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Former RBI governor cautions against India's deficit challenge, import duties

01 Mar 2018 Evaluate

Cautioning against India’s deficit challenge, former Reserve Bank of India (RBI) governor D Subbarao has stated that the country is no longer the sweet spot, largely due to steadily increasing oil prices. He pointed out that it is therefore worrying that Finance Minister Arun Jaitley has loosened up on fiscal consolidation in the Union Budget 2018-19 in the face of a rising current account deficit. He added that the country's balance of payments crisis in 1991 and the near crisis in 2013 were consequences of unchecked fiscal profligacy spilling over into the external sector. 

Subbarao has said that raising customs duty on a range of products in the Budget will hurt government’s Make in India mission. He noted that this decision was ill advised also because it runs counter to the calibrated reduction in import tariffs over two decades, and is also in conflict with Prime Minister Narendra Modi's speech in Davos where he decried the growing protectionist tendencies in the rich world. He added that not walking the talk raises a credibility gap, which will hurt India's investment prospects.

Citing Indo-China trade, Former RBI governor indicated that during 2001-16, India's trade deficit with China shot up from nearly $1 billion to over $50 billion, and the tilt is a result of the latter's mercantilist policies. He also mentioned that during this period, the rupee actually depreciated against the yuan by as much as 70 per cent which, if anything, should have given India an advantage. He said that globalisation has never been a totally benign experience, it offers immense opportunities, but also poses ruthless challenges. He added that the task for India, as it is for every country, is to maximise the benefits and minimise the costs of integrating with the world.

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