Industry bodies and exporters have written to the commerce department seeking lower import duties on industrial inputs, which have increasingly become more expensive as a global commodity super cycle has continued, sources said. They have also pointed out that a weakening rupee will not necessarily translate into higher competitiveness of Indian exports as imported raw materials also become dearer.
Officials confirmed to Moneycontrol that the record high prices of raw materials in many industries have led to the government receiving a continuous stream of complaints from industry bodies since early this year.
"There are currently demands to reduce import duties on industrial inputs in nearly 30 tariff lines across a dozen sectors. A lot of these are requests for temporary reductions. Every genuine complaint is being reviewed," a senior official said.
This includes diverse categories of imports ranging from chemicals, cotton and metals, to machine parts. Officials however warned that it's not possible to outright reduce import duties in most cases.
The latest barrage of requests came after manufacturers were successful in lobbying the government earlier this year to check the rising prices of steel. "That had worked since the government took steps to reduce the domestic price of steel available to the user industries by ensuring greater availability of raw materials within the country," a chairman of an export promotion council, who did not wish to be named, said.
In late May, the Centre hiked the duty on exports of iron ore to 50 per cent from 30 per cent and imposed 45 per cent duty on pellets on May 21 to shore up domestic availability of iron ore. It also removed import duties on crucial raw materials for steelmaking such as coking coal, met coal, coke and ferronickel to ensure a flow of inputs.
Officials had also told Moneycontrol back then that the order regarding this came after the Prime Minister’s Office had signalled that consistently high prices may hamper the government's ongoing infrastructure push.
In May, the government had also cut excise duty on petrol by Rs 8 per litre to Rs 19.1 per litre and that on diesel by Rs 6 per litre to Rs 15.8 per litre to give relief to consumers.
"The custom duty calibration on raw materials of steel and measures to boost local availability of the key input to calm down steel prices show the government would respond as and when the situation warrants so," Engineering Export Promotion Council Chairman Mahesh Desai said.
Rising commodity prices
A global super-cycle kept commodity prices high throughout 2021 and is expected to continue through 2022. Last year, the Bloomberg Commodity Spot Index, which tracks prices of a basket of 23 globally traded raw materials, shot past a 10-year high. In 2022, it has risen more than 36 percent.
According to global data and market intelligence provider IHS Markit, spiralling inflation, which began in early 2021 mainly due to a build-up of global supply chain issues after the outbreak of the pandemic and a lack of global freight containers, has not subsided.
Apart from copper, most commodities in the metals and energy categories are continuing to rise, Motilal Oswal Commodities Research said earlier this week.
According to the monthly IHS Markit India Manufacturing Purchasing Managers’ Index (PMI) survey in June, manufacturers remained very concerned about inflation, a key factor that dragged down business confidence to a 27-month low
The geopolitical risks arising from the Russia-Ukraine conflict are expected to incrementally push the import bill higher for key items beyond petroleum and edible oils, according to India Ratings and Research (Ind-Ra).
Commerce Department data showed the import of coal, coke & briquettes skyrocketed by an annual 241 per cent to reach a staggering $6.4 billion in June. Imports in the category were just $1.8 billion a year back in June 2021. showing the margin of increase in global prices.
Impact of weaker Rupee
Exporters have also increasingly warned the government to not bet too much on an anticipated boost to Indian exports as a result of the Indian Rupee weakening recently.
The rupee has continuously fallen in 2022 as foreign portfolio investors pulled out money from the stock and bond markets amid global uncertainties caused by the war in Ukraine. It had fallen to a new record low of 79.36 to the US Dollar on July 6, a steep fall since January 1 when it traded at 74.50.
The falling rupee is expected to expand the trade deficit further since a lower domestic currency makes imports costlier. However, the government hopes the weak rupee will also raise the competitiveness of India’s exports and spur outbound shipments.
A weakening home currency makes Indian products more competitive vis-a-vis those from other nations. Overseas buyers gain more purchasing power over Indian products and in a price-sensitive global market, they are more likely to pick Indian products.
But exporters have warned against this narrative saying that the weakening currency would make import of industrial raw materials even pricier, and the volatility in the currency markets would make doing business difficult, sources said.
While imports are set to get costlier, the cascading effect of a fast-depreciating currency is set to result in higher prices of gems and jewellery, fertilisers and capital goods, Ind-Ra has said.
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