Risk of growing imports
Cheap and accessible imports are ruining India’s economy, to the extent of killing local jobs and starving trade accounts
To be honest, the government's newly announced task force, set up under the chairmanship of Cabinet Secretary PK Sinha to identify various items and policy interventions to reduce dependence on imports, should have come much earlier. Since 2015, the economy has been constantly under the pressure of import of luxuries, manufactured goods and assorted junkies. The situation worsened since the middle of last year after oil prices started moving up. India could do little with the surging oil import bill. India's domestic oil production can barely meet 20 per cent of its annual demand.
Oil is a highly essential item in any economy. In 2017, India imported US$ 444.1 billion worth of goods from around the globe. It was up by 24.5 per cent from the 2016 level. Given India's population of nearly 1.3 billion people, its total import spending may not look very unreasonable as it translates to roughly $350 in yearly product demand from every person. However, when compared to India's total export, such an import bill is simply unsustainable.
In 2017, goods worth only around $ 298.38 billion were exported from India — down from $ 322.69 billion in 2014. The task force, which includes secretaries from departments of commerce, industrial policy and promotion, skill development, revenue, defence production, steel, petroleum, electronics and telecommunications, is mandated to suggest ways to cut the import of those items which can be manufactured or explored in the country. Obviously, the government's 'Make-in-India' initiative is not ushering in the desired result.
Going by last year's import records, India's most valuable import products were crude oil, gold, diamonds, mobile phones, coal, petroleum gases and palm oil. In 2017-18, the inbound shipments grew by about 20 per cent to USD 460 billion. Oil imports during the last fiscal rose by 25.47 per cent to USD 109.11 billion. Defence imports, depending on how they are classified, would be of the order of $10-12 billion. While India could do little about contracting its vital oil and gas imports, the country has not made enough effort to emerge even as a major defence producer through the last seven decades.
Neighbouring China, which started from scratch in 1950, is today not only the world's second-largest economy but also a major global producer-exporter of defence products. It is also a matter of concern that India, a major global exporter of drugs and pharmaceuticals, is still heavily dependent on imported basic materials from China. Trade experts have raised concerns over the high dependence on active pharmaceutical ingredients (APIs) from China. Over 60 per cent of APIs come from China. Lately, the quality of APIs from China has come under global scanner which is bound to impact the quality of drugs produced by India for both domestic and overseas consumption. India's dependence on China for vital APIs continues to be a mystery.
Also, few will disagree that India should not waste its foreign exchange to such large quantities in the import of mobile phones, gold, diamond and branded luxuries. If China, Taiwan, South Korea and Malaysia could produce and export large quantities of consumer electronics items, there is no reason to justify India's massive imports of such products from these countries. From a continental perspective, 57.5 per cent of India's total imports by value, last year, were purchased from Asian countries. Nearly 20 per cent of total value came from China alone.
"At a time when there is an urgent need to stimulate our manufacturing sector to at least 25 per cent of the country's GDP, Chinese imports have thrown a spanner in the wheel of India's economic progress per se and industrial manufacturing in particular," the Parliamentary Standing Committee on Commerce said, last week. Incidentally, India's European trade partners supplied 17.2 per cent of India's imports by value. About 7.9 per cent worth imports originated in Africa and only 7.3 per cent from North America. The massive import dependence of manufactured goods is also standing in the way of creating jobs for millions of the country's unemployed youth.
Lately, India has flagged concerns of its large trade deficit with China, following visa restrictions for Indian professionals and the challenges faced in exporting IT services, meat, rice, and medicines. India is said to have raised the issue at the World Trade Organisation as the country suffered a $63-billion trade deficit with China out of a total bilateral trade of $89.6 billion in 2017-18. "This large and growing deficit is difficult for India to sustain, and serious efforts need to be made to remedy the situation," India has said in its submission to WTO, commenting on China's trade policy. India has cited complex requirements for participating in contracts of Chinese state-owned enterprises and issues related to qualification requirements, licensing and taxation. Export-Oriented China poses the biggest challenge to India's struggle for self-reliance, to a substantial extent. However, going by the experience of the US and European Union, dealing with China will not be easy for India unless it is prepared to take a drastic stand on the lines of the US administration and raise strong non-tariff barriers.
Unfortunately, the setting-up of the task force to identify items and make policy interventions by the government to reduce dependence on import has come at the fag end of the present government's tenure. It is not clear if the task force is working under any strict time frame. Anyway, if its recommendations require a drastic change in the government's fiscal as well as import policies, nothing much can be done before the coming Lok Sabha elections and until a full national budget for 2019-20 is placed by the next government. In the meanwhile, the economy continues to be under severe import pressure. The country's trade deficit in June widened to a 61-month high despite a 17.57 per cent export growth.
(The views expressed are strictly personal)
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