A close look at Chart 1 shows that in fact starting from the adjustment-induced trough in 1991-92, non-oil imports have risen continuously, excepting for the years 1997-98 and 1999-2000. The trend, however, has been for the rate of increase in non-oil imports to drop from their rather high level in the years preceding 1996-97 to lower levels in subsequent years (Chart 7). This tendency comes through even more sharply if we exclude from imports, not just of oil and oil products, but that category of imports which are related to exports (Chart 6). However, despite the deceleration in non-oil and non-export related imports, the import-GDP ratio, which rose from 7.3 per cent in 1989-90 to 10.2 per cent in 1995-96 has remained more or less at that level in subsequent years (Chart 3).
Chart 3 >> Chart 6 >> Chart 7 >>
 
There appear to be three factors underlying the slower rate of expansion of imports in the years since 1996-97. First, the recession in the industrial sector has resulted in the fact that demand for capital goods, intermediates and components has decelerated substantially. As is well known, after three years of creditable performance (1993-94 to 1995-96), the rate of growth of industry has slipped dramatically, with signs at most of a modest recovery in recent times. This, as has been argued in this column earlier, was largely the result of an initial post-liberalisation release in the pent-up demand for a range of import-intensive commodities, especially consumer durables. With this once-for-all demand having been satiated, industrial growth rates tended to slump, with the modest recovery in recent times being related to the effects of the implementation of the Pay Commission's recommendations, a credit-fuelled expansion in demand (as in the case of automobiles) and some improvement in agricultural performance. Needless to say, in a period when the import intensity of domestic production and consumption has been rising, the recessionary tendency would have immediately affected the demand for imports. Not surprisingly, the turning point in industrial growth during the 1990s also corresponds to the turning point in import growth rates.
 
The contribution of this element to import trends is reflected in the composition of imports as well. Thus: (i) the share of non-bulk imports in total imports have been falling since 1996-97 (Chart 4); (ii) the value of capital goods imports has fallen quite significantly since 1995-96, pointing to the role that flagging investment has had on import trends (Chart 5); and (iii) within capital goods, the contribution of project goods and non-electrical machinery has been squeezed the most, corroborating the assessment of the role of falling investment.
Chart 4 >> Chart 5 >>
 
Second, liberalisation has been characterised by an increase in the number of products for which imports account for a dominant share of input and capital costs. In any year, the quantum of imports of such commodities depends on the expectations of future growth in demand. When demand is expected to be buoyant, large orders for imports are placed and stocks built up so as to be able to service the expected increase in demand. However, if expectations are not realised, leading to an unintended accumulation of stocks of intermediates and components, imports in subsequent years fall dramatically. Not only do existing stocks have to be cleared, but expectations of future demand are also dampened resulting in this outcome. There is reason to believe that this was precisely what happened in the wake of the industrial "mini-boom" during 1993-94 to 1995-96. The euphoria generated by that sudden jump in demand led to wild expectations of market potential and a sharp increase in imports. Non-oil imports rose by 30 and 28 per cent respectively in 1994-95 and 1995-96, as compared with 12 and 11 per cent in 1992-93 and 1993-94, and then fell by 0.2 per cent in 1996-97. Thus part of the deceleration in non-oil imports after 1995-96 was the result of the bunching of imports in earlier years because of misplaced expectations.
 
Finally, India's non-oil import bill in recent years has been kept down by a fall or low growth of import prices. This is particularly true of 1996-97 when the value of non-oil and non-export-related imports fell by 3.9 per cent. In that year, the unit value index of food products fell by 26.5 per cent, that of crude materials by 6.7 per cent, of vegetable and animal oils and fats by 3.6 per cent, of chemicals by 9.8 per cent and of manufactured goods by 2.2 per cent. This fall in unit value persisted in 1997-98 in the case of chemicals and manufactured goods. There are signs that a similar fall in unit values have influenced import values in the last financial year. The reasons for the fall in prices are well known. World trade growth slowed substantially in 1996-97, providing the spur for the East Asian crisis. The competition that set off resulted in firms saddled with excess capacities virtually dumping their products in international markets. While this delivered a benefit in the form of a lower import bill, it also intensified the competition being faced by domestic producers in the wake of liberalisation. It was therefore a mixed blessing.