Union Budget: Higher import tariffs likely to stabilize rupee: EY’s DK Srivastava

As the Indian rupee continues to grapple with historic lows against the US dollar, the upcoming Union Budget 2025 could see the government raising import duties to curb dollar demand and support domestic industries. DK Srivastava, EY Chief Policy Advisor and a Member of the Advisory Council to the 16th Finance Commission, has suggested this move could bolster the Indian economy while aligning with the Atmanirbhar Bharat initiative.
Stabilizing the Rupee Through Fiscal Measures
According to information, the rupee recently touched an all-time low of 86.70 against the dollar on January 13, marking its steepest single-day fall in nearly two years. Srivastava highlighted that the depreciation is not limited to the rupee but extends to several European currencies, reflecting broader global trends. He emphasized that the government's fiscal options to directly influence exchange rates are limited, but import tariffs could serve as an effective instrument to manage the dollar demand.
“In the Budget, they may examine tariff rates more closely to provide greater protection to the domestic industry. This could reduce the demand for dollars from importers while increasing revenue from import duties,” Srivastava noted in an interview with PTI.
Economic Rationale Behind Higher Import Duties
The economist highlighted that raising import tariffs could achieve multiple objectives:
1.Curb Dollar Demand:By discouraging imports, higher tariffs would reduce the need for dollar purchases by importers.
2 .Boost Domestic Production: Substitution of imports with domestically manufactured goods would strengthen local industries.
3.Increase Revenue:Additional import duty revenue could enhance fiscal resources.
“This approach aligns with the policy of providing higher protection to the domestic industry and promoting self-reliance under Atmanirbhar Bharat,” Srivastava reportedly stated.
 Pressure on the Rupee
The rupee’s depreciation has been exacerbated by global factors, including expectations of a US economic recovery, which has attracted financial resources to the dollar. According to information, on January 13, the rupee closed at 86.70 per dollar, a sharp decline from 85.52 on December 30, 2024. It breached the 85-per-dollar mark for the first time on December 19, 2024, and has since fallen by more than Re 1 within a fortnight.
Srivastava emphasized that addressing these challenges would require coordinated efforts on both fiscal and monetary fronts. While the Reserve Bank of India (RBI) is expected to handle monetary policy adjustments, the Union Budget 2025 may introduce fiscal measures aimed at curbing currency volatility. He suggested that there could be an emphasis on increasing and rationalizing import tariffs to reduce import demand, encourage import substitution through domestic production, and achieve savings in dollar outflows. Such measures would not only support the rupee but also bolster the government’s fiscal position.
With the Union Budget 2025 on the horizon policymakers are expected to balance immediate fiscal priorities with broader economic goals, including stabilizing the rupee and fostering self-reliance. Amid evolving global financial conditions, the proposed revisions to import tariffs could play a pivotal role in enhancing India’s economic resilience and promoting sustainable growth,noted experts.

(Business Correspondent)