Has India Contained an Import Surge?

May 29th  2001

According to official spokesmen, the evidence on trends in imports into India indicate that fears that import liberalisation would result in an import surge were misplaced. Rather, in their view, Indian producers have clearly been able to hold their own against international competition. The evidence does indeed point to some sluggishness in the growth of the dollar value of India’s non-oil imports in recent years. While India’s total import bill in dollar terms rose consistently through the 1990s starting from its 1991-92 low, the rate of growth has definitely decelerated since 1996-97 (Chart 1). Further, the deceleration after 1995-96 is much more pronounced in the case of non-oil imports which are the commodities in which an import surge, if any, was expected in the wake of liberalisation.
Chart 1 >>
There is of course one good reason to expect a deceleration in import growth after 1995-96, and this is the deceleration in production and investment in the industrial sector. The evidence does suggest that after a mini-boom in the industrial sector starting with the recovery in 1993-94, industrial growth slipped in the years since 1996-97. From a peak of 13.0 per cent in 1995-96, the rate of industrial growth fell to 4.1 per cent in 1998-99, recovered to 6.7 per cent and fell again to 4.9 per cent in 2000-01. And it is also true that the three years 1993-94 to 1995-96 were years of high import growth, while the years after that witnessed a deceleration in import growth. Thus, output movements in the principal sector dependent on imports for capital equipment, intermediates and components, i.e. industry, appear to substantially explain movements in India’s import bill as well.
This argument, while of considerable merit, tells only part of the story. To start with, there was one year after 1996-97 when industrial output was once again buoyant, viz. 1999-2000. But that was a year in which there was no reversal in the sluggishness in non-oil import growth. Second, aggregate figures suggest that the import intensity of domestic production, which did indeed rise during the first half of the 1990s, has remained more or less constant since then. India’s import to GDP ratio, which rose sharply from 8.1 per cent in 1991-92 to 11.5 per cent in 1995-96, has in fact marginally declined between then and 1998-99 (cahrt 2). Evidence of a rise in the first two quarters of 1999-2000 has been followed by that of a fall in the third quarter, which is the last for which GDP figures are available. The fact that import intensity has declined indicates that the growth slowdown, while it would have dampened import inflows, was in itself only part of the explanation for the trend in imports after 1995-96.
Chart 2 >>
It is, of course, true that the trends in aggregate imports provide an unsatisfactory picture of the impact of liberalisation on imports, since they include imports of oil and oil products. Trade in petroleum, oil and lubricants is less affected by liberalisation and more by movements in domestic demand, and the value of such trade is susceptible to unexpected changes because of the volatility that oil prices have tended to display.

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