We did not observe the evidence that imports rose because of broken domestic supply chains
Indian imports rose by 23.40% year-on-year (y-o-y) for the first eight months of the calendar year 2017, after contracting by 6.80% between April-December 2016. Many economists believe that the sharp reversal in imports could be attributed to broken domestic supply chains, as a consequence of the demonetisation exercise that was conducted in November 2016. Experts also point to low industrial production numbers, which they claim suggest that rising imports are substituting domestic production rather than satisfying increased domestic demand. Is this causal inference correct? We believe that it is not, and we present compelling evidence in this article to support our view.