In the previous post, the fine print of the latest merchandise imports’ data was analysed to argue that the trends are not as robust as might have appeared over the past few months. However, that does not mean that a genuine recovery is not possible either. Here’s why:
One, while non-oil imports did decline in December 2016, to the tune of 3%, there was a base effect at play. Non-oil imports had come in at USD 27.4bn during December 2015, which was significantly higher than the average for 2015-16. In fact non-oil imports grew by 8.1% in December 2015, only one of the two months during 2015-16 when positive change in non-oil imports was experienced.
If non-oil imports, had instead come in at the average of the remaining 11 months’ figures, they would have been at USD 24.5bn. As a result, in December 2016, a growth of 8.5% in non-oil imports would have been witnessed. Further, the base would have naturally impacted the total imports figure growth figure as well, which would have increased to 9.8%. This would, of course, have been a significant improvement over the trends witnessed at present.
Two, a look at the split-up of imports across principal commodities reveals that while 15 of the 30 goods’ categories have shown a decline in total imports in December 2016 compared to the same month of the previous year, in value terms, they account for less than 25% of the total. Further, even if we exclude oil imports from the sum of principal imports value for which data is available, the total accounts to only 31.5%. This suggests that around almost 70% of non-oil imports showed growth in December 2016, despite what the headline figure suggests.
Three, some health is also visible in the quality of non-oil imports. For instance, there is improvement in capital goods imports, as measured by machinery related segments, accounting for around 8.5% of total imports of principal commodities. Since capital goods’ can be an early indicator of a pickup in the economy, these bode well for demand conditions going forward.
The big question now is: How far can the green shoots of recovery be maintained? Undoubtedly, there will be some demand hit due to the slowdown caused by demonetisation. How far it damages the trade story, however, remains to be seen.