Exports have picked up in recent months, but plummeting imports could see industry heading towards a slowdown
A sudden drop in the country’s import of merchandise goods has led to widespread concern on the overall health of the Indian industrial output, which has shown some moderation in terms of productivity and output.
Exports have picked up significantly in the last couple of months, narrowing the trade deficit. However, plummeting imports do not augur well for the industry, which could well be headed for a slowdown, experts believe.
Exports had been rising steadily since October last year, while imports were gradually falling. While Exports rose from $18 billion in October to $18.89 billion in November and $22.5 billion in October, imports slipped from $27.7 billion in October to $27.7 billion in November and $25.1 billion in December. Economists are keeping a close eye on this.
“This financial year, industrial output has not grown at all, it has been much weaker compared to last year. On the import side, this is definitely a concern. Imports should pick up soon. There has been some moderation in import demand and economic activity. The economy is in a consolidation mode and that is getting reflected in slowdown in imports,” said Nomura India Economist Sonal Varma.
Imports contracted by 11.1 per cent year-on-year in December to $25.13 billion from 28.25 billion in December 2009. This was mainly due to the decline in imports of both oil (-16 per cent year-on-year in December) and non-oil (-9 per cent year-on-year), according to latest official statistics by the Ministry of Commerce and Industry.
In December, imports had contracted by 11.1 per cent to $25.13 billion, from $28.25 billion in the month the previous year. This was mainly on account of dip in imports of both oil (decline of 16 per cent from December 2009) and non-oil (decline of 9 per cent), according to latest statistics of the commerce and industry ministry.
According to Nomura’s Varma, a sharp moderation in industrial output growth and a contraction in imports over recent months have raised concerns that the economy may be slowing significantly.
The median forecast for growth in merchandise export and merchandise import for 2010-11 was 21.3 per cent and 19 per cent, respectively. Import growth was projected to see a steep decline from 21 per cent in the third quarter of 2010-11 to 14 per cent in the fourth quarter of 2010-11, said a recent Economic Outlook Survey by Ficci.
“There is a declining trend in industrial activity, but there is no stagnation, as such, as these are fluctuating. But, if this trend continues, it would be a matter of concern. The fall in the capital goods category has been sharp, but that’s not surprising. Similarly, the deceleration in consumer goods after the festive season is also not alarming. But, there is a possibility that this trend would get accentuated if the monetary policy is further tightened,” said Ficci Economic Advisor Anjan Roy.
Within the non-oil category, gold and silver imports fell 30 per cent from the previous year, due to higher prices; fertiliser imports declined 30 per cent and coal 36 per cent. A delay in the issuance of letters of credit by banks for crude imports, due to a payment issue with Iran, could have led to lower oil imports, but decline in coal and fertiliser imports, at a time when commodity prices were climbing, was surprising, Nomura’s research said.
“The fall in imports is a concern, but the trend has to be observed for the next six months. If the non-oil imports continue to drop, it will be a serious concern. Having said that, we must also look at the fact that the fall in imports of certain commodities like chemicals, fertilisers and coal is due to stable domestic supplies,” said Indian Institute of Foreign Trade Director K T Chacko.
However, according to Crisil, imports would continue to outpace exports. This would be mainly because domestic demand would continue to grow in 2011-12 until 2015-16. Therefore, import of crude oil, petroleum products and technology, which are crucial industry inputs, would continue to have a robust rise. So would imports of consumer goods. As a result of this, the trade deficit would increase in the next five years.
“Declining trend of imports reflects the trend in industrial output. Imports may pick up within the next couple of months. While this rise in exports is good insofar as trade deficit is concerned, there should be a balance between growth rates of exports and imports,” Crisil Principal Economist DK Joshi said.
The top-six items that India imports are petroleum and crude products, gems and jewellery, non-electrical machinery, coking coal and briquettes, iron and steel and organic chemicals. The share of these items in total imports rose from 65 per cent in 2000 to 72 per cent in 2009.
The share of crude and petroleum products in total imports grew at a steady 30 per cent from $15.7 billion in 2000-01 to $86.8 billion in 2009-10, on the back of a whopping 115 per cent jump in crude oil prices during the period. Among non-oil items, imports of capital goods, including electronic goods and non-electrical machinery, grew at 22.6 per cent over the period, according to a Crisil research note.
