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There are three issues
that need to be dealt with here. First, have volatile oil prices been
the principal determinant of the movements in the unit value index?
We do know that oil prices crashed during in 1997-98, taking the per-barrel
price of oil to an unprecedented low of $10. This would indeed have
influenced the average unit values of India’s imports. In fact,
the decline in the unit value index was the sharpest in 1997-98, with
the figure falling by 28 per cent in the course of that year alone.
But it is also true that oil prices rose sharply subsequently, largely
as a result of production cutbacks ensured by OPEC. As a result, oil
prices tripled during the year starting late 1998, rising from a debilitating
low of $10 a barrel to close to well above $35 a barrel.
Yet there was no equal compensating movement in the unit value of India’s
imports, which rose by just 10 per cent in the year ending April-June
1999-2000. Other import prices must have been moving downwards to ensure
this trend, a matter to which we return later.
The second is that the
movement in the prices of India’s imports does not appear to be
the result of a general trend in world prices. In fact between July-September
1997 and January-March 1999, when oil prices were falling and then subsequently
rising, the terms of trade, or the ratio of export to import prices,
facing India improved sharply at first, worsened slightly subsequently
and then improved again (Chart 5). That is, while India gained from
the oil price fall, it was not as adversely affected by the subsequent
rise in oil prices because of the rise in the value of its own exports
and the fall in the unit value index of its imports. This would have
had a positive effect on India’s balance of trade.
Chart 5 >>
Third, the evidence
does indicate that in real terms the flow of imports was stronger then
the flow of exports after the mid-1990s. This comes through from figures
on “gross terms of trade” or the ratio of the overall quantum
index of imports and the overall quantum index of exports. This ratio
rose sharply after January-March 1998, when it stood at 115, to touch
831 a year later and remain at 641 in the quarter April-June 2000 (Chart
6).
Chart 6 >>
In sum, during the period
when imports appear to have slowed in value terms to an extent greater
than warranted by the deceleration in growth in the commodity producing
sectors, the volume of imports into India does seem to have risen. But
the impact of this on the aggregate value of imports appears to have
been neutralised by a sharp fall in the unit value index of imports
into India. In fact, such a fall occurred across a range of commodities
(Charts 7-10). During the period April-June 1996 and April-June 1999,
the decline in unit value has been particularly sharp in Food and food
articles, Beverages and tobacco, Animal and Vegetable oils and Machinery
and transport equipment. In the case of the last of these the decline
in unit values has been operative for a much longer time, excepting
for a brief recovery during the quarter July-September 1998. The unit
value index of food and food articles declined by 49 per cent during
the year ending January-March 1999, that for Machinery and transport
equipment by 46 per cent between July-September 1997 and April-June
1999, and that for Beverages and tobacco by 61 per cent and for Animal
and Vegetable oils by 30 per cent over the year ending April-June 1999.
In all these cases, the period of unit vale decline was also one characterised
by a surge in the quantum index of imports.
Chart 7 >>
Chart 8 >>
Chart 9 >>
Chart 10 >>
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