The rupee is up. Imports are cheaper. Ergo, they should increase. As easy as 1-2-3? Not from a look at the latest trade data. Non-oil import growth was negative in September, after some five months of roaring growth?averaging 40%. That export buoyancy would be hit by a harder rupee was obvious, and it has happened, whichever currency you study the figures in. In dollar terms, the 18.5% growth in export income in the first half of fiscal 2007-08 is a significant fall from the 27.5% recorded in the first half of 2006-07. In rupee terms, it looks a lot worse, with growth sliding to 5.3% from 34.1% earlier. If exports have charted any surprise, it is the sector?s resilience over the past three months, which presages a plateau after the slide.
The number that has mystified trade analysts is September?s decline in non-oil imports, which, unlike oil imports, are considered quite price-elastic and therefore likely to contract and expand in response to prices. Could domestic demand have slackened? Going by other lead indicators like non-food credit, this is unlikely. In fact, domestic demand has remained buoyant during the period. So, what explains this sudden reversal of the import trend? Could an examination of the composition of imports help? Figures for the first two months of the fiscal year show that the growth of non-oil imports was broadbased, with imports of a wide range of goods like iron and steel, capital goods, pearls, precious stones, chemicals, gold and silver going up sharply. However, the big draw-in was gold, imports of which surged by 82.7% in comparison with a decline in the corresponding period of the previous year. Since then, international gold prices have scaled new heights, and despite the rise in the rupee, the metal may perhaps have gone beyond what is considered ?reasonable? by Indian consumers. Given that gold accounts for as much as one-eighth of our non-oil imports, a fall in demand could well have dragged the entire segment?s figure down. Another probable reason could be that export-related imports have been hit hard. These account for another one-eighth of India?s non-oil imports. If it?s the gold story that holds, then it may be just a transitory phenomenon. But if the latter, then policymakers should take a closer look at the trade sector?s woes.
