Happy New Year 2011

Everything you always wanted to know about India and more

Happy New Year 2011
http://cogitoergosum.co.cc/2010/12/31/happy-new-year-2011/

31 12 10 Written by navanavonmilita




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31 Dec, 2010, 05.50PM IST,PTI
Ratan Tata dreams of cars running on water: Scientist

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Ratan Tata

BANGALORE: Tata Group Chairman Ratan Tata’s dream is to see cars run on water and he has invested USD 15 million in a start-up firm supporting research in the field, an eminent scientist said today.

Chairman of the Scientific Advisory Council to the Prime Minister Prof C N R Rao said one of his close friends and a professor in the famed Massechusetts Institute of Technology in the US has found a way to split water directly into hydrogen and oxygen.

” Ratan Tata has given him (the Professor) 15 million (US) dollars so that he (Tata) can own that company when it comes up,” Prof Rao said.

“He (Tata) wants to invest in a company which will split water directly into hydrogen and oxygen,” Rao said, adding, when any kind of water — toilet water, rain water or sea water — can split to hydrogen and oxygen, then these components can be used for energy.

“And a dream of Ratan Tata is eventually cars will be run on water. My dream is also that,” he said, referring to a recent conversation he had with the Tata Group Chairman.

Rao spoke on this initiative during a press conference convened by the Chemical Research Society of India to give details of the organisation’s planned activities in 2011, an year which had been declared as the “International Year of Chemistry” by the United Nations.

25 Dec, 2010, 07.15AM IST, Lijee Philip,ET Bureau
Tata Motors taps employee base to put Nano sales in top gear

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Tata Motors
Tata Motors Ltd.

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MUMBAI: Tata Motors has tapped into its vast pool of employees to boost sales of the Nano by offering a special finance scheme to purchase the small car for people earning a monthly salary of Rs 12,500 and above.

Employees can secure a four-year loan, carrying an interest rate of 2% per annum as against the 14% interest charged from other customers for a 100% loan scheme. The offer, which is valid till the New Year, comes without processing charges.

An internal circular sent to the employees early this week said ‘blood relatives’ are also permitted under the scheme as long as the monthly instalment can be debited from the salary accounts. Tata Motors has a total of 24,000 employees.

For a 48-month loan at an onroad price in Mumbai of Rs 1.69 lakh (standard variant), the monthly instalment will work out to Rs 3,684 while for the LX variants at an onroad prce of Rs 2.28 lakh, the monthly outgo will be Rs 4,956. This leads to an employee saving around Rs 48,000 to Rs 61,000 over a four year period, according to the offer.

The company usually offers its employees schemes that are marginally better than the ones prevailing for its products in the market. It is also facilitating a zero down payment option but this depends on the customer profile, said an official of Tata Motors.

“Throughout the year, Tata Motors runs schemes for its employees for all its passenger vehicles. There are schemes for the Tata Nano as well. We will not share details because they are internal to the company,” said a company spokesperson. “Tata Nano’s retail sales in the open sales states are increasingly deepening and this scheme being offered to employees is in no way an effort to clear of the 2010 Nano stocks,” he added.

Sales of the Nano had taken a beating in the recent past, triggering a host of marketing initiatives such as a four-year manufacturers warranty with the option of a comprehensive maintenance contract at Rs 99 a month. Production at the Sanand plant had come to a standstill as the the company had a stock of 10,000 Nanos. Tata Motors attributed the decline in sales to its inaccessibility to reach smaller towns. Sales crashed to 509 units in November from a peak of 9,000 units in July this year.

The finance schemes coupled with incentives offered to the customers are helping dealers to reduce stocks. “Footfalls have increased and many are getting converted to actual sales. We will start ordering for Nanos from January 2011,” said a Mumbai-based Tata Motor dealer.

31 Dec, 2010, 05.52PM IST,PTI
Investors’ wealth swells over 10-fold in 10 years

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Investors’ wealth

MUMBAI: In an eventful decade, the wealth of investors in the Indian stock market has grown over 10-fold to nearly Rs 73 lakh crore by the end of 2010.

Besides, during the decade ended today, the total investor wealth, measured in terms of cumulative market capitalisation of all listed companies on the Bombay Stock Exchange , grew to nearly 10-fold from about Rs 7,00,000 crore at the end of the year 2000, to Rs 72,96,725.14 as on December 31, 2010.

Last 10 years have seen the stock markets bellwether Sensex travelling from 4,000 mark in 2001, to over 20,500 by the end of 2010.

“Sensex has grown over five-fold over the past decade. To put in other words, if somebody has invested Rs 1,00,000 in Sensex at the beginning of the decade, it would have, at present, become Rs 5,16,792,” SMC Capitals equity head Jagannadham Thunuguntla said.

Stock markets have witnessed a smart surge over the decade on the back of robust overseas investments and strong India growth story, said an expert.

“The barometer of Indian capital markets Sensex has moved up five fold from 4,000 to 20,000 in this decade and the FII investment, which was Rs 6,200 crores in the year 2000 has surpassed Rs 1,00,000 crore in 2010,” Unicon Securities Vice President Research Madhumita Ghosh said.

Going forward, experts feel that with the growing stature of India on the global front, the coming decade will also be equally fruitful for India.

31 Dec, 2010, 05.23PM IST,AGENCIES
Sensex enters New Year on optimistic note; gains over 3,000 points in 2010

Read more on »sensex|bajaj auto ltd.|2g spectrum scam
BSE
Bajaj Auto Ltd.

BSE
1541.50
04.37%
64.55

Vol:56711 shares traded

NSE
1541.00
04.11%
60.85

Vol:740992 shares traded

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MUMBAI: India’s robust economic growth and record overseas investments helped the stock market add about Rs 12 trillion to investor wealth, as the BSE benchmark Sensex gained over 3,000 points during 2010. It gained 17 percent in 2010, to be among the best-performing major Asian markets this year.

As the stock market closed on a bullish note on the last day 2010, with a 120.02 point surge in Sensex today, the benchmark index rose by 3044.28 points for the entire year.

In the process, the total investor wealth, measured in terms of cumulative market capitalisation of all listed companies, rose to Rs 72,96,725.14 crore, from Rs 60,79,000 crore at the end of 2009. During the period, the Sensex rose from 17,464.81 points on December 31, 2009 to 20,509.09 points today.

