General Information

Economic Indicators

Trade Indicators

Economic Overview

An insulated economy, manageable external debt (US$98.8 billion in 1998 1 ), and relatively low trade as a percentage of GDP (estimated current account deficit in 1998 was 1.6% of GDP) has ensured that India remains on the outer periphery of the Asian economic crisis 2 The central bank has overseen a steady fall in the value of the rupee to help boost exports and to stimulate domestic demand. The rupee has fallen from Rs35.5: US$1 in August 1997 to Rs43.21: US$1 in July 1999. 3

India's economy has grown in recent years as a result of a sustained process of economic reform. Real GDP growth in 1997 was down from the levels experienced in the previous two years. However, growth 1998 was 6.0%, 4 and the Asian Development Bank forecasts that the Indian economy will grow by 7% in 2000 and 2001, outstripping China for the first time since 1990. 5

Regulatory Environment

The broad political consensus on market-driven development seems likely to continue and there is now little substantial internal opposition to the globalisation process. The 1992-1997 export/import policy had a one line mission statement: "To make Indian industry globally competitive and to integrate it with the world economy." 6 A number of quantitative restrictions on trade have been removed and a simplified administrative procedure put in place. Exports are growing steadily and India has a comfortable level of foreign reserves (estimated at US$27.4 billion in January 1999, enough to cover seven months of imports 7 ).

India's tariff system is based on the Customs Co-operation Council (Brussels) Nomenclature. Most tariffs are ad valorem. Tariff rates, excise duties, regulatory duties, countervailing duties and the like is revised in each annual budget. 8

Indian trade policy since 1991 has been one of gradual trade reform that has seen a reduction in India's high tariffs and a liberalisation of imports. In the 1994-95 budget, tariffs were reduced to 65% on most goods and since then there has been a steady transfer of items from "restricted" imports to "open general licence" 9 In general, the Indian economy is more open to the outside world than it has been in 50 years.

Abolition of industrial licensing for many sectors, the convertibility of the rupee on trade and current account transactions, and the advent of a regulatory attitude more conducive to investment and competition have produced a marked change in the Indian investment climate. The government has declared its intention to introduce sweeping reforms in laws and regulations dealing with the organisation, management, and dissolution of business entities; bankruptcy; and labour policy. As the pace of regulatory reform at the federal level accelerates, the focus of liberalisation is gradually shifting to state governments, which, under India's federal system of government, enjoy broad regulatory powers. 10

Flows of portfolio foreign investment have been rising over recent years, however foreign direct investment in India has been falling over the last couple of years. Improved relations with the USA and rising confidence in emerging markets should improve FDI flows. 11

Attempts have been made to facilitate foreign investment by increasing the number of industries where approval for foreign investment is automatic. 12 Foreign Investment is currently regulated by the Foreign Investment Promotion Board (FIPB) "which, in practice, acts as an approval agency rather than as a promotion body." 13

Current Process of Liberalisation

In the Uruguay Round, India undertook a two-tiered offer on industrial products, binding tariffs on items in excess of 40% and binding items with tariffs below 40% at 25%. Some additional goods (eg. automobiles) and all consumer products were excluded from India's offer. As a consequence, India's scope of binding on industrial goods increased substantially from 12% of imports to 68% once all reductions are staged in. The overwhelming majority of these bindings exceed current Indian applied rates of duty. 14 "Official policy, under commitments to the WTO, calls for a gradual convergence of excise duty rates to a mean of 18% and customs duty rates to ASEAN levels by 2000." 15

India is to lift import restrictions on 340 items in an apparent effort by the government to signal its intention to continue trade liberalisation. The Commerce Ministry announced that India was simplifying and decentralising bureaucratic procedures for exporters, and making it easier for companies in key export sectors to import capital goods with duty concessions. 16

The Commerce Ministry has also announced a five-year strategy (1997-2002) to promote exports. Eleven sectors were singled out for their export potential and primarily include the familiar ones - textiles, plantation crops, leather and chemicals - but they also include some interesting newcomers such as electronic hardware and software, sports goods and seafood. 17

With these changes, India will meet its WTO requirements for phasing out quantitative restrictions by 2003 having eliminated 1,000 items by early 2000. 18

In an agreement with trading partners such as Australia, Japan, Europe and Canada, India has five years to phase out all its remaining import restrictions while a dispute with the US on the same matter still remains. 19

1. 1998 EIU estimate, Country Profile: India, Nepal: 1999-2000 (The Economist Intelligence Unit, London, 1999), p. 19.
2. Country Report: 1 st Quarter 1998: India, Nepal, (The Economist Intelligence Unit, London, 1998), p. 20.
3. Ibid., Country Profile...1999-2000, p. 33.
4. Ibid., p. 19.
5. The Economist, April 29th - May 5th 2000, p. 23.
6. India Trade (http://www.indiatrade.com/glaws/export/index.html);
   Country Profile...1999-2000, p. 29.
7. Country Profile...1999-2000, p. 33.
8. Country Reference: Investing, Licensing & Trading Conditions in India: 997, (The Economist Intelligence Unit, London, 1997), p. 58.
9. 1996-1997 World Trade Almanac, (World Trade Press, California, 1996), p. 351; Country Profile...1999-2000, p. 30.
10. Trade Compass Country Commercial Guides,
    (http://www.tradecompass.com/library/books/com_guide/); Country Profile...1999-2000, pp. 22,24-25.
11. Ibid., p. 33.
12. Country Report: 1 st Quarter 1998..., p. 24.
13. Ibid..
14. Trade Compass....
15. Country Reference..., p. 59.
16. "India: Delhi to lift some import restrictions ", Financial Times, April 14 1998,
    (http://www.ft.com/hippocainpus/qb78a.htm).
17. Country Report: 1 st Quarter 1998..., p. 36.
18. Country Profile...1999-2000 , pp. 30-31.
19. "India: Delhi to lift some import restrictions"....