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However, even if we
exclude oil imports, the trend in import intensity of domestic production
is not alarming, though at variance with the aggregate figure. The ratio
of non-oil imports to GDP, which rose from 5.9 per cent in 1991-92 to
9.1 per cent in 1995-96, fell to 8.3 per cent in 1996-97 and then rose
to 8.9 and 9.4 per cent respectively in 1997-98 and 1998-99. However,
its 1998-99 value (9.4 per cent) was only slightly above its 1995-96
value. This tendency for the import-GDP ratio to stay below a peak reached
in the mid-1990s, when combined with the slow down in growth, explains
the sluggishness in the aggregate import bill, making the slowdown itself
only a partial explanatory factor.
What, is more, if we
consider individual sectors most affected by import liberalisation,
such as for example capital goods, and examine the ratio of imports
to domestic production in the registered manufacturing sector, the scenario
till the date for which output figures are available from the Annual
Survey of Industries tallies with the trend described earlier. As Chart
3 shows, the ratio of imports of capital goods to domestic production
in the registered manufacturing sector, which rose sharply from 12.3
per cent in 1993-94 to 14 per cent in 1995-96, fell to 11.9 per cent
in 1997-98. Even though this figure rose to 12.9 per cent in 1998-99,
the last year for which figures can be calculated, this figure remains
well below its 1995-96 peak.
Chart 3 >>
In sum, all the evidence
seems to point in one direction. Till 1995-96 imports responded as expected,
rising sharply in the wake of import liberalisation. This was a period
when the import intensity of domestic production was on the rise. However,
matters changed subsequently. To start with, a slowdown in growth dampened
the rate of growth of imports. But more crucially, the import intensity
of domestic production stayed below its mid-1990s peak. As a result,
import growth appeared far less than warranted by even the observed
slow growth in output.
It is this evidence
that provides support to the view that liberalisation has not accelerated
the flow of imports into India with adverse consequences for domestic
production. Is this indicative of the fact that, after a period of being
displaced, if not savaged, by imports, Indian producers had restructured
themselves to face the onslaught from imported commodities?
That would have been
the conclusion to arrive at but for evidence that besides the deceleration
in industrial growth after 1995-96, there was one other tendency of
significance that was operative. This was a sharp fall in the unit value
of imports into India. This emerges from an anlaysis of the quantum
and unit value indices (Base 1978-79 = 100) of India’s imports
for 13 quarters (Chart 4), starting from the first quarter (April-June)
of financial year 1996-97 and ending with the first quarter of 1999-00,
which is the last for which data is currently available. The figures
show that the unit value index or weighted average unit price of India’s
imports rose during 1996-97, reached a peak of 513 in the first quarter
of 1997-98 and has since then been on the decline. Over the subsequent
two years the unit value index fell by 33 per cent. On the other hand,
the quantum index of imports, or the volume of imports, more than doubled
over the period April-June 1996-97 and April-June 1999-2000, and rose
by 57 per cent over the two-year period starting April-June 1997-98.
Given these contrary movements in the quantum and unit value indices
of imports, it is to be expected that the value of imports into India
would only partially reflect the real inflow of commodities from abroad.
That is, the trend in the value of imports would not reflect in full
the competition faced by and the displacement of domestic producers
in the home market. Stated otherwise, sluggishness in import “value”
growth does not reveal enough of the trend in real imports and therefore
on the ability of domestic producers to face up to import competition.
Chart 4 >>
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