Besides, during the decade ended today, the total investor wealth grew over 10-fold from about Rs 7,00,000 crore at the end of the year 2000. The Sensex registered nearly five-fold rise over the 10-year period.

“The barometer of Indian capital markets Sensex has moved up five fold from 4,000 to 20,000 in this decade and the FII investment, which was Rs 6,200 crores in the year 2,000, has surpassed Rs 1,00,000 crore in 2010,” Unicon Securities Vice President Research Madhumita Ghosh said.

Market experts said the key driving forces behind the market rally this year, when the stocks rose by an average of over 17 per cent, were impressive FII inflows as also the continuing robustness of domestic economy, which inched closer to the 9 per cent annual growth level.

“In 2009-10, in lieu of the global meltdown Indian market showed better resilience due to stricter banking norms and robust domestic demand. We showed faster recovery and reverted to to GDP growth of closer to 9 per cent in FY10,” Globe Capital PMS Head KK Mittal said.

The year also saw the Sensex hitting its record closing level of 21004.96 points on Diwali day, November 5. However, the record-breaking bull run continued only till Diwali, and consolidation, marked with bouts of sluggishness, was seen on the bourses in the last two months of 2010.

31 Dec, 2010, 03.32PM IST,ET Now
Domestic inflows in the market will improve in 2011: Rashesh Shah, Edelweiss Capital

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[Indian mkts may not outperform peers on H1of 2011: Edelweiss]

Rashesh Shah , Chairman, Edelweiss Capital , in a chat with ET Now gives his outlook on the Indian stock markets and various sectors for the year 2011.

Do you think in 2011 we are going to still sit on those kinds of inflow levels that we saw in 2010?

Inflows somewhere close to Rs 100,000 crores will come from FIIs. It would not be as high as they have been in the current year. But Indian inflows will improve. In the current year, Indian MFs and insurance companies have been not as aggressive investors in the market. But after 3-4 months, when interest rates start stabilising, we will see flows coming to Indian institutions which will come into the equity markets.

So if you look at institutional inflows, in the current year we have had close to $34-35 billion which is FIIs plus insurance companies plus Indian mutual funds. We will have close to that in the coming year.

What to your mind are the chances that for the year 2011, India might not be the place to be in?

I agree with you. In the first half, India will not be shining or glittering the way it has been 8-9 months ago. There is recovery in the US, cost of capital is going up globally, yields are starting to go up internationally and the oil prices are going up as well. India imports capital as well as oil, so the cost of all this is going to go up for India. Along with that there are execution challenges in India and with some of the scams and all of that, you should not expect India to be very strongly shining on the investors’ map, especially on a short-term basis. Most of the people are saying we will wait till April, May, June.

For the first 3-6 months, given the fact that the US economy is doing well, what we are hearing from investors is if they invest in India, they would invest in the export-oriented sectors. If you are seeing IT and pharma, they are the ones that are higher up on the investment horizon. Also countries like Korea and all, which are more export dependent to the US economy, are the ones where investors will go.

We expect a more steady kind of an approach to India. I do not think it is going to be as glittering and shining as it has been in the current year. So I would agree with you that the $28 billion of flows that we saw in current year, may not happen. But we strongly feel that $18-20 billion will still come to India.

What’s the call now on financial space in 2011? If someone has to play the India growth story, is it a must to be invested in the banks and the financial space?

It is not just the scam, it is also the increasing interest rates and the liquidity squeeze that is currently underway in the market. Currently, there is a huge liquidity squeeze in the market. The short-term liquidity is almost absent. Banks are borrowing from RBI and in October, we felt that the interest rate increase cycle was over. Now interest rate will start stabilising and hopefully coming off.

31 Dec, 2010, 04.28PM IST,PTI
Sensex ends the year on promising note, up 120 points

Read more on »securities and exchange board of india|national stock exchange|india|bric

MUMBAI: The BSE benchmark Sensex rose for the third straight day in the last trading session of the year, adding 120 points on sustained buying amid indications that strong economic growth will boost company earnings.

Brokers said the Sensex ended the year by becoming the best performer in the Asian region during 2010.

In continuation of 363 points rise in the last two trading sessions, the Sensex advanced by another 120.02 points to reach 20,509.09.

The benchmark gained 17.43 per cent this year, extending its historic 82 per cent rally last year on faster recovery in the economy. The upward journey began from 17,464.81 point mark level on December 31, 2009.

In the 30-BSE Sensex components, 22 stocks closed higher. Besides, barring IT, all sectoral indices ended in the positive zone.

The broader market’s National Stock Exchange index Nifty rose by 32.65 to 6,134.50, after touching the day’s high of 6,147.70 as stocks in realty, banking and auto segments gained on strong buying.

Companies on the measure are valued at an average 19.4 times estimated earnings this year, compared with a recent peak of 20.1 times on November 5.

The foreign fund inflow was up 61 per cent this year, making the gauge the most expensive in Asia and among the BRIC markets that also include Brazil, Russia and China.

Global funds bought a net Rs 6.05 billion of Indian equities on December 29, taking this year’s record flows into equities markets to Rs 1.31 trillion, according to data from Securities and Exchange Board of India .

The business volumes slightly declined as some of the foreign funds remained absent from the market following year-end vacations, while general investors adopted cautious approach concerned over high inflation and the health of the U.S. and European economies.

The Sensex climbed every quarter since May 2009, when Prime Minister led the Congress party to its biggest electoral victory in two decades, on pledge to cut fiscal deficit and boost economic growth.

The gauge climbed to a record on November 5 to 21,108.64 and has more than doubled since plunging to a low of 8,160.40 in March 2009, amid the global financial crisis.

Today’s gain in the market was supported by a steep rise in the realty sector, up 2.40 per cent at 2,856.22, followed by banking sector (1.40 per cent) to 13,379.73. The auto index rose by 0.93 per cent to 10,235.41, and consumer durable index by 0.72 per cent to 6,356.97.

31 Dec, 2010, 03.43PM IST,ET Bureau
Sensex ends near 20500; realty, banks, auto gain

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Sterlite Industries (India) Ltd.

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MUMBAI: Indian markets ended in the positive terrain but off intraday highs as traders took some profits off the table. The upmove was led by gains in realty, banks and auto space while IT stocks ended marginally lower.

Bombay Stock Exchange’s Sensex ended at 20482.46, up 93.39 points or 0.46 per cent. The 30-share index touched a high of 20552.03 and low of 20412.76 in trade so far.

