India Case Study On International Cooperation by UNDP

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UNITED NATIONS DEVELOPMENT PROGRAMME
INTERNATIONAL COOPERATION BEHIND NATIONAL

BORDERS: COUNTRY CASE STUDY ON INDIA
By Tarun Das
ICRIER
Prepared for the Book Project

The New Public Finance: Responding to Global Challenges
Office of Development Studies

United Nations Development Programme
New York
- 2005 -
Note: The views expressed in this paper do not necessarily reflect those of UNDP. The
author is working as Economic Adviser, Ministry of Finance, Government of India and a
Consultant to the Indian Council for Research on International Economic Relations. The
paper expresses personal views of the author, which may not necessarily imply views of
the organizations he is associated with. Author is grateful to Inge Kaul, Arvind Virmani
and an anonymous referee for constructive comments on an earlier draft.
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ABSTRACT
The country case study on India provides a good example of employing public finance
policies and instruments to promote international cooperation. Key thrusts of
international participation are to improve India's economic conditions and international
competitiveness and at the same time to contribute towards global prosperity, peace and
development. The country has attached high importance to global issues such as
combating international terrorism, tackling environmental challenges, communicable
diseases, drug trafficking and money laundering and supports measures taken by
multilateral organizations. It is actively responding to these problems and allocating
adequate resources for development and strengthening of appropriate institutional and
legal set up. The case depicts a country that has not only been adjusting its policies to
globalization challenges but taking a proactive role in international forums to influence
and shape globalization. Moreover, the study shows how it has balanced profound
economic reforms (liberalization, privatization and a revamping of government’s
administration and role) with human development needs by providing safety nets to
vulnerable groups and following a gradualist approach to reforms.
Country Case Study on India 1

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CONTENTS
INTRODUCTION ........................................................................................................................................4
I. INSTITUTIONAL ASPECTS ...............................................................................................................5
OVERVIEW OF INDIA’S PUBLIC FINANCE .......................................................................................5
A. INDIA’S FISCAL FEDERALISM .....................................................................................................5
B. FISCAL REFORMS ...................................................................................................................... 6
C. REVENUES AND EXPENDITURE MANAGEMENT ............................................................................ 8
D. GOVERNMENT DEFICIT AND PUBLIC DEBT .................................................................................. 8
INSTITUTIONAL AND LEGAL DIMENSIONS ...................................................................................... 9
A. TRANSPARENCY AND ACCOUNTABILITY IN BUDGET FORMULATION .............................................9
B. POLITICAL ECONOMY ASPECTS ................................................................................................ 10
C. INTERACTION WITH EXTERNAL ACTORS ................................................................................... 11
D. COUNTRY DELEGATIONS TO INTERNATIONAL BODIES ............................................................... 11
II. INTERNATIONAL COOPERATION POLICIES .................................................................................. 11
KEY THRUSTS OF INTERNATIONAL COOPERATION POLICIES ....................................................... 12
INCOMING COOPERATION ............................................................................................................ 12
A. INTERNATIONAL AGREEMENTS ................................................................................................ 12
B. POLICIES ON EXTERNAL ASSISTANCE ....................................................................................... 13
C. EXTERNAL SECTOR LIBERALIZATION ....................................................................................... 14
D. MILLENNIUM DEVELOPMENT GOALS (MDG) .......................................................................... 16
E. PUBLIC HEALTH ...................................................................................................................... 17
F. ENVIRONMENT, ENERGY AND R&D POLICIES ........................................................................... 17
G. TRANSPORT , COMMUNICATIONS AND TOURISM ........................................................................ 18
H. MONEY LAUNDERING AND DRUG TRAFFICKING ........................................................................ 18
I. IMPLEMENTATION OF WTO AGREEMENTS ............................................................................... 19
OUTGOING COOPERATION ........................................................................................................... 20
J. TECHNICAL ASSISTANCE ......................................................................................................... 20
K. REGIONAL INTEGRATION ........................................................................................................ 20
III. BUDGETARY ALLOCATIONS FOR INTERNATIONAL COOPERATION ............................................... 21
A. MANDATORY CONTRIBUTIONS TO THE INTERNATIONAL AGENCIES ............................................ 21
B. EXPENDITURES FOR EXTERNAL AFFAIRS .................................................................................. 22
C. EXTERNAL DEBT SERVICES AND CONTINGENT LIABILITIES OF THE GOVERNMENT ....................... 22
D. TRADE AND EXPORT PROMOTION............................................................................................. 23
E. SOCIAL SERVICES EXPENDITURE RELATED TO THE MDGS ........................................................ 23
F. FINANCING ENERGY , ENVIRONMENT AND R&D ....................................................................... 23
G. TRANSPORT , COMMUNICATIONS AND TOURISM ........................................................................ 24
H. MONEY LAUNDERING AND DRUG TRAFFICKING ........................................................................ 24

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I. INSTITUTIONAL SET UP FOR WTO ISSUES ................................................................................. 24

J. FOREIGN EXCHANGE RESERVE................................................................................................. 24
K. MIGRATION ............................................................................................................................ 25
CONCLUSION .......................................................................................................................................... 26
REFERENCES .......................................................................................................................................... 27
TABLES .................................................................................................................................................. 29
TABLE 1: INDIA’S FISCAL AND FINANCIAL SECTOR REFORMS SINCE 1991........................................ 29
TABLE 2: REVENUE RECEIPTS OF THE CENTRAL GOVERNMENT , % OF GDP...................................... 30
TABLE 3: COMBINED EXPENDITURE OF CENTRE AND STATES, RUPEES BILLION ................................ 31
TABLE 4: COMBINED EXPENDITURE OF CENTER AND STATES, % OF TOTAL ...................................... 32
TABLE 5: TOTAL EXPENDITURE OF THE CENTRAL GOVERNMENT, RUPEES BILLION .......................... 33
TABLE 6: TOTAL EXPENDITURE OF THE CENTRAL GOVERNMENT, % OF GDP ................................... 34
TABLE 7: COMBINED FISCAL DEFICITS OF THE CENTRE AND STATES ............................................... 35
TABLE 8: OUTSTANDING PUBLIC DEBT BY THE CENTER AND STATES, % OF GDP ............................. 35
TABLE 9: MAJOR REFORMS IN INVESTMENT AND EXTERNAL SECTOR SINCE 1991 ............................ 36
TABLE 10: TRENDS IN HEALTH CARE IN INDIA, 1951-2000 ............................................................. 37
TABLE 11: BUDGETARY EXPENDITURE FOR INTERNATIONAL COOPERATION .................................... 38
TABLE 12: CONTRIBUTIONS TO INTERNATIONAL BODIES ................................................................ 40
TABLE 13: CONTRIBUTIONS BY THE INDIAN GOVERNMENT TO INTERNATIONAL BODIES ................... 41
TABLE 14: BUDGET ALLOCATIONS FOR EXTERNAL AFFAIRS ........................................................... 42
TABLE 15: BUDGETARY EXPENDITURE FOR TRADE AND EXPORT PROMOTION ................................... 43
TABLE 16: DUTY FORGONE UNDER SELECTED EXPORT PROMOTION SCHEMES ................................... 44
TABLE 17: BUDGETARY EXPENDITURE FOR SELECTED SOCIAL SERVICES ......................................... 45
TABLE 18: BUDGETARY EXPENDITURE FOR ENERGY, ENVIRONMENT PROTECTION AND R&D............ 46
TABLE 19: BUDGETARY EXPENDITURE ON TRANSPORT , TELECOM AND TOURISM .............................. 47
TABLE 20: BUDGETARY EXPENDITURE FOR DRUG-TRAFFICKING ...................................................... 48
TABLE 21: BUDGETARY EXPENDITURE FOR WTO INSTITUTIONS ..................................................... 48
TABLE 22: GLOBAL SUPPLY OF SCIENCE AND ENGINEERING STUDENTS GRADUATING IN 1999, 000’S. 49
TABLE 23: WORKERS’ REMITTANCES RECEIVED BY DEVELOPING COUNTRIES, 2001 ......................... 49

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INTRODUCTION
International cooperation takes place both within national borders (e.g. in terms of
national policy harmonization) and at the international level (e.g. through the creation and
use of joint, pooled mechanisms such as the World Bank or the Global Environment
Facility). This study addresses basically the former aspect that is, the national level public
policy measures and related decision-making processes that facilitate international
cooperation. More significantly, the study focuses on the financial implications of the
national-level policies, which comprise not only funding and allocation of public and
private resources for particular purposes but also non-financial tools such as regulation or
norms and standards.
This study provides a good example of employing public finance policies and instruments
to promote international cooperation. India believes in the so-called “LPG”:
liberalization, privatization and globalization. Given its democratic set up with a free
press and independent judiciary, India’s movement towards globalization is based on
general political consensus and has a bias for human development. India allows the free
movement of goods and services and has adopted an open door policy for foreign
investment and transfer of technology. It attaches high importance to global issues on
terrorism, environmental challenges, communicable diseases, drug trafficking and money
laundering and supports measures taken by multilateral organizations. It is trying to
combat these problems and allocating adequate resources for development and
strengthening of appropriate institutional and legal set up.
India is not only adjusting its policies to globalization: it is also taking proactive parts in
international fora to influence and shape globalization. For example, India took active
part in the G-20 group of countries and International Monetary Fund (IMF) for shaping a
new international financial architecture with a focus on special interests of developing
countries. India welcomed the establishment and implementation of internationally
accepted standards and codes to promote financial stability, but urged that there should be
a clear prioritization among the proliferating population of standards and that the
acceptance by developing countries should remain voluntary and should not form a part
of IMF conditionalities. India took leading role in the group of developing countries in
the inter-ministerial meetings of the World Trade Organization (WTO) and emphasized
that implementation of the past negotiations on services trade and their impact on the
production, trade and economic growth of the developing countries should be reviewed
first before making another round of negotiations on trade and tariff (Das 2003b).
The present report is organized in three main sections. Section I deals with institutional
aspects and the fiscal structure and policies in India having a bearing on the financing of
international cooperation. It examines the interplay between national interest groups and
external actors. Section II deals with major international cooperation policies and Section
III deals with financial allocations for development and strengthening of international
economic, social and political cooperation. Conclusions, references and tables follow.

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I. INSTITUTIONAL ASPECTS
OVERVIEW OF INDIA’S PUBLIC FINANCE
This section deals with the main features of fiscal federalism and recent fiscal reforms in
India. It discusses trends of major fiscal parameters, sources of deficit financing, public
expenditure and debt management, and salient features of the Fiscal Responsibility and
Budget Management Act 2003.
a. India’s fiscal federalism
India has a federal fiscal structure with three-tiers comprised of a central government,
states and local bodies (consisting of municipalities and corporations in the urban areas
and village Panchayats and district boards in rural and semi-urban areas). The Indian
constitution specifies fiscal powers at each level and allows the devolution of funds from
the Centre to the States and from States to the local bodies. The Finance Commission
constituted every five years under the act of Parliament specifies the criteria for vertical
transfer of major taxes and duties from the centre to the states and horizontal sharing of
such funds among the States. The Planning Commission deals with the allocation of plan
resources (for development purpose) among the states. The Finance Ministry deals with
non-plan resources and grants, which are given to the states to meet their needs of current
expenditure. The Finance Ministry also determines the share in fiscal incentives for
reforms and provides natural calamity relief and loans.
Central government can impose taxes on production, income, profits, wealth, external
trade and financial transactions. States taxes include land revenue, sales tax, road tax, and
royalties on minerals and state excise (on alcohol). Major taxes of local bodies (that is,
municipalities and corporations) include property tax, scavenging tax, education cess, fire
tax, entertainment tax and user charges for public goods and services. Taxation of
services faces an assignment vacuum in the Constitution. The Central government filled
this vacuum by enacting a Service Tax Act in 1994 under which it imposes service tax,
presently at the rate of 8%, on selected services that have now grown to 58 in number.
Under the Indian constitutional provisions, States cannot borrow directly from external
sources and the Central government has to intermediate external borrowings and bear
exchange rate risk for the states. Currently, external assistance is passed on to the states
on the same terms and conditions as for normal central assistance for state plans i.e. in
90:10 mix of grant and loan to the hilly and backward states (the so-called special
category states) and 30:70 mix of grant and loan to other states. Loans carry an interest
rate of 11.5% with maturity of 20 years including moratorium of 5 years. The system
involves certain amount of concession provided to the states.
India is a founder member of major international organizations and the Central

government makes mandatory contributions to these organizations. Contributions are
made through the respective Departments and Ministries having the sectoral charge and
dealing wit the concerned international organization. In general, the Finance Ministry

