The Indian Economy

Economic Section -- Embassy New Delhi

Prepared by Economic Affairs

 Key Social Indicators
1980s 1990s latest

Population
685 845 1090
(millions)

Poverty Incidence
44.5 36 25
(% pop.)

Teledensity
0.37 0.8 12
(per 100 pop.)

Literacy 44 52 66

Infant Mortality
115 79 60
(per 1000 births)

prevalance of HIV
n.a 3.5 6
(millions)

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 income
Speak Read Speak Read
Hindi Hindi English English

YES NO YES
YES
NO
NO NO

Read Read
Class Hindi English
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 Economy
1990 2004
3.0%
30.8%
26.2%

39.5%

54.1%
16.7%
29.1%
0.6%

Services Agriculture

Manufacturing IT/Software

Source: CMIE, RBI, World bank

 Nominal and Per Capita GDP
Fiscal year end March

600

400

200

0
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Nominal GDP USD billions Per Capita GDP US $

Source: Central Statistical Office

 Real GDP Growth Rates
Fiscal year end March
10

20
19

19
19

19

19

19

19
19
19

20
20

20

20
20

20

20

07
91

94
92

93

95

96

97
98
99

00
01

02

03
04

05

06

(e
st
)
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

Indonesia 2002

Malaysia 2003

Philippines 2004

Thailand 2005

Bangaladesh 2006

India

Pakistan

0 2 4 6 8 10

Source: Asian Development Outlook, World Economic Outlook

 Sources of Government Revenue
Fiscal year 2006

excise duty 27.0%

corporate tax 30.0%

other sources 0.3%

income tax 17.5% service tax 7.8%

customs collections 17.4%

Source: India Ministry of Finance, India Budget 2006-2007

 Expenditure of General Government
Combined Center and State -- 2005
interest
26.5%

defense
16.4%

other
25.4%

subsidies
9.4%
education other social services
health 6.8%
10.5%
4.9%
Source: IMF
 Tax Revenues as Percent of GDP
Fiscal Year end March
30

25
Fiscal gap
20

15

10

0
20
19

20

20

20

20

20

20
0
9

0
0
9

6
Tax revenues Total revenue and grants Total expenditure and net lending

Source: IMF
 Government Expenditure
% total expenditure
35

30

25

20

15

10

20
19

19

19

19

19

19

19

19

19

20

20

20

20

20

20

06
91

92

93

94

95

96

97

98

99

00

01

02

03

04

05

(p
r
oj
)
defense subsidies interest on debt
Source: IMF
Gross Domestic Savings and Investment
% GDP 2002

China
Korea
Indonesia
Malaysia
Philippines
Thailand
Bangaladesh
India
Pakistan
Sri lanka

0 10 20 30 40 50

Investment Savings

Source: Asian Development Outlook 2002

 General Government Debt
Fiscal year end March

100

80

60

40

20

0
19

20
19

19

20

20

20

20

20
98

03

05
97

99

00

01

02

04

(p
roj
.)
Debt Stock/ GDP ratio External Debt/GDP
Source: IMF
 GOI Fiscal Deficit: States vs. Center
%
GDP
14

12

10

0
19

19

19

20

20

20
19

19

19

19

19

19

20

20
91

93

98

00

02

04
92

94

95

96

97

99

01

03
Center States
Source: Indian Ministry of Finance
 Government Debt/GDP Ratio
2003-2007
120

115

110

105

100

95

90

85
2003 2004 2005 2006 2007

Base Case Reform Case

Source: IMF
 Composition of India's
2004 Sovereign Debt
IMF
1.0% IDA
Bilateral 19.6
19.2% %

IBRD
Other Multilateral 7.0%
4.6%

Short-term
3.0%

Private
45.5%
Source: IBRD
 India’s External Debt
Fiscal year end March
US $ billions
140

