The Indian Economy

Economic Section -- Embassy New Delhi

Prepared by Economic Affairs

Key Social Indicators

1980s Population (millions) Poverty Incidence (% pop.) Teledensity (per 100 pop.) Literacy Infant Mortality (per 1000 births) 685 1990s 845 latest 1090

44.5

36

25

0.37 44

0.8 52

12 66

115

79

60

prevalance of HIV (millions)

n.a

3.5

Sources: CMIE, RBI

India Economic Facts

GDP is $752 billion; world's 10th largest economy in terms of GDP. Economic liberalization began in 1991; continues at a slow pace. India is slowly integrating with global markets. Since the 1990s, the middle class has grown and poverty levels have fallen. GDP growth has fallen only slightly to 6.4% (2000-2005) from 6.7% (19941999). Tariffs are still among the world's highest (average 22%). Challenges ahead: reduce poverty, accelerate pace of reform, reduce fiscal deficit, upgrade infrastructure. India's successes: IT, pharma & biotech, telcom, science and technology skills, manufacturing gaining competitiveness. Two-way U.S.-India trade tops $25 billion a year, was $10 billion in 1997. India's GDP grew at an impressive 7.8% during 2005-2006.

English and education versus higher income

Speak Hindi Read Hindi Speak English
NO NO

Read English

YES NO

YES NO

YES

Class Poor Middle Class Upper Class Total

Source: New Delhi, B.K. Sharma

Read Hindi 4% 37% 11.5% 51.5%

Read English 2% 23% 10% 35%

Sectors of the Indian Economy

1990
30.8%

2004
3.0% 26.2%

39.5% 54.1% 16.7% 29.1% 0.6% Services Manufacturing Source: CMIE, RBI, World bank Agriculture IT/Software

Nominal and Per Capita GDP

Fiscal year end March

600

400

200

0 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Nominal GDP USD billions Per Capita GDP US $

Source: Central Statistical Office

Real GDP Growth Rates

Fiscal year end March
10 8 6 4 2 0
20 19 19 19 19 19 19 19 19 19 20 20 20 20 20 20 20 07 91 94 92 93 95 96 97 98 99 00 01 02 03 04 05 06

(e st )

factor cost % Source: Reserve Bank of India, Economic Survey, 2005-2006

GDP at Factor Cost by Sector

(1999-2000 Bare Year Prices)
% Agriculture, forestry, fishing Mining and quarrying Manufacturing Electricity, gas & water supply Construction Trade, hotels, transport, and communication Financing, insurance, real estate, & services GDP 0 Source: The Economic Times, CMIE, CSO 2 4 6 8 10 12 14

Comparative Growth Rate of GDP

% per annum
China Korea Indonesia Malaysia Philippines Thailand Bangaladesh India Pakistan 0 2 4 6 8 10 2002 2003 2004 2005 2006

Source: Asian Development Outlook, World Economic Outlook

Sources of Government Revenue

Fiscal year 2006

excise duty 27.0% corporate tax 30.0%

other sources 0.3% income tax 17.5% customs collections 17.4% service tax 7.8%

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

Expenditure of General Government

Combined Center and State -- 2005
interest 26.5%

defense 16.4% other 25.4%

subsidies 9.4% education 10.5% Source: IMF health 4.9% other social services 6.8%

Tax Revenues as Percent of GDP

Fiscal Year end March
30 25 20 15 10 5 0
0 20 9 19 9 0 20 0 20 0 20 0 20 0 20 0 20 0 1 2 3 4 5 6

Fiscal gap

Tax revenues

Total revenue and grants

Total expenditure and net lending

Source: IMF

% total expenditure 35 30 25 20 15 10 5 0

Government Expenditure

20

Source: IMF

19

19

19

19

19

19

19

19

19

20

20

20

20

20

20

06

91

92

93

94

95

defense

96

97

98

subsidies

99

00

01

interest on debt

02

03

04

05

r (p oj )

Gross Domestic Savings and Investment

% GDP 2002
China Korea Indonesia Malaysia Philippines Thailand Bangaladesh India Pakistan Sri lanka 0 10 20 Investment Source: Asian Development Outlook 2002 30 Savings 40 50

General Government Debt

Fiscal year end March
100 80 60 40 20 0
19 98 20 19 97 19 99 20 00 20 01 20 02 20 04 20 03 05 r (p oj .)