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deals with the international financial organizations, the External Affairs ministry with the
United Nations and its agencies, and the Ministry of Commerce and Industry with trade
related organizations.
The Central government makes allocations for expenditure of Indian Missions abroad and
provides external assistance to developing countries under the technical assistance
program. Expenditures on foreign delegations are borne by the respective departments in
the Centre, States and local bodies after the specific approvals of the Finance Ministry.
The Central government provides various fiscal incentives for exports and investment
including foreign investment. Central government provides assistance to the states to
develop infrastructure for trade and export promotion, to deal with WTO issues and for
environment protection and pollution control. In conformity with the federal structure,
States provide various fiscal and other incentives for the development of industry and
infrastructure, which are equally applicable to both domestic and foreign companies.
b. Fiscal reforms
India is a sovereign democratic republic and strongly believes in liberalization,

privatization and globalization (LPG). India acknowledges the benefits of international
financial, economic and diplomatic cooperation. Since 1991 India initiated reforms in
industry, trade, public, fiscal and financial sectors to integrate fully with the global
economy and to impart dynamism to the overall growth process. Reforms also
emphasized development and strengthening of institutional, legal and regulatory set up.
As the initial reforms take root and second-generation reforms unfold, India is emerging
as one of the fastest growing and dynamic economies of Asia.
India’s reforms program is characterized by the following unique features (Das 2003a):
§ A gradual and step-by-step approach; not a Big Bang or “Shock Therapy” approach
§ Focusing on general political consensus
§ A strong emphasis on “human face”
§ Pursuing policies with the least sacrifice made by people
§ No write-off of external debt
Given its democratic set up with a free press and an independent judiciary, India’s
movement towards globalization is based on a general political consensus. All reforms
including fiscal reforms have a bias for human development and are calibrated in such a
way that there is least sacrifice made by the people. The government introduced various
social safety nets for the vulnerable sections. The government set up National Renewal
Fund to re-employ workers who might be adversely affected by industrial restructuring or
free trade. The Fund was partly financed by disinvestment of government equities and
partly by external assistance. The government expanded food and fertilizer subsidies with
better targeting and strengthened poverty alleviation and employment generation
programs.
In the financial sector, government directed the nationalized banks to provide at least 40
per cent of their lending to the priority sectors (comprising agriculture, small scale

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industries, retail trade and transport operators) and to provide education and housing
loans and export credits at concessional interest rates.
Government attaches a high importance to global issues on terrorism, environmental

challenges, communicable diseases, drug trafficking and money laundering and is
allocating adequate resources for development and strengthening of institutional and legal
set up to tackle these problems. On considering the level of per capita income, Indian
contributions and budget allocations for international cooperation and global issues
appear to be adequate, stable and sustainable over time.
In the context of globalization, contrary to the advice given by multilateral organizations,

government is not shifting the tax burden from the external to domestic sectors. Rather, it
has rationalized and reduced taxes and duties for both external and domestic sectors. The
tax / GDP ratio of the general government (i.e. combined Centre and State governments)
declined from 16 % in the pre-reform year 1990-91 to 14% in 2003-04. This was partly
due to trade reforms and partly to change in the composition of GDP in favor of services
which now constitute more than 50% of GDP but mostly remain outside the tax net.
The basic objective of fiscal reforms since 1991 (table 1) was to reduce fiscal deficits to
sustainable levels by expenditure management and resources mobilization through tax
rationalization and widening tax net. The government strengthened tax administration; it
improved Centre-States fiscal relations and focused attention on contingent liabilities and
reforms in provident, pension and insurance funds. The Fiscal Responsibility and Budget
Management Act 2003 aims at reducing government borrowing and fiscal deficit and
eliminating revenue deficit by 2008 by higher tax/GDP ratio, higher contribution from
the state value added tax and reduction of subsidies and interest payments.
As for budget allocations for domestic purposes, government has reduced its scope and is
withdrawing from commercial sectors where private initiatives are more productive and
more efficient. But the level of government expenditure remains large in the development
of social and physical infrastructure. The government is also encouraging public-private
partnerships and private participation including foreign investment in infrastructure and
social sectors, and relying less on direct purchases of public goods and services.
Government has restructured public pension, insurance and provident funds and allowed
foreign participation in these sectors so that these resources could be utilized for
infrastructure financing with long term maturity. Government has increased allocations
for poverty alleviation and employment generation programs to fulfill the commitments
under the UN Millennium Development Goals.
Several measures were taken since 1991 to strengthen the banking system and to improve
money and capital markets. Policy package included decontrol of lending and deposit
rates, reduction of Cash Reserve Ratio and Statutory Liquidity Ratio to augment credits
to private sector, reduction of lending rates to reduce production costs. Other measures
included active open market operations, abolition of selective credit controls and
tightening of prudential norms for capital adequacy and provisioning for non-performing
assets as per international best practices set by the Bank for International Settlements and

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the Financial Stability. An array of capital market reforms was introduced for primary
and secondary markets, equity, bond and debt markets, and foreign investment.
c. Revenues and expenditure management
The tax-GDP ratios of the Centre suffered a steady deterioration in 1990s (table 2) due to
gradual reduction of tax rates and duties since 1991 and a structural shift in the GDP
composition towards services. However, there was some increase in the ratios of non-tax
revenues to GDP due to restructuring of public enterprises and rationalization of user
charges for public utilities such as power, water and transport. Expenditure management
involved strict monitoring of fiscal deficit and financial allocations under different
headings (see tables 3 through 6). Government tried to contain expenditure through
rationalization and targeting of subsidies, reduction of interest rates on public savings,
optimal use of cash and downsizing civil staff at the rate of 2% per annum.
d. Government deficit and public debt
Fiscal deficit trends of the general government indicate that the deficit declined
significantly by 1995, but increased to pre-reform levels by the end of 1990s (table 7).
The share of domestic borrowing in financing public deficit increased in 1990s with a
corresponding decline in that of external finance. In fact, there was net outgo in external
finance in 2002-03 due to pre-payment of a part of external debt by the government.
Among domestic sources, market borrowings emerged as the major source of financing.
The combined public debt of the general government as percentage of GDP increased by
20% points in 1990-2003 (table 8) leading to burgeoning interest payments, which now
constitute 50% of revenue expenditure despite declining interest rates over time. This
essentially reflects the overhang of outstanding liabilities contracted at higher interest
rates in the past.
A high level of public debt puts pressure on interest rates, crowds out private investment
and creates problems for debt servicing. In order to avoid the possibility of debt traps,
government is concentrating on long term borrowings. Consequently, the average
maturity of loans increased from 7.7 years in 1998 to 13.5 years during 2001-2003.
Until 1990 India adopted a development strategy based on the predominant role of the
public sector. Unlimited borrowings from the Reserve Bank of India (RBI) at subsidized
rates enabled Government to finance large fiscal deficits. Government initiated reforms in
1992 with the auction of government securities at market-determined rates, followed by
gradual withdrawal of RBI support and stoppage of automatic magnetization to finance
government deficit. Government also strengthened institutional infrastructure, legal and
regulatory set-up for the Government securities market.
The active public debt management strategy comprised minimizing refinancing risk and
“crowding out" effect, and avoidance of issuing floating rate, short-term and foreign
currency-denominated debt. Government adopted a cautious approach towards capital
account convertibility. It initially liberalized non-debt creating financial flows followed

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by liberalization of long-term debt. There was a high share of concessional debt with long
maturity, amounting to 80 % of sovereign external debt in 2003.
These policies paid dividends and protected India from the contagion effect of the East
Asian crisis in 1997-2000. There was significant improvement in external debt indicators
with external debt/GDP ratio declining from 38.7% in March 1992 to 20% in March 2003
and debt service ratio declining from 35.3% in 1990 to 14.7% in 2003. As per
classification in the Global Development Finance (World Bank 2002, p.130) India is now
classified as a “low income and low indebted” country.
India's outstanding external assistance declined from US$59.5 billion at end-March 1995
to US$42.7 billion at end-March 2003, while annual inflows of grants ranged in between
US$300 million to US$416 million over the period. The share of bilateral assistance in
external assistance declined from 47.3% in 1993 to 39.6% in 2003 with corresponding
increasing in the share of multilateral assistance. Outstanding external debt on
government account now stands at 9% of GDP.
…
The careful management of external debt allowed India to retain policy-making

sovereignty and not to be wholly influenced by the conditionalities imposed by the
multilateral funding agencies. In fact, in recent years India prepaid a part of more
expensive debt from the World Bank, the Asian Development Bank and some bilateral
countries, while they insisted for substantial reduction of food and fertilizer subsidies and
overall fiscal deficit, which were not politically feasible for a coalition government in the
Centre. Effective public debt management also helped government to adopt a step-by-
step approach to liberalization and to adopt effective safety nets for the weaker and
vulnerable sections of the society by expanding and strengthening various anti-poverty
and poverty alleviation programs.
INSTITUTIONAL AND LEGAL DIMENSIONS

This section addresses institutional and legal issues relating to international cooperation.
It deals specifically with transparency, accountability and political economy of budget
formulation, inter-agency coordination, NGOs participation, and composition and
financing of India's delegations to international bodies.
a. Transparency and accountability in budget formulation
Under Article 112 of the Indian Constitution, an "Annual Financial Statement" on

Government receipts and expenditure is laid before Parliament for each financial year.
Expenditure estimates are required to be voted by the Parliament and are submitted in the
form of detailed Demands for Grants for each Ministry. Government proposals on taxes
and duties are submitted to Parliament through the Finance Bill.

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Although the budget formulation is based on strict secrecy until its presentation to the
Parliament on the 28th February every year, the Finance Ministry holds pre-budget
discussions with the Planning Commission, other Departments and various interest
groups such as industry associations, chambers of commerce, trade unions, agriculturists,
science, technology and education specialists, and non-governmental organizations.
The Budget is transparent with fiscal background, objectives and policies indicated
clearly in the Finance Minister's Speech supported by detailed expenditures for each
Department and a pre-budget Economic Survey. Finance Ministry publishes annual
Status Reports on External Debt, official external assistance, Public Finance Album and
An Economic and Functional Classification of Budget as per IMF guidelines on
Government Finance Statistics. India has subscribed to the IMF Special Data
Dissemination Standards (SDDS) and fulfilled all requirements regarding time lag and
frequency of publication and dissemination of economic data.
b. Political economy aspects
As India is a sovereign democratic republic with independent executive, legislative and

judiciary systems and a free press, the existing political economy plays an important role
for determining the scope and funds for international cooperation. If any international
commitment has wider economic and social implications and concerns constitutional
provisions, it requires the ratification by the Parliament. However, once approved by the
Parliament, policies are irreversible. In fact, Indian foreign exchange crisis after the gulf
war in 1990 induced the then government to undertake wide ranging reforms in external
and domestic sectors to globalize the economy at a faster speed, which was not politically
feasible under tranquil conditions.
As mentioned earlier, there is general political consensus regarding the need for ongoing
economic reforms accompanied by privatization and globalization. However, at the
beginning of reforms, domestic industrialists wanted level playing field as regards
transactions cost and domestic interest rates which were significantly higher than
international rates. With gradual reduction of interest rates, substantial reduction of taxes
and duties and strengthening of the rupee, there had been substantial reduction of
transactions cost.
Given the sovereign democratic set up in India, there are various checks and balances on
the government. Budget allocations for international cooperation is made by he
concerned government department dealing with the subject as per the Allocations of
Business Rules approved by the President of India. However, it requires prior approval of
the Ministry of Finance and the Parliament as a part of annual Budget. Ministries also
consult each other on important issues having impact on either internal or external
finance. Although the concerned Ministry puts up a proposal, it is initially approved by a
Committee of concerned Secretaries. Then it is put up for approval by a Group of
Ministers followed by the Cabinet. If the proposal involves any conflict with
Constitutional provision or any existing Act, it needs to be approved by at least two-
thirds majority in the parliament.

