India's Declining Imports Reflect Falling Import Prices, Not Declining Domestic Demand: ICICI Securities

ICICI Securities Report

India’s imports declined 6.2% YoY in January-April 2023, leading many commentators to assert that this was evidence of declining domestic demand. Our conclusion from a deep dive into the key sources of decline in India’s imports is that 50% of them saw the of their imports decline because of big YoY declines in import prices (oil, coal, fertilisers and vegetable-oil).

Imports of machinery and base metals (together comprising 14% of India’s imports) continued to grow in FY22 and FY23, and saw no let-up in recent months – evidence of continued strength in India’s investment demand.

Electronics and chemical imports (which together comprise 19% of India’s imports) declined over the past half-year, while their exports continued to grow (very robustly in the case of electronics), suggesting that the import decline was actually evidence of import-substitution.

Gems and jewellery imports (9% of total imports) are strongly correlated with gems and jewellery exports, so the latter’s sluggishness explains much of the decline in those imports, although a small portion likely also represents weaker domestic demand.

That leaves just another 8% of total imports – among which plastic and rubber products (5% of imports) also grew in recent months. So the import data provide scant evidence of any weakness in domestic demand.

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