Imports: Cheap credit at play?

Two months of unprecedented import bills have led to questions being raised from concerned quarters. What was earlier being touted as price-driven is gradually turning out to be primarily quantity driven (see “Imports” Driven by volume not price”, published Jan 4, 2022). Some circles have long been arguing that the high import bill does not necessarily have to be viewed with an overly critical lens as it is feeding into capital goods.

While there has been a rise in imports of capital goods and the raw material for capital goods in absolute terms – the picture over the years in proportion to overall imports tells another tale. Capital goods constituted one-third of the imports back in FY17, which has gradually come down to one-fourth of the total by 1QFY22. While there is an element of one-offs in 1QFY22 imports such as vaccines, the trend has long been coming.

This brings into question whether all the concessionary finance schemes, especially the ones rolled out post Covid, are yielding the desired results. The consumption driven imports now make up for 64 percent of the import bill, with raw material for consumer goods leading the way with 44 percent. Now there has been an undeniable price increase in international commodity, but a significant portion is also headlined by volume driven imports. In fact, volumes have outpaced prices in terms of import growth contribution in the first five months of FY22.

The jury is out on how much of the consumer goods and raw material imports have resulted as a result of access to cheap credit. Mind you, a significant portion of capital goods imports includes mobile phones and vehicles as well. Arguably, the capital good component will go up if adjusted for vaccine imports, but vaccine imports are here to stay for a longer duration.

Higher imports in quantity may well be a reflection of the growing size of the economy as well, but the breakdown of imports by category and by quantity and price tells the response to the growing import trend could have been different to what it has been. Therein lays the pressing need for release and analysis of timely data, instead of releasing it with significant lag.