After recent increases in customs duty on gold and silver, foreign brokerage Nomura India forecasts further policy announcements are likely in the coming weeks and months. These actions are expected to include non-monetary measures aimed at addressing India's balance of payments deficit, which Nomura estimates could reach over $70 billion in FY27.
Anticipated Policy Shifts
Among the potential policy actions, Nomura suggests disincentivizing other non-essential imports, particularly electronics. Tighter regulations under the Liberalized Remittance Scheme (LRS), which currently allows residents to remit up to $250,000 abroad annually, are also anticipated. Furthermore, the government may consider launching a diaspora bond to mobilize forex deposits.
Reports also indicate a potential change in currency hedging rules for importers and a requirement for exporters to repatriate their dollar receipts immediately, according to Nomura.
Imminent Fuel Price Hike
A significant development expected is a fuel price hike, reportedly around Rs 5 per litre for both petrol and diesel. This move aims to reduce the fiscal burden on the government. Nomura calculates that a 5 percent increase in fuel prices, given their 4.8 percent weighting in India’s Consumer Price Index (CPI) basket, could add approximately 25-30 basis points to headline inflation. While a staggered approach to price hikes is possible, Nomura does not foresee policy rate increases this year due to India's currently low headline and core inflation.
Recent Economic Context
The market has already reacted to earlier signals. Prime Minister Narendra Modi's appeals for austerity measures recently triggered a market sell-off, with benchmark indices Nifty and Sensex falling 1.5-1.9 percent before settling flat. The government's immediate step was to increase the import duty on gold and silver to 15 percent, effective May 13. This hike includes a 10 percent basic customs duty (up from 5 percent) and a 5 percent Agriculture Infrastructure and Development Cess (AIDC), justified under the "public interest" clause of the Customs Act. This measure is specifically designed to curb gold and other precious metal imports and narrow the current account deficit.