India Infrastructure & Economy

INDIA ECONOMY & INFRASR+TRUCTURE

OVERVIEW

India is rich in natural resources and manpower and has made significant economic progress since attaining independence in 1947. India's economy encompasses traditional village farming, forestry, fishing, modern agriculture, handicrafts, a wide range of modern industries, and a multitude of support services.

Economy transformed from primarily agriculture, forestry, fishing, and textile manufacturing in 1947 to major heavy industry, transportation, and telecommunications industries by late 1970s. Central government planning in 1950 through late 1970s giving way to economic reforms and more private-sector initiatives in 1980s and 1990s. A sophisticated industrial base has been created and a large pool of skilled manpower has emerged. Nevertheless, 67% of India's labor force (nearly 400 million) works in agriculture, which contributes 30% of the country's GDP.

Production, trade, and investment reforms since 1991 have provided new opportunities for Indian businesspersons and an estimated 300 million middle class consumers. New Delhi has avoided debt rescheduling, attracted foreign investment, and revived confidence in India's economic prospects since 1991. Many of the country's fundamentals - including savings rates (26% of GDP) and reserves (now about $24 billion) - are healthy. Inflation eased to 7% in 1997, and interest rates dropped to between 10% and 13%. Even so, the Indian Government needs to restore the early momentum of reform, especially by continuing reductions in the extensive remaining government regulations. Moreover, economic policy changes have not yet significantly increased jobs or reduced the risk that international financial strains will reemerge within the next few years. Nearly 40% of the Indian population remains too poor to afford an adequate diet.

India's exports, currency, and foreign institutional investment were affected by the East Asian crisis in late 1997 and early 1998, but capital account controls, a low ratio of short-term debt to reserves, and enhanced supervision of the financial sector helped insulate it from near term balance-of-payments problems. Export growth, has been slipping in 1996-97, averaging only about 4% to 5%--a large drop from the more than 20% increases it was experiencing over the prior three years--mainly because of the fall in Asian currencies relative to the rupee. Energy, telecommunications, and transportation shortages and the legacy of inefficient factories constrain industrial growth, which expanded only 6.7% in 1997--down from more than 11% in 1996. Growth of the agricultural sector is still fairly slow rebounding to only 5.7% in 1997 from a fall of 0.1% in 1996. Agricultural investment has slowed, while costly subsidies on fertilizer, food distribution, and rural electricity remain. Nevertheless, even if a series of weak coalition governments continue to rule in New Delhi over the next few years and are unable to push reforms aggressively, parts of the economy that have already benefited from deregulation will continue to grow. Indian government projects GDP growth of at least 5.5% in 1998.

KEY ECONOMIC INDICATOR (based on 1997 data unless otherwise stated)

GDP - US$1.534 trillion

- real growth rate 5%

- per capita US$1,600

- GDP composition by sector

Agriculture 30%

Manufacturing 28%

Services 42%

Inflation rate - consumer price index : 7%

Labor Force - nearly 400 million

- Labor force composition by sector :

Agriculture 67%

Manufacturing 18%

Services 15%

- Average Indian's worker salary Rs 2000 - Rs 5000 per month with others allowance such as:

§ Annual bonus

§ Cost of living allowance (amount about 10% of monthly salary)

§ Tenure gratuity (15 days per working year)

Currency - 1 Indian rupee (Rs) = 100 paise

- Exchange rates: Indian rupees (Rs) per US$ 1 - 39.358 (January 1998)

- 36.313 (1997)

- 35.433 (1996)

- 32.427 (1995)

Debt - US$ 90.7 billion

Exports - commodities: gems and jewelry, clothing, engineering goods (iron, metal, plastic, etc), chemicals, leather manufactures, cotton yarn, and fabric.

- partners: US, Hong Kong, UK, Germany

Imports - commodities: crude oil and petroleum products, machinery, gems, fertilizer, and chemicals.

- partners: US, Belgium, Germany, Kuwait, Saudi Arabia, UK, Japan

Deficit Trade Statistic (1990-1995) in Billions Rupee (Rs)

1990/1991 1991/1992 1992/1993 1993/1994 1994/1995

Export 325.53 440.41 536.88 697.51 826.74

Import 431.98 478.51 633.75 731.01 899.71

Deficit 106.45 38.10 96.87 33.50 72.97

GDP 4,778.14 5,527.68 6,301.82 7,231.03 8,541.03

Deficit as % of GDP 2.2% 0.69% 1.54% 0.47% 0.85%

Foreign Economic Aid - Most aid provided by consortium such as: World Bank, Asia Development Bank (ADB), OPEC, Aid to India Consortium and Japan India's largest aid granter and lender - $337 million grants and $2.4 billion loans between period 1984-1993.

Tax Structure

§ Business Tax : Corporate Income Tax : 40%

Dividend Tax : 25%

Royalty Tax : 30%

Interest on loans tax : 25%

§ Personal Income Tax : Rs 0 - Rs 35,000 : 0%

Rs 35,000 - Rs 60,000 : 20%

Rs 60,000 - Rs 120,000 : 30%

Rs