Debt Stock/ GDP ratio Source: IMF

External Debt/GDP

GOI Fiscal Deficit: States vs. Center

14 12 10 8 6 4 2 0
19 91 19 93 19 20 20 20 19 92 19 19 19 19 19 20 20 98 00 02 04 94 95 96 97 99 01 03

% GDP

Center Source: Indian Ministry of Finance

States

Government Debt/GDP Ratio

120 115 110 105 100 95 90 85 2003

2003-2007

2004 Base Case

2005

2006

2007

Reform Case

Source: IMF

Composition of India's 2004 Sovereign Debt

IMF 1.0% Bilateral 19.2% IDA 19.6 %

Other Multilateral 4.6% Short-term 3.0%

IBRD 7.0%

Private 45.5% Source: IBRD

Indias External Debt

US $ billions 140 120
Multilateral

Fiscal year end March

100 80 60 40 20 0
19 05 20 04 20 03 20 02 20 01 20 00 20 99 19 98 19 97 19 96 19 95 19 94 19 93 19 92 19 19 90 91

Bilateral IMF Trade Credit Commercial Borrowing NRI & FC Deposits Russian Rupee Debt Short-term debt

Source: Reserve Bank of India; Finance Ministry

Gross Nonperforming Loans

% of Total Loans
20

15

10

0 1997 1998 1999 2000 2001 2002 2003 2004 2005

Public sector banks

Private sector banks

Foreign banks

Source: IMF

Indian Saving and Investment

% of GDP
30 25 20 15 10 5 0 1996 1997 1998 1999 2000 2001 2002 2003 2004 Private Domestic Savings Source: IMF, Ministry of Finance Private Domestic Investment

Bet You Didn't Know (Part One)

India is one of only three countries that makes supercomputers (the US and Japan are the other two). India is one of six countries that launches satellites. The Bombay stock exchange lists more than 6,000 companies. Only the NYSE has more. Eight Indian companies are listed on the NYSE; three on the NASDAQ. By volume of pills produced, the Indian pharmaceutical industry is the world's second largest after China. India has the second largest community of software developers, after the U.S. India has the second largest network of paved highways, after the U.S. India is the world's largest producer of milk, and among the top five producers of sugar, cotton, tea, coffee, spices, rubber, silk, and fish. 100 of the Fortune 500 companies have R&D facilities in India.

Current Account
Goods and Services-- Fiscal year end March
100 80 60 40 20 0 1982 1992 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 imports Source: IBRD exports US $ billions

Current Account balance

10 8 6 4 2 0 -2 -4 -6 -8
19 92 19 92 19 94 19 95 19 19 19 19 20 20 20 20 20 96 97 98 99 00 01 02 03 04

US $ billions

Fiscal year end March

Source: IBRD, CMIE

Sources of Real GDP Growth

14 12 10 8 6 4 2 0 -2 -4
19 96 20 19 97 19 98 19 99 20 00 20 01 20 20 20 02 03 04 05

Fiscal Year End March

Agriculture Industry Source: CSO, RBI, CMIE Services

Foreign Institutional Investment

2004
FII $ 2,000 millions 1,500 6 1,000 500 0 4 -500 -1,000 May Apr Jul Feb Oct Aug Sep Nov Dec FII Investments Sensex average Mar Jun Jan 3 5 Sensex Thousands 7

Source: Reserve Bank of India; SFBI; ABN-AMRO

U.S. Investment in India

US $ billions 5 4 3 2 1 0
19 20 19 95 20 20 19 96 19 97 19 98 20 20 20 99 00 04 05 01 02 03

Calendar Year

FDI Source: SIA, Ministry of Commerce and Industry Portfolio

Market Capitalization of Listed Companies

2002
% GDP India Brazil China Egypt Kenya Malaysia Mexico Poland Turkey USA 0 20 40 60 80 100 120 140 160

Source: World bank, IMF

Domestic Listed Companies

2003
India Brazil China Egypt Kenya Malaysia Mexico Poland Turkey USA 0 1 2 3 Thousands Source: World Bank. IMF 4 5 6

Bet You Didn't Know (Part Two)

Two million people of Indian origin live in the U.S. Indian-born Americans are among the most affluent and best educated of the recent immigrant groups in the U.S. Thirty percent of the R&D researchers in American pharmaceutical companies are Indian Americans. Nearly 49% of the high-tech startups in silicon Valley and Washington, D.C. are owned by Indians or Indian-Americans. There are over 700 companies in Silicon Valley owned by Indian-Americans. India sends more students to U.S. colleges than any country in the world. In 2004-2005, over 80,000 Indian students entered the U.S. China sent only 65,000 students during the same time. In a case decided by the U.S. Supreme Court, an Indian-American woman scientist, Dr. Ananda Chakrabaty, won the argument that persons may be granted patents for useful manufacture of living organisms. She defeated the U.S. Patent Office, that argued that living things may not be patented, thus establishing the legal foundation for the biotech industry, (Diamond vs. Chakrabaty, 1980). Dr. Chakrabaty invented a microbe that eats oil spills.

