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The weaker rupee will push the country’s import bill due to higher payments for crude oil, coal, vegetable oil, gold, diamonds, electronics, machinery, plastics, and chemicals, economic think tank Global Trade Research Initiative (GTRI) said on Friday (January 17, 2025).

Citing an example, it said the depreciating domestic currency will increase India’s gold import bill, especially as global gold prices have jumped 31.25%,, rising from $65,877 per kg in January 2024 to $86,464 per kg in January 2025.

Since January 16, last year, the Indian Rupee (INR) has weakened by 4.71% against the U.S. dollar, falling from ₹82.8 to ₹86.7.

In the last ten years, between January 2015 and 2025, the INR has weakened by 41.3% against the U.S. dollar, falling from ₹41.2 to ₹86.7, the GTRI said in its report.

In comparison, the Chinese Yuan depreciated by 3.24%, from Yuan 7.10 to Yuan 7.33.

“Overall, weaker INR will inflate import bills, raise energy and input prices, leading to an overheated economy. Past ten-year export data says that weak INR does not help exports contrary to what economists say,” GTRI Founder Ajay Srivastava said.

He added that while conventional wisdom suggests that a weaker currency should boost exports, India’s decade-long data tells a different story: high-import sectors are thriving, while labour-intensive, low-import industries like textiles are floundering.

The think tank also said that for sectors relying heavily on imports, a depreciating rupee against the U.S. dollar increases input costs, reducing competitiveness.

In theory, sectors with low import dependence, like textiles, should gain the most from a weaker rupee, while high-import sectors like electronics should benefit the least.

“However, trade data from 2014 to 2024 tells a different story. During the 2014 to 2024 period, overall merchandise exports grew by 39%, but high-import sectors like electronics, machinery, and computers saw much higher growth,” he said adding electronics exports surged by 232.8%, and machinery and computer exports grew by 152.4%.

Meanwhile, low-import sectors like textiles and clothing experienced negative growth, even though the weaker rupee should have made their goods more competitive globally, he added.

“These trends suggest that a weaker rupee doesn’t always boost exports. It hurts the labour-intensive exports most and helps import-driven exports with low-value add,” Srivastava said.

The GTRI suggested that for India to achieve long-term economic stability, it must strike a careful balance between growth and inflation control while rethinking its rupee management and trade strategies.

“However, the reality is sobering. Much of India’s $600 billion foreign reserves are loans/investments due for repayment with interest, limiting their role in stabilising the rupee,” he said.

“While India’s total imports from the UAE fell 9.8% from $53.2 billion in FY23 to $48 billion in FY24, imports of gold and silver skyrocketed 210%, from $3.5 billion to $10.7 billion,” GTRI report said.
| Photo Credit: Reuters

“India’s gold and silver imports from its free trade agreement (FTA) partner UAE have skyrocketed 210% to $10.7 billion in 2023-24 and there is a need to potentially revise the concessional customs duty rates under the pact to mitigate the arbitrage driving this surge,” a report said on June 17.

Economic think tank Global Trade Research Initiative (GTRI) said this sharp rise in gold and silver imports is primarily driven by import duty concessions granted by India to the UAE under the India-UAE Comprehensive Economic Partnership Agreement (CEPA).

India allows 7% tariffs or customs duty concessions on import of unlimited quantities of silver and a 1% concession on 160 metric tonnes of gold. CEPA was signed in February 2022 and implemented in May 2022.

Additionally, India facilitates gold and silver imports by allowing private firms to import from the UAE through the India International Bullion Exchange (IIBX) in Gift City. “Previously, only authorised agencies could handle such imports,” the report said.

“While India’s total imports from the UAE fell 9.8% from $53.2 billion in FY23 to $48 billion in FY24, imports of gold and silver skyrocketed 210%, from $3.5 billion to $10.7 billion,” it said.

“Import of all remaining products fell 25%, from $49.7 billion in FY23 to %37.3 billion in FY24,” it said. GTRI Founder Ajay Srivastava said the current import of gold and silver from the UAE is unsustainable as the UAE does not mine gold or silver or add sufficient value to imports.

“High import duties in India on gold, silver, and jewellery at 15% are at the root of the problem. Consider lowering tariffs to 5 per cent. This will cut large-scale smuggling and other misuse,” Mr. Srivastava said.

Trade in gold, silver, and diamonds has been prone to misuse due to their low volume but high value and high import duties in India. “Low tariff imports of gold, silver only benefit few importers who keep all profits arising through tariff arbitrage and never pass it to consumers,” he said.