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c. Interaction with external actors
The Indian government in association with trade, business and industry associations has
been sponsoring various activities to facilitate international cooperation. In particular,
government and industry associations organize international workshops and trade fairs,
and publication of various manuals and journals for dissemination of information. There
are bilateral exchange programs on national experiences and development practices.
Asian and Pacific Centre for Transfer of Technology (APCTT), with headquarter in India
and in collaboration with other development agencies such as the United Nations
Development Progrmame (UNDP) and ESCAP (United Nations Economic and Social
Commission fro Asia and the Pacific), has distinguished itself in a number of activities
such as information dissemination, technology fairs, skill training, and promotion of
Environmentally Sound Technologies. In India, APCTT formed a consortium with the
Small Industries Development Bank of India, National Small Industries Corporation and
the Council of Scientific and Industrial Research to assist small sized industries for
technology upgrades, strengthening linkages between R&D institutions and local
innovative systems.
d. Country delegations to international bodies
India has a very restricted policy and limited budget for foreign travel. The annual IMF
and World Bank meetings as well as Asian Development Bank (ADB) annual meetings
are attended by delegations led by the Finance Minister and comprising officers from the
Finance Ministry and the Reserve Bank of India. Inter-Ministerial meetings of the United
Nations and its associated organizations are attended by delegations led by the External
Affairs Minister and comprising officers from the External Affairs, Finance and
Commerce. Inter-Ministerial meetings of the WTO and ESCAP are attended by
delegations led by the Commerce Minister and comprising officers from the Finance
Ministry and the Reserve Bank of India. Other international delegations are led by
officers having the ranks of Joint Secretary and above depending on the issues and
comprise members from the concerned Ministries.
Each Ministry has separate budget for foreign travel, which is approved by the
Parliament. Foreign travel of an officer having rank up to Director is approved by the
secretary of a Department, that of Joint Secretary by the concerned Minister, and that of
higher officers (including Ministers and parliamentarians) is approved by the Cabinet
Committee chaired by the Prime Minister and these foreign travel proposals are initially
examined by a Screening Committee Chaired by the Finance Secretary.
II. INTERNATIONAL COOPERATION POLICIES
This section discusses the key thrusts of cooperation initiatives and international and
bilateral agreements. It goes through the domestic policies on energy and environment as

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well as tariff, trade, investment and exchange rate policies, which have a bearing on
international cooperation. It also deals with activities to fulfill India’s commitments to the
United Nation Millennium development goals and with policies taken in response
conditionalities set by multilateral and bilateral lenders and the advice given by the
international credit rating organizations. It also examines initiatives aimed at fostering
regional integration. The section specifically addresses fiscal incentives for cross-border
activities, R&D activities for global concerns, measures to tackle money laundering, drug
trafficking and communicable diseases, and programs for implementation of agreements
under the WTO.
KEY THRUSTS OF INTERNATIONAL COOPERATION POLICIES
India’s international cooperation is based on principles of non-alignment with super

powers and to attain peaceful and friendly relations with all countries. India has
diplomatic and economic relations with almost all nations and is a Member of various
multilateral bodies. Key thrusts of ongoing participation are to improve India's economic
conditions and competitiveness along with contributing towards global prosperity, peace
and development. As all policies are interlinked, it is difficult to judge which policies are
driven by competitive motivations and which ones by cooperative spirits.
India’s role in the international co-operation is directed towards achieving the following
overarching objectives (GOI MOEA 2000, pp. ii):
§ “To win international support to India’s national interests, priorities and concerns in
the context of wide ranging changes taking place in the world.”
§ “To strengthen the global consensus in favor of democracy as the central basis of
peace and development.”
§ “To develop broad-based, mutually beneficial and synergistic structures of
cooperation in trade, industry, investment and technology transfer with all countries.”
§ “To work constructively bilaterally and in multilateral institutions such as the UN,
NAM etc. to find answers to complex political, social and economic problems. These
include concerns relating to peace, security, nuclear disarmament, information
technology, establishment of an equitable international economic order, globalization,
environment, public health, terrorism and drug trafficking.”
§ “To strengthen economic and commercial links with the rest of the world.”
….
India’s consistent activism, bilaterally and in multilateral institutions, paid dividend in
galvanizing international public opinion and support against the menace of terrorism and
made positive contribution for the establishment of new international order.
INCOMING COOPERATION
a. International agreements
India is a founder member of most of the multilateral organizations and is guided by their
rules and regulations for international co-operation. To name a few, India is a founder

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Member of the United Nations and its various economic and cultural councils, the IMF
the World Bank, the ADB, the International Labor Office (ILO), the United Nations
Conference on Trade and Development (UNCTAD) and the WTO. India takes active
participation in their deliberations.
India has signed bilateral economic, trade, investment and cultural treaties and
agreements with major countries. In 2000, India signed 14 such agreements. Recently
India signed bilateral investment treaties with ASEAN, Thailand and Singapore. It has
signed comprehensive Double Tax Avoidance Agreements with 66 countries, which
provide for reduced rates of withholding tax, avoidance of double taxation of income and
exchange of information for prevention of tax evasion. India has agreements for the
taxation of air transport and shipping operations with Afghanistan, Ethiopia, Iran,
Kuwait, Lebanon, Pakistan, P.D.R.Y. (Yemen), Saudi Arabia, U.A.E., Yemen Arab
Republic, Czechoslovakia and Russian Federation.
b. Policies on external assistance
The Indian government does not access external capital markets and borrows only from
multilateral and bilateral sources. External assistance comprises of both loans and grants
to finance large commercial projects or social sector projects. Official development
assistance (ODA) is the external assistance with a grant element of 25% or more. The
International Development Agency (IDA) of the Word Bank is the major source of
concessional borrowing, carrying a service charge of 0.75% per annum and maturity of
35 years (including a grace period of 10 years). The IBRD1 and ADB provide non-
concessional funds with usually variable interest rates with a spread of 60-75 basis points.
Bilateral borrowings are mainly concessional in nature. While loans from Japan carry a
fixed interest rate of 1.8% per annum and a tenor of 30 years, borrowings from Germany
comprise a semi-concessional mix of loans with the concessional portion carrying a fixed
rate of 0.75% and a tenor of 40 years.
India utilized IBRD loans for power generation and distribution, construction of
highways, urban development, economic restructuring and fiscal reforms. IDA credits are
used to fund projects in physical and human capital, institutions building and
environment protection. ADB loans are mainly used for transport and communications,
energy, financial services and poverty reduction. Of the major bilateral countries, India
took loans for infrastructure development and housing from Japan and Germany.
It is argued that multilateral organizations impose various conditionalities regarding

structural reforms and stabilization policies. As the sovereign Indian government does not
act under duress, ongoing reforms bear willful agreements of both the parties. In fact,
conditions agreed to external donors after the Gulf crisis in 1990 helped India to come
out of a severe balance of payments crisis. Major conditionalities included devaluation of
Indian rupee, full convertibility on current account, partial convertibility on capital
account, reduction of fiscal deficit, reduction of customs duties, rationalization of user
1
International Bank for Reconstruction and Development (World Bank).

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charges for public goods, downsizing the government, privatization, decentralization,

delicensing, deregulation and anti-corruption strategies.
Advice given by various international credit rating organizations such as Standard and
Poor’s (S&P), Moody’s, Fritch and Japan Bond Research Organization were also very
helpful for policy planning. In particular, their advice on reduction of interest rates, fiscal
deficits and off-budget liabilities were very useful. However, their criticisms regarding
slow progress of reforms in land and labor markets, privatization, subsidies and down
sizing the government are based on purely economic reasoning and do not take into
account the ground realities posed by democratic traditions and socio-political constrains.
External assistance is often tied with the procurement of goods and services from the
donor countries and the net interest rate works out to be higher than expected.
Multilateral organizations do not impose such conditions for India although they insist on
global tenders. While Germany allows fair competition, some bilateral countries do make
such stipulations. However, Indian borrowings from such sources constitute a negligible
portion of total external borrowings.
Recently, on considering the high transaction costs of a large number of low value
projects, tied assistance, and strict conditionalities, the government has taken a policy
decision to prune the number of bilateral creditors from over 18 to only six, namely
Japan, United Kingdom, Germany, the U.S., the EU and the Russian Federation. The
government has also decided to pre-pay outstanding bilateral debt except to Japan,
Germany, the U.S. and France. The decision was also partly influenced by the substantial
build up of foreign exchange reserves and low interest rates in the domestic countries.
Those bilateral countries, from which it has been decided not to receive development
assistance on government account, have been advised to provide their development
assistance to non-governmental organizations and universities. Accordingly, countries
like Australia, Belgium, Canada, Denmark, France, Italy, Netherlands, Norway, Sweden,
Switzerland and others are now providing assistance directly to the NGOs for primary
education, urban water supply and sanitation, HIV/AIDS prevention and care,
strengthening environment institutions and poverty alleviation program.
Aid flows to India declined from 3% in 1960s to 0.7% of GNP in 1990s. Overseas
Development Assistance to India was very useful for development of social sectors and
infrastructure. However regional distribution of ODA was uneven and generally helped
the richer states. India has high absorbing capacity as the needs of social sectors are large
and government does not have sufficient resources.
c. External sector liberalization
A priority area under reforms was external trade, investment and exchange rate policies
(table 9). Exports and invisible earnings were encouraged to build up foreign exchange.
Quantitative restrictions on foreign trade were virtually abolished and maximum customs
duties were reduced from 400% in 1990 to 20% in 2004 to improve competitiveness of

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Indian industries. There was liberalization of gold and silver imports which considerably
reduced smuggling.
The Indian rupee is now fully convertible on current account and fully convertible on
capital account for the non-residents. The IMF regards India as one of the countries
having independent floating exchange rate system. These liberalizations led to a build up
of foreign exchange reserves from US$1 billion in June 1991 to US$ 102 billion in
January 2004.
To moderate the monetary impact of reserve accumulation, government prepaid part of

multilateral and bilateral external debt, liberalized external commercial borrowing and
outward foreign investment. Monetary authority phased out Foreign Currency Non-
Resident Deposits which benefited from exchange rate guarantee.
India recognizes that Foreign Direct Investment (FDI) acts an engine of growth and
embodies a package of vital sources of capital, technology, and managerial, marketing
and technical skills. Since 1991 India adopted an open door policy for FDI. It undertook
general policies and strengthened legal and regulatory systems leading to a stable
macroeconomic framework, liberalization of industry, trade and capital markets and non-
discriminatory fiscal and monetary policies. Most of the sectors (except agriculture, retail
trade, print media etc.) are now open for foreign investment subject to sectoral caps on
equity. Foreign equity up to 100% is allowed in most infrastructure sectors.
Indian firms are allowed to raise funds abroad through Global Depository Receipts,
Foreign Currency Convertible Bonds and offshore fund. Foreign Institutional Investors
(FIIs) and Non-Resident Indians (NRIs) are allowed to operate in India’s capital markets
(subject to an individual holding of 10% and collective holding up to 40% of total paid up
capital of a company) and to pick up disinvested shares of public enterprises.
Indian courts allow adequate safeguards for the enforcement of property and contractual
rights. India had signed many bilateral investment protection agreements containing rules
on fair and equitable treatment, repatriation of equity and profits, and international
arbitration of disputes. Impediments to FDI include some reservation for the small scale
industries, sectoral ceilings on foreign ownership, approval procedures, restrictions on
employment of foreign staff and inadequate legal system for dispute settlements.
India permits the free repatriation of profits, dividends, interests, rents, royalties,
consultancy fees and equity capital. Import controls are virtually abolished except for
some consumer goods. Almost all items of capital goods and raw materials are on open
general license. The Foreign Exchange Regulation Act (FERA) was replaced by the
Foreign Exchange Management Act. The FERA companies (having foreign equity
exceeding 40% of total equity) now operate like Indian Companies, can own real estate,
and use their trademarks and brand names for domestic sales.
India provides fiscal incentives for the development of industry, infrastructure and
technology, which are equally applicable to both domestic and foreign companies. Tax

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holidays up to 15 years are allowed for establishing industries in backward regions and
for infrastructure projects set up anywhere in India. Incentives are given for exporters,
R&D activities and units located in Special Economic Zones (SEZs), Export Processing
Zones (EPZs) and Science and Technology Parks. A number of incentives such as capital
subsidy, tax breaks, exemption of state duties, and the provinces provide concessional
land and power. Regulatory Authorities for telecom, ports and power determine tariffs
and resolve disputes among various operators.
India allows tax exemptions for exports, lower interest rates for export credits and duty
drawbacks on inputs used for exports. Producers are allowed duty free imports of capital
goods subject to export obligations. Exporters of food grains are given WTO compatible
subsidies. Exporters are granted Special Import Licenses for restricted consumer goods.
Export-Oriented Units (EOUs)/EPZ/SEZ units can sell up to 25% of general goods and
50% of agro-based products in the Domestic Tariff Area (DTA). Supplies from DTA to
the EPZ/EOUs/SEZs are regarded as deemed exports and exempted from taxes and
duties.
d. Millennium Development Goals (MDG)
India is committed to achieve the United Nations MDGs targets, particularly to halve the
poverty ratio and to halve the proportion of people without sustainable access to safe
drinking water, by 2015. The Approach Paper to the Tenth Five-Year Plan (2002-2007)
stipulates that growth in per capita GDP should be accompanied by significant
improvement in human development and basic services to the people such as basic
health, education, drinking water and sanitation. The Plan indicates the following
monitorable targets:
§ Reduction of poverty ratio from 26 percent by 5-percentage point by 2007 and by 15

percentage points by 2012.
§ All children to go to schools by 2003 and all children to complete at least five years
of schooling by 2007.
§ Increase in the literacy rate to 75 per cent during the Tenth Five-Year Plan.
§ Reduction in the infant mortality rate per 1000 births to 45 by 2007 and 28 by 2012.
§ All villages to have sustained access to potable drinking water within the plan period.
Growth with social justice had been the primary objective of Indian planning since 1951,
and several anti-poverty measures had been in operation for decades. These include
welfare programs for the weaker sections, women, children, and a number of special
employment programs for self- and wage employment. Government relied mainly on two
approaches for poverty alleviation: the first based on the anticipation that economic
growth will have a “trickle down effect” on the levels of living of all groups; and the
second that direct anti-poverty programs are also required. Ongoing economic reforms
since 1991 strengthened these programs to generate more employment, create productive
assets, impart technical skills and raise the income levels of the poor. As a result of these
policies, despite high population growth, the poverty ratio declined from 55 percent in

