The good and the not-so-good imports

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Does India need to look at its imports more closely? India follows an open trade policy where most products can be imported without any licence on payment of duty. Imports make the Indian economy efficient and vibrant. However, like all good things, imports also come with caveats.

Substandard imports can affect the health of the people while subsidised imports harm the domestic industry. Also, over-reliance on a country for any product could compromise the health of the people, the economy or even national security. So countries follow an active product level import regulation policy.

A fact-check on India’s imports will help identify sectors that need a more in-depth look. For ease of understanding, I have placed India’s imports into five groups. These cover 95 per cent of the $465 billion imports made in the last financial year (FY18).

Group 1

This group (oil, gold, coal and diamond) accounts for $206 billion or almost 45 per cent of India’s imports. In FY18, we imported crude oil worth $87.3 billion and petrochemicals valued at $27.3 billion. India, in the 1980s, met 85 per cent of its crude oil needs mainly from ONGC’s Bombay High offshore oil-field, but now we import 85 per cent of our needs. A renewed focus on exploration in India and buying of oil-fields abroad will help.

India is the largest diamond polishing hub, so it imports, polishes and exports diamonds. In FY18, India imported diamonds of value $35 billion and exported diamonds worth $25 billion; the remaining was consumed locally. China is luring Indian traders to set operations there. A quick punishment mechanism for defaulters and a hassle-free export-import environment for honest traders is needed.

India is the second largest consumer of gold after China. In FY18, we imported gold worth $37 billion. While some of this was exported as jewellery, earning $13 billion, gold worth $21.6 billion was consumed locally. Making use of the large amount of gold in temples to contain imports may be an idea worth exploring.

India imported $23 billion worth of coal in FY18, which is surprising considering we have reserves for meeting our needs for the next 100 years. We import both coking coal and thermal coal. While coking coal is used as raw material for making steel, thermal coal is used to generate electricity.

Coal imports have increased largely because of demand from new power plants which are designed to use only high grade imported coal. Low quality (high ash content of 30-40 per cent) of Indian coal, inability of Coal India Ltd to increase production and use technology to increase the calorific value of coal, and transport issues make imports attractive. An early resolution of these issues will reduce the imports substantially.

Group 2

This group (machinery, electronics and telecom) accounts for $106 billion or almost 23 per cent of India’s imports. Machinery and auto components accounted for $50 billion, electronics products $34 billion, and telecom products $22 billion.

Factory machinery, parts needed to service domestic aeroplanes, auto components, IC engines, refrigeration and construction machinery, excavators, cranes, machine tools, hand tools, pumps, electrical transformers, etc., are the major types of machinery imported into India. Indian firms can meet most of our industrial and defence requirements.

But it is reported that the capacities of even top firms remain un-utilised mainly on account of subsidised imports. Many lose out to Chinese firms in domestic tenders.

Major electronics products imported into India are mobile phones, computers, ICs, TVs, refrigerators, washing machines, solar cells, parts to create telecom network, and hospital equipment. India imports most of these products from China. To manufacture these products, India has to ensure a quick export-import clearance system to enable it to become part of the global value chain (GVC). Also, we must create mega component hubs where components needed by domestic firms may be imported in bulk and cleared from Customs as and when required.

Also, festival time imports from China are mostly substandard. India banned firecrackers from China last year as they contained harmful potassium chlorate. Most electric lights and toys from China use recycled plastic containing harmful chemicals. These imports kill the small, domestic units and should be banned.

Group 3

This group (chemicals, pharma and plastics) accounts for $60 billion or almost 13 per cent of India’s imports. Organic, inorganic and agro chemicals, paints and cosmetics account for $33 billion, plastics and rubber products $22 billion, and fertilisers and bulk drugs, $5 billion each.

We dependent on China for import of Active Pharma Ingredients (APIs) and Key Starting Materials (KSMs). Realising its monopoly position, China has increased bulk drug prices by 1,200 per cent in the past two years. India’s bulk drug industry, led by public sector units IDPL and Hindustan Antibiotics, was way ahead of China’s in the 1990s but then fell back due to certain policy measures and predatory pricing by China. We must revive the API industry to ensure our country’s health security.

Group 4

In FY18, this group (steel, metals and minerals) accounted for $33 billion of our imports — steel and products $15 billion, and aluminium, copper and other metals/minerals $18 billion. India must watch out for subsidised imports as China, Korea, and Japan have excess capacities, and their exports to the US and the EU would now be restricted because of tariff hikes. Also, India should buy technology to produce specialty steel used in automobiles and electrical equipment.

Group 5

Agriculture sector’s share in total imports stood at $23 billion in FY18 , with vegetable oil being the most valued item, at $12 billion. This was followed by pulses ($2.9 billion), and fruits, cashew and spices ($4.3 billion). Imports of vegetable oil can be brought down by highlighting the health risk associated with the use of palm and many other imported oils and replacing these with healthier traditional mustard, groundnut, coconut and sesame oils.

Way out

Apart from using import management tools, which is not about protecting an inefficient industry, we need to add globally competitive domestic capacities in select product groups with an eye on exports subsequently. Every country does so, more so now.

The writer is an Indian Trade Service officer. Views are personal.

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