Amid a sharp depreciation of the rupee against the dollar, an inter-ministerial panel, headed by Commerce and Industry Minister Suresh Prabhu, on Thursday suggested that the finance ministry and the Reserve Bank of India (RBI) explore renminbi-rupee trade with China, with which India had a massive trade deficit of $63 billion in 2017-18.
Similarly, it asked the RBI and the Department of Economic Affairs (DEA) to assess the feasibility of “rupee/barter” trade in crude oil with countries like Iran, Venezuela and Russia.
The panel, which discussed measures to reduce imports and promote exports to achieve better trade and current account balance, also asked the RBI and the DEA to promote gold related schemes – such as monetisation, sovereign bonds and coins – and address existing shortcomings to trim imports of the precious metal. Similarly, arrangements like deferred payment or increasing barter system with Russia need to be considered to improve trade balance in diamonds from that country, the panel suggested.
Thursday’s meeting, chaired by Prabhu, was part of the government’s efforts to reduce the damaging impact of trade imbalance on the CAD, which, in turn, is blamed for the sharp depreciation of the rupee in recent months, among other factors.
The meeting took place on a day when the rupee settled at an all-time low of 73.81 against the dollar. The weak rupee, coupled with a rise in global crude oil prices, added to the country’s import bill in recent months and widened the trade and current account deficits. This, in turn, has weighed on bond yield amid a pullout by foreign portfolio investors triggered by an emerging market sell-off. The trade deficit had touched a five-year high of $18 billion in July before easing marginally to $17.4 billion in August.
The rupee has emerged as the worst-performing Asian currency, having shed over 13 per cent in 2018, even though some analysts believe the domestic currency is still a tad overvalued.
Last week, the government raised basic customs duties on 19 products, including aviation turbine fuel, gold jewellery, semi-processed diamonds, air-conditioners, refrigerators, washing machines (up to 10 kg), footwear, certain car tyres and plastic products.
However, analysts have expressed scepticism about the efficacy of the duty hike, saying the demand is unlikely to fall meaningfully due to the upcoming festival season. —FE