The Narendra Modi government is in firefighting mode as the economy slides in the wake of the rising current account deficit (CAD) with the abnormally high petroleum product import prices and the precipitous fall in the value of the rupee. The heavy dip in stock prices is also a cause of concern though it is the international outlook that contributes heavily to this. With elections in some State assemblies round the corner followed by the Lok Sabha polls next year, the government knows only too well that it needs to get its act together hastily lest the wrath of the electorate reflects itself through the ballot box.
The virtual directive to BJP State governments to cut petrol and diesel prices reflects pro-active intervention to ward off that wrath. That the price cut has eased the burden somewhat for the aggrieved middle class is happy augury for the beleaguered BJP which is fighting the build-up to an anti-establishment mood. The BJP is also helped by the fact that the Opposition lacks a programme of action to present as a credible alternative to its economic policies. Congress chief Rahul Gandhi’s irresponsible utterances calling the prime minister corrupt without grounds to support that pitch is also proving a dampener to the Opposition’s efforts to displace the NDA government. Thursday’s hiking of import duties on certain communications items close on the heels of the hike in duties on 19 non-essential items, including air conditioners, household refrigerators and washing machines (less than 10 kg) would contribute to a realistic lowering of the CAD and in partially restoring the value of the rupee.
The CAD had widened to 2.4 per cent of the GDP in the first quarter of 2018-19 while the rupee touched a record low of 74.50 to a dollar in intra-day trade on Thursday, before closing at 74.12. The rupee has depreciated by over 13 per cent since the beginning of 2018. In the latest round, import duty on populated, loaded or stuffed printed circuit boards of all goods other than mobile phones, base station and optical transport equipments has been raised. It is yet too early to know the impact of the measures taken to retrieve the situation but it is clear that more will need to be done to satisfy the consumer.