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ANALYSIS

Stable crude oil prices to rein in imports growth

by Mahesh Vyas

Imports increased by 21 per cent during 2017-18, yoy. This is a sharp increase after a nearly-stagnant or falling imports trend since 2012-13. This falling trend is a reflection of the near stagnation in industrial production or more generally, weak domestic demand. Fall in international crude oil prices have contributed to this. And so has falling imports of gold and silver and also non-petroleum and non-gold & silver imports.

The sharp increase in imports during 2017-18 is across all major segments. Gold and silver imports rose by 25.8 per cent, crude oil and petroleum products imports rose 25 per cent and, the remaining imports grew by 19.8 per cent.

Total imports are back to the level of 2014-15. More importantly, imports of non-crude oil and petroleum products are much higher than their level three years ago. Thanks to the fall in international prices of crude, the value of crude oil and petroleum products at USD 109 billion is much lower than the USD 137.8 billion bill in 2014-15.

The sharp increase in imports during 2017-18 seems like an aberration in the trend of falling or stagnant imports seen since 2012-13. The increase is unlikely to be a turnaround. Domestic demand has not broken into any acceleration from its recent past trends.

During 2017-18 the crude oil import bill went up by 23.6 per cent because of a 21.6 per cent increase in the price. Quantity went up by only 1.5 per cent. Further, import of coal increased by 45 per cent because of domestic shortages and not because of any spurt in domestic demand. Poor demand from thermal power plants in the face of increasing competition from renewable energy sources is likely to keep coal imports low in the coming years.

We therefore expect imports growth to decline in the coming years as a reversion back to the trend of modest increases in imports. We expect imports growth to fall to less than 6 per cent in 2018-19 and then to 2-3 per cent in USD terms in the following three years.

The government’s protective policy would contribute in a way to this fall in the growth of imports. Electronic goods was one of the fastest growing segments of manufactured goods. Imports of these grew by 22.4 per cent during 2017-18. The government recently raised customs duties on a range of electronic goods and components. The increased tariffs are not expected to dampen electronic imports much. We expect their imports to continue. Though growth is expected to slow down from 2018-19 onwards, of all the major import heads, electronics would clock the highest growth in the coming four years.

We expect import growth of electronic goods to fall to 3.6 per cent in 2018-19 and then to around 4 per cent in the following three years.

We expect crude oil prices to remain relatively stable at around USD 65 to a barrel. But, the average price in 2018-19 would be about 12 per cent higher than the average price of 2017-18. This would be the major contributor to the projected 17 per cent increase in the petroleum import bill of 2018-19. However, given our projection of stable crude oil prices we expect the petroleum oil import bill to remain flat in the following three years.

This expectation of stable crude oil prices is a crucial element of our forecast of modest increases in the import bill in the coming four years.

The fall in the growth of non-crude oil and petroleum products imports is expected to be sharp. These increased by 19.8 per cent during 2017-18. This was an odd increase after several years of negative growth. We expect the growth to fall to an average 2-3 per cent per annum in the coming four years.

Import of engineering goods has seen very poor growth since 2012-13. This reflects the poor investments climate in the country. In four of the six years since 2012-13 import of engineering goods recorded a decline. These declines reflect a decline in import of iron and steel and non-electrical machinery items or other engineering goods. Even transport equipment which is a part of engineering items has shown erratic import growth.

The segment that has clocked good imports growth is electronics. Import of electronics has grown well since 2013-14. In 2017-18 it increased by 22.4 per cent. This perhaps, explains the increased tariffs against them. Government increased import tariffs on electronic goods in the union budget and, increased these again in April. These increases have been criticised widely as being protectionist and counterproductive.

Import of gold and silver is projected to be of the order of USD 31.8 billion a year in the four years from 2018-19. This is a tad higher than their average annual imports in the preceding five years.