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1973 to 26 percent in 1999 for all India i.e. at a rate of 1.1 percentage point per annum.
The decline was fairly uniform across rural and urban areas.
e. Public health
India has built a vast health infrastructure at primary, secondary and tertiary care in
government, voluntary and private sectors resulting in a substantial improvement in
health over the years (table 10). During the 1990s India entered an era of dual disease
burden. While communicable diseases became more difficult to combat due to insecticide
resistance, emergence of new diseases such as HIV/AIDS and demographic transition
needed larger investments in health. AIDS is not only a fatal disease but also a major
development issue due to its potential impact on productivity and growth. The Plan
outlay for the Central Health Sector Schemes in 2003-04 was Rs.1550 crore, 55% of
which was spent for the control of Malaria, Tuberculosis, Leprosy, AIDS, Blindness, etc.
Phase-II (2003-04) of the program is in operation with World Bank assistance under
Global Fund for AIDS, TB and Malaria (GFATM).
f. Environment, energy and R&D policies
Environment: Environmental protection is essential to ensure sustainable development

over time. Vast population and wide spread poverty in India lead to degradation of
environment in many ways by putting pressure on scare resources like land, water and
energy. Environmental management was enhanced in the Seventh Plan (1985-1990) by
organizational and legislative changes. A new Ministry of Environment, Forests and
wildlife was created in September 1985 and the Environment Protection Act (EPA) was
enacted in November 1986 to give greater impetus to the environment protection. Other
measures included announcement of National Forest Policy 1988, Amendment of Forest
Conservation Act in 1988, Water Prevention and Control of Pollution Act in 1988 and the
Draft Policy Statement on Abatement of Pollution 1991.
During the Eighth Plan (1992-1997) and Ninth Plan (1997-2002) major progress was
achieved in environment and ecological development. National standards for polluting
effluents were formulated for major industries and rivers. In urban areas, strict norms
were fixed for vehicles to control air pollution. Environment unfriendly industries were
shifted from the urban areas. Under World Bank and UNDP assistance programs, grants
were provided to install environment friendly plant and machinery.
Indian planners reserved energy sector for public investment, as they required huge
capital with high capital intensity, long gestation, high risk and low return. Since 1991
government liberalized energy sector and allowed private including foreign investment.
Except for coal and electricity distribution, foreign equity is allowed up to 100% in all
energy sectors. The Electricity Regulatory Authority determines electricity tariffs.
Energy: Energy taxation is an important source of government revenues. Depending on

political priorities and fiscal objectives, excise and customs duties vary for different
petroleum products. There is cess on diesel and petrol for financing construction of roads,

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flyovers and bridges. There is an environmental cess on selected products including oil.
Various fiscal incentives are given to power plants. Power is supplied free to agriculture
in many states. Administered pricing mechanism for POL had been dismantled, but
subsidies are provided for household use of kerosene and LPG under a plan to phase out
these subsidies in the medium term.
Research and Development: India has built a wide array of institutions to support the
development and diffusion of industrial technologies over the years so that its
dependence on foreign technology is the least. It has all basic, applied, hardware and
software and R&D institutions, some of which have world-class standards. In the sphere
of biotechnology, government spent around US$ 1 billion towards R&D in national
laboratories in 1990s. But, these institutions failed to commercialize R&D activities as
these had little linkages with the private sector. Since 1993 Government encouraged
private sector funding of research institutions by providing tax relief on R&D
expenditure. Many pharmaceutical companies introduced products of original research
through technology transfer from Indian R&D institutions in the field of vaccines,
diagnostics and reagents.
India acquired advanced technologies from the U.S., UK, U.S.S.R., Germany, France and
Japan, either by outright purchase, FDI, joint ventures or on the basis of royalty
payments. For this Indian companies received support and assistance from international
organizations like APCTT, UN, UNIDO, and IDRC, Canada.
g. Transport, communications and tourism
Development of international airports, seaports, international posts and

telecommunications play a major role in facilitating tourism and cross-border movement
of goods and services. As public resources are limited, government has allowed private
participation including foreign investment in these areas. Government is upgrading
existing international airports to international standards with public-private partnership
and has allowed private sector to build up new international airports at the emerging
information technology centers at Bangalore and Hyderabad and the major tourist resort
at Goa. Private investment in sea-ports has increased significantly in recent years with the
strengthening of the Ports Regulatory Authorities.
Foreign investment up to 100% is allowed in the development of sea-ports, airports and

shipping, and up to 49% in civil aviation. In telecoms, foreign investment up to 49% is
allowed in basic and mobile services and broadcasting, 74% for Independent Service
Providers (ISPs) with gateways, radio-paging and end-to-end bandwidth, 100% for ISPs
providing electronic mail and voice mail, courier services and information technology.
h. Money laundering and drug trafficking
There is specific budgetary allocation for the Department of Revenue, which is

responsible to control financial abuse through illegal flows of precious metals and
financial transactions. While the Central Economic Intelligence Bureau, set up in July

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1985, oversees the implementation of the Conservation of Foreign Exchange and

Prevention of Smuggling Act 1974 (COPEPOSA) against smugglers and foreign
exchange racketeers, the Directorate of Enforcement is concerned with the enforcement
of the Foreign Exchange Management Act 1999 (FEMA) after the expiry of the Foreign
Exchange Regulation Act (FERA) 1973.
The Department of Revenue is also responsible for the administration of the Narcotic
Drugs and Psychotropic Substances Act 1985 (NDPS Act 1985), which sets out the
statutory framework for drug administration in India. Three authorities - the Central
Bureau of Narcotics (CBN), Government Opium & Alkaloid Works (GOAW) and
Narcotics Control Bureau (NCB) - have been established for the purposes of
superintendence of cultivation of opium, manufacture of opiates and combating drug
trafficking.
i. Implementation of WTO agreements
India strongly favors the multilateral approach to trade relations and grants most favored
nation treatment to all its trading partners, including non-members of WTO. Within the
WTO, India is committed to ensuring that sectors in which developing countries enjoy
comparative advantages are adequately opened up, and the special and differential
treatment provisions for developing countries under WTO agreements are translated into
specific enforceable dispensations. The Ministry of Industry and Commerce in
association with the Ministries of Finance and other concerned Ministries has taken
various measures to implement India's commitments to the WTO.
The WTO agreement on Trade Related Intellectual Property Rights (TRIPS) sets out
minimum standards of protection in respect of copy rights, trade marks, trade secrets,
Geographical Indications, Patents and Industrial Designs. To fulfill these commitments,
Parliament amended the Copyright Act 1957 in 1994 and 1999, Trade and Merchandise
Marks Act 1958 in 1999, and passed Patents Act 1999, Geographical Indication of Goods
(Registration and Protection) Act 1999, Designs Act 2000 and Semiconductor Integrated
Circuits Lay-Out-Design Act 2000.
Under the Trade Related Investment Measures (TRIMS) Agreement, developing countries
had a transition period of 5 years up to 31-12-1999. India notified two TRIMS relating to
local content requirements in production of certain pharmaceutical products and
dividend-balancing requirement in the case of foreign investment in 22 consumer items.
These requirements had since been eliminated.
India made considerable progress in rationalization and reduction of customs tariffs. Peak
customs tariff has been reduced to 20% and would be reduced to average ASEAN level
in the medium term. India has set up special units to deal with anti-dumping cases and
imposition of anti-dumping duties. India completed the process of phased removal of
Quantitative Restrictions (QRs) as per the agreed time schedule. Presently, out of 11,671
items, only 52 items are prohibited, 484 restricted 32 subject to software exports and rest
11,103 items are free.

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OUTGOING COOPERATION
j. Technical assistance
India provides technical assistance under the Technical and Economic Cooperation
(ITEC) Program and the Special Commonwealth African Assistance plan (SCAAP) to
141 developing countries in Asia, Africa, Latin America, Eastern Europe and the Pacific.
India is also participating actively in the international initiative for economic
development of HIPC (Heavily Indebted Poor Countries) and other developing countries.
Under HIPC, India is providing credit lines to seven eligible HIPC countries viz.
Mozambique, Tanzania, Zambia, Ghana, Guyana, Nicaragua and Uganda. The
government has waived the outstanding dues from these countries. In addition, India
provides credit lines to a number of developing countries (table 14).
k. Regional integration
India believes that regional cooperation is a first step towards multilateral cooperation.
Regional economic cooperation facilitates the free flow of goods, services, capital and
labor across countries and helps for efficient use of resources and improvement of growth
of member countries. South Asian Association for Regional Cooperation (SAARC) was
established in 1985 comprising India, Bangladesh, Bhutan, Maldives, Nepal, Pakistan
and Sri Lanka. SAARC countries signed South Asian Free Trade Agreement (SAFTA)
and recently included investment as a part of its regional cooperation.
India signed bilateral trade agreements with Nepal in 1996 and Sri Lanka in 1998. India
allows automatic approval of outward investment by Indian companies up to $50 million.
India allows imports of goods manufactured in Nepal free of customs duties and
quantitative restrictions (except for alcohol, tobacco and cosmetics). This system of
investment and “tariff jumping” facilitated some Indian companies to shift production
bases to Nepal for serving Indian and other markets. Indian companies run 72 of 214
foreign ventures in Nepal accounting for 53 % of capital of all foreign ventures (Kumar
2001). Sri Lanka hosts about 90 Indian ventures in light engineering goods, automobiles
and hotels which are basically domestic market seeking.
The share of intra-SAARC exports in total SAARC exports increased from 3.2% in 1990
to 4.7% in 1999. The intra SSARC imports as a proportion of total SSARC imports
increased from 1.91% in 1990 to 4.12% in 1999 (Das 2002).
In the region there are some sub-regional economic zones (SREZs) focusing on the
movement of capital, labor, technology and information rather than trade in goods and
services. A SREZ called the Bangladesh, India, Sri Lanka, Thailand Economic
Cooperation (BIST-EC) was formed on June 6, 1997. Subsequently, Bhutan, Nepal and
Myanmar had joined the group. Trade between these countries currently totals $1.3
billion and is expected to improve due to economic boom in South and South East Asia.

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These countries signed a Free Trade Agreement on February 8, 2004 and agreed to
remove all trade and tariff barriers by 2015.
India is a founder member of the Economic and Social Council for Asia and Pacific
(ESCAP). ESCAP promoted regional cooperation in industry, power, shipping, ports and
technology transfer. Asian developmental institutions like the Asian Development Bank,
Asian Clearing House, the Asian Reinsurance Corporation and the Asian and Pacific
Centre for the Transfer of Technology were established at the initiative of ESCAP.
Increasing levels of intraregional trade and investment are gradually shaping an

interdependent regional economy in the ESCAP based on linkages of production,
technology and division of labor. ESCAP members succeeded significantly in utilizing
the technological revolution to enhance national comparative advantages. Firstly Japan
and then the advanced countries of the region became critical growth centers supplying
foreign investment and technology to other economies of the region.
ESCAP and its regional institutions such as APCTT, the Regional Network for
Agricultural Machinery, and the Regional Coordination Centre for Research and
Development of Coarse Grains, Pulses, Roots and Tuber Crops undertook activities to
promote exchange of national experiences, skill training, endogenous capability-building,
research on industrial restructuring, dissemination of information on specific technology
and Environmental Sound Technologies (ESTs) through seminars, workshops and
technology fairs.
III. BUDGETARY ALLOCATIONS FOR INTERNATIONAL COOPERATION
This section presents the budgetary allocations made by the Central government for
activities facilitating international cooperation (as identified in section II). Subsequent
sections indicate the broad groups of activities under each heading and government
agency to which the expenditure for each type of activity is issued. Budget allocations
under these headings in 2002-03 and 2003-04, summarized in table 11, are further sub-
divided into two groups: those spent within national boundaries and those spent abroad to
meet international obligations or to improve external relations. It may be observed from
table 11 that total expenditure for international cooperation as percentage of total central
government expenditure declined from 8.74% in 2002-03 to 6.78% in 2003-04. Social
services expenditures constitute major portion of government expenditure, while
expenditure on institutional set up for WTO, drug trafficking and smuggling was the
least. The higher ratio in 2002-03 was due to larger interest payments for external debt
and higher expenditure on food for works program (under social services) to tackle
severe droughts in 2002-03.
a. Mandatory contributions to the international agencies
Mandatory contributions of the Indian government to international organizations in 1990-

91 to 2003-04 summarized in table 12 indicate that the ratio of total contributions to the

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central government expenditure declined from 1.8% in 1991-92 to 0.2% in 2003-04, that
to total revenue and grants from 2.6% to 0.3%, that to total tax revenue from 3.9% to
0.5% and that to overall deficit from 6.3% to 0.8% over the same period. Contributions
amounted to as high as 40.8% of net external assistance received by the Indian
government in 1995-96, although the ratio declined to 28.1% in 2003-04.
Table 13 classifies the contributions under standard industrial classifications in the
national account framework on the basis of the classification of the subject dealt by the
concerned department (having one-to-one correspondence with the concerned
international organization). It is observed that services sectors, particularly international
organizations dealing with finance, account for major share in total contributions. In
some years, international organizations dealing with public administration, community
and social services also received major share of Indian contributions, while agriculture
and industry taken together had marginal shares in total contribution.
b. Expenditures for external affairs
Expenditures for external affairs can be grouped under four sub-headings: (a) cost of 161
embassies abroad, (b) costs for diplomatic relations, (c) expenditure for granting visas,
and (d) grants and external assistance given by the Ministry of Finance and the Ministry
of External affairs under the Technical and Economic Cooperation. These expenditures
for the years 2002-03 and 2003-04 are summarized in table 14 indicate that their share in
total central government expenditure ranged between 0.8 to 0.9 per cent.
c. External debt services and contingent liabilities of the government
Interest on external debt: Interest on external debt on government account amounted to

