Indian Import, a Shadow, or a Spark?
Imports refer to the purchase of resources from foreign nations for consumption in the domestic nation. Out of several reasons, for an economy to import goods, the two main reasons are:
Deficit of the resource imported, or
The costs associated with manufacturing the resources are much more than those of importing them.
As the quantum of imports increases the current account deficit for a nation goes up resulting in a falling GDP not considered as a good sign for an economy.
The imports for FY23 have risen by 16.5% which signifies India’s growing dependency on Imported goods. But we question, which type of goods are imported. The answer to this is Raw Material. The contribution of consumer goods is very low to the overall imports and that of Raw materials is significantly high. We infer that the Indian manufacturing sector is highly dependent on material imported.
Recent facts bring to limelight that Laptops, Tablets have a huge demand in India but they aren’t manufactured in India but are imported. Especially brands such as Apple, Samsung, HP, etc have a huge contribution to such imports. The government is soon going to impose import barriers on such products (which are finished Tech products) to reduce the current account deficit but this Barrier will be imposed in the latter part of the year, hence the recent imports for these have spiked. The Indian producers of these types of goods aren’t capable enough to produce these goods on time when it is needed hence there arises a gap between when it is needed and when it is procured. Local production scale-up takes around 6-9 months which hits the consumer trade and hence reduces the company's earnings.
While on the other hand, the Government has anticipated the demand for such tech products and wants to encourage local manufacturing hence it has allowed duty-free imports of raw materials such as semiconductors, chips, etc which can be used to manufacture Laptops, tablets, and other tech goods locally and hence promote domestic manufacturing.
While we need to understand why manufacturing by importing raw materials is better than importing the Finished goods altogether. The answer is simple when we import finished goods, the exporting nation (foreign nation) puts in an element of profit and hence we end up paying more, and this reduces our GDP. On the other hand, when we import only the raw material, we pay only for those, after which the manufacturing takes place in the domestic country, it generates employment, hence income, hence savings followed by investment, followed by high corporate earnings and overall growth with development.
To conclude, the Import of Raw materials and domestic manufacturing is a spark, but if we import finished goods, it hits individual pockets as well a negative effect on the Indian economy hence a shadow. The Government and ministry are trying their level best to encourage local manufacturing by tapping many aspects from logistics to availability of raw materials for local production and reducing the industry cost of production.
Kautilya, IBS Mumbai.