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The Indian Economy
Economic Section -- Embassy New Delhi
Prepared by Economic Affairs
Key Social Indicators
1980s 1990s latest
Population (millions) 685 845 1090
Poverty Incidence (% pop.) 44.5 36 25
Teledensity (per 100 pop.) 0.37 0.8 12
Literacy 44 52 66
Infant Mortality (per 1000 births) 115 79 60
prevalance of HIV (millions) n.a 3.5 6
Sources: CMIE, RBI
India Economic Facts
GDP is $752 billion; world's 10th largest economy in terms of GDP.
Economic liberalization began in 1991; continues at a slow pace. India is slowly integrating with global markets.
Since the 1990s, the middle class has grown and poverty levels have fallen.
GDP growth has fallen only slightly to 6.4% (2000-2005) from 6.7% (1994-1999).
Tariffs are still among the world's highest (average 22%).
Challenges ahead: reduce poverty, accelerate pace of reform, reduce fiscal deficit, upgrade infrastructure.
India's successes: IT, pharma & biotech, telcom, science and technology skills, manufacturing gaining competitiveness.
Two-way U.S.-India trade tops $25 billion a year, was $10 billion in 1997.
India's GDP grew at an impressive 7.8% during 2005-2006.
English and education versus higher incomeRead
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Poor 4% 2% Middle Class 37% 23% Upper Class 11.5% 10%
Total 51.5% 35%
Source: New Delhi, B.K. Sharma
Sectors of the Indian Economy1990 2004
30.8%
29.1%0.6%
39.5%
54.1%
16.7%
26.2%
Services Agriculture
Manufacturing IT/Software
3.0%
Source: CMIE, RBI, World bank
Nominal and Per Capita GDPFiscal year end March
600
400
200
01996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Nominal GDP USD billions Per Capita GDP US $
Source: Central Statistical Office
Real GDP Growth RatesFiscal year end March
10
8
6
4
2
0
19911992199319941995199619971998199920002001200220032004200520062007 (est)
factor cost %
Source: Reserve Bank of India, Economic Survey, 2005-2006
GDP at Factor Cost by Sector(1999-2000 Bare Year Prices)
%
Agriculture, forestry, fishing
Mining and quarrying
Manufacturing
Electricity, gas & water supply
Construction
Trade, hotels, transport, and communication
Financing, insurance, real estate, & services
GDP
0 2 4 6 8 10 12 14
Source: The Economic Times, CMIE, CSO
Comparative Growth Rate of GDP% per annum
China
Korea
2002
2003
2004
2005
2006
Indonesia
Malaysia
Philippines
Thailand
Bangaladesh
India
Pakistan
0 2 4 6 8 10
Source: Asian Development Outlook, World Economic Outlook
Sources of Government RevenueFiscal year 2006
corporate tax 30.0%excise duty 27.0%
income tax 17.5%
customs collections 17.4%
service tax 7.8%
other sources 0.3%
Source: India Ministry of Finance, India Budget 2006-2007
Expenditure of General Government Combined Center and State -- 2005
interest26.5%
Source: IMF
defense16.4%
subsidies9.4%
education10.5% health
4.9%
other social services6.8%
other25.4%
Tax Revenues as Percent of GDPFiscal Year end March
30
Fiscal gap25
20
15
10
5
0
2000
1999
2001
2002
2003
2004
2005
2006
Tax revenues Total revenue and grants Total expenditure and net lending
Source: IMF
Government Expenditure% total expenditure
35
30
25
20
15
10
5
Source: IMF
19911992
0
19931994199519961997199819992000200120022003200420052006 (proj)
defense subsidies interest on debt
Gross Domestic Savings and Investment % GDP 2002
ChinaKorea
IndonesiaMalaysia
PhilippinesThailand
BangaladeshIndia
PakistanSri lanka
0 10 20 30 40 50
Investment Savings
Source: Asian Development Outlook 2002
General Government DebtFiscal year end March
100
80
60
40
20
1997
0 2005 (
1998
2003
1999
2000
2001
2002
2004
proj.)
