts and fruit will be putting more burden on us. Hence, we have decided to stop importing these items until the rate of the rupee stabilises.”

An official from Garware Colours Ltd, which imports cashew nuts from China and Myanmar, informed FnB News that it seemed the government did not have a direction, and added that managing the trade deficit by reducing imports was an obsolete measure. He also stated that a hike in the import duty on some food items would be a burden for the industry.

Source : fnbnews.com