Lower Demand For Diamonds And Phones Is Helping Rein In India’s Imports
High oil prices and strong demand for consumer goods like diamonds and smart phones had pushed up India’s import bill through much of 2018. That, together with modest export growth, led to a widening of India’s trade gap.
The early months of 2019 have shown some relief with imports in some of these categories stabilising. While oil prices remain volatile, non-oil non-gold imports have seen some moderation. This trend, while helpful in reducing India’s trade deficit, may not be entirely positive for the economy as it could show moderation in demand.
In particular, imports of diamonds and mobile phones have contracted for three consecutive months till January, according to trade data from the Ministry of Commerce and Industry. Together these two categories constituted 6.4 percent of all merchandise imports in January 2019.
A detailed break-up of trade in the month of February is yet to be released but quick estimates of select major commodities indicate that the trend persisted in February 2019.
In January, imports of non-industrial diamonds fell 30 percent over last year, after a 20 percent fall in December and a 42 percent fall in November. In the case of mobile phones and equipment, imports fell 30 percent in January. In November and December, imports in this category had fallen 32 percent and 47 percent respectively.
To be sure, an adverse base effect due to high imports in the year-ago period has also brought down growth rates.
However, even in absolute terms, the value of imports in both these categories has moderated from the peaks seen in 2018, shows the data.
Diamond imports fell to $1.4 billion in January 2019 from a peak of nearly $3 billion in March 2018. Mobile phones and equipment imports, while volatile, have also stabilised at lower levels.
Madan Sabnavis, chief economist at Care ratings said that higher tariffs imposed on imports of non essential items may have had an impact on some of these imports.
Duty on non-industrial diamonds was hiked to 7.5 percent from 5 percent in September 2018. Duty on telecom equipment and other electrical products under this category, was hiked to 20 percent from 10 percent in October 2018.
In the case of mobile phones and equipment, the decline in import demand may also be partly linked to increased local manufacturing and assembly, said Neil Shah, partner and research director at market research firm Counterpoint Research.
There is a declining trend in the overall import of fully built phones because of the fast transition to local assembling and manufacturing. Along with that, during the Jan-Feb period, most factories and suppliers are closed for business because of the Chinese New Year holidays, which has also affected the overall imports to India.Neil Shah, Partner & Research Director, Counterpoint Research
Imports of mobile phones and equipment had become an increasing cause of concern, having doubled in the past five years to feature among the largest imports, after petroleum products and coal.