The central government has implemented defensive measures to safeguard financial stability, such as increasing the gold import duty to 15 percent, potentially reducing the current account deficit by about 23 basis points, according to a report by Emkay Global Financial Services Ltd. Markets, which have factored in post-war stability, may face challenges due to the persisting high crude oil prices, with the Nifty possibly dropping to 21,000 if the energy shock continues. The report highlights that the gold import duty hike might have adverse effects on jewelry companies and could lead to a slight uptick in consumer price inflation.
The report also anticipates an imminent rise in retail prices of petrol and diesel. It mentions that retail fuel under-recoveries are currently estimated at Rs 17-18 per liter, and a potential Rs 10 per liter price increase could address half of the shortfall, potentially pushing June’s inflation rate to around 4.4 percent, thereby increasing the chances of a rate hike by the Reserve Bank of India. Emkay Global Financial Services Ltd. suggests that a resolution between the US and Iran in the upcoming weeks could avert these measures, but warns that if crude prices remain high, policy responses may involve interventions in currency markets, overseas bond schemes, and restrictions on overseas remittances.
Several countries like the Philippines, Vietnam, and Thailand have enforced work-from-home mandates and other restrictions to limit domestic travel, impacting sectors such as tourism, hospitality, and aviation. While such measures are less likely in India, they could still negatively affect these industries, as per the brokerage’s analysis. Indian overseas remittances have seen a 9.5 percent annual growth over the last five years, constituting 174 percent of the current account deficit. The report also mentions existing deterrents like the 20 percent Tax Collected at Source (TCS) on Liberalized Remittance Scheme (LRS) transactions exceeding Rs 1 million, suggesting that further restrictions could bolster the rupee.