120
Multilateral

100 Bilateral

IMF

80 Trade Credit

Commercial Borrowing

60 NRI & FC Deposits

Russian Rupee Debt

40 Short-term debt

20

0
19

19
19

20
20
19
19

19
19

19
19
19
20
20
20

20
92

95
96

03
04
90
91

93
94

97
98
99
00
01
02

05
Source: Reserve Bank of India; Finance Ministry
 Gross Nonperforming Loans
% of Total Loans
20

15

10

0
1997 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

0
1996 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 $ billions
100

80

60

40

20

0
1982 1992 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

imports exports

Source: IBRD
 Current Account balance
Fiscal year end March
US $ billions
10

-2

-4

-6

-8
19

19

19

19

19

19

19

19

20

20

20

20

20
92

92

94

95

96

97

98

99

00

01

02

03

04
Source: IBRD, CMIE
 Sources of Real GDP Growth
Fiscal Year End March
14
12
10
8
6
4
2
0
-2
-4
19

20
19

19

19

20

20

20

20

20
96

02
97

98

99

00

01

03

04

05
Agriculture

Industry
Source: CSO, RBI, CMIE Services
 Foreign Institutional Investment
2004

FII $ Sensex Thousands

2,000 millions 7

1,500
6
1,000

500 5

0
4
-500

-1,000 3
May
Apr

Jul

Oct
Feb
Jan

Jun

Aug

Dec
Sep

Nov
Mar

FII Investments

Sensex average
Source: Reserve Bank of India; SFBI; ABN-AMRO
 U.S. Investment in India
US $ billions Calendar Year

0
19

19

20

20

20
19

19

19

20

20

20
95

99

00

04

05
96

97

98

01

02

03
FDI

Source: SIA, Ministry of Commerce and Industry Portfolio

Market Capitalization of Listed Companies
2002

%
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

0 1 2 3 4 5 6
Thousands

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 USD
Monthly Average - December
50

40

30

20

10

0
19

20
19

19

19

19

19

20

20

20

20

20
94

00
95

96

97

98

99

01

02

03

04

05
Source: Reserve Bank of India
 Indian Rupees to 1 USD
Monthly average
50

40

30

20

10

0
A
Fe

Fe
A

Se

A
O

M
Ja

Ju

Ju

Ja
pr

ug

ov

pr
ec
ct
ar

ay

ar
n

n
b

b
ne

ly

Source: Reserve Bank of India, CMIE

 World's Ten Wealthiest Countries
GDP
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 Cover
US$bn Mnths
200 18

180 16

160 14

140 12
120
10
100
8
80
6
60
4
40
2
20

0 0

FY00

FY06
FY93

FY94

FY97

FY98

FY99

FY01

FY02

FY04
FY95

FY05
FY91

FY92

FY96

FY03

FY07E
Reserves

Months of Import Cover

Source: DGCI&S; RBI; Citigroup

 Foreign Exchange Reserves
US $ Fiscal Year end March
billions
160

140

120

100

80

60

40

20

0
19
19
19
19

19
19
19

19
19
19

20
20
20
19
19

19

20

20
M
19

19

20

ar
85
86
87
88

92
93
94

96
97
98

02
03
04
90
91

95

00

05
89

99

01

20
06
SDRs

Gold
Source: Reserve Bank of India Foreign Currency Assets
 Exports by Commodity
A 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 Output
Select Asian Developing Countries -- 2004
%
China
India
South Korea
Indonesia
Taiwan
Thailand
Philippines
Malaysia
Hong Kong
Vietnam
Singapore

0 2 4 6 8 10 12 14

1982 1992 2004

Source: IMF
Total pop. of India
Rural India
248
91

Total female workers Total female non-workers

Female non-workers
Female

Urban India
36
121
Main workers

Total female workers Total female non-workers

Marginal workers
Source: 2001 Census of India (millions)
Total female workers
 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
Thousands
Source: Dun & Bradstreet
 India’s Share of World Exports
% of Global Trade

0.8

0.6

0.4

0.2

0
19

19

19

19

20

20

20

20
19

19

19

19

20
75

80

95

98

00

01

02

04
70

85

90

99

03
Source: IBRD; WTO
 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 Manufacturing

Source: IMF
 India’s Top Trade Partners - Exports
2004-2005
France 2.1%
Other 44.2%
Singapore 5.0%