Rs.4511 crore and Rs.3288 crore respectively in 2002-03 and 2003-04 which accounted
for 1.13% and 0.69% of total central government expenditures in the respective years.
Contingent liabilities: In addition to direct liabilities for external debt, the government of
India has various contingent liabilities in terms of government guarantees for the loans
taken by the public enterprises, exchange rate risk and guarantees given to the first track
large power projects by the independent power producers. During 1990s, as percentage of
GDP, there was a steady decline of the contingent liabilities of the central government
(from 7.8% to 4.2%), but an increase in the liabilities of the states (5.7% to 7%) (Das,
Bisen, Nair and Kumar 2001). Many states initiated measures to contain the growth of
guarantees. These include selectivity in providing guarantees, disclosing comprehensive
information in budgets, setting up guarantee redemption funds, fixing statutory limits on
guarantees and charging guarantee commissions on outstanding amounts.
In the external sector, the government provided guarantees to external loans taken by
public sector enterprises, fast track private power projects and oil and gas exploration
companies. There was a steady decline in Government guarantees from US$10.7 billion
at end-March 1995 to US$6.4 billion at end-March 2003. Sectoral distribution of
Government guarantees indicates a growing share of guarantees extended to power (from
21.7% in 1994 to 52.7% in 2000) and housing (3.0% to 10.7%), but declining shares of

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petroleum (31.6% to 18.2%), civil aviation (17.2% to 4.3%) and aluminium (8.2% to
0.3%).
In addition to loan guarantees by the government, until 1993 RBI provided exchange rate
guarantees for attracting deposits from the non-resident Indians (NRIs). Other instances
of exchange guarantee were the Resurgent India Bonds (RIBs) launched by the State
Bank of India (SBI) in August 1998 and the India Millennium Deposits (IMD) floated by
the SBI in October-November 2000 for raising resources from the NRIs. Funds mobilized
through RIBs were US$ 4.23 billion and those by IMDs were US$ 5.51 billion. As per
the agreement, in the event of rupee depreciation, the loss up to 1% per annum would be
borne by the SBI and the balance by the Government.
In addition to the above, contingent external liabilities arise in normal operations by the
commercial and development banks, corporate bodies and the Export Import (EXIM)
Bank of India for providing performance and loan guarantees, bonds, letters of credit,
forward exchange contracts, underwriting commitments, deferred payment guarantees,
bill discounting and exchange risk for Foreign Institutional Investment and NRI deposits.
d. Trade and export promotion
Budgetary allocations for trade development and export promotions summarized in table
15 indicate that these expenditures amounted to 0.27% of the total central government
expenditure in 2002-03 and 2003-04. In addition to explicit budget allocations, there are
various implicit subsidies in terms of fiscal and other incentives for trade and export
promotion (discussed previously). Revenue losses for most of these fiscal incentives are
not estimated in the budget. Table 16 on duty foregone for selected export promotion
schemes indicates that there was an increasing and substantial loss of customs duties in
2000-2003. Total duty foregone amounted to as high as 80% of net customs collections in
2002-03.
e. Social services expenditure related to the MDGs
Budgetary allocations on selected social sectors related to the commitment under the
MDGs are summarized in table17. It is observed from the table that these social services
expenditures as percentage to the total central government expenditure amounted to 5.4%
in 2002-03 and 4% in 2003-04. The higher expenditure in 2002-03 was due to special
employment generation and food-for-work programs introduced by the central
government to tackle the severe drought in the year.
f. Financing energy, environment and R&D
Budgetary allocations for energy conservation, pollution control, environment protection,

capacity building for environment management, climatic change project and selected
scientific and industrial research and development activities for the years are presented in
table 18. It is observed that these expenditures accounted for 0.5% of total central
government expenditures in 2002-2004. India lags far behind in its R&D activities when
compared to advanced countries. As per the information given in the World Development

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Indicators 2003 (World Bank 2003, pp.302-304), India’s R&D expenditure at 1.23 % of
GDP is higher than Malaysia’s 0.4%, Thailand’s 0.1% and China’s 1%, but is
considerably lower than that in the U.S. (2.7%), Japan (3%), Germany (2.5%) and the
Republic of Korea (2.7%).
g. Transport, communications and tourism
Budgetary allocations for selected activities in seaports, air transport, telecom and
tourism to facilitate international cooperation provided in table 19 indicate that these
expenditures accounted for only 0.2% of central government expenditure in 2002-2004.
h. Money laundering and drug trafficking
There is specific budgetary allocation for the Department of Revenue and the Ministry of
Home Affairs, which are responsible to control drug trafficking and financial abuse
through illegal flows of precious metals and financial transactions. Table 20 indicates that
only a small proportion of central government budget is spent on these activities.
i. Institutional set up for WTO issues
The Ministry of Commerce and Industry is the nodal ministry to deal with WTO issues.
Only a small proportion of central government budget is spent on the institutional and
administrative matter (table 21).
j. Foreign exchange reserve
After the Gulf crisis in 1990, India’s foreign exchange reserves dwindled to US$1 billion,
equivalent to only two weeks level of essential imports. External sector liberalization
along with India’s cautious approach towards capital account convertibility helped to
build up significant foreign exchange reserves over the years. Foreign exchange reserves
increased by more than $30 billion in 2003 as a result of improvement in both current
account balance and net capital inflows. The stock of foreign exchange (including gold
and SDR) stood at $108 billion in March 2004 and is equivalent to 18 months of imports.
The policy for reserve management is judiciously built upon a host of factors such as the
size of the current account balance and short-term liabilities, variability in portfolio
investment and other types of capital flows; unanticipated external shocks; and
repatriable foreign currency deposits of Non-Resident Indians. Taking these factors into
account, India’s foreign exchange reserves are consistent with the rate of growth, the
share of the external sector in the economy and the size of risk-adjusted capital flows.
The substantial growth in reserves in recent years has generated a welcomed debate
regarding the costs and benefits of holding reserves. In such cost-benefit analysis, it is
essential to analyze the objectives of holding reserves which include (a) maintaining
confidence in money and exchange markets; (b) enhancing the capacity to intervene in
forex markets; (c) limiting external vulnerability; and (d) adding to the comfort of the

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market participants. Sharp exchange rate movements can be highly unsettling and costly
for the economy during periods of uncertainty. These economic costs are likely to be
substantially higher than the net financial cost, if any, of holding reserves.
In this context, it is important to note that in the last few years, reserves have been made
without increasing the overall level of external debt. The increase in reserves largely
reflects higher remittances, quicker repatriation of export proceeds and non-debt inflows.
Even after taking into account foreign currency denominated NRI flows (where interest
rates are linked to LIBOR), the financial cost of additional reserves in India is quite low,
and is likely to be more than offset by the return on additional reserves.
It may also be mentioned that most of the increase in reserves in recent years is through
net purchases by RBI in the domestic forex market, for which an equivalent amount of
domestic currency has been released to the concerned domestic entities, including public
sector units, corporate bodies and individuals. The decision on the use of this counterpart
domestic currency released by RBI (i.e., for investment, deposits or as liquid assets, etc.)
is the responsibility of the entities. Needless to add that to the extent this counterpart local
currency is used by recipient entities for further investment in the economy, the impact
on industrial demand and growth would be favorable.
k. Migration
India’s stock of human capital in terms of qualified people is one of the highest in the
world (table 22). Every year India adds about 2.3 million English-speaking graduates
compared with 1.2 million graduates in the U.S. (Ahya and Agarwal 2004, p. 2). With
limited opportunities in the domestic market, Indian educated labor continues to look for
outsourcing opportunities and job offshore. In the past, India participated in the global
labor arbitrage through migration. The acceleration in the outsourcing of services and
manufacturing in recent years has created alternative ways to participate in the global
labor market. India has achieved success in sectors with higher labor intensity but lower
infrastructure and capital intensity, such as software and IT enabled services,
pharmaceuticals, gems and jewelry and garments. Presently India has a share of 1.3% in
global trade of commercial services (excluding remittances from Indians working abroad)
compared to its share of only 0.8% in global trade of goods.
There is heated debate on substantial brain drain from India. Currently there are about 20
million non-resident Indians (NRIs) of which 1.7 million are settled in the U.S. Other
favored destinations are the UK, Africa, the Middle East and Malaysia. However, on
considering substantial remittances, investment and deposits by the NRIs, free movement
of technical people had been beneficial to India. In 2001, India received the highest
amount of remittances from workers amongst developing countries (table 23). High
remittances helped India to have surplus on current accounts since 2002-03. NRIs have a
share of about 20% in stock of Foreign Direct Investment (FDI) in India. NRI deposits of
foreign exchange with the domestic banks are major sources of foreign exchange reserves
with the RBI and helped India to tackle the economic sanctions imposed by developed
countries after the nuclear test of 1998.

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CONCLUSION
India acknowledges the benefits of international economic and diplomatic relations. Over
the years, the country has liberalized trade and investment policies, and protected
interests of the weaker sections through development of appropriate safety nets. Ongoing
reforms have a human face with increased outlays on social sectors and poverty
alleviation programs. Reforms in India not only generated high growth but also reduced
poverty ratios.
India is a founder member of the major international organizations and makes annual
contributions to these organizations. On considering the level of per capita income,
Indian contributions and budget allocations appear to be adequate and stable over time.
Indian budget making is transparent and all expenditures are debated and approved by the
Parliament. Economic policies and budget allocations are based on general political
consensus. Given the fundamentals of the economy and better economic prospects in
future, government resources and expenditures are sustainable. However, there are
concerns regarding increasing government deficit and contingent liabilities. Government
passed the Fiscal Responsibility and Budget Management Act 2003 which aims at
eliminating the revenue deficit and reducing the fiscal deficit in the medium term. India's
fiscal deficit and public debt cannot be sustained over a longer period unless resources
are augmented and subsidies reduced significantly. The tight fiscal situation may put a
constraint on contributions to international organizations.
It is necessary to maintain a high degree of fiscal discipline and transparency, a well

designed fiscal policy, short-run contingency measures and a multi-year macro-budgetary
process for both Centre and States. There is also need for strengthening institutional
framework for preparation, sequencing, the phase-in and implementation of needed
structural reforms and phasing out of quasi-fiscal and contingent liabilities. As in other
countries, India should estimate the tax expenditure to raise public awareness about the
hidden tax subsidies. In this respect, it is necessary to move towards accrual accounting
as recommended in the IMF Revised Government Finance Statistics 2000 along with the
existing system of preparing budget on cash basis.
India recognizes global concerns regarding international terrorism, money laundering,

drug-trafficking and spread of HIV/AIDS and supports measures taken by multilateral
organizations. The country is actively combating these problems through appropriate
institutions and laws. Multilateral organizations could provide more technical assistance
in these areas to member countries for strengthening their financial and legal systems.

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REFERENCES
Ahya, Chetan and Anil Agarwal. 2004. “India: Appending Itself to Global Labour Supply
Chain.” Hong Kong: JM Morgan Stanley.
Das, Tarun. 2002."Implications of Globalisation on Industrial Diversification Process and
Improved Competitiveness of Manufacturing in ESCAP Countries."
ST/ESCAP/2197. Bangkok: ESCAP.
_________. 2003a. Economic Reforms in India- Rationale, Scope, Progress and
Unfinished Agenda. Pune, India: Bank of Maharashtra.
_________. 2003b. “An Assessment of Trade in Services- a Case Study on India.”
Discussion Paper, Indian Council for Research on International Economic
Relations (ICRIER), New Delhi.
Das, Tarun, Anil Bisen, MR Nair and Raj Kumar. 2001. External Sector- Contingent
Liabilities- a Case Study on India. London: Commonwealth Secretariat.
Das, Tarun, Usha Thorat and Charan Singh. 2002. "Country Case Studies: India".
Chapter 4, Part-II, In Guidelines for Public Debt Management- Accompanying
Document and Selected Case Studies. Washington D.C: International Monetary
Fund and the World Bank: 66-80.
GOI (Government of India), CS (Cabinet Secretariat). 1990. Allocation of Business Rules
1961: Amended up to 1989. New Delhi.
GOI (Government of India), MCI (Ministry of Commerce and Industry). 1992. Annual
Report 2002-03. New Delhi.
GOI (Government of India), MOEA (Ministry of External Affairs). 2000. Annual Report
1999-2000. New Delhi.
GOI (Government of India), MOF (Ministry of Finance). 1992. Expenditure Budget
1992-93, Volume-1. New Delhi.
_________. 1993. Expenditure Budget 1993-94, Volume-1. New Delhi.
_________. 2003a. Expenditure Budget 2003-04, Volume-1. New Delhi.
_________. 2003b. Expenditure Budget 2003-04, Volume-2. New Delhi.
_________. 2003c. Economic Survey 2002-03. New Delhi.
_________. 2003d. India's External Debt- A Status Report. New Delhi.
_________. 2004a. Expenditure Budget 2004-05, Volume-1. New Delhi.
_________. 2004b. Revenue Budget. New Delhi.
_________. 2004c. Budget at a Glance. New Delhi.
GOI (Government of India), MHFW (Ministry of Health and Family Welfare). 2002.
National Health Policy 2002. New Delhi.
Kopits, George. 2001. "Fiscal policy rules for India?" Economic and Political Weekly,
Vol.XXXVI: 749-756.
Kumar, Nagesh. 2001. Globalisation and Quality of Foreign Direct Investment. London
and New York: Routledge.
Reserve Bank of India. 2003. Annual Report 2002-03. Mumbai.
Virmani, Arvind. 1999. "Agenda for reforms in the external sector." Chintan Policy
Paper. New Delhi.

