Do rising imports reflect demand revival?

Despite naysayers, non-oil, non-gold imports clock strong growth rates fanning hopes of demand

Imports continued to rise at a robust pace for the 10th month in June, fuelling hope among some experts that industrial demand was back on track.

This, however, was not the universal opinion, even as non-oil, non-gold imports — often considered an indicator of domestic industrial demand — have been clocking strong growth rates.

Imports rose 19 per cent in June over the corresponding month last year, with inbound shipments totalling $36.52 billion. This was significantly high despite being slower than 33.1 per cent growth in imports in May.

“Import growth data has remained strong, indicating a robust increase in domestic demand,” Morgan Stanley India said in a research note. “This has been corroborated by other high-frequency growth indicators, reinforcing our view that growth will accelerate from Q2 FY18.” The global financial services major added that imports of capital goods accelerated 8 per cent in June, and those of machine tools, machinery, and transport equipment also picked up.

Among imports, the crucial non-oil, non-gold imports segment continued to post strong double-digit growth of 16.7 per cent in the month.

However, there was huge volatility in non-oil, non-gold imports. It was 43 per cent in April but 19.83 per cent in May. This has been pointed out by experts to argue that industrial demand might not be back on the growth path.

“This segment is still witnessing a significant amount of volatility. It would be wrong to assume that industrial demand is firmly in place based on the readings of the past couple of months,” said D K Shrivastav, chief policy advisor at EY.

Also, the latest Index of Industrial Production data, available for May, has shown a muted growth of 1.7 per cent compared with 3.1 per cent in the previous month and 3.7 per cent in March, he added.

“In our view, there is limited evidence of a broad-based revival in private sector capex,” Aditi Nayar, principal economist at Icra, said. In June, much of the push to imports came from gold, which more than doubled to $2.5 billion in June year-on-year, she said. Imports of the yellow metal grew by 103 per cent in June, down from the 236 per cent rise seen in May, she added.

In absolute terms, however, gold imports were higher in the previous month of May when India imported $5 billion worth of it — a 26-month high. Imports of precious and semi-precious stones increased 86 per cent to $3.3 billion.

Growth in the crucial oil imports decelerated in June. Oil imports grew 12 per cent in June, down from 29.5 per cent in May, when global Brent crude prices increased by nearly 8 per cent in May.

“The share of oil in imports in the first quarter of FY18 was marginally down to 20.6 per cent from 22.2 per cent. We have benefited from lower crude oil prices,” Madan Sabnavis, chief economist at CARE Ratings, said.

Export growth slowed in June to 4.39 per cent, even as the country managed to see 10 straight months of rise in outbound trade. Growth has slowed since March, when it hit a high of 27 per cent, the steepest in a little over five years. In May, it was 8 per cent. Cumulative export in the current financial year was about $72 billion.