Italy 2.9%

Belgium 3.2%

Japan 2.6%

Germany 3.5%

UK 4.7%

Hong Kong 4.8%

UAE 9.4%

USA 17.5%

Source: India Trade promotion Organization

 India’s Top Trade Partners - Imports
2004-2005

Other 60.7%

Malaysia 2.1%
Japan 2.8%

Belgium 4.3%

Singapore 2.4%

Switzerland 5.4%

Australia 3.3%

Germany 3.6%

China 6.3%
UK 3.2%
USA 5.9%

Source: India Trade promotion Organization

 Commodity Composition of Trade
Others 25.0%

EU 21.0%
Japan 3.0%
ASEAN 5.0%

China 5.0%

USA 18.0% NE 10.0%

Composition of Exports, FY04
Middle East 13.0% Ores Agricultural
Leather 4.0% 12.0%
Direction of Exports, FY04 3.0% Commodities
4.0%
Chemicals Oil
10.0% 6.0
%

Other goods
6.0%

Engineering
18.0%

Gems, jewelry
17.0%

Textiles
Readymades
Source: DGCI&S 10.0%
10.0%
 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 Books Total
Software Losses
Losses Piracy Losses Piracy Losses Piracy Losses Piracy Losses
Levels Levels Levels Levels
Pakistan 12.0 NA 70.0 100% 14.0 82% NA NA 52.0 148.0
Indonesia 32.0 92% 27.6 80% 100.0 87% NA NA 32.0 191.6
India 360.0 55% 102 50% 520.0 73% 59.5 86% 90.0 483.8
Russia 275.0 80% 411.9 66% 800.0 87% 255.8 73% 42.0 1784.7
China 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: 2003
US $ 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 Goods
20

15

10

0
19

20
19

20
19

19

19

19

19

19

20

20

20

20
99

03
97

05
92

93

94

95

96

98

00

01

02

04
Exports to India

Imports from India

Source: International Trade Commission
 U.S. - India Trade in Services
5

0
19

20
19

20
19

19

19

19

19

19

20

20

20

20
94

00
96

03
92

93

95

97

98

99

01

02

04

05
Exports to India

Imports from India

Source: International Trade Commission

 Total U.S. Trade with India
US$ billions
20

15

10

0
19

19

19

19

19

20

20

20

20

20

20
19

19

19
93

94

96

97

99

00

01

02

03

04

05
92

95

98

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 Caps
Sector FDI cap in %
Retailing (single-brand only) 51
Real Estate 0
Small Scale Industries 24
New print media 26
Insurance 26
Defense Industry Sector 26
Refining with Public Cos 26
Private Sector Banking 74*
Domestic Airlines 49
Telecommunications 74
Trading 51
Internet service provider 74
Mining 74
Oil marketing 100
*Includes FDI and FII

Source: Ministry of Commerce and Industry

 More Economic Data and Forecasts
 A 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

0
Business Regulation Tax and Customs Corruption
Brazil

China

Source: World Bank Investment Climate Surveys India

 Economic Freedom?

Political Days taken to Competitiveness Corruption

Freedom start a business ranking 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

0
To

Si

N
K

Sy

M
Ta
Se
Ja

an

ew
ua

an

um
ng

ka

ip
ky
dn

ou

ga
la

gk

ei
ap

rt
o

ba
D
ey

l
a
Lu

lo

el
ok

or

i
hi
re
m

e
pu
r

Source: World Bank Land Cost

 Start-up Times for New Businesses

Australia
USA
England
Nepal
Pakistan
Malaysia
Belgium
Bangladesh
China
Sri Lanka
India

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 Recovery
Japan
Pakistan
Malaysia
China
Sri Lanka
Nepal
Bangladesh
S.A. Average
India

0 20 40 60 80 100

Recovery Rate

Source: World Bank

 Real Interest Rate
Prime Lending Rate minus WPI

14

12

10

0
19

19

19

20

20

20
19

19

19

19

19

19

20

20

20

20
91

92

93

00

01

05
94

95

96

97

98

99

02

03

04

06
Source: Reserve Bank of India
 Time To Go Through Insolvency

Shortest Time
Ireland
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 Rigid
Hong 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.

Economic
Commercial
CEO Forum Strategy
Private Sector
Involvement

Energy Dialogue
Economic Dialogue Strategic
Trade High Tech
Trade
Finance Dialogue

Trade Policy Dialogue

Commerce: High Tech
Cooperation
Financial
Intel Unit
WTO and
USTR Standards and Trade
Facilitation