Indian Rupees to 1 USD

Monthly Average - December
50

40

30

20

10 0
20 19 94 20 20 20 20 20 19 95 19 96 19 97 19 98 19 99 00 01 02 03 04 05

Source: Reserve Bank of India

Indian Rupees to 1 USD

Monthly average
50 40 30 20 10 0
pr A ar M b Fe n Ja ec D ov N ct O p Se ug A ly Ju ne Ju ay M pr A ar M b Fe Ja n

Source: Reserve Bank of India, CMIE

World's Ten Wealthiest Countries

GDP USA Japan Germany Britain France Italy China Spain Canada India 0 1 2 3 4 5 6 7 8 9 10 11 12

$US (In Trillions)

Source: World Bank

Forex Reserves Increase and Import Cover

US$bn 200 180 160 140 120 100 80 6 60 40 20 0 FY93 FY94 FY97 FY98 FY99 FY00 FY01 FY02 FY04 FY91 FY92 FY95 FY96 FY03 FY05 FY06 FY07E 4 2 0 Mnths 18 16 14 12 10 8

Reserves Months of Import Cover

Source: DGCI&S; RBI; Citigroup

Foreign Exchange Reserves

160 140 120 100 80 60 40 20 0
06 20 ar M 05 20 04 20 03 20 02 20 01 20 00 20 99 19 98 19 97 19 96 19 95 19 94 19 93 19 92 19 91 19 90 19 89 19 88 19 87 19 86 19 85 19

US $ billions

Fiscal Year end March

SDRs Gold

Source: Reserve Bank of India

Foreign Currency Assets

Exports by Commodity
A China-India Comparison

China Agricultural products Fuels and mining products Manufactures Of which Iron and steel Chemicals Machinery and transport equipment Textiles and clothing Others Total (2003, US$bn)
Source: WTO

India 7.9 6.4 48.0 2.9 7.3 6.1 13.5 18.2 62

22.2 18.1 397.0 4.8 19.6 187.8 79.0 105.8 437

Share of World Output

Select Asian Developing Countries -- 2004
% China India South Korea Indonesia Taiwan Thailand Philippines Malaysia Hong Kong Vietnam Singapore 0 2 4 1982 Source: IMF 6 8 1992 10 2004 12 14

Total pop. of India

Rural India
91
Total female workers

248

Total female non-workers

Female non-workers Female

Urban India
36 121
Main workers
Total female workers Total female non-workers

Source: 2001 Census of India (millions)

Marginal workers Total female workers

Comparative Export of High-Technology Manufactured Goods

India Brazil China Egypt Kenya Malaysia Mexico Poland Turkey USA 0 10 20 30 40 50 60

% of High-technology Manufactured Goods Source: Dun & Bradstreet

Comparative Annual Wages in Manufacturing

India Brazil China Egypt Malaysia Mexico Poland Thailand Turkey USA 0 10 20 Thousands Source: Dun & Bradstreet 30 40

Indias Share of World Exports

% of Global Trade
1 0.8 0.6 0.4 0.2 0
19 75 19 19 19 20 20 20 20 19 70 19 85 19 19 20 80 95 98 00 01 02 04 90 99 03

Source: IBRD; WTO

Comparative Customs Duty Rates

India and other Developing Countries
% India Pakistan Brazil China Indonesia Thailand South Korea 0 Source: IMF 10 20 All goods 30 Agriculture 40 50

Manufacturing

Indias Top Trade Partners - Exports

2004-2005
France 2.1% Other 44.2% Singapore 5.0% Italy 2.9% Belgium 3.2% Japan 2.6%

Germany 3.5% UK 4.7%

Hong Kong 4.8%

UAE 9.4% USA 17.5%

Source: India Trade promotion Organization

Indias Top Trade Partners - Imports

2004-2005
Other 60.7% Malaysia 2.1% Japan 2.8% Belgium 4.3%

Singapore 2.4% Switzerland 5.4% Australia 3.3% Germany 3.6% UK 3.2% USA 5.9% China 6.3%

