The question that remains to be answered relates to the factors underlying the recent decline in the unit value index of imports of a number of commodities. There are two obvious reasons why the decline occurred. First, in the case of a number of primary commodities, the period under question was one in which international prices were collapsing. In a range of areas stretching from edible oils to wheat, the observed effects on imports into India of the collapse in world prices forced the government to adjust tariffs upwards to stall the inflow of imports. Even with those higher tariffs, domestic prices of a range of primary products varying from coconuts and coconut oil to rubber have during different time periods slumped in order to face the actual and perceived competition from imports.
 
Second, in the case of manufactured commodities, the deceleration of demand in the domestic market must have triggered price cuts by international producers trying to retain the foothold they had gained in India markets during the first half of the 1990s. This must be particularly true of international sellers of capital goods in Indian markets. In the case of a number of manufactured consumer goods, we must recall that quantitative restrictions have been removed quite recently. Imports here consisted largely of the imports of the capital goods, raw materials, intermediates and components that were being sourced from abroad by transnational producers who had displaced Indian brands based on manufacturing facilities established in India. It is now widely accepted that these producers, driven by misconceptions about the large middle-income market in India, had created capacities that were far in excess of that warranted. When demand for many consumer goods slowed in the wake of the exhaustion of the pent-up demand for branded, imported or import intensive goods, these producers found themselves engaged in a price war in many markets.
 
Price cuts if resorted to in a situation of constant or rising costs would tell heavily on the bottom lines of firms, which can ill afford it given their exposure to stock markets in the country. A collapse in share prices in the wake of a fall in reported earnings would not merely trigger a take-over bid, it could also adversely affected the brand image of the firm’s products. Since the costs incurred by these firms include the costs of imported inputs, it is possible that the transfer prices on imports of raw materials, intermediates and components sourced from the parent or a third country subsidiary were reduced to facilitate the drive to retain and increase market shares in a sluggish market. Import quantities would in this manner have been maintained and increased, even while import unit values declined. This may be good for the Indian as consumer, but not so for Indian producers or for those employed by them. Displacement was definitely a possibility as suggested by the growing absence of Indian brands in India’s malls.
 
Needless to say, more evidence and more research is needed to establish this case in all its detail. But it is one that the available evidence does point to. If so, the prognosis is indeed disconcerting. The quantity drive by international firms, at the expense of price, occurred in a context where even though demand in India was decelerating, international markets were still buoyant because of robust growth in the US. That scenario has changed since the last quarter of calendar year 2000. International producers are now burdened with excess capacities the world over, resulting in periodic reports of layoffs and closures in leading international firms. If so the importance of the Indian market is all the greater for them, creating a situation where the quantity drive would only intensify. A prolonged period of sagging import prices and rising import quanta cannot be ruled out. This calls for greater caution on the part of the government and a willingness to use tariffs, anti-dumping measures and the like to dampen a likely import surge. Deriving comfort from the size of India’s import bill, without examining the obvious conflict between import value trends and the actual experience of domestic producers could prove disastrous from the point of view of domestic production and employment.