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Virmani, Arvind. 2001. "India's 1990-91 Crisis: Reforms, Myths and Paradoxes." New
Delhi, Planning Commission, Government of India.
World Bank. 2003. Global Development Finance- Financing the Poorest Countries:
Analysis and Summary Tables. Washington DC.
_________. 2003. World Development Indicators 2003.Washington DC.

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TABLES
TABLE 1: INDIA’S FISCAL AND FINANCIAL SECTOR REFORMS SINCE 1991
Area Status in June 1991 Status in February 2004
Budget Policy Budgetary support to central public enterprises Budgetary support curtailed to 0.6% of GDP.
amounted to 1.5% of GDP besides various subsidies, Concessional credits / price preference eliminated.
concessional credits, price and purchase preferences. Hard budget constraint introduced. Disinvestment up to
No hard budget constraints. No privatization policy. 49% of government equity allowed.
Fiscal deficit Year Fiscal Revenue Primary Year Fiscal Revenue Primary
Deficit Deficit Deficit Deficit Deficit Deficit
1990-91 6.6 3.3 2.8 2003-04 4.8 3.6 0.3
Combined fiscal deficit of the Centre and States in 1990- Overall fiscal deficit of the Centre and States in 2003-
91: 04:
Central government 6.6 Central government 4.8
States /Union Territories 3.3 States /Union Territories 4.5
Centre & States /Union Territories 9.4 Central & States /Union Territories 8.8
Govt. securities Fixed and low interest rates. Government securities are sold at market prices.
Capital Issuing and pricing of securities, shares and bonds Office of Controller of Capital Issues is abolished.
markets determined by the Controller of Capital Issues (CCI) in Independent regulatory authority - Securities and
the Finance Ministry. Exchange Board of India - is established for orderly
growth of capital markets.
Tax structure Maximum Rates Maximum Rates
Excise duties 110% Excise duties 24%
Import duties 400% Import duties 20%
Income tax 54% Income tax 30% + surcharge of 10%
Corporate tax: Corporate tax:
Domestic cos. 49% and 54% Domestic cos. 35% + surcharge of 2.5%
Foreign cos. 65% Foreign cos. 40% + surcharge of 2.5%
Dividend tax on both individuals and companies. Dividend tax on distributed profits.
Existence of gift tax. Gift tax abolished.
Limited cases of tax holidays. Tax holidays extended to all infrastructures.
Banking system Highly controlled banking system with strict rules for New private banks set up. Government equity in public
new branches and entry of new banks. banks reduced to 49%. Foreign equity in private banks
allowed up to 40%.
Bank deposit rates fixed according to account types and Bank deposit rates except for savings a/c liberalized.
maturities. Minimum maturity of time deposit was 30 The min. maturity of term deposit reduced to 7 days.
days.
Bank lending rates are fixed according to loan size and Lending rates liberalised. Prime Lending Rate ranges
end uses. Floor rate on large loans fixed by the Reserve between 10.5% to 12% with spread on both directions.
Bank of India (RBI) at 21%. RBI Bank rate at 12%. Bank rate reduced to 6%.
Priority sectors lending amounted at least 40 % of bank Priority sectors redefined. No concessional rates except
credits at concessional rates. for small loans, housing, small scale industries,
agriculture and education.
Government pre-empted large portion of bank reserves Higher bank funds are available for private sector, the
through Cash Reserve Ratio of 25% and Statutory Cash Reserve Ratio is reduced to 4.5% and the
Liquidity Ratio of 38.5%. Statutory Liquidity Ratio is reduced to 25%.
Inadequate norms concerning capital adequacy, income Regulations, monitoring, norms on asset classification,
recognition, and provisioning for non-performing assets provisioning, capital adequacy tightened as per
international best practices.
FDI treatment Foreign portfolio investment in Indian companies not Foreign Institutional Investors (FIIs), Non-Resident
allowed. Foreigners not allowed buying government Indians (NRIs) and Overseas Corporate Bodies (OCBs)
securities or shares in public sector enterprises. allowed operating in India’s stock markets subject to
individual and cumulative ceilings. NRIs/ FIIs allowed
buying govt securities & debt issues.
Domestic Indian firms not allowed raising funds from foreign Indian firms allowed raising funds abroad through
companies stock exchanges. Global Depository Receipts, Foreign Currency
Convertible Bonds and offshore fund.
Source: Updated on the basis of Das 2003a (pp. 14-19).

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TABLE 2: REVENUE RECEIPTS OF THE CENTRAL GOVERNMENT, % OF GDP
Year Major Taxes Tax Non-tax Total

revenue revenue revenue
Income Corporate Excise Customs receipts
tax tax duties duties
1990-91 0.9 0.9 4.3 3.6 10.1 2.1 12.2
1995-96 1.3 1.4 3.4 3.0 9.4 2.4 11.8
2000-01 1.5 1.7 3.3 2.3 9.0 2.7 11.7
2002-03 1.5 1.8 3.5 1.8 9.1 3.0 12.1
2003-04 1.6 1.9 3.5 1.8 9.3 2.6 11.8
Source: (1) GOI, MOF 2003b, p.25. (2) RBI 2003, p.57 and (3) GOI, MOF 2004b, p.38.

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TABLE 3: COMBINED EXPENDITURE OF CENTRE AND STATES, RUPEES BILLION
Items 1990-91 1995-96 2000-01 2001-02

A. Non-developmental expenditure (1-11) 692.0 1,531.4 2,957.2 3,421.0
1. Defense services 154.9 269.6 498.4 572.1
2. Interest payments 250.1 589.4 1,196.6 1,391.6
3. Fiscal services 34.5 99.2 90.1 99.5
4. Administrative services 93.8 184.4 349.0 405.8
5. Organs of states 10.9 26.5 42.6 51.0
6. Pensions and other retirement benefits 51.8 121.7 388.2 432.0
7. Relief for natural calamilities 8.7 17.8 37.0 54.1
8. Compensation to local bodies 8.5 13.6 47.1 50.9
9. Food subsidy 24.9 57.2 125.5 181.6
10. Social security 24.4 54.5 83.8 85.4
11. Others 29.6 97.6 98.9 97.2
B. Developmental expenditure (1-8) 740.0 1,265.2 2,361.0 2,788.0
1. Social and community services 309.7 586.6 1,140.1 1,348.7
2. General economic services 49.9 19.0 43.6 64.6
3. Agriculture and allied services 117.1 216.4 351.4 417.4
4. Industry and minerals 38.5 50.9 67.6 86.2
5. Fertilizer subsidies 44.0 62.4 94.9 74.3
6. Power and irrigation 101.1 209.3 338.0 401.1
7. Transport and communications 66.0 98.1 285.3 350.3
8. Public works 13.7 22.6 40.1 45.4
C. Total expenditure (A+B) 1,432.0 2,796.6 5,318.1 6,209.1
Memo items:
D. Selected Expenditures for international
cooperation
(a) Contributions to international bodies 7.3 1.3 6.3 2.4
(b) External affairs (excluding a and c) 4.5 8.5 13.8 16.8
(c ) Tech & eco-coop with other countries 1.4 2.4 7.0 7.7
(d) Foreign trade and export promotion 28.1 4.3 8.3 9.2
(e) Posts and telecommunications 4.1 0.5 7.7 0.5
(f) Civil aviation 0.3 1.0 2.3 2.8
(g) Ports, light houses and shipping 1.9 3.4 8.6 8.6
(h) Interest on external public debt 18.3 49.0 50.5 52.7
Total expenditure for int. cooperation (a-h) 65.9 70.5 104.5 100.7
Source: Table 1.1, pp.1-2 in Government of India, Ministry of Finance. 2003. "Indian Public Finance
Statistics 2002-2003", New Delhi.

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TABLE 4: COMBINED EXPENDITURE OF CENTER AND STATES, % OF TOTAL
Items 1990-91 1995-96 2000-01 2001-02

A. Non-developmental expenditure (1-11) 48.3 54.8 55.6 55.1
2. Interest payments 17.5 21.1 22.5 22.4
3. Fiscal services 2.4 3.5 1.7 1.6
5. Organs of states 0.8 0.9 0.8 0.8
6. Pensions and other retirement benefits 3.6 4.4 7.3 7.0
7. Relief for natural calamilities 0.6 0.6 0.7 0.9
9. Food subsidy 1.7 2.0 2.4 2.9
10. Social security 1.7 2.0 1.6 1.4
11. Others 2.1 3.5 1.9 1.6
B. Developmental expenditure (1-8) 51.7 45.2 44.4 44.9
1. Social and community services 21.6 21.0 21.4 21.7
8. Public works 1.0 0.8 0.8 0.7
C. Total expenditure (A+B) 100.0 100.0 100.0 100.0
Memo items:
D. Selected Expenditures for international
cooperation
(b) External affairs (excluding a and c) 0.3 0.3 0.3 0.3
Source: Derived from Table 3.

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TABLE 5: TOTAL EXPENDITURE OF THE CENTRAL GOVERNMENT, RUPEES BILLION
Items 1990-91 1995-96 2000-01 2001-02

A. Non-developmental expenditure (1-11) 489.8 1,033.6 1,998.9 2,208.1
2. Interest payments 215.0 500.5 993.1 1,072.6
3. Fiscal services 18.9 55.7 41.5 36.5
5. Organs of states 3.8 8.5 16.0 15.6
6. Pensions 21.4 42.9 142.2 153.0
7. Tech & eco-coop with other countries 1.4 2.4 7.0 7.7
9. Food subsidy 24.5 53.8 120.6 176.1
11. Others 18.8 34.7 42.1 26.9
B. Developmental expenditure (1-9) 345.7 498.2 918.8 1,055.4
8. Public works 3.8 4.0 7.0 8.9
9. Grants to states 71.0 115.4 175.7 201.1
C. Statutory Grants to States and UTs 33.9 52.9 115.8 143.9
D. Total expenditure (A+B+C) 869.4 1,584.7 3,033.5 3,407.4
Memo items:
E. Selected Expenditures for international
cooperation
(b) External affairs 4.5 8.5 13.8 16.8
Source: Table 2.1, pp.12-14 in Government of India, Ministry of Finance. 2003. "Indian Public Finance
Statistics 2002-2003", New Delhi.

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TABLE 6: TOTAL EXPENDITURE OF THE CENTRAL GOVERNMENT, % OF GDP
Items 1990-91 1995-96 2000-01 2001-02

A. Non-developmental expenditure (1-11) 56.3 65.2 65.9 64.8
2. Interest payments 24.7 31.6 32.7 31.5
3. Fiscal services 2.2 3.5 1.4 1.1
5. Organs of states 0.4 0.5 0.5 0.5
6. Pensions 2.5 2.7 4.7 4.5
7. Tech & eco-coop with other countries 0.2 0.2 0.2 0.2
9. Food subsidy 2.8 3.4 4.0 5.2
11. Others 2.2 2.2 1.4 0.8
B. Developmental expenditure (1-9) 39.8 31.4 30.3 31.0
8. Public works 0.4 0.2 0.2 0.3
9. Grants to states 8.2 7.3 5.8 5.9
C. Statutory Grants to States and UTs 3.9 3.3 3.8 4.2
D. Total expenditure (A+B+C) 100.0 100.0 100.0 100.0
Memo items:
E. Selected Expenditures for international
cooperation
(b) External affairs 0.5 0.5 0.5 0.5
Source: Derived from Table 5.

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TABLE 7: COMBINED FISCAL DEFICITS OF THE CENTRE AND STATES
Fiscal Deficit (% of GDP) 1990-91 1995-96 2001-02 2002-03 2003-04RE

Centre 6.6 4.2 6.2 5.3 4.8
States 3.3 2.6 4.2 4.7 4.5
Combined 9.4 6.5 9.9 10.1 8.8
Financing of Central
government deficit (in %)
Domestic finance 92.9 99.5 96.0 109.3 97.7
External finance 7.1 0.5 4.0 -9.3 2.3
Total 100 100 100 100 100
Note: RE stands for Revised Estimate. Combined deficit does not add up to the fiscal deficits of the Centre
and States as the transfer from the Centre to the States is netted out in the combined deficit.
Source: RBI 2003 (p.64) and GOI, MOF 2004c (p.15).
TABLE 8: OUTSTANDING PUBLIC DEBT BY THE CENTER AND STATES, % OF GDP
End of Centre States Combined

year Domestic External Total Domestic Domestic External Total
1990-91 49.8 11.7 61.4 19.4 56.2 11.7 67.8
1995-96 46.7 12.5 59.2 17.9 53.7 12.5 66.2
2000-01 52.4 11.3 61.6 23.7 63.2 11.3 74.5
2002-03 61.4 9.5 70.9 28.3 73.8 9.5 83.3
2003-04 65.7 9.0 74.7 30.2 78.4 9.0 87.4
Source: Das, Thorat and Singh 2002 (p.80) and RBI 2003 (p.67; 298).

