The government, in the forthcoming Budget, could consider levying higher tariffs on imports to check the significant decline in rupee value witnessed in the past few months, said EY Chief Policy Advisor DK Srivastava.
The noted economist argued that higher import duties would curb the demand for dollars from importers and help arrest the sliding value of the rupee, which touched a historic low of 86.70 to a dollar on January 13.
In an interview with PTI, Srivastava said the sudden downward movement of the rupee against the US dollar is going to be a challenge for policymakers -- for Budget makers on the fiscal side and the RBI on the monetary side. The expectation is that the US economy is going to recover, and therefore, a lot of financial resources are moving to the world's largest economy.
Srivastava, who is a Member of the Advisory Council to the 16th Finance Commission, also said it is not just the rupee but other European currencies are also experiencing similar pressure.
"In Budget, they do not have a very potent fiscal instrument to effect the movement of exchange rates, but they may examine the tariff rates a little more closely, and they may possibly take the Indian economy towards a greater degree of protection to the domestic industry as a result of which import duty revenue may also increase. Alongside, the demand for dollars from importers may come down," Srivastava said.
On January 13, the rupee logged its steepest single-day fall in nearly two years and ended the session 66 paise down at its historic low of 86.70 against the US dollar. The currency's previous record one-day fall of 68 paise was witnessed on February 6, 2023.
The local unit has plunged more than Re 1 in the past two weeks from the closing level of 85.52 on December 30. It had breached the 85-per-dollar mark for the first time on December 19, 2024.
He said it is a matter of policy to provide higher protection or support movement towards Atmanirbhar Bharat. There may be some revisions on import tariffs. Thus, the demand for imports might come down, and some substitution for imports through domestic production may take place.
"There could be some savings in terms of the demand for dollars and additional import duty revenues. Because of all these considerations, there may be some movement towards tariff increases and rationalisation," Srivastava said.
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