Debt Stock/ GDP ratio External Debt/GDPSource: IMF
GOI Fiscal Deficit: States vs. Center%
14 GDP
12
10
8
6
4
2
0
19911992199319941995199619971998199920002001200220032004
Center StatesSource: Indian Ministry of Finance
Government Debt/GDP Ratio2003-2007
120
115
110
105
100
95
90
852003 2004 2005 2006 2007
Base Case Reform CaseSource: IMF
Composition of India's 2004 Sovereign Debt
IBRD7.0%
IDA19.6%
IMF1.0%
Bilateral19.2%
Other Multilateral4.6%
Short-term3.0%
Private45.5%
Source: IBRD
India’s External Debt
1990199119921993199419951996199719981999200020012002200320042005
0
20
40
60
80
100
120
140US $ billions
Fiscal year end March
Multilateral
Bilateral
IMF
Trade Credit
Commercial Borrowing
NRI & FC Deposits
Russian Rupee Debt
Short-term debt
Source: Reserve Bank of India; Finance Ministry
Gross Nonperforming Loans % of Total Loans
20
15
10
5
01997 1998 1999 2000 2001 2002 2003 2004 2005
Public sector banks Private sector banks Foreign banks
Source: IMF
Indian Saving and Investment% of GDP
30
25
20
15
10
5
01996 1997 1998 1999 2000 2001 2002 2003 2004
Private Domestic Savings Private Domestic Investment
Source: IMF, Ministry of Finance
Bet You Didn't Know (Part One)India is one of only three countries that makes supercomputers (the US and Japan are the other two).
India is one of six countries that launches satellites.
The Bombay stock exchange lists more than 6,000 companies. Only the NYSE has more.
Eight Indian companies are listed on the NYSE; three on the NASDAQ.
By volume of pills produced, the Indian pharmaceutical industry is the world's second largest after China.
India has the second largest community of software developers, after the U.S.
India has the second largest network of paved highways, after the U.S.
India is the world's largest producer of milk, and among the top five producers of sugar, cotton, tea, coffee, spices, rubber, silk, and fish.
100 of the Fortune 500 companies have R&D facilities in India.
Current Account Goods and Services-- Fiscal year end March
US $ billions100
80
60
40
20
19820
1992 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
imports exports
Source: IBRD
Current Account balanceFiscal year end March
US $ billions10
8
6
4
2
0
-2
-4
-6
-8
1992199219941995199619971998199920002001200220032004
Source: IBRD, CMIE
Sources of Real GDP GrowthFiscal Year End March
14
12
10
8
6
4
2
0
-2
-4
1996
2002
1997
1998
1999
2000
2001
2003
2004
2005
Agriculture
Industry
ServicesSource: CSO, RBI, CMIE
Foreign Institutional Investment2004
Source: Reserve Bank of India; SFBI; ABN-AMRO
FII $ millions
Sensex Thousands2,000 7
1,5006
1,000
500 5
04
-500
3-1,000
May Ju
l
Oct
Feb
Apr
DecJun
Sep
Jan
Aug NovMar
FII Investments
Sensex average
U.S. Investment in IndiaCalendar YearUS $ billions
5
4
3
2
1
0
1999
2000
1995
2004
2005
1996
1997
1998
2001
2002
2003
FDI
PortfolioSource: SIA, Ministry of Commerce and Industry
Market Capitalization of Listed Companies2002
% GDP
India
Brazil
China
Egypt
Kenya
Malaysia
Mexico
Poland
Turkey
USA
0 20 40 60 80 100 120 140 160
Source: World bank, IMF
Domestic Listed Companies 2003
India
Brazil
China
Egypt
Kenya
Malaysia
Mexico
Poland
Turkey
USA
30 1 2 4 5 6Thousands
Source: World Bank. IMF
Bet You Didn't Know (Part Two)Two million people of Indian origin live in the U.S.
Indian-born Americans are among the most affluent and best educated of the recent immigrant groups in the U.S.
Thirty percent of the R&D researchers in American pharmaceutical companies are Indian Americans.
Nearly 49% of the high-tech startups in silicon Valley and Washington, D.C. are owned by Indians or Indian-Americans.
There are over 700 companies in Silicon Valley owned by Indian-Americans.
India sends more students to U.S. colleges than any country in the world. In 2004-2005, over 80,000 Indian students entered the U.S. China sent only 65,000 students during the same time.
In a case decided by the U.S. Supreme Court, an Indian-American woman scientist, Dr. Ananda Chakrabaty, won the argument that persons may be granted patents for useful �manufacture� of living organisms. She defeated the U.S. Patent Office, that argued that living things may not be patented, thus establishing the legal foundation for the biotech industry, (Diamond vs. Chakrabaty, 1980). Dr. Chakrabaty invented a microbe that eats oil spills.
