India takes on US tariffs with duty cuts for exporters - GST incentives to follow

Dubai: India is taking on the pressure from US’s 50% tariffs by offering businesses – especially those with exports to the US – multiple incentives.

Early in September, there will be the much anticipated changes to the GST (Goods & Service Tax), further putting more money in the hands of businesses and consumers.

According to business sources, the Indian government has moved fast to counter negative vibes emerging from the US tariffs.

The Indian stock markets reacted adversely yesterday (August 26), with the Sensex and Nifty dropping over 1%, while the Indian rupee is under pressure to drop to 24 against the dirham. (The Indian markets are closed today on account of ‘Ganesh Chaturthi’.)   

First up, India has raised the duty ‘drawback rates’ for gold jewellery exports from Rs4,468 to Rs5,234 per 10 grams. (Duty drawbacks are essentially paying back exporters some of the sums they spent on customs duties.)

Indian jewellery exports to the US were valued at $10 billion. With the 50% duties, Indian jewellers will be ‘priced out’ of the US markets. This is why even partial relief through the duty drawback will be welcomed by jewellery exporters.

“This higher drawback rate means exporters will get a bigger refund of import duties paid on gold used for exported jewelry,” said Milan Vaishnav, founder of ChartWizard.ae.

“Key government responses will involve seeking relief measures for exporters, lobbying for deferments, increased support for SMEs, possible short-term financial packages for affected sectors, and exploring alternate export markets to offset US trade losses.”

The rupee will also need to be looked at closely. It will open tomorrow at 23.86 levels to the dirham, and there could well be instant pressure piling onto it. Especially as it’s nearing the month end and Indian importers require to cover their dollar positions.

For Indian expats in the UAE and Gulf, the one detail that matters is whether the rupee will weaken further as markets open tomorrow (August 28).

“Looking at the current depreciating trend of the rupee, there is a bias that it is heading to 24 against the dirham,” said Rajesh Kumar, Head of Treasury at Lulu Exchange. “It will be interesting to watch RBI’s action to curb the rupee’s fall.”

Of course, at some point the Reserve Bank of India needs to get into the action, like it did earlier this month when the rupee slipped to 23.93 levels. It has the dollar reserves to take on a support mission to keep rupee from falling beyond a point.

India’s foreign exchange reserves were higher by nearly $2 billion to $695 billion as of August 15.