Import Restrictions Impact Volumes, Not Prices: RBI Study
Measures taken to encourage local manufacturing or those announced in response to restrictions by trade partners do have a significant impact on the volume of imports but not on inflation. That’s according to a study conducted by the Reserve Bank of India, released as part of its monthly bulletin for September.
From time to time, countries, including India, have announced tariff and non-tariff measures on cross border trade.
According to the Global Trade Alert, nearly 15% of the total trade protectionist measures implemented at the global level directly or indirectly impact India’s merchandise trade. In 2019, the value of imports of those products facing tariff hikes was approximately $18.5 billion in the case of India, the RBI study said.
The protectionist measures affecting India are 5 times higher than the measures implemented by it. India’s recourse to import restrictive measures for goods trade appears to have tailed off in 2016 and 2017 but again rose in 2018 before declining subsequently.RBI Paper (September Bulletin)
To study the impact of import measures on volumes, the RBI study looked at 119 commodities between January 2013 and December 2019. This set of commodities includes 50 items which attracted import measures during the period of study. The study also examined 69 commodities, which were randomly selected import items with some linkages to those where restrictions were imposed.
The study showed that:
- Within the group of 50 commodities where import restrictions were present, volumes on average fell in the case of 37 items. Volumes rose only for 13 items.
- Among the 69 commodities without import restrictions studied, 33 saw a decline in volumes while 36 saw an increase.
When a similar analysis was conducted on price changes in these sets of commodities, the following results emerged:
- Of the 50 commodities where restrictions were imposed, 27 saw a decline in prices and 23 saw an increase in prices.
- Across the remaining 69 commodities, 39 saw a decline and 30 saw an increase in prices.
The data “suggests that more than half of the commodities in treatment group did not experience a rise in prices on an average during the post implementation period. However, it may be noted that commodities such as palm oil, soybean oil, cold rolled and hot rolled coils, cold-rolled stainless steel products witnessed sharp rise in the inflation rate post implementation of measures,” the study said.
The study comes against a backdrop when import restrictions, particularly for inbound shipments from China, have increased.
It’s conclusion suggests that import measures do impact the volume growth of these items but not their inflation. To be sure, the authors caveat the findings of the study by saying that several import items could not be covered due to unavailability of comparable data.
“Nevertheless, the study offers important insights on causal effects of import restrictive measures on import volumes and inflation which are in line with the extant literature on international trade and protectionism,” it said.