Indian Rupees to 1 USDMonthly Average - December
50
40
30
20
10
0
2000
1994
2001
2002
2003
2004
2005
1995
1996
1997
1998
1999
Source: Reserve Bank of India
Indian Rupees to 1 USDMonthly average
50
40
30
20
10
Source: Reserve Bank of India, CMIE
JanFeb
0 MarAprMayJuneJulyAugSepOctNovDecJanFebMarApr
World's Ten Wealthiest CountriesGDP
USA
Japan
Germany
Britain
France
Italy
China
Spain
Canada
India
0 1 2 3 4 5 6 7 8 9 10 11 12
$US (In Trillions)
Source: World Bank
Forex Reserves Increase and Import CoverUS$bn Mnths
18200
16180
160 14
140 12
120 10100
880
660
440
220
00
FY91
FY92
FY93
FY94
FY97
FY96
FY95
FY04
FY05
FY06
FY07
E
FY03
FY02
FY01
FY00
FY99
FY98
Reserves
Months of Import Cover
Source: DGCI&S; RBI; Citigroup
Foreign Exchange Reserves
87198819891990199119921993199419951996199719981999200020012002200320042005Mar 2006
0
20
40
60
80
100
120
140
160
US $ billions
SDRs
Gold
Foreign Currency Assets
Fiscal Year end March
1985198619
Source: Reserve Bank of India
Exports by CommodityA China-India Comparison
China
India
Agricultural products
22.2 7.9
Fuels and mining products
18.1 6.4
Manufactures
397.0 48.0
Of which Iron and steel 4.8 2.9 Chemicals 19.6 7.3 Machinery and transport equipment 187.8 6.1 Textiles and clothing 79.0 13.5 Others
105.8 18.2
Total 437 62 (2003, US$bn)
Source: WTO
Share of World OutputSelect Asian Developing Countries -- 2004
%ChinaIndia
South KoreaIndonesia
TaiwanThailand
PhilippinesMalaysia
Hong KongVietnam
Singapore
0 2 10 12 144 6 8
1982 1992 2004Source: IMF
Female
Main workers
Marginal workersTotal female workers
Rural India91 248
Total female non-workers
36
Total female workers Total female non-workers
121
Total pop. of India
Female non-workers
Urban India
Total female workers
Source: 2001 Census of India (millions)
Comparative Export of High-Technology Manufactured Goods
India
Brazil
China
Egypt
Kenya
Malaysia
Mexico
Poland
Turkey
USA
0 10 20 30 40 50 60
% of High-technology Manufactured Goods
Source: Dun & Bradstreet
Comparative Annual Wages in Manufacturing
India
Brazil
China
Egypt
Malaysia
Mexico
Poland
Thailand
Turkey
USA
0 10 20 30 40
ThousandsSource: Dun & Bradstreet
India’s Share of World Exports% of Global Trade
1
0.8
0.6
0.4
0.2
0
Source: IBRD; WTO
1970197519801985199019951998199920002001200220032004
Comparative Customs Duty Rates India and other Developing Countries
%
India
Pakistan
Brazil
China
Indonesia
Thailand
South Korea
0 10 20 30 40 50
All goods Agriculture ManufacturingSource: IMF
India’s Top Trade Partners - Exports2004-2005
USA 17.5%
UAE 9.4%
Hong Kong 4.8%
UK 4.7%
Germany 3.5%
Japan 2.6%
Belgium 3.2%
Singapore 5.0%Other 44.2%France 2.1%
Italy 2.9%
Source: India Trade promotion Organization
India’s Top Trade Partners - Imports2004-2005
USA 5.9%
UK 3.2%China 6.3%
Germany 3.6%
Australia 3.3%
Switzerland 5.4%
Singapore 2.4%
Belgium 4.3%
Japan 2.8%
Malaysia 2.1%
Other 60.7%
Source: India Trade promotion Organization
Commodity Composition of TradeOthers 25.0%
EU 21.0%
USA 18.0%
Middle East 13.0%
NE 10.0%
China 5.0%
ASEAN 5.0%
Japan 3.0%
Other goods6.0%
Oil6.0%
Commodities4.0%
Agricultural12.0%
Ores4.0%Leather
3.0%Chemicals
10.0%
Engineering18.0%
Textiles10.0% Readymades
10.0%
Gems, jewelry17.0%
Direction of Exports, FY04
Composition of Exports, FY04
Source: DGCI&S
U.S. Business Complaints
Excessive government interference.
