Plans afoot to cut imports by a fourth

A strategy to trim imports of as much as Rs 10 lakh crore or more than a fourth of India’s annual purchases from abroad is in the works, sources told FE. They added the government is also working on a plan to boost exports in two dozen “priority sectors” through elevated local output. The plan is in sync with the Aatmanirbhar Bharat initiative.

A concerted push to step up local manufacturing of quality products will be made, mainly through two schemes — production-linked incentives (PLI) and phased manufacturing plans (PMP). These schemes will not just help create extra capacities by luring large firms and cut imports but also improve exports substantially, a source said. At the same time, as reported by FE, both tariff and non-tariff measures will be put in place, wherever required, to target low-grade imports, which will likely hurt China.

If properly implemented, it will be the biggest drive for import substitution in decades.

The 24 priority sectors include electronics, auto components, textiles, steel, aluminium, marine products, ready-to-eat and processed fruit & vegetable (mango, potato, citrus), agrochemical, electric vehicles and integrated circuits, toys, furniture, ethanol, ceramics, set-top boxes, robotics, televisions, close-circuit cameras, drones, medical devices, sporting goods and gym equipment.

Already, the government this month launched PLI schemes for 10 sectors, on top of the three announced in the wake of the Covid-19 outbreak. The total fiscal incentives are estimated to be close to Rs 2 lakh crore over a five-year period. Most of these 13 sectors — such as auto components, electronics, steel, textiles and processed food — where PLI is rolled out are part of the 24 priority ones.

While boosting local manufacturing, the government is also planning to raise tariffs on a host of items. Earlier this year, industry executives had drawn a list of 1,173 items — ranging from auto parts, compressors for AC and refrigerators to select steel and aluminium products and electrical machinery — for the government to zero in on products/sub-products on which the import duties can be hiked. These items are mostly imported from China and can be substituted with local production without much hassles, sources had said earlier.

Imports of these 1,173 items from China were worth $12 billion in FY19, making up for just 2.3% of India’s total imports that year but 17% of New Delhi’s purchases from Beijing.

While the move won’t be Beijing-specific, it will hurt China the most, as it’s the biggest supplier of such low-grade products to India.

However, realising that duty hikes alone won’t deter low-grade imports, the commerce and industry ministry is undertaking a drive to harden a crackdown on such products by formulating standards for 371 key products, in the first phase. These products encompassed imports of about $128 billion, or a fourth of the total purchases from overseas, in FY19. Of these, technical regulations for 150 products have already been firmed up. Imports of these 150 products were to the tune of $47 billion in FY19.

India’s imports rose by more than 10% year-on-year to $514 billion in FY19, although the purchases from overseas contracted by almost 8% in FY20 and close to 40% in the first half of the current fiscal, mirroring demand compression in the economy before and after the Covid-19 outbreak.

However, once the pandemic is behind us, imports are going to rise, exacerbating trade balance once again. A credible plan to curb “non-essential” imports, therefore, comes in handy, according to the sources.

Merchandise trade deficit widened from $119 billion, or 18.5% of the overall goods trade, in FY16 to $161 billion (20.4% of such trade) in FY20. This is despite the fact that global oil prices mostly remained within the government’s comfort zone during this period.