Limited growth in post-QR imports

THE UNION Budget for 2001-02 has increased import duties on three groups of commodities - agricultural products, second-hand four and two-wheeler automotive products, and liquor products. That means a larger proportion of products on which quantitative restrictions (QRs) are to be removed on April 1 will be subject to import tariffs at the same rates as before.

The question again is what will happen when all the QRs are removed? As the Union Finance Minister, Mr. Yashwant Sinha, has correctly pointed out, the process of lifting of QRs is not a new one and has been going on since the mid-1990s. Therefore, the abolition of QRs on 715 products on April 1 is not a new phenomenon - except for the fact that the last list comprises largely ``sensitive'' products on which import restrictions have been maintained to the very end.

As the removal of QRs has been an ongoing process, one should be able to measure the impact of earlier removals of import restrictions. The first article in this series (``What are Indians importing after the QR era?'', The Hindu, February 22) measured imports of two categories of products in the post-QR era. The article this week makes a summary comparison of imports immediately before and immediately after the abolition of QRs. This will give a first indication of how slowly or rapidly imports increase after controls are removed.

Two kinds of comparisons are made. (1) 894 products were freed from QRs on April 1, 1999, referred to here as Category I. Imports of these products in 1998-99 (QR era) are compared with their imports in 1999-2000 (post-QR era). (2) 714 products were put on the free list on April 1, 2000 (Category II). The comparison here is between imports of these products in 1999-2000 and in the first six months of 2000-01. This is because disaggregated data are available only for the first half of 2000- 01.

As mentioned in the previous article, the fact that products were earlier on the QR list does not mean their import was totally banned. They could be imported with licences by the government canalising agencies and increasingly during the mid-1990s with special import licences (SILs). The last mentioned were given to exporters as an incentive and could be traded and used to import products placed on the SIL list. The typical trajectory was for products to first move from the prohibited or negative list to the SIL list and finally to the ``free'' or post QR list. This was particularly true of consumer products. The point is that because of this gradual movement from the negative to the free list any comparison of imports immediately before and after the removal of QRs is unlikely to show a sudden jump in imports.

This indeed is what is shown by the import statistics compiled with data from the Directorate General of Commercial Intelligence and Statistics (DGCIS) and presented in the accompanying Table. A single-year comparison shows that there has not been much of an increase in imports of the ``freed'' products immediately after the QRs were removed.

Some features

* As many as 554 of the 894 products that were freed on April 1, 1999 (Category I) had been imported in the previous year. After the removal of QRs, the number went up to only 622. Of imports on the Category II list, there was even a small fall in the number of products imported.

* There was an increase in absolute terms of as much as 17 per cent in the value of imports of Category I products in the post- QR era. But as a proportion of total imports (DGCIS value), the increase was very small. Again, there was a decline in the share of Category II products in total imports after QRs were removed.

* Since agricultural commodities made up a large number of Category I products and figured very little in Category II, their imports too reflected the same pattern. Also, the growth of Category I agricultural imports was very limited (an increase of 6 per cent only in 1999-2000).

A few other details. Although hundreds of products were put on the free list, imports are highly concentrated among a small group. Thus, in 1999-2000 Category I imports of the top 20 products totalled as much as Rs. 10,240 crores or 87 per cent of imports in this category. The corresponding figures for Category II were Rs. 3,876 crores and 75 per cent.

Some of the products of which large imports were made in Category I: edible oils, semi-precious stones, computers and accessories, plastics, photo paper and refrigerators. In Category II the products which were dominant were diamonds (for processing and export), telephone equipment, peas, lentils (pulses), washing machines and microwave ovens.

Finally, the first article in this series had mentioned that some unusual products figured in the post-QR import list. However, many of these were apparently imported with SIL even earlier. For example, spices, pen nibs and safety pins among the Category I products had been imported in 1998-99 itself. And in Category II, 1999-2000 saw imports of common salt, mango squash and betel leaves. Then as now the total value of these imports was very small.

In sum the early trends confirm the Government's view that there has been no sudden jump in import of products after the removal of QRs. This is partly because many of these products were being imported even earlier in the partially liberalised import regime. If at all these freed imports are going to have any impact on the total import bill, it would be only with a gradual build-up of imports over some years. For now at least there is no sudden jump in imports. One will have to wait and see what will happen when the QRs on the last and most sensitive products are removed on April 1.

CRR & VSS

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