High tariffs and excessive indirect taxes
Differential tax rates for foreign companies.
Restrictions on foreign investment.
Substandard infrastructure.
Questions about ‘sanctity of contract.’
Weak enforcement of intellectual property rights.
Estimated Trade Losses Due To Copyright Piracy And Piracy Levels In-Country
Motion Pictures Records & Music Business Software Entertainment Software
Books
Losses Piracy Levels
Losses Piracy Levels
Losses Piracy Levels
Losses Piracy Levels
Losses
Total Losses
Pakistan 12.0 NA 70.0 100% 14.0 82% NA NA 52.0 148.0Indonesia 32.0 92% 27.6 80% 100.0 87% NA NA 32.0 191.6India 360.0 55% 102 50% 520.0 73% 59.5 86% 90.0 483.8Russia 275.0 80% 411.9 66% 800.0 87% 255.8 73% 42.0 1784.7China 280.0 95% 202.9 85% 1488.0 90% 510.0 90% 50.0 2530.0
(Cost in millions of U.S. dollars)
Source: International Intellectual Property Alliance
Principal Products of U.S.-India Merchandise Trade
Top ten products in 2005 -- US $ millions
U.S. Imports from India Amount U.S. Exports to India Amount
Gems and jewelry 4,730 Airplanes/aircraft machinery 467
Womens/girls blouses 336 Fertilizers 413
Mens/boys shirts 294 Ferrous waste/scrap 126
Petroleum oils 303 Bituminous coal 150
Shrimps/prawns 290 Transmission apps 107
Sweaters/pullovers 271 Industrial oils 99
Cashew nuts 261 Almonds 94
Womens/girls skirts 281 Jewelry and parts 101
Industrial oils 249 Digital data processors 87
Toilet/kitchen linen 247 Parts for boring machinery 86
All other 11,447 All other 5,235
Total 18,709 Total 6,965
Source: US International Trade Commission
U.S.-India Trade in Services: 2003US $ millions
Service Type U.S. exports U.S. imports
Education 1,457 3
Travel 1,180 723
Business/prof/technical 353 420
Freight 170 81
Telcom 129 428
Royalties and license fees 115 8
Intra-company services 110 262
Port services 83 66
Financial services 56 19
Passenger fares 26 167
Film/TV/tape rentals 14 0
Insurance 5 5
Other 14 2
Total Services 3,728 2,184
Sources: US International Trade Commission
U.S. - India Trade in Goods20
15
10
5
1992
0
1993199419951996199719981999200020012002200320042005
Source: International Trade Commission
Exports to India
Imports from India
U.S. - India Trade in Services5
4
3
2
1
Source: International Trade Commission
19921993
0
199419951996199719981999200020012002200320042005
Exports to India
Imports from India
Total U.S. Trade with IndiaUS$ billions
20
15
10
5
1992
0
19961997
19931994
1999200020012002200320042005
1995
1998
Total exports to India
Total imports from India
Source: International Trade Commission
Top Ten Reasons Favoring FDI in Retailing
• Experience of other countries shows that retailing has attracted significant FDI.
• FDI would bring technical know-how and skill.
• It would speed up the growth of organized retailing, set up supply chaings and lead to implementation of Information Technology.
• Joint ventures would ease capital constraints of existing organized retailers.
• Domestic retailers would get access to global best management practices.
• Sourcing from India would increase.
• There will be more investment in upstream activities and allied sectors.
• Competition would drive down prices.
• Protection leads to inefficiency.
• FDI would lead to development of different retail formats and modernization of the sector.
