By now 'everyone knows' that the rupee is dropping because first, petroleum and gold imports have made our current account deficit huge and second, the US Fed has threatened to turn turn off the money tap which was funding this deficit so far. For weeks now, the government has been threatening to curb the imports of 'inessential items', and perhaps it will actually do so soon. This will at least reveal to the rest of us what the powers that be consider to be inessential. All of us who are above the age of about 40 remember having grown up in horror of 'inessential items' which, along with their evil twin, 'luxury goods', were the stuff of our economic nightmares till the early nineties. Those days are back.
If only it were so simple. Over the last few weeks I've had my own micro-level first-hand experience of where all the CAD is coming from. Value Research is moving into a new office in Delhi and a contractor has been building up the interiors of the space we've taken. Nothing fancy, just reasonably priced material and inputs of reasonable quality is being used, all of it chosen by the professionals who are responsible for getting the work done. Last week, while looking over the work, I realised that almost all the material used was imported. All the electricals and network wiring and fixtures, the flooring, the air conditioning, the plumbing fixtures, the tiles, the furniture and some of the glass were imported.
The strange part is that the contractor didn't specifically want imported stuff and nor did I. It's just that even with the rupee around 60 to a dollar (as it was when most of the purchasing was done), the reasonably priced good quality stuff all turned out be foreign-made! Digging a little deeper into this with the contractor, I was told that for some of the inputs that he uses there are no India-made options any more. They used to be there till a couple of years back but since they were typically more expensive and of the same or worse quality, the manufacturers have either shut down or have turned to trading. We can dig into the dustbin of history and resurrect meaningless phrases like 'inessential imports' and 'luxury goods', and maybe even 'socialist paradise'. However, it'll be much harder to resurrect the Indian manufacturing that has died.