Asia Now Accounts For Over 60% Of India's Imports
A larger proportion of India's imports are coming from within Asia as the share of China and United Arab Emirates in inbound shipments rises. A shift in demand patterns due to the pandemic has also played a role in accelerating the shift closer home.
Imports to India stood at $172 billion on a cumulative basis between April- July 2021, a percent more than the imports between April-July 2019. While the level of imports is mostly unchanged, the share of Asia in these imports has risen by 4 percentage points, while the share of imports from North America and Europe has declined.
A break-up of regional trade data is only available till July.
In Asia, North-East Asia and West Asia led the rise in share.
In the North-East, China was largely responsible for the rise in share. Imports from China rose to $27.66 billion in the April-July 2021 period, 17.6% higher than the comparative period in 2019.
In West Asia, the rise was led by the United Arab Emirates, with imports rising to $12.5 billion in April-July 2021, nearly 29% higher than the comparable period of 2019.
Simultaneously, in North America, United States, Mexico and Canada all saw lower imports to India. Imports from the U.S. stood at $13.1 billion in the first four months of the year, compared to $13.8 billion in the pre-pandemic year.
Among major European countries, Germany and Switzerland saw a modest decline in share and in value of imports. However, imports from Belgium and Netherlands rose. Imports from the United Kingdom also declined.
Why The Shift
There does seem to have been a shift in trend for imports, led by a rise in imports from China and the United Arab Emirates, said Akansha Bhende, associate economist at Care Ratings. The shift has more to do with the composition of India's imports and cost advantage offered on them.
For instance, electrical machinery and equipment are among the largest segment of imports from China and continues to rise because of cost advantage, Bhende said.
Prahalathan Iyer, chief general manager, research and analysis at India EXIM Bank, also said imports from developed economies usually constitute hi-tech products such as aircraft or locomotives. There's a reduction in imports of hi-tech products, even as imports of low-value products continue. Imports of capital goods, for instance, still remain low as private capex is yet to make a strong recovery.
The decline in share of imports from the U.S. was driven by items such as precious stones and metals, along with boilers, machinery and mechanical appliances.
Supply chain disruptions are also responsible for the shift to some extent though they are not the primary reason, Bhende said.
A continued surge in container prices and growing imbalance of container availability has led to supply chain slowdowns, said a press note by Container xChange, a marketplace for buying, selling, and leasing containers. The problem is likely to persist until 2022 and beyond, it said.
As of September 2021, prices for 20-feet dry containers were 18% higher than in May. Prices for 40-feet containers have risen by 37% over this period, according to data from the platform.
Apart from higher prices, availability has been a concern as well. These disruptions have, in some cases, made trade easier with markets that are closer.
Export Trends Remain Unchanged
While import patterns have shifted, export trends remain unchanged.
Share of exports to North America, continued to rise, led by strong demand in the U.S. For most other regions as well, the share of exports was either at a similar level or saw a modest rise.
On a cumulative basis, exports between April-July 2021, breached $130 billion, hitting a record high.
The main driver of rapid export growth in 2021 is the impressive rebound in global growth, notwithstanding the hiccup caused by rising shipping costs, said Pranjul Bhandari, chief India economist at HSBC.
"We find that high-skill exports such as mobile phones, machinery, pharmaceutical products, and IT services have gained global market share in what we call the trade diversification period of 2017-19," said Bhandari. Low-skill and labour-intensive exports such as textiles and agriculture have been weak. There is econometric evidence of a net gain, but it is small for goods exports and much higher for services, Bhandari said, in a note dated Sept. 7, 2021.