Government unfazed by high import bills and trade deficit spikes

The Centre is non-plussed about the recent spate of record-high import bills and is not actively mulling any import compression measures. File
| Photo Credit: The Hindu

The Centre is non-plussed about the recent spate of record-high import bills and is not actively mulling any import compression measures, top trade officials asserted, attributing the rising import tallies to India’s relatively faster growth vis-à-vis the rest of the world, and the use of some incoming goods like precious metals and electronics as inputs for exported items.

Over the past three months, India’s goods imports have scaled fresh highs twice, hitting an all-time high of $64.34 billion in August, which was subsequently eclipsed by October’s tally of $66.34 billion. While August clocked the second highest monthly merchandise trade deficit, the gap was $27.14 billion in October, the third highest on record, aided by a 28-month high 17.5% uptick in exports.

In August, record gold imports had fuelled the import bill, while October’s imports were driven by both gold and oil imports, that had risen 62% and 46.4%, respectively from September’s levels.

Between April and October, goods imports are up 5.8% at $416.9 billion, while outbound shipments grew by a more modest 3.2% to $252.2 billion, lifting the deficit to $164.6 billion from just under $150 billion last year.

“We need not be unnecessarily worried about rising imports or take a mercantilist view about trade that a few countries had once taken against free trade, thinking it is always better to export more and import less and keep a positive trade balance,” a top Commerce Ministry official said in response to a query from The Hindu on the import bill spikes.

“If everybody starts saying ‘We will export more and import less’, then, trade will not happen. Some countries have to export more and some have to import more. What is material is the nature of those imports,” he noted.

For exporting finished goods in sectors like electronics, India may require certain imports to build up the value chain. “Once we develop the manufacturing capabilities and ecosystem, the story changes as it did in automobiles,” the official pointed out. India, he emphasised, should be more focused on raising exports which would also enable higher imports.

Commerce and Industry Minister Piyush Goyal echoed this sentiment on November 19. “A lot of our imports are directly correlated to our exports so when you look at the number of months of imports our foreign exchange reserves can support, you need to calibrate that,” the minister said at the CITIC CLSA India Forum.

Indicating the Ministry may conduct a study on this aspect of imported inputs aiding exported , the minister noted: “Let’s say, if we are importing $30-40 billion of gems and jewels, directly adding value here and then exporting them, or the $15-17 billion of mobile phones that we export, for which $10-12 billion of componets are being imported…”

Beyond such imports, Mr. Goyal said there are only three-four other things India is really importing — pulses and edible oils like palm oil, crude petroleum, coking coal needed for steel production and a ‘little bit of thermal coal for port-based power plants’.

“I think there’s enough coal in India so we can do away with that. Then add some gold of about $50 billion, it’s not a problem. So if one looks at the India import basket – you will find there’s not much… Our export of marine and food products was $55 billion last year, much more than our import of pulses and edible oils,” he pointed out. Moreover, with services exports yielding a rising trade surplus, the net current account deficit is still about 1% of GDP, which the minister asserted was not “serious enough to be a concern” for the economy.

The trade official quoted earlier said India’s economy is growing faster than the world so consumption and import demand is higher. “If you look at the U.S., it maintains a very huge deficit with other countries, but their economy is still doing extremely well,” he pointed out.

“When you look at imports, you should be able to only finance those imports. So currently, if you look at our imports, remittances, FDI inflows, and our foreign exchange reserves, we are in a very comfortable position to deal with imports,” the official underlined.