The rupee is on a continuing weakening trend against the dollar in the recent days.
A closer look reveals that apart from crude imports, several other imports are playing a significant role in this regard.
What is the recent development?
The global crude prices are on an increasing trend.
Resultantly, the value of petroleum and crude imports jumped almost 25% from 2017 to 2018.
It thereby led to an increase in the CAD from 0.6% of the GDP to 1.9%.
It is estimated that the CAD may rise to levels of around 2.8%-3% of the GDP in FY19.
This is in turn leading to a pressure on the rupee.
Notably, this happens alongside a slower growth rate of exports.
But besides, several other items imported by India are also playing a crucial role.
What is the changing imports trend?
The import basket shows that crude might not be the only one disturbing the equilibrium.
Coal - The value of imports of coal and coke jumped nearly 45% from 2016-17 to 2017-18.
This rise is in line with the decline in growth rates of coal production in India.
Notably, the growth in raw coal production of Coal India Ltd (CIL) has slid over the last three years.
It has failed to keep pace with surging demand on account of higher electricity generation.
Resultantly, utilities are facing coal shortage at some plants.
Bottlenecks in transporting coal from pitheads to power stations have worsened the situation.
Besides, demand for coking coal arises from its use in steel-making.
But there is a limited supply of high-quality coking coal (low-ash-coal) in the country.
Hence there is no option but to import coking coal, and coal imports are only likely to be much higher this fiscal.
Others - The value of imports of metaliferous ore and minerals rose nearly 47% in the same period.
Another major component has been pearls, precious and semi-precious stones, whose imports climbed 44%.
In all, the imports of coal and coke, metal and mineral, non-ferrous metal, and iron and steel rose nearly 73% of the jump in petroleum and crude imports.
Even gold imports, which had declined earlier, increased in the FY18.
Electronic imports, the second biggest component of India’s import basket also increased around 23%.
It is to be noted that this is driven purely by demand and is irrespective of crude price rise.
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.
It is thus felt that electronic imports are a major area of concern as far as the CAD is concerned.
How is the exports side?
While imports have been rising steadily, export growth has slowed down drastically.
The total imports in FY18 amounted to around $460 billion, but the exports stood at around $300 billion.
India’s imports rose 21% in FY18 over those in the previous year; however, the exports grew by only 9.98%.
The trade deficit has thus been widening over the years because of a skewed rate of growth.
The average annual export growth was just 0.6% between 2014 and 2018.
But the overall trade growth rate had been 25.4%, indicating the less contribution of exports.
Given this, the slack in exports could be the silent, unseen reason resulting in the rupee depreciation.
