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Analysts at Nomura note that following from the Indian government’s emergency measures announced last week, it announced tariff hikes on 19 categories, comprising of ~2.9% of the import basket.

Key Quotes

“The tariff hikes range from 2.5pp to 10pp. Middle- and upper-class household consumption are on the firing line – with measures aimed to curb demand for housing appliances, homeware, gems and jewellery, car tyres and aviation turbine fuel (making flights more expensive). Notably the government has not targeted gold imports given past experience of increased smuggling.”

Impact: The government has chosen consumer goods over capital ones, banking on the robust and resilient consumption growth over the past year. Given these are a small share of overall imports, the measures would help reduce imports by only ~USD500mn (0.1% of total imports), which is quite small.

In our view, the currency depreciation thus far is likely to play a bigger role in reducing the imports as compared to the import duty hikes. Nevertheless it adds to the incremental steps that the government has been taking to trim the current account deficit and improve the scope of its funding (easing norms around external commercial borrowings, masala bonds, and stressing on fiscal orthodoxy).

We believe more such steps are in the offing as the government has decisively moved from the first line (allowing currency depreciation, FX intervention, positive comments) to the second line of currency defence.”