India’s Electronic Imports Decline Cannot Be Due To Duty Hikes Alone

India’s electronic imports fell for the second consecutive month in December. The decline can be attributed partly to the import duty hikes announced by the government in September. But that’s not the only factor driving imports southwards.

“The near-term slowdown in electronic imports can be indicative of slower consumer demand. Consumer sentiment has weakened recently,” said Anubhuti Sahay, senior economist at Standard Chartered Bank.

According to another economist with a private sector bank, electronic imports surged ahead of the festive season, but sales fell below expectations, and this seems to have discouraged their imports in the following months. Secondly, the sharp depreciation in the rupee during that period also made imports costlier, which affected demand.

In the fiscal year 2018, electronic goods accounted for 11.91 percent of all imports, making it the third-largest contributor to India’s overall imports after crude oil and gold. On a cumulative basis in the fiscal year 2019, the share of electronic goods in overall imports stands at 11.85 percent.

Segment-wise data for November shows that among electronics, imports of telecom equipment fell the most, followed by computer hardware peripherals, consumer electronics, and medical and scientific instruments.

Although the latest product-wise data is not yet available, some analysts expect the fall in consumer goods to be sharper this time around.

“Interactions with our analysts based in other parts of Asia suggest that there is some slowdown in demand for consumer products globally, particularly in smartphones. So, some softness in electronic imports could be on the back of that,” said an analyst at a multinational brokerage firm.

While falling imports of electronic goods bode well for the current account deficit, it would provide some respite to the weakening rupee only if the trend sustains. “For an economy like India, electronic imports are unlikely to remain low for long. So, I would be watchful of this decline,” added Sahay.

The bigger worry, of course, was what the data reveals about consumer demand for electronics.―Livemint

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