Indian businesses are paying less for imported energy and other inputs like chemicals while buying more machinery from overseas sources, according to official data.
This indicates that the loss of pace of merchandise imports in recent months, and the contraction since February, is mainly due to fall in prices of bulk commodities like crude oil, coal, LNG and fertilisers, rather than sluggish investment demand in the economy.
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This assumption is also supported by the fact that the momentum of non-crude, non-oil imports is relatively intact. The fall in input prices may also help prop up Corporate India’s margins in the current quarter and the next.
After November 2022, year-on-year growth in imports had started to slow down, the shipments were flat in January, and by February, the contraction began. In April 2023, imports contracted by a sharp 14.06% on year as oil imports went down to $15.1 billion from $17.6 billion in the same month last year. In April 2022, crude oil price had averaged $107 a barrel while in the same month of 2023 it traded at $79 a barrel.
In May 2023, decline in oil imports will be even steeper because the average price of a barrel of crude is $75 a barrel as against $115 a barrel in May last year.
Same is the case with coal where international prices fell sharply after January this year and are almost half the prices at the start of the year. India imports both thermal coal and coking coal that is used for steel production. In March, coal imports contracted 26% on year to $3.4 billion and in April the contraction was even sharper at 28% on year to $3.9 billion.
Imports of organic and inorganic chemicals were down 31.3% on year to $2.3 billion. Downward trend has been seen in chemicals from December onwards when imports were down 20.43% to $2.5 billion after remaining positive in the previous eight months of 2022-23.
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Despite the decline in imports seen across all key input commodities for industry, the businesses continued to keep up with the purchase of machinery. In April 2023 machinery imports were up 15% on year to $3.9 billion.
Growth of imports of machinery have been around double digits for most months of 2022-23. One reason machinery imports have held up is because their prices do not fluctuate like those of other bulk commodities. Other reason is that orders for machinery are placed in advance and there is very little spot market or trading opportunities in them in normal times.