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TABLE 9: MAJOR REFORMS IN INVESTMENT AND EXTERNAL SECTOR SINCE 1991
Status in June 1991 Status in February 2004

1. Investment policy
(a) Licensing required for most industries which (a) Licensing abolished except for 6 items which
accounted for 80% of manufacturing output. account for only 7% of manufacturing output.
(b) Restrictions on expansion under Monopolies (b) Monopolies and Restricted Trade Policies Act
and Restricted Trade Policies Act. amended.
(c) Reservation of 836 items for small scale (c) Only 456 items are reserved for the small scale
industries. industries.
(d) 18 core and infrastructure industries with high (d) Only three industries viz. rail transport, atomic
capital intensity, long gestation, low return and energy, minerals required by atomic energy
high risk, reserved for the public sector. reserved for public sector.
(e) Restricted foreign investment policy. (e) All sectors open for foreign investment except
some strategic sectors on ground of national
security, public health and environment.
(f) No Competition Act. (f) Competition Commission established.
2. External Sector reforms
(a) Fixed exchange rate determined by the Reserve (a) Exchange rate is market determined by supply
Bank of India. and demand for foreign exchange.
(b) Quantitative Restrictions on 91% of imports (b) Most Quantitative Restrictions are removed.
(c) Imports of 55 goods canalized (c) Most items decimalized.
(d) 439 items of exports are subject to export (d) Abolished except for some minerals and
licenses. agricultural products.
(e) Export taxes on agro items & minerals. (e) Export taxes abolished.
(f) No current account convertibility. (f) Full convertibility on current account.
(g) No capital account convertibility. (g) Major convertibility on capital account.
Source: Updated on the basis of Das 2003a (pp. 31-32).

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TABLE 10: TRENDS IN HEALTH CARE IN INDIA, 1951-2000
Item 1951 1981 2000

Primary/secondary health centers (in 000) 0.7 57 165
Dispensaries and Hospitals (in 000) 9 24 50
Beds (Private and Public) (in 000) 117 569 1,000
Doctors (Modern System) 18 144 505
Nursing Personnel 62 269 740
Malaria (Cases in million) 75 2.7 2.2
Leprosy (Cases/ 10,000 population) 38.1 57.3 3.74
Small Pox (in 000) 45 Eradicated Eradicated
Source: GOI, MHFW 2003.

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TABLE 11: BUDGETARY EXPENDITURE FOR INTERNATIONAL COOPERATION
Activity Ministry/ Within national For overseas Total expenditure

Department Boundary Transactions (Rupees crore)
(Rupees crore) (Rupees crore)
2002-03 2003-04 2002-03 2003-04 2002-03 2003-04
1. Contributions to Various Min / 0 0 1,299 1,007 1,299 1,007
international bodies Departments
2. Expenditure for External Affairs/ 889 927 2,727 2,841 3,616 3,768
external affairs Finance
3. Interest on external Finance 0 0 4,511 3,288 4,511 3,288
debt
4. Trade and Export Commerce/ 1,097 1,274 0 0 1,097 1,274
Promotion Communications
5. UN Millennium Various Min / 21,442 18,834 0 0 21,442 18,834
Development goals Departments
6. Energy and Environment/ 908 1,024 0 0 908 1,024
environment Non-conventional
7. Research & Various Min / 1,157 1,331 0 0 1,157 1,331
Development Departments
8. Transport , Telecom, Various Min / 753 926 0 0 753 926
tourism Departments
9. Drug trafficking & Finance/ Home 19 23 1 1 20 24
smuggling Affairs
10. Institutional set up Commerce and 133 143 64 66 197 209
for WTO Industry
Total (1 to 10 above) 26,398 24,482 8,602 7,203 35,000 31,685
Total expenditure of - - - - 400,397 474,255
Central government

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TABLE 11 (CONT.)
As % of Total Central Government Expenditure
Activity Ministry/ Within national For overseas Total expenditure
Department Boundary Transactions
2002-03 2003-04 2002-03 2003-04 2002-03 2003-04
1. Expenditure for External Affairs/ 0.22 0.20 0.68 0.60 0.90 0.79
external affairs Finance
2. Interest on external Finance 0 0 1.13 0.69 1.13 0.69
debt
3. Trade and Export Commerce/ 0.27 0.27 0 0 0.27 0.27
promotion Communications
4. UN Millennium Various Min / 5.36 3.97 0 0 5.36 3.97
Development goals Departments
5. Energy and Environment/ 0.23 0.22 0 0 0.23 0.22
environment Non-conventional
6. Research & Various Min / 0.29 0.28 0 0 0.29 0.28
7. Transport , Various Min / 0.19 0.20 0 0 0.19 0.20
Telecom, tourism Departments
8. Drug trafficking & Finance/ Home 0.00 0.00 0.00 0.00 0.00 0.01
smuggling Affairs
9. Institutional set up Commerce and 0.03 0.03 0.02 0.01 0.05 0.04
for WTO Industry
11. Total (1 to 10 above) 6.59 5.16 2.15 1.52 8.74 6.68
Notes: (1) Different categories of expenditures are explained in the subsequent sections.
(2) Expenditures under broad categories are incurred by the concerned departments/ ministries with prior
approval of the Ministry of Finance and approved by the Indian Parliament as a part of Union Budget.
(3) This table summarizes information given in tables 4.2 to 4.9.
Source: Expenditure Budget – Part 2, a part of Budget Documents presented to the parliament by the
Ministry of Finance, indicates detailed demands for grants for each Department and Ministry under
different headings and activities. The above table is based on information given in GOI, MOF 2003b. For
detailed sources, see sources of data under tables 4.1 to 4.9.

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TABLE 12: CONTRIBUTIONS TO INTERNATIONAL BODIES
Items (Rupees billion) 1990-91 1991-92 1995-96 2001-02 2002-03 2003-04

1. Total contributions to 7.3 19.4 1.3 2.4 13.0 10.1
international bodies
2. Total expenditure and net 983 1059 1683 3623 4004 4743
lending
3. Total revenue and grants 607 751 1180 2214 2691 3422
4. Total tax revenue 430 501 819 1335 1594 1875
5. Total external assistance (net) 32 54 3 56 -135 36
6. Overall deficit (2-3) 376 308 503 1410 1313 1321
Contribution as % of:
2. Total expenditure and net 0.7 1.8 0.1 0.1 0.3 0.2
lending
3. Total revenue and grants 1.2 2.6 0.1 0.1 0.5 0.3
4. Total tax revenue 1.7 3.9 0.2 0.2 0.8 0.5
5. Total external assistance (net) 23.1 35.8 40.8 4.4 -9.6 28.1
6. Overall deficit (2-3) 2.0 6.3 0.3 0.2 1.0 0.8
Notes: (1) Contributions mean mandatory subscriptions of the Government of India as a Member to the
international organizations. Large variations of contributions over the years are due to the fact in 1995-96
and 2001-02 Indian government was required to make fewer contributions to the IMF, ADB and IBRD.
(2) Various terms used in the table have the same interpretations as in the IMF Government Finance
Statistics. Total expenditure covers all non-repayable payments on both current and capital accounts of the
Government. Net lending consists of Central government lending for public policy purposes minus
repayment to the Central government.
(3) Total revenue and grants cover all non-repayable government receipts (including grants received from
other governments and international organizations).
(4) Revenue consists of tax and non-tax revenues. Tax revenue is unrequited and compulsory payments to
government on the basis of levies imposed on income, wealth, production, imports etc.
Source: Estimated by the author on the basis of information given in the Annexure-3 on Trends of
Expenditure and Annexure-4 on Contributions to International Bodies in following budget documents:
(1) GOI, MOF 1992, pp.72-77, for the year 1990-91. (2) GOI, MOF 1993, pp.76-81, for the year 1991-92.
(3) GOI, MOF 1997, pp.80-85, for the year 1995-96. (4) GOI, MOF 2003a, pp.70-76, for the year 2001-02.
And (5) GOI, MOF 2004, pp.68-74, for the years 2002-03 and 2003-04

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TABLE 13: CONTRIBUTIONS BY THE INDIAN GOVERNMENT TO INTERNATIONAL BODIES

(Classified by industrial classifications in national accounts framework)
Ministry/ Department 1990-91 1991-92 1995-96 2001-02 2002-03 2003-04
Contributions in Rupees million
1. Agriculture and allied services 58 76 82 199 215 219

2. Industry 53 97 155 257 337 322
Mining and quarrying 0 0 1 2 2 2
Manufacturing 41 79 101 199 271 255
Electricity, gas and water supply 12 18 39 41 47 47
Construction 0 0 15 15 18 18
3. Services 7,238 19,221 1,061 1,984 12,434 9,525
Trade, hotels ad restaurants 16 29 26 50 50 50
Transport, storage and 78 64 114 108 180 147
communications
Finance and real estate 6,961 18,850 453 1,197 11,505 8,622
Public Administration, Community 182 278 468 629 699 707
and social services
Grand Total 7,349 19,395 1,298 2,440 12,985 10,066
In percentage
1. Agriculture and allied services 0.8 0.4 6.3 8.2 1.7 2.2
2. Industry 0.7 0.5 11.9 10.5 2.6 3.2
Mining and quarrying 0.0 0.0 0.0 0.1 0.0 0.0
Manufacturing 0.6 0.4 7.8 8.2 2.1 2.5
Electricity, gas and water supply 0.2 0.1 3.0 1.7 0.4 0.5
Construction 0.0 0.0 1.1 0.6 0.1 0.2
3. Services 98.5 99.1 81.7 81.3 95.8 94.6
Trade, hotels ad restaurants 0.2 0.2 2.0 2.1 0.4 0.5
Transport, storage and 1.1 0.3 8.8 4.4 1.4 1.5
communications
Finance and real estate 94.7 97.2 34.9 49.1 88.6 85.6
Public Administration, Community 2.5 1.4 36.1 25.8 5.4 7.0
and social services
Grand Total 100.0 100.0 100.0 100.0 100.0 100.0
Notes: (1) As per the Allocation of Business Rules approved by the President of India, each Ministry/
Department has a sectoral charge and deals with the concerned subject and the international organization.
With prior approval of the Ministry of Finance, mandatory contributions are made by the respective
Ministries/ Departments to which the particular recipient international organization belongs. For example,
Ministry of Finance makes contributions to the international financial organizations such as IMF, ADB,
International Bank for Reconstruction and Development and these contributions are shown under finance
and real estate.
(2) Ministry of Agriculture deals with FAO and contribution to FAO is shown under agriculture.
(2) Ministry of External Affairs makes contributions to the United Nations and its agencies,
Commonwealth Secretariat etc. and these contributions are shown under public administration, community,
Source: Same as in table 8.

Unedited Draft
TABLE 14: BUDGET ALLOCATIONS FOR EXTERNAL AFFAIRS
Activity Ministry/ Within country For overseas Total

Department (Rupees crore) (Rupees crore) (Rupees crore)
2002-03 2003-04 2002-03 2003-04 2002-03 2003-04

1. External Finance/ 889 927 2,727 2,841 3,616 3,768
relations External Affairs
1-A. Cost of External Affairs 0 0 849 914 849 914
embassies
1-B. Diplomatic External Affairs 795 824 107 123 902 947
relations
1-C. Visa External Affairs 94 103 0 0 94 103
expenditure
1-D Tech/Eco External Affairs 0 0 1,183 1,250 1,183 1,250
Cooperation
1-E Tech/Eco Finance 0 0 588 554 588 554
Cooperation
As % of total central government expenditure
1. External Finance/ 0.22 0.20 0.68 0.60 0.90 0.79

relations External Affairs
1-A. Cost of External Affairs 0.21 0.19 0.21 0.19
embassies
1-B. Diplomatic External Affairs 0.20 0.17 0.03 0.03 0.23 0.20
relations
1-C. Visa External Affairs 0.02 0.02 0.02 0.02
expenditure
1-D Tech/Eco External Affairs 0.30 0.26 0.30 0.26
Cooperation
1-E Tech/Eco Finance 0.15 0.12 0.15 0.12
Cooperation
Source: GOI, MOF 203b, pp. 64-65 for Ministry of External Affairs, and p.67 for Ministry of Finance and
Company affairs

Unedited Draft
TABLE 15: BUDGETARY EXPENDITURE FOR TRADE AND EXPORT PROMOTION

2002-03 2003-04 2002-03 2003-04 2002-03 2003-04

1. Trade and Export Various Min / 1,097 1,274 0 0 1,097 1,274
promotion Departments
1-A Development of Commerce 81 106 81 106
FTZ/ SEZs
1-B Assistance for export Commerce 630 656 630 656
promotion & market
development
1-C Assistance to states Commerce 274 333 274 333
1-D Assistance to other Commerce 103 166 103 166
bodies
1-E Software Tech. Communications & 5 6 5 6
Parks & Electronic IT
Hardware Tech. Park
1-F Electronic and Communications & 4 7 4 7
Computer Software & IT
Export Market Dev
1. Trade and Export Various Min / 0.27 0.27 0.00 0.00 0.27 0.27
promotion Departments
1-A Development of Commerce 0.02 0.02 0.02 0.02
FTZ/ SEZs
1-B Assistance for export Commerce 0.16 0.14 0.16 0.14
promotion & market
development
1-C Assistance to states Commerce 0.07 0.07 0.07 0.07
1-D Assistance to other Commerce 0.03 0.04 0.03 0.04
bodies
1-E Software Tech. Communications & 0.001 0.001 0.001 0.001
Parks & Electronic IT
Hardware Tech. Park
1-F Electronic and Communications & 0.001 0.001 0.001 0.001
Computer Software & IT
Export Market Dev
Notes: FTZ stands for Free Trade Zones and SEZ for Special Economic Zones.
Source: GOI, MOF 2003b, pp.30-32 for Ministry of Commerce and Industry, pp.39-42 for Ministry of
Communications and Information Technology.