National Stock Exchange’s Nifty was at 6127.30, up 25.45 points or 0.42 per cent. The broader index touched a high of 6147.30 and low of 6103.55 intraday.

BSE Midcap Index was up 1.13 per cent and BSE Smallcap Index rose 1.18 per cent.

Amongst the sectoral indices, BSE Realty Index gained 2.13 per cent, BSE Bankex moved 1.25 per cent higher and BSE Auto Index advanced 0.91 per cent.

Reliance Communications (5.03%), Reliance Infrastructure (4.20%), Bajaj Auto (4.08%), Jaiprakash Associates (3.01%) and State Bank of India (2.01%) were amongst the top Sensex gainers.

Sterlite Industries (-1.19%), Jindal Steel (-0.82%), NTPC (-0.57%), Hero Honda (-0.40%) and ITC (-0.29%) and led the losers pack.

Market breadth was positive on the BSE with 1531 advances as compared to 1246 declines.

(All figures are provisional)

31 Dec, 2010, 06.36AM IST, K Subramanyam,
Nifty likely to see steady uptrend till 6250-6300

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The Nifty had a strong session and closed at 6090 with a gain of 42 points and January futures were quoting at a premium of 37 points at 6127. The steady uptrend has ensured that India VIX has subsided to 17. On the derivative front, rollovers have been on the lower side in the banking sector.

The technology, capital goods, oil & gas and auto have seen good rollover in select scrips. Sugar, too, has seen good rollover.

Based on the emerging trend, the new year should see some interesting shifts in preferences. The capital goods sector should see some revival in interest with Siemens , ABB, Petronet and GSPL as likely outperformers.

The sugar sector, despite its huge volatility, should see accumulation at lower levels as upside potential is good. The tech sector should continue outperformance.

The banking sector may see relative underperformance after the huge upsides in 2010. Select scrips, like IDBI and Federal Bank , could be outperformers. The auto sector has shown some divergent trends, with leaders like Tata Motors and M&M exhibiting fatigue in December. Thus, relative underperformance could be seen in the coming year.

The metal sector should see cyclical volatility, though Tata Steel and Hindalco will likely outperform. The FMCG sector may see a steady trend whereas in the pharma space Biocon, Lupin and Orchid Chemicals should continue their steady outperformance.

The cement sector may see a range-bound performance while real estate could continue with its underperformance. The telecom sector has seen buying interest in Idea and Bharti and should be a relative outperformer in the coming year. The index is expected to touch 6250-6300 in January where profit-taking could emerge.

Buy Nifty call of 6100 or 6200 strike price quoting at around Rs 119 and Rs 70, respectively, for a maximum holding period of 15 days. Buy Cairn India call of 340 strike price around Rs 6 for a holding period of maximum 20 days. The scrip is expected to touch 350-55.

(The author is AVP-Institutional clients (derivatives), Asit C Mehta Investment Interrmediates)

31 Dec, 2010, 10.10AM IST,ET Now
Market return expectations to be a bit subdued for 2011: Abhijit Chakraborty, Fortune Financial Services India Ltd

Read more on »stock market|stock|rbi|nifty|market returns|india|2011
Abhijit Chakraborty, Sr VP, Institutional Equities, Fortune Financial Services India Ltd, in a chat with ET Now gives his outlook for the market.

What’s your prognosis for the first half of 2011 .

The market expectation should be relatively subdued in terms of broad market return expectations for next year calendar 2011. In the current year, we have seen the index has given a return of about 15-16%. For the next year, the expression should be in the region of 14-15% which is two consecutive years of healthy returns.

However, there has to be a sector rotation and the leadership in the market will have to be provided to some other sectors. Some of the top performers of this year have been auto names and these names – auto sector per se – is going to be a likely underperformer going forward primarily because they have seen extremely high volumes growth rate for the last two years. So the base will be unfavourable and the interest costs are slightly on the hardening side. Also, the input cost – whether it is raw material, steel and everything else – is going up. So there is going to be a slight slowdown or moderation in the volume growth as well as the profitability because of lower EBITDA margins. This is a sector where the PE could contract.

Some other cases like banking or pharma have been the other star performers of this year. In the case of pharma, there is not a great likelihood of a contraction in the valuation multiple. So the growth is going to be more track based on the earnings growth and on that front, we are still on a sound wicket as far as the generics business growth in domestic market and the US market is concerned. So pharma could be a sector which continues to outperform tracking its earnings growth.

Banking is one sector where recently – after a period of sustained outperformance – we have seen lot of scepticism getting built in and that is primarily because of the fact that inflation has been on the negative side to the surprise of market. Therefore, there is an expectation in the market that despite what RBI has said that they are going to take a pause on the rate hike cycle, a lot of people in the market are expecting RBI to once again start increasing to address inflation. This is something that we do not agree to. Inflation in India is primarily being driven by a couple of items in the primarily articles basket, which is basically vegetables and certain cotton and polyester yarns. These are the things which can be very cyclical in nature. In the next one quarter or may be even two months time, we are going to see some moderation in these items.

If you look at the manufacturing sector, which contributes about 65% of the inflation index, we are in a very comfortable position. Inflation is going at 4.5-5% kind of a rate and we do not expect that to go up so much. The Finance Minister yesterday said that they are expecting the inflation to moderate to 6.5% very soon. We are also assuming that by middle of January to February, we are going to see inflation moderate down to 6.5-7% and if that happens, I do not think that RBI will be pushing up the interest rates.
FIIs turn buyers in December 2010

Capital Market / 17:20 , Dec 31, 2010
Inflow of Rs 2352.70 crore on 30 December 2010

Foreign institutional investors (FIIs) bought shares worth a massive Rs 2352.70 crore on Thursday, 30 December 2010, much higher than an inflow of Rs 605 crore on Wednesday, 29 December 2010.

The net inflow of Rs 2352.70 crore on 30 December 2010 was a result of gross purchases Rs 4676.90 crore and gross sales Rs 2324.20 crore. There was an inflow of Rs 2346.50 crore into the secondary equity markets which was a result of gross purchases Rs 4670 crore and gross sales Rs 2323.50 crore. The BSE Sensex surged 133.04 points or 0.66% to 20,389.07 on that day.

There was an inflow of Rs 6.20 crore into the category ‘primary market & others’ on 30 December 2010, which was a result of gross purchases Rs 6.80 crore and gross sales Rs 0.60 crore.

