Low imports cast shadow on industry growth; no recovery soon, say experts

Non-oil, non-gold imports contract for 9th straight month in July

Non-oil and non-gold imports contracted for the ninth straight month in July, casting a shadow on recovery in industrial growth in the coming months.

Non-oil, non-gold (NONG) imports are considered a barometer for domestic demand. It fell 9 per cent in June, the steepest fall this financial year (2019-20 or FY20). In April and July, it fell 2 per cent each, and in May it fell by 1.3 per cent.

Economists do not see any recovery soon.

“The segment consists of some consumer goods and a lot of raw materials and intermediate goods. At a time when investment appetite in the economy has reduced and there is a marked consumer slowdown, we do not see the situation changing soon,” said Devendra Pant, chief economist at India Ratings.

Ajay Sahai, DG and CEO; FIEO

Consumption is the most important part of the Indian economy, comprising three-fifths of it. A sustained fall in consumption growth has been in tandem with NONG imports falling.

In 2018-19, NONG import rose by a lower margin of 3.4 per cent — much lower than 19.8 per cent growth in the year before. But, it is not the trade war between the US and China that has hurt India.

“India is not yet entrenched in the global value chain, to the extent of China or the US. So, this hasn’t directly led to slowing imports. However, it’s true that the atmosphere of uncertainty, created globally because of growing protectionism and concern over the trade has affected trade flows for India,” said Ajay Sahai, director general and chief executive officer of Federation of Indian Export Organisations (FIEO).

Earlier this month, the World Trade Organization’s latest quarterly outlook indicator suggested that “below-trend expansion in merchandise trade will persist in the coming months”. It showed growth in global goods trade would weaken further in the third quarter of this year.

Rising tariffs in sectors such as telecom equipments, mobile phones and electronics, have also curtailed imports. India imported $52 billion worth of electronics in FY18, led mostly by mobile phones and their components. 

This was the third biggest chunk of imports after oil and gold. But as of July 2019, India’s overall electronic import bill is about $17 billion.

India’s gross domestic product growth fell to a six-year low of 5 per cent in the first quarter of FY20. 

Private final consumption expenditure, denoting demand, fell to a 15-quarter low of 3.1 per cent, while gross fixed capital formation grew by 4.04 per cent, slightly up from 3.4 per cent in the fourth quarter of FY19, driven largely by the government investments. 

Experts pointed out slower imports have also coincided with slowing production of capital goods in the country. 

Denoting crucial investments, the segment of the industrial index of production (IIP) saw contraction deepen at 6.5 per cent, after a 1.6 per cent contraction in the previous month. Production in the segment had risen by only 1.2 per cent in the first month of the current financial year, after two months of contraction.

Driven by machinery and heavy transport, capital goods production had been on a solid upward swing till October last year. But since then, contraction has become the norm every month, with the exception of two months.