Source: FDI in Retail Sector, India 2005
States Attracting Highest FDI Flows in India (2000-2003)
2000 2001 2002 2003 Amount % Share Amount % Share Amount % Share Amount % Share
Delhi 24576 30.6 69183 18.9 29943 18.5 21047 22 Maharashtra 35789 44.5 29917 43.7 48657 30.1 10228 10.7 Karnataka 5826 7.2 13104 8.3 8929 5.5 9991 10.5 Tamil Nadu 5519 6.87 7427 4.7 13412 8.3 8055 8.4 Chandigarh 8426 5.2 Gujurat 10426 10.9 Andra Pradesh 2517 3.13 3398 2.1 (Amount in INR millions)
Source: World Bank
Sectoral FDI Equity CapsSector FDI cap in %
Retailing (single-brand only) 51Real Estate 0
Small Scale Industries 24New print media 26
Insurance 26Defense Industry Sector 26Refining with Public Cos 26Private Sector Banking 74*
Domestic Airlines 49Telecommunications 74
Trading 51Internet service provider 74
Mining 74Oil marketing 100
*Includes FDI and FII
Source: Ministry of Commerce and Industry
More Economic Data and ForecastsA 36% surge in imports at US$106bn resulted in India's trade deficit touching a record high of US$26.5bn in FY05 compared to US$14.3bn in FY04.
The predicted trade deficit for FY06 is US$30.9bn.
Citigroup estimates that the value of Indian currency is expected to decline by 15% over the next 4 years.
India's savings rate has risen to 28.1%, while investments have risen by 26.3%.
Non-agricultural sector growth may trend to 9% in the coming years.
In FY04, India committed more revenue to subsidies (nearly US$1bn) than it did to non-capital defense expenditures.
Almost 55% of India's tax revenue in FY04 was collected from excise duties and customs collections.
India's FY06 budget targets a fiscal deficit of 4.3% of GDP.
In India, services account for nearly 50% of GDP.
Bottlenecks to Growth(Survey responses by country for each
perceived ‘bottleneck’ category)%100
80
60
40
20
0Business Regulation Tax and Customs Corruption
Brazil
China
IndiaSource: World Bank Investment Climate Surveys
Economic Freedom?
Political Freedom
Days taken to start a business
Competitiveness ranking
Corruption ranking
Brazil Free 152 57 59 China Not Free 41 46 77 Egypt Not Free 43 62 102 India Free 89 55 90 Indonesia Partly Free 151 69 133 Malaysia Not Free 30 31 64 Mexico Free 58 48 64 Pakistan Not Free 24 91 39 Philippines Free 50 76 102 Russia Not Free 36 70 71 South Korea Free 22 29 47 Thailand Free 33 34 90
Source: Economic Times
Time Taken to Register Property
Norway
China
Pakistan
S.A. Average
Sri Lanka
India
Malaysia
0 20 40 60 80 100 120 140 160
No. of Days
Source: World Bank
Land Cost Relative to Income Level(Ratio of land cost/sq.m to GDP per capita in 1999, indexed to New Delhi - 100)
120
100
80
60
40
20
Source: World Bank
Kuala LumpurSydneyBangkokTokyoSingaporeJakartaSeoulTaipei
Mumbai
New Delhi
Bangalore
Land Cost
0
Start-up Times for New Businesses
AustraliaUSA
EnglandNepal
PakistanMalaysiaBelgium
BangladeshChina
Sri LankaIndia
0 20 40 60 80 100
Days to Set Up
Source: World Bank
Time to Enforce a Contract
Tunisia
China
Malaysia
Nepal
Bangladesh
S.A. Average
Pakistan
India
Sri Lanka
0 100 200 300 400 500
No. of Days
Source: World Bank
Bankruptcy Recovery Rate(Cents on the Dollar, Recovered From Insolvent Firm)
Best RecoveryJapan
Pakistan
Malaysia
China
Sri Lanka
Nepal
Bangladesh
S.A. Average
India
0 20 40 60 80 100
Recovery Rate
Source: World Bank
Real Interest RatePrime Lending Rate minus WPI
Source: Reserve Bank of India
1991199219931994199519961997199819992000200120022003200420052006
0
2
4
6
8
10
12
14
%
Time To Go Through Insolvency
Shortest TimeIreland
Sri Lanka
Malaysia
China
Pakistan
Bangladesh
S.A. Average
Nepal
India
0 2 4 6 8 10 12
Years
Source: World Bank
Rigidity of Employment Index
Least RigidHong Kong
Malaysia
Bangladesh
China
Sri Lanka
S.A. Average
Nepal
India
Pakistan
0 20 40 60 80 100
Rigidity Index
Source: World Bank
Problem: The Transformed Relationship is incomplete. Solution: Grow the economic and commercial relationship.
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