FII inflow in December 2010 totaled Rs 2049.60 crore (till 30 December 2010). FIIs had bought equities worth Rs 18293.10 crore in November 2010.

FII inflow in the calendar year 2010 totaled Rs 133266 crore (till 30 December 2010). In dollar terms the net equity inflow in 2010 totaled $29.36 billion, above last year’s $17.45 billion. The annual inflow in 2010 was at record level.

There are a total of 1,718 foreign funds registered with the Securities & Exchange Board of India (Sebi).

18 Nov, 2010, 06.56PM IST,PTI
India economy to grow 9.1% this fiscal :OECD

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LONDON: Indian economy will grow by 9.1 per cent in the current fiscal on the back of a strong rebound in the agricultural sector, OECD, the grouping of mostly developed economies, forecast today.

A grouping of mostly developed nations, Paris-based OECD had pegged India’s GDP growth at 8.3 per cent for the year ending March 31, 2011.

However, the OECD growth forecast should not confused with Government of India’s projections for this fiscal at 8.5 per cent, since the methodologies differ. While India calculates GDP by excluding indirect taxes, OECD includes these taxes for its calculation of GDP.

“The Indian economy expanded very strongly in early 2010. The agricultural sector enjoyed a sharp rebound, following a return of normal rainfall patterns, while recovery in non agricultural sector continued to strengthen,” the Organisation for Economic Cooperation and Development (OECD) said.

About India, the grouping noted that there are signs that the economy is shifting from the recovery phase to one of sustained high growth.

“As fiscal stimulus continues to be withdrawn, a pick-up in consumption spending, aided by a recovery in farm incomes, and robust business investment are expected to be the mainstays of growth,” it added.

In the 2011-12 fiscal, Indian GDP is estimated to grow 8.2 per cent and by 8.5 per cent in the 2012-13 fiscal, OECD said.

According to the OECD, agricultural sector recovery has also helped to damp inflation, which is expected to moderate in the near term. Inflation, which was in double-digits for a long time, came down to 8.58 per cent in October.

“With domestic demand strong and the current account deficit widening, a steadfast commitment to timely fiscal consolidation and further moves to normalise the stance of monetary policy will be important for ensuring balanced growth ahead,” OECD said.

Meanwhile, the grouping has projected the global economy to grow 4.6 per cent this year and expand 4.2 per cent in 2011.

However, OECD has warned that risks to global recovery could be higher in the wake of speed and magnitude of capital inflows in emerging market economies and instability in sovereign debt markets.

India’s economy

Sep 30th 2010 | from PRINT EDITION

HORRIBLE toilets. Stagnant puddles buzzing with dengue-spreading mosquitoes. Collapsing masonry. Lax security. A terrorist attack. India’s preparations for the 72-nation Commonwealth games, which are scheduled to open in Delhi on October 3rd, have not won favourable reviews. “Commonfilth”, was one of the kinder British tabloid headlines. At best—assuming that the organisers make a last-minute dash to spruce things up—the Delhi games will be remembered as a shambles. The contrast with China’s practically flawless hosting of the Olympic games in 2008 could hardly be starker. Many people will draw the wrong lesson from this.

A big sporting event, some people believe, tells you something important about the nation that hosts it. Efficient countries build tip-top stadiums and make the shuttle buses run on time. That India cannot seem to do any of these things suggests that it will always be a second-rate power.

Or does it? Despite the headlines, India is doing rather well. Its economy is expected to expand by 8.5% this year. It has a long way to go before it is as rich as China—the Chinese economy is four times bigger—but its growth rate could overtake China’s by 2013, if not before (see article). Some economists think India will grow faster than any other large country over the next 25 years. Rapid growth in a country of 1.2 billion people is exciting, to put it mildly.

People power

There are two reasons why India will soon start to outpace China. One is demography. China’s workforce will shortly start ageing; in a few years’ time, it will start shrinking. That’s because of its one-child policy—an oppressive measure that no Indian government would get away with. Indira Gandhi tried something similar in the 1970s, when she called a state of emergency and introduced a forced-sterilisation programme. There was an uproar of protest. Democracy was restored and coercive population policies were abandoned. India is now blessed with a young and growing workforce. Its dependency ratio—the proportion of children and old people to working-age adults—is one of the best in the world and will remain so for a generation. India’s economy will benefit from this “demographic dividend”, which has powered many of Asia’s economic miracles.

The second reason for optimism is India’s much-derided democracy. The notion that democracy retards development in poor countries has gained currency in recent years. Certainly, it has its disadvantages. Elected governments bow to the demands of selfish factions and interest groups. Even the most urgent decisions are endlessly debated and delayed.

China does not have this problem. When its technocrats decide to dam a river, build a road or move a village, the dam goes up, the road goes down and the village disappears. The displaced villagers may be compensated, but they are not allowed to stand in the way of progress. China’s leaders make rational decisions that balance the needs of all citizens over the long term. This has led to rapid, sustained growth that has lifted hundreds of millions of people out of poverty. Small wonder that authoritarians everywhere cite China as their best excuse not to allow democracy just yet.

No doubt a strong central government would have given India a less chaotic Commonwealth games, but there is more to life than badminton and rhythmic gymnastics. India’s state may be weak, but its private companies are strong. Indian capitalism is driven by millions of entrepreneurs all furiously doing their own thing. Since the early 1990s, when India dismantled the “licence raj” and opened up to foreign trade, Indian business has boomed. The country now boasts legions of thriving small businesses and a fair number of world-class ones whose English-speaking bosses network confidently with the global elite. They are less dependent on state patronage than Chinese firms, and often more innovative: they have pioneered the $2,000 car, the ultra-cheap heart operation and some novel ways to make management more responsive to customers. Ideas flow easily around India, since it lacks China’s culture of secrecy and censorship. That, plus China’s rampant piracy, is why knowledge-based industries such as software love India but shun the Middle Kingdom.

India’s individualistic brand of capitalism may also be more robust than China’s state-directed sort. Chinese firms prosper under wise government, but bad rulers can cause far more damage in China than in India, because their powers are so much greater. If, God forbid, another Mao were to seize the reins, there would be no mechanism for getting rid of him.

That is a problem for the future. For now, India’s problems are painfully visible. The roads are atrocious. Public transport is a disgrace. Many of the country’s dynamic entrepreneurs waste hours each day stuck in traffic. Their firms are hobbled by the costs of building their own infrastructure: backup generators, water-treatment plants and fleets of buses to ferry staff to work. And India’s demographic dividend will not count for much if those new workers are unemployable. India’s literacy rate is rising, thanks in part to a surge in cheap private schools for the poor, but it is still far behind China’s.

