Abigger mystery surrounds imports, which have been surging from October 2016 to June this year. Through this, India wasn’t really growing fast enough to generate big demand hikes for phoren goods and services. Importsare supposed to grow when the rupee strengthens against other currencies. In this period, the rupee was actually weaker than in October 2016.So, what gives on the import front? There was no big increase in domestic demand, no major hike in oil prices, nor a dramatic strengthening of the rupee to justify a nine-month import spike, peaking at nearly 47% in March. So, there is probably only one thing that explains the import rush: capital flight through mis-invoicing.This is common in countries like China and India, which try to keep a tight leash on capital flows. But one way for companies with global exposure to get around this is to over-value imports and take money out to other markets.Suppose the actual cost of something I import is $50. However, I ask the seller to send me a bill for $100. So, $50 pays for my import, the other $50 stays somewhere overseas. This extra $50 is a loss for India’s reserves. But for savvy businesses, it is a powerful hedge against economic or other uncertainties.

Source: There is probably only one thing that explains India’s mysterious import rush

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