Mr. Srivastava suggested the government implement certain measures to help India balance its trade policies, protect domestic revenue, and ensure fair competition in the import of precious metals and jewellery. It suggested reassessing and potentially revising the concessional duty rates under CEPA to mitigate the arbitrage driving the surge in imports of gold and silver.

“At least, implement yearly import quotas (tariff rate quotas) for silver, similar to those for gold, to control the volume of imports and prevent revenue loss,” it said, adding that India should rigorously verify the claimed value addition by Dubai-based refiners in gold and silver imports to ensure compliance with CEPA rules of origin.

It also asked to tighten regulations around the India International Bullion Exchange (IIBX) at Gift City to control the volume and nature of precious metal imports and the exchange should not allow country-based exemptions.

As increased imports contribute to a higher current account deficit and since gold and silver act more like financial instruments than regular trade items, India should avoid including them in any FTA.

“India has granted tariff concessions for these items in many FTAs and under the DFTP (duty-free tariff preference) scheme, so a comprehensive review is needed.

India announced the scheme for LDCs (least developed countries) in 2008. Under this, India provides duty free/preferential market access on about 98.2% of India’s tariff lines (or product categories).

Further, the report stated that silver imports from the UAE increased multifold to $1.74 billion in 2023-24 from a meagre $29.2 million in 2022-23 due to India charging an 8% duty under the CEPA versus a 15% duty from other countries.

“The large 7% tariff arbitrage resulted in a loss of revenue for India of ₹1,010 crore in FY24. Revenue loss will increase as India has committed to make tariffs zero on unlimited quantities of silver from the UAE within next 8 years,” it added.

It said this trade is unusual because the UAE just imports large silver and gold bars, melt and convert these into silver grains and unwrought gold for exports. “A check with global refiners will show that value addition in such process is much less than 1% as opposed to 3% required under the FTA,” it said.

On gold bars, the report said India agreed to import 200 metric tonmes of gold annually from the UAE with a 1% tariff concession and due to this gold imports rose 147.6% from $3 billion in FY23 to $7.6 billion in FY24, causing India to lose ₹635 crore in revenue in FY24.

Similarly, India’s jewellery imports have increased 187.6% from $1.1 billion in FY23 to $3.3 billion in FY24, whereas these imports from the UAE have increased 290% from $347 million in FY23 to $1.35 billion in the last fiscal.

The Indian government has stated that it won’t enforce licensing or similar constraints on laptop and computer imports. Instead, it is establishing a mechanism to track the volume and source of these imports.

A statement from Commerce Secretary Sunil Barthwal was issued two weeks ago to address the misinformation about potential laptop import restrictions.

“On laptops, we are of the view that there are no restrictions as such. We are only saying that somebody who is importing these laptops has to be under close watch so that we can look at these imports. It is basically monitoring, which we are doing. It has nothing to do with restrictions as such,” Commerce Secretary Sunil Barthwal said.

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These remarks carry significance as the government had previously announced in August that products like laptops, tablets, and computers would require licensing, effective November 1.

Explaining further, Director General of Foreign Trade (DGFT) Santosh Kumar Sarangi said there will be an import management system, which will come into place on November 1.

In August, the government imposed import restrictions on laptops, computers (including tablet computers), microcomputers, large or mainframe computers, and certain data processing machines with a view to boosting domestic manufacturing and cutting imports from countries like China. Following this notification, the IT hardware industry raised concerns.

India already has an import monitoring system for certain products like steel, coal, and paper. The licensing conditions on imports were put in place on the grounds of security and to spur domestic manufacturing of these products.

According to a report by think-tank Global Trade Research Initiative (GTRI), India is critically dependent on China for day-to-day use and industrial products like mobile phones, laptops, components, solar cell modules, and integrated circuits.

The government has taken several steps to boost domestic manufacturing of electronic items, such as rolling out the production-linked incentive scheme and increasing customs duties on the number of electronic components.

India imports about $7-8 billion worth of these goods every year.

The country has imported personal computers, including laptops, worth $5.33 billion in 2022-23, as against $7.37 billion in 2021-22.

Imports of certain data processing machines stood at $553 million in the last fiscal year, as against $583.8 million in 2021-22.

Similarly, imports of microcomputers and processors stood at $1.2 million in the last fiscal year, compared to $2.08 million in 2021-22.

In May, the government approved the Production-Linked Incentive Scheme 2.0 for IT Hardware with a budgetary outlay of ₹ 17,000 crore.

(With inputs from PTI)