Advantage India

The Indian government recognises the need to tackle the infrastructure crisis, and is getting better at persuading private firms to stump up the capital. But the process is slow and infected with corruption. It is hard to measure these things, but many observers think China has done a better job than India of curbing corruption, with its usual brutal methods, such as shooting people.

Given the choice between doing business in China or India, most foreign investors would probably pick China. The market is bigger, the government easier to deal with, and if your supply chain for manufactured goods does not pass through China your shareholders will demand to know why. But as the global economy becomes more knowledge-intensive, India’s advantage will grow. That is something to ponder while stuck in the Delhi traffic.

Business in India

Sep 30th 2010 | Delhi | from PRINT EDITION

AN INDIAN boss gestures from the lofty window of his steel-and-glass office. Ten years ago, says Pramod Bhasin, “you couldn’t even get a cup of coffee around here.” Now the area bristles with office blocks. Gurgaon, near Delhi, has swiftly become a global hub for outsourcing. Its recent rural past is not forgotten, however. Villagers still herd goats along its streets; pigs snuffle in the rubbish.

Mr Bhasin, who heads a firm called Genpact, speaks of outsourcing as a dentist might of flossing. Car firms should concentrate on making better cars, he says; most other tasks should be outsourced. Personnel departments, for example, need a few people to handle employees’ gripes face-to-face, but form-filling and data entry can be handled more efficiently by specialists. “I’ve got 10,000 people doing this,” he says. “They’re good at it.”

Genpact began as an internal unit of General Electric before being spun out, better to serve a wider set of customers, in 2005. It helps other organisations do dull things more quickly and cheaply. For example, by analysing the way American hospitals carried out mundane tasks, such as bed-changing and deciding where to put doctors’ offices, it was able to point out more efficient ways of using people and equipment. As a result, doctors perform 25% more operations each day. Demand is brisk: Mr Bhasin predicts that his sales could grow from $1.2 billion to $10 billion in the next ten years.

Such vast ambitions are no longer unusual in India. Firms now worth $5 billion expect soon to be worth $30 billion, observes Vijay Govindarajan, of the Tuck School of Business at Dartmouth College. The country is in a “global sweet spot”, says Nandan Nilekani, a former software mogul who heads a government project, launched on September 29th, to give every Indian an identity number.

India’s GDP is expected to grow by 8.5% this year, and could grow even faster. Chetan Ahya and Tanvee Gupta of Morgan Stanley, an investment bank, predict that India’s growth will start to outpace China’s within three to five years. China will rumble along at 8% rather than double digits; India will rack up successive years of 9-10%. For the next 20-25 years, India will grow faster than any other large country, they expect. Other long-range forecasters paint a similar picture.

Several factors weigh in India’s favour. The first is demography. Indians are young (see chart 1). “An ageing world needs workers; a young country has workers,” says Mr Nilekani. Previous Asian booms have been powered by a surge in the working-age population. Now it is India’s turn. The proportion of Indians aged under 15 or over 64 has declined from 69% in 1995 to 56% this year, says the UN. India’s working-age population will increase by 136m by 2020; China’s will grow by a mere 23m, says Morgan Stanley (see chart 2).

To be sure, many Indians are poorly educated. There will certainly not be jobs in business-process outsourcing for all. India, unusually for Asia, has not yet made much of a fist of labour-intensive manufacturing for export. But its workforce will stay young and keep growing, and it includes millions of English-speakers.

India’s second advantage is that the economic reforms of the early 1990s have unleashed an explosion of pent-up commercial energy. Tariff ramparts have been torn down (see chart 3). The “licence raj”—a system under which it seemed that a businessman could not pick his teeth without a permit—has been swept aside. Private firms have been forced to compete with the world’s best. Many have discovered that they can. Exports have shot up.

Indian firms are increasingly global and sometimes world-class. Arcelor Mittal, based in Luxembourg, is the world’s largest steel firm. Tata Motors, best known for making cars that cost only $2,000, also owns Jaguar and Land Rover, two luxury brands. Bharti Airtel, a mobile-phone firm with 140m subscribers in India, is rapidly expanding into Africa, too.

China’s growth has been largely state-directed. India’s, by contrast, is driven by 45m entrepreneurs, says Amit Mitra, the secretary-general of the Federation of Indian Chambers of Commerce and Industry, a business lobby. He gushes about the energy of India’s vast informal sector, and its ability to solve problems. Mr Mitra recalls meeting the owner of an informal suit-cutting business who used, as a kind of collateral, the fact that his brother held a government job. The brother went to the same office every day. So the moneylender could always find him, and that made the suit-cutter creditworthy.

In Dharavi, a Mumbai slum with perhaps 1m inhabitants, many alleys are too narrow to turn a wheelbarrow around. Yet every other doorway seems to lead to a small business. Bhaskar Chaudhary’s tiny factory works day and night turning out back pockets, which are whisked to a bigger factory, sewn onto jeans and exported to the Gulf. Business is good. Four years ago Mr Chaudhary had only one (Chinese-made) embroidering machine. Now he has three. He is still only 21 years old.

Indian firms export a lot of services, but their primary focus is on the needs of domestic consumers. Indian shoppers demand goods that are cheap, rather than fancy. Indian “frugal innovators” oblige. Tata Chemicals makes a filter that requires no power and can give a family of five safe drinking water for a month for 30 rupees ($0.65). Researchers at the Indian Institute of Technology and the Indian Institute of Science produced a prototype for a $35 laptop in July. A firm called Ayas Shilpa makes suspension bridges for a tenth of the price of conventional ones. In a country where countless villages are connected to the outside world only by perilous rope bridges across raging rivers, this is a colossal boon.

Indian firms are devising new business models as well as products. HCL Technologies, a software firm, helps clients improve their IT systems on the understanding that if they reap no benefits, they pay nothing. If they do gain, HCL takes a share. “It puts our skin in the game,” says Vineet Nayar, the firm’s chief executive.

India is the last frontier, says Moon B. Shin, the Korean boss of LG Electronics’ Indian subsidiary. By which he means: India has the largest number of people who have not yet bought many electronic goods. LG’s annual sales in India are about $3 billion. But what really excites Mr Shin is that they rose by 30% just in the first seven months of this year.