Unedited Draft
TABLE 16: DUTY FORGONE UNDER SELECTED EXPORT PROMOTION SCHEMES
Scheme Rupees billion % to customs collection
2000-01 2001-02 2002-03 2000-01 2001-02 2002-03

1. Quantity Based Advance License 46.8 64.6 78.4 9.9 16.1 19.6
2. Value Added License 2.0 4.2 5.0 0.4 1.0 1.3
3. Export Promotion Zones 12.2 5.2 4.3 2.6 1.3 1.1
4. 100% Export Oriented Units 35.4 65.1 105.4 7.4 16.2 29.3
5. Export Promotion Capital Goods 15.1 15.9 31.3 3.2 4.0 7.8
6. Special Imprest License 7.3 2.0 1.0 1.5 0.5 0.3
7. Special Economic Zones 9.1 12.6 10.8 1.9 3.2 2.7
8. Duty drawback 41.9 29.9 36.0 8.8 7.6 9.0
9. Passbook scheme 0 2.4 1.4 0 0.6 0.4
10. Duty Entitlement Passbook scheme 46.3 62.7 81.7 9.7 15.6 20.4
11. Duty Free Replenishment Certificate 0.3 3.9 4.6 0.1 1.0 1.2
12. Total duty foregone 216.5 268.4 360.0 45.5 66.9 80.2
13. Net customs collection 475.4 401.0 449.1 100 100 100
Source: GOI, MCI 2003.

Unedited Draft
TABLE 17: BUDGETARY EXPENDITURE FOR SELECTED SOCIAL SERVICES
Activity Ministry/ Department Within country For overseas Total

(Rupees crore) (Rupees crore) (Rupees crore)
2002-03 2003-04 2002-03 2003-04 2002-03 2003-04

1. Social services Various Min / 21,442 18,834 0 0 21,442 18,834
Departments
1-A Water supply & Drinking Water Supply 2,250 2,750 2,250 2,750
sanitation
1-B Poverty alleviation Rural development 9,502 4,488 9,502 4,488
programs
1-C PM's Employment Plan Agro and Rural 152 152 152 152
Industries
1-D Rural Employment Agro and Rural 180 191 180 191
Gen Program Industries
1-E Public health Health 765 839 765 839
1-F Family welfare services Family Welfare 2,743 3,165 2,743 3,165
1-G Elementary education Elementary Education 3,765 4,649 3,765 4,649
& Literacy
1-H Women & child Women & Child 2,085 2,600 2,085 2,600
development Development
1. Social services Various Min / 5.36 3.97 0.00 0.00 5.36 3.97
Departments
1-A Water supply & Drinking Water Supply 0.56 0.58 0.56 0.58
sanitation
1-B Poverty alleviation Rural development 2.37 0.95 2.37 0.95
programs
1-C PM's Employment Plan Agro and Rural 0.04 0.03 0.04 0.03
Industries
1-D Rural Employment Agro and Rural 0.04 0.04 0.04 0.04
Gen Program Industries
1-E Public health Health 0.19 0.18 0.19 0.18
1-F Family welfare services Family Welfare 0.69 0.67 0.69 0.67
1-G Elementary education Elementary Education 0.94 0.98 0.94 0.98
& Literacy
1-H Women & child Women & Child 0.52 0.55 0.52 0.55
development Development
Source: GOI, MOF 2003b, pp.11-12 for Ministry of Agro and Rural Industries, pp.88-99 for Ministry of
Health and Family welfare, pp.113-114 for Department of Elementary Education and Literacy, pp.130-133
for Department of Women and Child Development, pp.165-167 for Department of Rural Development,
and pp.170 for Department of Drinking Water Supply.

Unedited Draft
TABLE 18: BUDGETARY EXPENDITURE FOR ENERGY, ENVIRONMENT PROTECTION AND

R&D
Activity Ministry/ Department Within country For overseas Total

(Rupees crore) (Rupees crore) (Rupees crore)
2002-03 2003-04 2002-03 2003-04 2002-03 2003-04

1. Energy and Various Min / 908 1,024 0 0 908 1,024
environment Departments
1-A Non-conventional Non-co conventional 474 630 474 630
energy energy
1-B. Pollution control Environment and Forest 391 376 391 376
1-C Env.Manage. Environment and Forest 24 17 24 17
Cap.building
1-D Climatic change Environment and Forest 19 1 19 1
project
2. Research & Various Min / 1,157 1,331 0 0 1,157 1,331
2-A. Oceanographic Ocean development 172 195 172 195
research
2-B Scientific & indl Scientific & Indl 985 1,136 985 1,136
research Research
1. Energy and Various Min / 0.23 0.22 0.00 0.00 0.23 0.22
environment Departments
1-A Non-conventional Non-conventional 0.12 0.13 0.12 0.13
energy energy
1-B. Pollution control Environment and Forest 0.10 0.08 0.10 0.08
1-C Env.Manage. Environment and Forest 0.01 0.00 0.01 0.00
Cap.building
1-D Climatic change Environment and Forest 0.00 0.00 0.00 0.00
project
2. Research & Various Min / 0.29 0.28 0.00 0.00 0.29 0.28
2-A. Oceanographic Ocean development 0.04 0.04 0.04 0.04
research
2-B Scientific & indl Scientific & Indl 0.25 0.24 0.25 0.24
research Research
Source: GOI, MOF 2003b, pp.58-63 for Ministry of Environment and Forests, pp.144-145 for Ministry of
Non-Conventional Energy Sources, pp.146-149 for Department of Ocean Development, and pp.177-179 for
Department of Scientific and Industrial Research.

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TABLE 19: BUDGETARY EXPENDITURE ON TRANSPORT, TELECOM AND TOURISM

2002-03 2003-04 2002-03 2003-04 2002-03 2003-04

1. Transport, Telecom, Various Min/ 753 926 0 0 753 926
tourism Departments
1-A. Collection cost of Revenue 35 36 35 36
domestic 1 international
air travel tax
1-B. Subsidy for Haj Civil Aviation 170 200 170 200
charters
1-C. Sea ports & light Shipping 249 314 249 314
houses
1-D Telecom Reg. Telecommunicatio 10 10 10 10
Authority ns
1-E.Tourist infrastructure Tourism 289 366 289 366
1. Transport, Telecom, Various Min / 0.19 0.20 0.00 0.00 0.19 0.20
tourism Departments
1-A. Collection cost of Finance 0.01 0.01 0.009 0.008
domestic 1 international
air travel tax
1-B. Subsidy for Haj Civil Aviation 0.04 0.04 0.04 0.04
charters
1-C. Sea ports & light Shipping 0.06 0.07 0.06 0.07
houses
1-D Telecom Reg. Telecommunicatio 0.002 0.002 0.002 0.002
Authority ns
1-E.Tourist infrastructure Tourism 0.07 0.08 0.07 0.08
Source: GOI, MOF 2003b. p.82 for Department of revenue, Ministry of Finance, p.24 for Ministry of Civil
Aviation, pp.37-38 for Department of Telecommunications, pp.184-186 for Ministry of Shipping, and
pp.211 for Department of Tourism.

Unedited Draft
TABLE 20: BUDGETARY EXPENDITURE FOR DRUG-TRAFFICKING

2002-03 2003-04 2002-03 2003-04 2002-03 2003-04

1. Drug trafficking & Finance and 19 23 1 1 20 24
smuggling Home
1-A. Drug trafficking/ Revenue 8 9 1 1 9 10
smuggling
1-B Narcotics control Home Affairs 11 14 0 0 11 14
1. Drug trafficking & Finance and 0.00 0.00 0.00 0.00 0.005 0.005
smuggling Home
1-A. Drug trafficking/ Revenue 0.002 0.002 0.002 0.002
smuggling
1-B Narcotics control Home Affairs 0.003 0.003 0.003 0.003
Source: GOI, MOF 2003b, p.82 for Department of Revenue and p.105 for Ministry of Home Affairs.
TABLE 21: BUDGETARY EXPENDITURE FOR WTO INSTITUTIONS

2002-03 2003-04 2002-03 2003-04 2002-03 2003-04

1. Institutional l set up Various Min / 133 143 64 66 197 209
for WTO Departments
1-A. Administrative set Commerce 30 28 64 66 94 94
up for WTO
1-B Tariff Commission Industrial Policy & 3 4 3 4
Promotion
1-C Patents, trade marts, Industrial Policy & 100 111 100 111
quality control, designs, Promotion
IPR
1. Institutional set up Various Min / 0.03 0.03 0.02 0.01 0.05 0.04
for WTO Departments
1-A. Administrative set Commerce 0.01 0.01 0.02 0.01 0.023 0.020
up for WTO
1-B Tariff Commission Industrial Policy & 0.001 0.001 0.001 0.001
Promotion
1-C Patents, trade marts, Industrial Policy & 0.02 0.02 0.025 0.023
quality control, designs, Promotion
IPR
Source: GOI, MOF 2003b, pp.30-32 for Department of Commerce and pp.33-35 for Tariff Commission.

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TABLE 22: GLOBAL SUPPLY OF SCIENCE AND ENGINEERING STUDENTS GRADUATING IN

1999, 000’S
Country Natural Science* Engineering Total
Global 918 868 1786
EU 182 135 317
USA 144 61 205
China 60 195 255
India 147 350 176
Japan 33 103 136
Indonesia 11 21 31
South Korea 30 45 75
Taiwan 13 17 30
Thailand 10 11 21
* Includes physics, chemistry, astronomy, biology, mathematics, agricultural and computer sciences.
Source: Ahya and Agarwal 2004 (p. 3).
TABLE 23: WORKERS’ REMITTANCES RECEIVED BY DEVELOPING COUNTRIES, 2001

Country US$ billion Share in total (%)
India 10.0 13.8
Mexico 9.9 13.7
Philippines 6.4 8.9
Morocco 3.3 4.6
Egypt, Arab Rep of 2.9 4.0
Turkey 2.8 3.9
Lebanon 2.3 3.2
Source: World Bank 2003.

India Case Study On International Cooperation by UNDP

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UNITED NATIONS DEVELOPMENT PROGRAMME

INTERNATIONAL COOPERATION BEHIND NATIONAL

Prepared for the Book Project

Office of Development Studies

Country Case Study on India 1

Country Case Study on India 2

I. INSTITUTIONAL SET UP FOR WTO ISSUES ................................................................................. 24

Country Case Study on India 3

Country Case Study on India 4

OVERVIEW OF INDIA’S PUBLIC FINANCE

a. India’s fiscal federalism

India is a founder member of major international organizations and the Central

Country Case Study on India 5

India is a sovereign democratic republic and strongly believes in liberalization,

Country Case Study on India 6

Government attaches a high importance to global issues on terrorism, environmental

In the context of globalization, contrary to the advice given by multilateral organizations,

Country Case Study on India 7

c. Revenues and expenditure management

d. Government deficit and public debt

Country Case Study on India 8

The careful management of external debt allowed India to retain policy-making

INSTITUTIONAL AND LEGAL DIMENSIONS

a. Transparency and accountability in budget formulation

Under Article 112 of the Indian Constitution, an "Annual Financial Statement" on

Country Case Study on India 9

b. Political economy aspects

As India is a sovereign democratic republic with independent executive, legislative and

Country Case Study on India 10

c. Interaction with external actors

d. Country delegations to international bodies

II. INTERNATIONAL COOPERATION POLICIES

Country Case Study on India 11

KEY THRUSTS OF INTERNATIONAL COOPERATION POLICIES

India’s international cooperation is based on principles of non-alignment with super

Country Case Study on India 12

b. Policies on external assistance

It is argued that multilateral organizations impose various conditionalities regarding

Country Case Study on India 13

charges for public goods, downsizing the government, privatization, decentralization,

c. External sector liberalization

Country Case Study on India 14

To moderate the monetary impact of reserve accumulation, government prepaid part of

Country Case Study on India 15

d. Millennium Development Goals (MDG)

§ Reduction of poverty ratio from 26 percent by 5-percentage point by 2007 and by 15

Country Case Study on India 16

f. Environment, energy and R&D policies

Environment: Environmental protection is essential to ensure sustainable development

Energy: Energy taxation is an important source of government revenues. Depending on

Country Case Study on India 17

g. Transport, communications and tourism

Development of international airports, seaports, international posts and

Foreign investment up to 100% is allowed in the development of sea-ports, airports and

h. Money laundering and drug trafficking

There is specific budgetary allocation for the Department of Revenue, which is

Country Case Study on India 18

1985, oversees the implementation of the Conservation of Foreign Exchange and

i. Implementation of WTO agreements

Country Case Study on India 19

Country Case Study on India 20

Increasing levels of intraregional trade and investment are gradually shaping an