The rupee continued its slide against the dollar last week, falling below 72 at one stage before closing at 71.73 Friday. While a surge in crude oil prices has been largely blamed for the projected rise in the current account deficit (CAD) and the pressure on the rupee, a closer look at items imported by India shows that apart from a jump in crude imports (in value terms), several other items are playing a role, alongside a slower growth rate of exports.
Changing import basket
In line with the rise in global crude prices from around $50 per barrel in April 2017 to around $70 towards the end of March 2018, the value of petroleum and crude imports jumped almost 25% from $86.9 billion in FY17 to $108.6 billion in FY18, thereby leading to a jump in the CAD from 0.6% of the GDP to 1.9%. As the prices of crude continue to rise, some estimates suggest that the CAD may rise to levels of around 2.8%-3% of the GDP in FY19.
The import basket, however, shows crude may not be the only one disturbing the equilibrium. In 2017-18, the value of imports of coal and coke jumped 45.3% to $22.9 billion from $15.7 billion in 2016-17. Even the value of imports of metaliferous ore and minerals rose nearly 47% to $9 billion, from $6.1 billion. Another major component has been pearls, precious and semi-precious stones, whose imports climbed 44% from $23.8 billion to $34.2 billion.
So, while crude imports jumped $21.7 billion, the imports of coal and coke, metal and mineral, non-ferrous metal and iron and steel rose $15.9 billion, or nearly 73% of the jump in petroleum and crude imports.
Electronic imports, which are the second biggest component of India’s import basket and account for 11.4% of the total, jumped 23.4% to $52.9 billion in FY18, from $42.8 billion in FY17. It is important to note that the rise in value of electronic imports is irrespective of the rise in crude oil prices. It is driven purely by demand; among the top import items, electronic goods are the only import component that has seen a year-on-year growth (in value terms) over the last three years. Some market experts feel that electronic imports are a major area of concern as far as the CAD is concerned.
Even gold imports, which had declined from $34.4 billion in FY15 to $27.5 billion in FY17, jumped to $32.9 billion in FY18.
While India’s imports rose 21% in FY18 over those in the previous year, its exports grew by only 9.98%, thereby widening the trade deficit. The total imports in FY18 amounted to $465.6 billion, and the exports to $303.4 billion.
Experts note that the trade deficit has been widening over the years because of a skewed rate of growth — while imports have been rising steadily, export growth has slowed down drastically. Slack in exports could be the silent, unseen reason resulting in the rupee depreciation at the first hint of deterioration in the macroeconomic situation. According to a report prepared by India Ratings & Research, between 2014 and 2018, the average annual export growth was just 0.6%. In contrast, between 2004 and 2008, the growth rate had been 25.4%.
Why coal import growing
Over the last two years, there has been a sharp rise in coal and coke imports, from $13.6 billion in FY16 to $15.7 billion in FY17 and then to $22.9 billion in FY18. This rise is in line with the decline in growth rates of coal production in India. The growth in raw coal production of Coal India Ltd (CIL) has slid over the last three years, from over 9% in FY16 to 2.9% in FY17, and then to 2.4% in FY18.
Coal imports are likely to be much higher this fiscal, given the spate of tenders issued by utilities in just the first four months. For the first time in four years, state-owned NTPC Ltd floated tenders last month seeking to import 2.5 million tonnes coal. The two tenders for coal shipments — equivalent to about 4.5% of the total coal imported by the country’s power stations last year — came at a time when utilities are facing a shortage at some plants as production at Coal India Ltd (CIL) has failed to keep pace with surging demand on account of higher electricity generation. Bottlenecks in transporting coal from pitheads to power stations have exacerbated the situation.
The shortages, though, are not limited to just power stations. Demand for coking coal, used in steel-making, has seen a sharp surge, reflecting both a surge in domestic steel production as well as a shortage of Indian supplies of this higher-grade coal variant.
After a dip in FY17, overall coal imports increased nearly 10% in FY18 and are projected to surge this fiscal. Within the different coal segments, coking coal imports have seen a sharper 14% and fresh data for the first two months of this fiscal indicates that these imports could be headed to a new high this year.
Industry players say that while coal imports by operators of large power plants connected to the grid have actually seen a dip, the surge in demand is happening on account of utilities operating captive electricity generation stations that are attached to manufacturing units such as cement plants and aluminium smelters.
Government officials say that since the entire demand is not met indigenously, with a limited supply of high-quality coking coal (low-ash-coal) in the country, there is no option but to import coking coal. The rating agency Crisil estimates that power sector imports could cross 75 million tonnes by FY23, driven by demand from coal-based power plants, even as non-power sector imports are expected to decline to 70 million tonnes due to improvement in domestic supply after linkage auctions and development of key captive blocks allocated to the non-regulated sector.