LG started manufacturing in India in the late 1990s. It is now the country’s most popular maker of all manner of gizmos. To succeed, it has kept its prices ultra-low and adapted its products to Indian tastes. Since many Indians are vegetarian, it offers a fridge with less freezer space and more drawers for vegetables. Since Indians like their televisions loud, LG affixes powerful speakers. The firm also sells voice-activated washing machines for middle-class families with illiterate maids. Its products are designed to cope with fluctuating power, and its packaging is extra-tough to cope with India’s terrible roads.

An elephant can stumble

If India keeps growing as fast as it is now, it will change the world. Optimists predict that it will be the next China, only friendlier and more democratic. Pessimists retort that such forecasts are over-spiced. They point out that India has a lot of catching up to do. China’s economy is four times bigger, so that even if India starts to grow faster, it will not overtake China for a long, long time. And they add that Indian businesses face several bottlenecks on the uneven road to growth.

The most obvious of these bottlenecks is lousy infrastructure. Indian roads are awful. Potholes gape; traffic lights don’t work. Rural roads are largely unpaved; in cities traffic often snarls to a halt. Cyrus Guzder, who runs a distribution business, complains that long-distance trucks average only about 20kph (12mph). Crossing the border between two Indian states can be more troublesome than crossing an international boundary. Between Kolkata and Mumbai (a distance of 2,000km), a truck must negotiate a couple of dozen checkpoints. Delays and shakedowns by grasping officials add 30% to the cost of road freight, estimates Mr Guzder.

“We have to have our own power backup, water-treatment plants and transport for employees,” grumbles Mr Nayar of HCL. As if on cue, the power goes off in his office. Big companies lay on fleets of cars and buses to ferry staff to work. Computer servers need costly extra layers of backup.

India’s economy will grow fivefold in the next 20 years, predicts McKinsey, a consultancy. The urban population will double from the 2001 census figure of 290m to perhaps 590m by 2030. McKinsey reckons that merely to keep pace, the country must spend $1.2 trillion on urban infrastructure, or at eight times today’s rate. Per person, China’s capital spending on cities is roughly seven times greater than India’s.

The other worrying bottleneck is a shortage of skills. The workforce may be young and growing, but 40% are illiterate and another 40% failed to complete school. The Boston Consulting Group sees a shortfall of 200,000 engineers, 400,000 other graduates and 150,000 vocationally trained workers in the coming years. Meanwhile, there are 62m surplus workers in agriculture, most of them barely skilled.

India’s best universities—the Indian Institutes of Technology—are world class, but there are only 16 of them. Many universities turn out graduates who are good at exams but unaccustomed to thinking about real-world problems. Employers train them for months, at great expense. Then they are ruthlessly poached by rivals.

Public schools are a mess. Supplies disappear. Teachers do not turn up, and even the worst are unsackable: as civil servants, their jobs are constitutionally protected. India’s adult literacy rate is only 66%; China’s is 93%. Nearly half of children under five are malnourished, which makes it hard for their brains to develop properly. A government scheme to deliver cheap grain to the poor is a national disgrace: two-thirds of the grain is stolen or adulterated.

The shortage of skills is wonderful for those who have them. Their wages are surging. The technologically minded young are getting cocky, their elders grumble. They expect stimulation as well as pay. “They are willing to walk away from a bad or boring job,” marvels Chaitanya Kalbag of Business Today, a magazine that recently published a cover story on “Brats at Work”.

The lack of skilled workers makes it harder to bring infrastructure up to the mark. Builders, electricians and plumbers are scarce. Cock-ups on building sites, such as lifts being installed upside down, are plentiful. The run-up to the Commonwealth games in Delhi, which begin on October 3rd, has been a reminder that India does some things very badly.

Instability is another huge worry. About 200 of India’s 588 districts are affected by a Maoist insurgency called the Naxalite movement. The rebels hide in India’s great forests, which are also where much of the country’s mineral wealth is buried. So mining and logging firms are seriously affected. Some of these also provoke violence, by evicting the poor to make way for their operations.

The home minister tried to assure investors in September that the insurgency would be quelled and that India was a safe place to park their money. He may be right about the second point: most businesses can avoid Naxalite-held areas. The biggest risk for banks in Mumbai and software firms in Bangalore is not that rebels will burst through their front doors but that a government sensitive to the anger of the poor will take populist steps to assuage it.

Populism is already a big problem. Some politicians woo voters by demonising business. Tata Motors dropped a plan for a factory in West Bengal after Mamata Banerjee, an opposition MP who is now the national railways minister, whipped up a campaign against the compulsory acquisition of land. The government often handles such transactions badly, so locals’ fears were not absurd. But the area missed out on much-needed jobs. Ms Banerjee is expected to lead her party to victory in the next state elections.

Rahul Gandhi, a possible future prime minister, plays populist chords when it suits him. Construction of a new road between Delhi and the Taj Mahal has been delayed because some of the farmers whose land is to be paved over demanded as much compensation per square metre as landowners in the pricey Delhi suburbs. After a mob of farmers killed and gouged out the eyes of a policeman, Mr Gandhi rushed to the area and expressed sympathy—for the farmers.

Corruption is another concern. India’s technocratic prime minister, Manmohan Singh, is widely admired, but some of his colleagues are crooks, thugs, rabble-rousers or all three. Corruption is debilitating. Many businesspeople think it is getting worse. In the old days ministers asked for bribes. Now they demand shares in firms to which they are about to award contracts, Indian bosses complain. Pratyush Sinha, who retired as head of India’s anti-corruption watchdog in September, reckons 30% of his compatriots are “utterly corrupt”.

That is uncharitable. Firms in sectors that do not depend on the government—software, cars, soap powder and so on—are mostly clean and professional, insists another senior official. The “messy stuff” mainly occurs in transactions that involve land, public contracts or natural resources. Yet the rot in these areas is so bad that it threatens to undermine the moral legitimacy of capitalism itself, frets this official.

India also faces challenges from abroad. Its success has inspired both a backlash and copycats. The governor of Ohio recently made headlines in India by banning state agencies from offshoring any of their work. Some American firms are shifting their call centres to the Philippines, where workers are as cheap as Indians but culturally closer to America.

The potholed road to prosperity

The Indian government will tackle the country’s infrastructure problems more slowly and ineptly than it should. But it will tackle them. It planned to spend $500 billion between 2007 and 2012. That pace will accelerate, not least because the state is getting better at inducing private investors to stump up some of the capital.

