Exports dip, Govt plans to curb non-essential imports

“February figures reflect that on a month-on-month basis, the trade deficit has come down. Again, it’s not simply a statistical thing. There were several meetings held by the Commerce and Industry Minister, where all the officers were present, with ministries, and where ministers were also present, where we looked at strategies to contain inessential imports. Those things are bearing fruits,” said Commerce Secretary Sunil Barthwal.

Though he did not specify the sectors for which import curbs are being planned, it is learnt that the industry has been asked to look at sectors such as gold and electronic equipment.

While exports have dipped, imports too contracted for the third straight month in February, narrowing the trade deficit to over a one-year low of $17.43 billion. India’s exports declined by 8.8 per cent to $33.88 billion in February. Imports also declined by 8.21 per cent to $51.31 billion as against $55.9 billion recorded in the corresponding month last year.

Though the exercise to compile a list of non-essential imports is ongoing, Barthwal said the impact has been reflected in imports data for February. “What we have done is that we have given import figures, HS code-wise to all ministries… we are asking different ministries to analyse that data… look at the data from the angle of which are the essential and non-essential imports. Essential imports will be linked to the value chain,” he said.

Citing an example of the pharmaceutical industry, Barthwal said if a generic drug was being produced and an API (active pharmaceutical ingredient) from China or elsewhere was being imported, then that becomes essential. “Now, the second test is whether it is a raw material or an intermediary product, is it also manufactured within the country and is there sufficient capacity. If there is sufficient capacity within the country and it is still being imported, then we are trying to educate that it can be substituted by the domestic product. But, of course, it will depend on the requirements of the global value chain,” he said.

“For example, if we are manufacturing mobile phones, a mobile phone company may say a particular kind of chip is required which is produced by a certain company with certain specifications. So that becomes an essential import… Then it is up to the manufacturer to take it from the domestic market or import it… the price differential also has to be seen. But what we are saying is that if our domestic manufacturing is capable of producing the same kind of quality with the same price, then obviously it should be substituted. The whole PLI (production linked incentive) scheme is for import substitution, so I think these benefits come after a period of time when the manufacturing capacity increases,” he said.

In the current form, HS codes are seen as subsuming a broad sweep of items, even at the six or eight-digit classification levels. For instance, there are different types of materials for bicycle hubs including steel, alloy, ceramics, but all bicycle hubs come under the same HS code. The exercise is being done HS-code wise so that the intent to curb imports does not affect all items within one category.

“We have decided on a principle, we are not looking at a particular commodity as such. Based on that, different ministries will look at how they can encourage those imports getting substituted by domestic production… also looking at import diversification. If the same product is coming from a country, can it come from another country? Price differential would matter…will depend on many factors. This is a good exercise and it will help manufacturers,” Barthwal said.

The last set of duty hikes across a range of product categories happened in Budget 2022-23. Higher custom duties on items such as umbrellas, headphones, earphones, loudspeakers, smart meters and imitation jewellery were introduced. Most of these products were being imported from China, either as complete units or as knocked down units to be assembled in factories in India.

Over the last five years, import duty hikes have been made on several occasions on items including almonds and apples. Cellphone parts and solar panels have seen the most regular hikes, in large part to protect and promote the domestic industry.

Prior to the largescale hikes, India’s peak customs duty — the highest of the normal rates — on non-agriculture products had come down steeply from 150 per cent in 1991-92 to 40 per cent in 1997-98 and subsequently, to 20 per cent in 2004-05 and 10 per cent in 2007-08. Import tariffs have risen sharply since 2017-18, hitting 17.6 per cent by 2019-20 and rising further.