If you are postponing your decision to buy those glitzy smartphones and tablets, you would be better served buying them now. Government of India is planning to increase import duties on many items including Smartphones, Tablets, TVs, Cars, Laptops and even some food items that could be termed as luxurious, reported Economic Times.
This is probably the easiest and fastest action that Government can take currently to improve their Current Account Deficit and Fiscal Deficit standing, which have progressively gone worse over past year.
Higher end Mobile phones currently attract 6 percent import duty (countervailing duty) and Tablets, Laptops attract 12 percent. According to some estimates these duties may be raised by as much as 50 percent (So from existing 6% May go to 8-9 percent) that may bring about a significant rise in the pricing of these gadgets.
Last month, government had raised import duties on Gold and platinum for third time this year to 8 percent (From 2%) to discourage their imports.
CAD or Current Account Deficit essentially means that we are importing more than we export (In simple terms, it means we are sending more money out than what is coming in)
Raising duties on items that are deemed as luxury will help Indian Government in two ways. One, it will reduce imports, helping government to bring down CAD. And two, it will help increase revenues for the government.
In 2012-13, CAD was at record high levels at USD 88 billion or around 4.8 percent of our GDP. At the same time, Trade Deficit for April-June Quarter was USD 50 billion as compared to USD 42.2 billion compared to same period last year.
On the negative side, if the duties are increased, India’s economic growth rate will obviously take a hit. At 5 percent, India is already experience one of the slowest GDP growth rate in more than a decade.
This may not be a bad decision to increase customs duty on high-end electronic products, considering the current state of economy. However, we also think that Government should provide tax breaks to Indian manufacturers and exporters, thereby pushing exports in the country. This should work equally well in bettering our CAD situation.
What’s your take?