The skills shortage, too, is being addressed. Even illiterate parents now see the value of education. Rather than pulling their children out of school to work in the fields, they are increasingly urging them to study, in the hope of landing a job in a call centre. Where public schools are no good, cheap private ones have sprung up. Remarkably, in rural areas more than 20% of Indian students, most of them poor, attend private schools. The literacy rate is rising fast. Among 15-24-year-olds, it is over 80%, though girls do worse than boys.
Busy present, exciting future

Several reforms that will benefit business are inching towards enactment. A proposed national sales tax would replace the confusing patchwork of state and local levies. A proposed land law would simplify and speed up sales of land for infrastructure, factories and so forth. And maybe one day Wal-Mart will be allowed to open retail stores in India.

Some investors complain that India’s sprawling democracy is unpredictable. Understanding the relationship between the central government and the states is hard enough. Working out what fractious parties, pressure groups and powerbrokers are up to is virtually impossible.

Even when the government has made a decision, it is subject to challenge in court or by public opinion. Sometimes it is hard to tell who is in charge. “Don’t tell the Indians I said this, but I’m more comfortable in China than India,” says a prominent Western banker. “It’s much easier to deal with the well-understood ‘org chart’ of China Inc than the freewheeling chaos of India.”

Both China and India have taken off since their governments allowed people and companies more economic freedom. China went first, so it has a big head start. But as Morgan Stanley’s economists point out, India’s growth since the reforms of the early 1990s bears a striking resemblance to China’s since its grand opening in the late 1970s (see chart 4).

And India’s democracy may confer long-term benefits. It is not just that Indians can say what they please without having tanks rolled over them. It is also that India can change governments without a revolution. In the long run, that may offer a better guarantee of the stability that businesses crave.

India and China

Dec 16th 2010 | DELHI | from PRINT EDITION

COUNT the ways in which India’s handling of China is quietly growing firmer. Relations have been bad for years, with the two countries glaring at each other over a long, disputed border. But India, which in the past has mostly sought to placate its more powerful neighbour, is now stiffening its spine.

Manmohan Singh, India’s usually mild-mannered prime minister, set the tone with a blunt warning in September. He spoke of a “new assertiveness” in China, which he said was seeking a “foothold in South Asia”. Subsequently he shuttled about Asia, promoting a “look east” policy of warmer ties with fellow democracies that fret, like India, about a more nationalistic China.

In October Mr Singh signed a trade deal with Japan and pushed for rapid implementation of an existing one with south-east Asian allies. On December 10th he waved two undiplomatic fingers at insistent Chinese demands that India join a boycott of the Nobel peace-prize ceremony for a jailed Chinese human-rights activist (see article). Ramming home the point on December 13th, India’s foreign secretary, Nirupama Rao, chided China’s ambassador at a public meeting in Delhi. She said her “Chinese friends” should get used to dealing with the “vibrant…noisy, nature of our democracy”.

Ms Rao was responding to the ambassador’s dark warning that criticism of China during a rare visit by Wen Jiabao, the prime minister, to India between December 15th and 17th, could threaten “fragile” bilateral ties. He added that these would be “difficult to repair” if broken. India’s leaders are not in a mood to listen. In Delhi a few hundred Tibetans were left to demonstrate against Mr Wen as he arrived. More striking, the Dalai Lama, their spiritual leader, embarked at the same time on an eight-day trip to Sikkim, a north-eastern state on the border with Chinese-run Tibet. That excursion, like one last year to Arunachal Pradesh—Indian territory claimed by China as “south Tibet”—seemed designed to arouse Chinese ire.

China has certainly been doing its bit to provoke the ire of the Indians. It reportedly sent several thousand soldiers to parts of Pakistani-controlled Kashmir this year, to build roads for its “all-weather” ally. It has denied visas (other than ones stapled to passports) to Indian Kashmiris and to a general responsible for Kashmir, a hint that it might not respect Indian control of the territory.

India has responded by suspending regular bilateral defence meetings. But Omar Abdullah, the chief minister of Jammu and Kashmir, suggests going further. “Why should India have a one-China policy, when China doesn’t have a one-India policy?” he asks. “What if we started stapling passports from Tibet?” Though this is never likely to be adopted as policy by the government in Delhi, the very suggestion would make China furious.

The Indians’ increasingly strong ties with America are bolstering their confidence in dealing with China. President Barack Obama visited Delhi a month ago and earned much goodwill by offering hearty support for India’s bid for permanent membership of the UN Security Council (China is distinctly lukewarm). This cosying up between India and America makes China all the more prickly.

The two countries laud their booming bilateral trade, which should reach $60 billion this year. But Indian officials fret openly about China’s trade surplus of some $20 billion. They complain that barriers to China’s domestic market mean that India is mostly shipping unrefined minerals and primary goods, getting finished products in return. Mr Wen, accompanied by some 400 businessmen, announced new loans, investment deals and the sale of 36 coal-powered generators to India. But little of this was likely to lead to higher-value exports to China. Chinese talk of a free-trade deal that would expose India’s inefficient manufacturers to fierce competition has been given short shrift.

Other headaches persist. India worries that China is throwing up huge dams in Tibet that might divert water from rivers flowing over the border. It frets about cyber-attacks from China. Ever resentful of China’s invasion in 1962, it shudders at hawkish talk in the Chinese press.

This week a Chinese newspaper, Global Times, published an essay by a member of the country’s Academy of Military Science. In it the author lamented, perhaps with India in mind, “we have not recovered the land looted by our neighbours, so how can we boast of being a strong nation?” Many Indians feel much the same way about China.

Indian Economy Overview

India, an emerging economy, has witnessed unprecedented levels of economic expansion, along with countries like China, Russia, Mexico and Brazil. India, being a cost effective and labor intensive economy, has benefited immensely from outsourcing of work from developed countries, and a strong manufacturing and export oriented industrial framework. With the economic pace picking up, global commodity prices have staged a comeback from their lows and global trade has also seen healthy growth over the last two years.
Economic Prospects for 2010

The global economy seems to be recovering after the recent economic shock. The Indian economy, however, was hit in the latter part of the global recession and the real economic growth witnessed a sharp fall, followed by lower exports, lower capital outflow and corporate restructuring. It is expected that the global economies will continue to sustain in the short-term, as the effect of stimulus programs is yet to bear fruit and tax cuts are working their way through the system in 2010. Due to the strong position of liquidity in the market, large corporations now have access to capital in the corporate credit markets.

