New Delhi: The government officials overtly do not seem to be perturbed over the massive stock sell-off and the continuing rupee rout, but deep down the precipitous decline in both is proving to be a problem.
The first series of measures by the finance ministry failed to stop the run on the rupee and the Dow Jones’ collapse saw a bloodbath on the D Street on Thursday.
On Thursday night, a series of fresh measures, which would be effective from Friday, were announced, which included import duty hike on 17 items. The products included certain communication items, including base stations, to up to 20 per cent as part of efforts to check a widening current account deficit by curbing imports.
Earlier during the day, a finance ministry official had said more steps will be taken to check CAD and hoped that the rupee would appreciate.
“Rupee, balance of payments, CAD are the main worries, we have strategy in place to tackle situation. We will take action at opportune time on these issues,” the official said.
CAD widened to 2.4 per cent of the GDP in the first quarter of 2018-19. The rupee touched a historic low of 74.50 to a dollar in intra-day trade on Thursday, before closing at 74.12. The domestic currency has depreciated by over 13 per cent since the beginning of 2018.
Large trade deficit and rupee's decline against the US dollar are putting pressure on the CAD, and these steps are likely to have a positive impact on the external sector.
In the continuing attempts to curb the ballooning current account deficit and prop up a sagging rupee, many other measures are under consideration. Rampant gold and diamond smuggling, which is exacerbating CAD, could also see a major crackdown and rule of FEMA may also see some changes for better punitive action.
Among the measures – to deal with the triple whammy of spiking crude oil and looming Iran sanctions coupled with US president Donald Trump’s open threat that America knows how to deal with nations that don’t fall in line (toe US diktat), along with a rapidly depreciating rupee, now down almost 16 per cent in 2018, roiling stock markets that have wiped out all the gains of 2018 – are going to be a mechanism to initiate an oil-for-rice and other products without any outflow of dollar trade with Venezuela and, to some extent, Iran.
It could be a new take on the oil-for-food programme, which was devised by the UN in 1995 to allow Iraq to sell oil in exchange for food, medicine and other humanitarian needs of ordinary Iraqi citizens without allowing Iraq to boost military capabilities.