After taking a series of steps to curb precious metal imports, the government is now set to announce more measures to prevent the current account from running into a big deficit.
“Several steps are under consideration. Various arms of government are working as a team. The situation is globally quite challenging, but we have the confidence and the courage of conviction that we’ll come out winners, even in this challenging time,” Commerce and Industry Minister Piyush Goyal said here on Wednesday, when asked what more measures the government could take to contain the current account deficit (CAD) and arrest the rupee’s slide against the dollar.
On Wednesday, one-year outright forward rates for the rupee crossed the psychologically relevant 100-level against the dollar during intraday trade. It closed at 96.82, down 29 paise from its previous close of 96.53 in spot market.
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The minister did not elaborate on the plans, but said that the government has no further plans to curb non-essential imports.
“We have made an appeal to all citizens to be more conscious about their spending on products which are import-dependent. And I think it’s just very natural that every Indian who trusts Prime Minister (Narendra) Modi has taken cognizance of that, and is helping the country in every small or big way with their own actions.”
India’s CAD could more than double to 2% or higher of the gross domestic product in FY27 from below 1% in FY26, Chief Economic Adviser V. Anantha Nageswaran said recently. “The current account deficit could widen from less than 1% of GDP to anywhere near 2% or 2%-plus of GDP, which we have to finance,” he said, adding that India must remain attractive for both domestic and foreign investments.
Tax Incentives
According to recent news reports, which could not be independently verified by FE, the government is also considering steps to boost capital inflows like a significant reduction in the taxes paid by foreign investors on Indian bonds. Specifically, the government could reduce withholding tax on interest income of overseas bond investors to 5% from 20% and expedite the rollout and raise the outlays for the Export Promotion Mission (EPM). The authorities want to align policies with global norms and attract inflows, these reports said, adding that the Reserve Bank of India recommended the move.
“Deliberations to ease the tax burden have gathered pace as authorities try to curb the rupee’s depreciation,” a report said, quoting unidentified sources.
Despite the West Asia war, India’s exports grew 13.6% year-on-year in April. Concerns on rising import bill persists as crude oil prices have doubled after the onset of the war on February 28.
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FPI Exits
The immediate worry is the outflow of capital as Foreign Portfolio Investors (FPIs) continue to sell their equity holdings. According to estimates, FPIs have taken out Rs 2.2 lakh crore since the war began. Though capital flows are outside the CAD calculation, they are used to finance the CAD.
Sell-offs by FPIs led to a steep fall in the value of the Indian rupee against the dollar. On February 28 the rupee was trading at Rs 91.07. It has depreciated about 7% so far in 2026 and is down roughly 6.1% since the outbreak of the war. The depreciation would add massively to the import bill for fuel and fertilisers, stoking inflation. Already in April the Wholesale Price Index (WPI) inflation touched 8.3% from just 3.88% in March and 2.26% in April last year.
To check the trade deficit the government has increased the import duty on gold and silver to 15% from 6% and put other procedural restrictions on their imports. Prime Minister Narendra Modi appealed to citizens not to buy gold for a year, conserve fuel, cut edible oil use and postpone overseas travel – all of which require foreign exchange.
Accoridng to Icra, while the hike in customs duty on gold and silver may provide some respite, the merchandise deficit prints are expected to remain elevated in the near term, which is set to weigh on the CAD. ICRA projects the CAD to widen to a little over 2% of GDP in Q1FY27, following the expected seasonal narrowing in Q4 FY26. For FY27, assuming an average crude oil price of $95/bbl, the agency expects the CAD to print at ~2% of GDP, more-than-double that estimated for FY26.
TOPICSPiyush GoyalThis article was first uploaded on May twenty-two, twenty twenty-six, at twenty minutes past twelve in the am.