Source: India Trade promotion Organization

Commodity Composition of Trade

Others 25.0% EU 21.0% Japan 3.0% ASEAN 5.0%

China 5.0%

USA 18.0% Middle East 13.0%

NE 10.0%

Composition of Exports, FY04

Leather 3.0% Chemicals 10.0% Ores 4.0% Agricultural 12.0% Commodities 4.0% Oil 6.0 % Other goods 6.0%

Direction of Exports, FY04

Engineering 18.0% Gems, jewelry 17.0%

Source: DGCI&S

Textiles 10.0%

Readymades 10.0%

U.S. Business Complaints

Excessive government interference. High tariffs and excessive indirect taxes Differential tax rates for foreign companies. Restrictions on foreign investment. Substandard infrastructure. Questions about sanctity of contract. Weak enforcement of intellectual property rights.

Estimated Trade Losses Due To Copyright Piracy And Piracy Levels In-Country

Motion Pictures Losses Pakistan Indonesia India Russia China 12.0 32.0 360.0 275.0 280.0

Records & Music Business Software Losses 14.0 100.0 520.0 800.0 1488.0 Piracy Levels 82% 87% 73% 87% 90%

Piracy Losses Piracy Levels Levels NA 70.0 100% 92% 27.6 80% 55% 102 50% 80% 411.9 66% 95% 202.9 85%

Entertainment Books Software Losses Piracy Losses Levels NA NA 52.0 NA NA 32.0 59.5 86% 90.0 255.8 73% 42.0 510.0 90% 50.0

Total Losses 148.0 191.6 483.8 1784.7 2530.0

(Cost in millions of U.S. dollars)

Source: International Intellectual Property Alliance

Principal Products of U.S.-India Merchandise Trade

Top ten products in 2005 -- US $ millions
U.S. Imports from India Gems and jewelry Womens/girls blouses Mens/boys shirts Petroleum oils Shrimps/prawns Sweaters/pullovers Cashew nuts Womens/girls skirts Industrial oils Toilet/kitchen linen All other Total Amount 4,730 336 294 303 290 271 261 281 249 247 11,447 18,709 U.S. Exports to India Airplanes/aircraft machinery Fertilizers Ferrous waste/scrap Bituminous coal Transmission apps Industrial oils Almonds Jewelry and parts Digital data processors Parts for boring machinery All other Total Amount 467 413 126 150 107 99 94 101 87 86 5,235 6,965

Source: US International Trade Commission

U.S.-India Trade in Services: 2003

US $ millions
Service Type Education Travel Business/prof/technical Freight Telcom Royalties and license fees Intra-company services Port services Financial services Passenger fares Film/TV/tape rentals Insurance Other Total Services U.S. exports 1,457 1,180 353 170 129 115 110 83 56 26 14 5 14 3,728 U.S. imports 3 723 420 81 428 8 262 66 19 167 0 5 2 2,184

Sources: US International Trade Commission

U.S. - India Trade in Goods

20 15

10

0
20 19 19 20 19 92 19 93 19 94 19 95 19 96 19 98 20 20 20 20 03 99 97 05 00 01 02 04

Exports to India Imports from India Source: International Trade Commission

U.S. - India Trade in Services

5 4 3 2 1 0
19 20 19 20 19 92 19 93 19 95 19 19 19 20 20 20 20 94 00 96 03 97 98 99 01 02 04 05

Exports to India Imports from India Source: International Trade Commission

Total U.S. Trade with India

20 US$ billions

15

10

0
96 19 97 19 93 19 94 19 99 19 00 20 01 20 02 20 03 20 04 20 05 20 95 19 98 19 92 19

Total exports to India Total imports from India

Source: International Trade Commission

Top Ten Reasons Favoring FDI in Retailing

Experience of other countries shows that retailing has attracted significant FDI. FDI would bring technical know-how and skill. It would speed up the growth of organized retailing, set up supply chaings and lead to implementation of Information Technology. Joint ventures would ease capital constraints of existing organized retailers. Domestic retailers would get access to global best management practices. Sourcing from India would increase. There will be more investment in upstream activities and allied sectors. Competition would drive down prices. Protection leads to inefficiency. FDI would lead to development of different retail formats and modernization of the sector.

