Themes > Features
|C.P. Chandrasekhar and Jayati Ghosh|
Recent trade patterns in India have been characterised by a burgeoning trade deficit despite very high rates of growth of export, which implies that import growth in value terms has been even more rapid. Indeed, the past few years have witnessed the highest rate of growth of imports of any three year period in the past thirty years.
As Chart 1 shows, this is reflected in a dramatically increased trade deficit, to as much as $27.8 billion by 2004-05, and the early estimates suggest an even greater increase in the current year. Imports now account for around 17 per cent of GDP. It is often suggested that the recent increase in imports reflects higher values of oil imports as international oil prices have increased. Yet Chart 2 makes it evident that non-oil imports have also risen very fast, indeed faster than oil imports especially in the most recent period.
In fact, oil imports as per cent of total imports have fallen from an
average of 40 per cent in the early 1980s to 28 per cent between 2002-03
and 2004-05. The general presumption that high levels of oil import values
are due to high international prices is also misplaced: there has also
been very substantial increase in import volumes in oil, as Chart 3 shows.
While capital goods have continued to be important among imports, their share has fallen from 25 per cent of total imports in the period 1987-88 to 1989-90, to 22 per cent in the last three years. Within the broad category of capital goods, the most significant changes have been the general decline in the share of project goods imports and the emergence of electronic goods imports, which currently have the highest share in this category. The decline of project goods imports in a period of relatively high domestic investment rates probably reflects the effect of declining tariffs on all other capital, which has reduced the differential duty advantage that project goods imports had in the past.
that are officially defined as related to exports, that is which provide
raw material or intermediates for export production only, have fluctuated
between 15 and 19 per cent of total imports, with no clear trend. Most
of these are items such as pearls and stones for the gems and jewellery
industry (which is dominantly export-oriented) as well as certain chemicals,
textiles and fabrics and so on. Of course, this excludes the large range
of other imports that are directly and indirectly used by exporting industries,
just as it assumes that these imports are used only for export production.
Charts 6 and 7 indicate the movement of quantum and unit value indices for general manufactured goods imports and imports of machinery and transport equipment, respectively. The important point to note here is that the movement of the quantum indices has been much faster and sharper upwards than that of unit values. Indeed, for both of these sectors, unit values have been broadly stable between 199-98 and 2003-04, but import volumes have shot up. In the case of general manufactured goods, import volumes have increased by more than 80 per cent in the same period, while import volumes for machinery and transport equipment have increased by more than 100 per cent.
What this suggests is that actual import penetration and displacement
of domestic production is likely to have been much greater than is suggested
by the movement of import values alone. The influx of imports into the
Indian economy has been especially sharp in terms of volumes of manufactured
goods, and is it widely perceived that they have had the most deleterious
competitive impact upon small scale producers. Since small scale industry
is not only more employment intensive but also employs the greater bulk
of manufacturing workers anyway, this must be a major contributor to the
slow growth of employment in manufacturing that has been marked and reiterated
once again in the latest NSS Survey of 2004.
© MACROSCAN 2006