Non-oil, non-gold import in May shows low demand

Factory output may moderate after posting high numbers in April

Bucking the trend for the first time in 12 months, import of industrial goods registered a decline in May, indicating sluggish demand. This can be attributed to poor investor sentiment which is likely to moderate growth in industrial output.

Total imports in May reached $32.75 billion, which was 16.52 per cent lower than $39.23 billion in the corresponding month a year ago. Non-oil imports contracted 2.26 per cent at $24.21 billion against $24.77 billion in the year-ago period.

Gold imports, on the other hand, stood at $2.42 billion over $2.19 billion in May 2014, a growth of 10.50 per cent.

As a result, non-oil, non-gold imports in May marked a contraction of three per cent at $21.79 billion against $22.58 billion. This has happened for the first time in May in the recent past. Prior to this, non-oil-non-gold imports have witnessed an average growth of 10 per cent for almost a year.

According to economists, this sudden fall in non-oil non-gold imports might be the beginning of a trend. Some have said this movement should be watched as this had happened only once in the previous 12 months.

Madan Sabnavis, chief economist, CARE Ratings, said: "Non-oil, non-gold imports are directly related to the state of the industry and more specifically, a reflection of the manufacturing sector. This decline, which happened in May, is most likely to continue with a fall in industrial growth. A turnaround can be seen only around October, when the festive season kicks in."

In April, the growth in industrial production jumped 4.1 per cent against 2.5 per cent in March. According to Sabnavis, this would moderate in the coming months despite a healthy indirect tax collection of 39.2 per cent in May.

In this calendar year, non-oil-non-gold import growth stood at 3.2 per cent, 9.7 per cent, 0.0 per cent and 7.05 per cent year-on-year in January, February, March and April, respectively.

Shubhada Rao of YES Bank said though non-oil-non-gold imports indicated domestic consumption demand, a decline in May was not broad-based and, hence, cannot be seen as an indication of a weakness.

"We remain watchful of the trend. Moreover, we must note that the annualised growth rate for imports is likely to appear weak in the short term. As the impact of commodity prices is manifested in the year-on-year numbers, it becomes important to watch out for sequential momentum going forward," she said.

Not surprisingly, in May import of machine tools, transport equipment and electronic goods declined 6.05 per cent, 11.02 per cent and 1.38 per cent on a year-on-year basis, respectively.

Richa Gupta, senior economist, Deloitte, said a decline in non-oil, non-gold import in May should be seen as a blip and not the beginning of a trend that indicated domestic investment and consumption weakness. However, she said, it would be a cause of concern if this continued. Increasing demand in the economy was an uphill task, particularly in rural areas. If monsoon weakens, this segment of demand might take longer to revive. In such a scenario, how much urban demand can be revived, giving a boost to investments, remains to be seen.

Here, project clearance might act as a driver to increase investments. This was partly seen in recent months, when capital goods sector saw continued growth since November 2014.