Source: FDI in Retail Sector, India 2005

States Attracting Highest FDI Flows in India (2000-2003)

2000 2001 2002 2003 Amount % Share Amount % Share Amount % Share Amount % Share Delhi 24576 30.6 69183 18.9 29943 18.5 21047 22 Maharashtra 35789 44.5 29917 43.7 48657 30.1 10228 10.7 Karnataka 5826 7.2 13104 8.3 8929 5.5 9991 10.5 Tamil Nadu 5519 6.87 7427 4.7 13412 8.3 8055 8.4 Chandigarh 8426 5.2 Gujurat 10426 10.9 Andra Pradesh 2517 3.13 3398 2.1
(Amount in INR millions)

Source: World Bank

Sectoral FDI Equity Caps

Sector Retailing (single-brand only) Real Estate Small Scale Industries New print media Insurance Defense Industry Sector Refining with Public Cos Private Sector Banking Domestic Airlines Telecommunications Trading Internet service provider Mining Oil marketing
*Includes FDI and FII

FDI cap in % 51 0 24 26 26 26 26 74* 49 74 51 74 74 100

Source: Ministry of Commerce and Industry

More Economic Data and Forecasts

A 36% surge in imports at US$106bn resulted in India's trade deficit touching a record high of US$26.5bn in FY05 compared to US$14.3bn in FY04. The predicted trade deficit for FY06 is US$30.9bn. Citigroup estimates that the value of Indian currency is expected to decline by 15% over the next 4 years. India's savings rate has risen to 28.1%, while investments have risen by 26.3%. Non-agricultural sector growth may trend to 9% in the coming years. In FY04, India committed more revenue to subsidies (nearly US$1bn) than it did to non-capital defense expenditures. Almost 55% of India's tax revenue in FY04 was collected from excise duties and customs collections. India's FY06 budget targets a fiscal deficit of 4.3% of GDP. In India, services account for nearly 50% of GDP.

Bottlenecks to Growth
100 80 60 40 20 0 %

(Survey responses by country for each perceived bottleneck category)

Business Regulation

Tax and Customs

Corruption Brazil China

Source: World Bank Investment Climate Surveys

India

Economic Freedom?
Political Freedom Free Not Free Not Free Free Partly Free Not Free Free Not Free Free Not Free Free Free Days taken to start a business 152 41 43 89 151 30 58 24 50 36 22 33 Competitiveness ranking 57 46 62 55 69 31 48 91 76 70 29 34 Corruption ranking 59 77 102 90 133 64 64 39 102 71 47 90

Brazil China Egypt India Indonesia Malaysia Mexico Pakistan Philippines Russia South Korea Thailand

Source: Economic Times

Time Taken to Register Property

Norway China Pakistan S.A. Average Sri Lanka India Malaysia 0 20 40 60 80 100 120 140 160

No. of Days Source: World Bank

Land Cost Relative to Income Level

(Ratio of land cost/sq.m to GDP per capita in 1999, indexed to New Delhi - 100) 120 100 80 60 40 20 0
o ky To ok gk an B ey r dn pu Sy m Lu Si i ba um M hi el D ew N re lo ga an B la ua K Ta Se Ja ka rt a e or ng ap ip ei ou l

Source: World Bank

Land Cost

Start-up Times for New Businesses

Australia USA England Nepal Pakistan Malaysia Belgium Bangladesh China Sri Lanka India 0 20 40 60 80 100

Days to Set Up Source: World Bank

Time to Enforce a Contract

Tunisia China Malaysia Nepal Bangladesh S.A. Average Pakistan India Sri Lanka 0 100 200 300 400 500

No. of Days Source: World Bank

Bankruptcy Recovery Rate

(Cents on the Dollar, Recovered From Insolvent Firm)
Best Recovery Japan Pakistan Malaysia China Sri Lanka Nepal Bangladesh S.A. Average India 0 20 40 60 80 100

Recovery Rate Source: World Bank

Real Interest Rate

Prime Lending Rate minus WPI
% 14 12 10 8 6 4 2 0
19 19 19 20 20 20 19 19 19 19 19 19 20 20 20 20 91 92 93 00 01 05 94 95 96 97 98 99 02 03 04 06

Source: Reserve Bank of India

Time To Go Through Insolvency

Shortest Time Ireland Sri Lanka Malaysia China Pakistan Bangladesh S.A. Average Nepal India 0 2 4 6 Years Source: World Bank 8 10 12

Rigidity of Employment Index

Least Rigid Hong Kong Malaysia Bangladesh China Sri Lanka S.A. Average Nepal India Pakistan 0 20 40 60 80 100

Rigidity Index Source: World Bank

Problem: The Transformed Relationship is incomplete. Solution: Grow the economic and commercial relationship.
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