Stock market: After gold, silver, 5 more policy actions with petrol, diesel hike soon?

Following an increase in customs duty on gold and silver, foreign brokerage Nomura India said more policy announcements are likely to be unveiled in the coming weeks and months. They may include non-monetary policy actions such as disincentivising other non-essential imports like electronics and tighter rules under the Liberalized Remittance Scheme (LRS), which currently allows residents to freely remit up to $250,000 abroad annually. Besides, a diaspora bond to mobilise forex deposits is likely,  the foreign brokerage said. Nomura said Bloomberg recently reported a potential change in currency hedging rules for importers and a requirement for exporters to repatriate their dollars receipts immediately. 

Also a fuel price hike to reduce the fiscal burden is likely, Nomura said citing news reports suggesting a Rs 5 per litre increase in petrol and diesel prices is imminent. 

To recall, Prime Minister Narendra Modi's two appeals for austerity measures in less than 24 hours had triggered a market selloff earlier this week, with the benchmarks Nifty and Sensex falling 1.5-1.9 per cent on Monday and Tuesday, only to settle flat on Wednesday.

Petrol and diesel have a 4.8 per cent weighting in India’s CPI basket, so a 5 per cent increase could add around 25-30 bps to headline inflation, Nomura calculated. 

"The government could also stagger the fuel price hikes, if needed. Given India’s low headline and core inflation, we do not expect policy rate hikes this year," it said. 

Nomura had earlier noted that the PM’s appeal to citizens to conserve energy and foreign exchange suggested a reduced policy appetite for a further worsening of the twin deficits, with a particular focus on plugging the balance of payment (BOP) deficit.

The government has increased the import duty on gold and silver to 15 per cent, up from 6 per cent, effective midnight May 13. This included a 10 per cent basic customs duty, raised from 5 per cent; and a 5 per cent Agriculture Infrastructure and Development Cess (AIDC). 

The government invoked "public interest" as the legal justification under the Customs Act, Nomura said adding that "With the balance of payments tracking at a deficit of over $70 billion in FY27, on our estimates, the move is aimed at reducing gold and other precious metal imports and narrowing the current account deficit.