India’s Economic Outlook Projection

2007

2008

2009

2010

GDP Growth

9.40%

7.30%

5.40%

7.20%

CPI

6.40%

9.30%

5.50%

4.90%

Indian Economy 2010

In order to sustain economic growth during the time of the worst recession, government authorities in India have announced the stimulus packages to prop up economic growth. To finance the stimulus packages, the Indian government has raised over $100 billion over the last four quarters in a way to finance the stimulus package. The country’s public debt, according to the RBI, has surged to over 50% of the total GDP and the RBI has started printing new currency notes.

Central Government Debt

in Rs. Crores (10 Million)

Q3 2008

Q3 2009

% of GDP

Public Debt (Sum of 1 and 2)

2,099,286.23

2,505,450.74

50.71%

1. External Debt

237,351.77

294,941.67

2. Internal Debt

1,861,934.46

2,210,509.07

Economy of India

From Wikipedia, the free encyclopedia

Economy of The Republic of India

Indian Notes 10 100 500.JPG

Modern Indian notes

Rank     11th (nominal) / 4th (PPP)

Currency     1 Indian Rupee (INR) (Indian Rupee ₹) = 100 Paise

Fiscal year     Calendar year (1 April — 31 March)

Trade organizations     WTO, SAFTA, G-20 and others

Statistics

GDP   

$1.3123 trillion (nominal: 11th; 2009)[1]

$3.862 trillion (PPP: 4th; 2009)[1]
GDP growth     8.9% (2010, Q2)[2]
GDP per capita   

$1,124 (nominal: 142th; 2009)[1]

$3,176 (PPP: 127th; 2009)[1]
GDP by sector     services (57%), industry (28%), agriculture (15%) (2009-10)

Inflation (CPI)     7.48% (November 2010)[3]

Population

below poverty line     37% (2010)[4]

Gini index     36.8 (List of countries)

Labour force     467 million (2nd; 2009)

Labour force

by occupation     agriculture (52%), industry (14%), services (34%) (2009 est.)

Unemployment     9.4% (2009-10)[5]

Main industries     telecommunications, textiles, chemicals, food processing, steel, transportation equipment, cement, mining, petroleum, machinery, information technology, pharmaceuticals

Ease of Doing Business Rank     134th[6]

External

Exports     $176.5 billion (18th; 2009)

Export goods     software, petroleum products, textile goods, gems and jewelry, engineering goods, chemicals, leather manufactures

Main export partners     US 12.3%, UAE 9.4%, China 9.3% (2008)

Imports     $287.5 billion (15th; 2009)

Import goods     crude oil, machinery, gems, fertilizer, chemicals

Main import partners     China 11.1%, Saudi Arabia 7.5%, US 6.6%, UAE 5.1%, Iran 4.2%, Singapore 4.2%, Germany 4.2% (2008)

FDI stock     Home: $161.3 billion (24th; 2009)

Abroad: $77.4 billion (24th; 2009)

Gross external debt     $223.9 billion (31 December 2009 est.)

Public finances

Public debt     58% of GDP (2009 est.)[7]

Revenues     $129.8 billion (2009 est.)

Expenses     $214.6 billion (2009 est.)

Economic aid     $1.724 billion (2005)[8]

Foreign reserves     $294.01 billion (6th; Oct 2010)

Main data source: CIA World Fact Book

All values, unless otherwise stated, are in US dollars

    Throughout this article, the unqualified term “dollar” and the $ symbol refer to the United States dollar.

India’s economy is the eleventh largest in the world by nominal GDP[1] and the fourth largest by purchasing power parity (PPP).[1] The country’s per capita GDP (PPP) is $3,176 (IMF, 127th) in 2009.[1] Following strong economic reforms from the socialist inspired economy of a post-independence Indian nation, the country began to develop a fast-paced economic growth, as free market principles were initiated in 1990 for international competition and foreign investment.[9] Economists predict that by 2020, India will be among the leading economies of the world.[10]

India was under social democratic-based policies from 1947 to 1991. The economy was characterised by extensive regulation, protectionism, public ownership, pervasive corruption and slow growth.[11][12][13] Since 1991, continuing economic liberalisation has moved the country toward a market-based economy.[11][12] A revival of economic reforms and better economic policy in first decade of the 21st century accelerated India’s economic growth rate. In recent years, Indian cities have continued to liberalize business regulations.[6] By 2008, India had established itself as the world’s second-fastest growing major economy.[14][15] However, as a result of the financial crisis of 2007–2010, coupled with a poor monsoon, India’s gross domestic product (GDP) growth rate significantly slowed to 6.7 percent in 2008-09, but subsequently recovered to 7.2% in 2009-10, while the fiscal deficit rose from 5.9% to a high 6.5% during the same period.[16] India ranks 51th in the Global Competitiveness Report.[17] The country has major stock and commodities exchanges like BSE, NSE, USE and few other exchanges as well.

India’s large service industry accounts for 57.2% of the country’s GDP while the industrial and agricultural sector contribute 28% and 14.6% respectively.[18] Agriculture is the predominant occupation in India, accounting for about 52% of employment. The service sector makes up a further 34%, and industrial sector around 14%.[19] The labour force totals half a billion workers. Major agricultural products include rice, wheat, oilseed, cotton, jute, tea, sugarcane, potatoes, cattle, water buffalo, sheep, goats, poultry and fish.[20] Major industries include telecommunications, textiles, chemicals, food processing, steel, transportation equipment, cement, mining, petroleum, machinery, information technology enabled services and pharmaceuticals.[20]

Previously a closed economy, India’s trade has grown fast.[11] India currently accounts for 1.5% of world trade as of 2007 according to the WTO. According to the World Trade Statistics of the WTO in 2006, India’s total merchandise trade (counting exports and imports) was valued at $294 billion in 2006 and India’s services trade inclusive of export and import was $143 billion. Thus, India’s global economic engagement in 2006 covering both merchandise and services trade was of the order of $437 billion, up by a record 72% from a level of $253 billion in 2004. India’s trade has reached a still relatively moderate share 24% of GDP in 2006, up from 6% in 1985.[11]

History

Main articles: Economic history of India and Timeline of the economy of India

Pre-colonial period (upto 1757)

The spice trade between India and Europe was one of the main drivers of the world economy[21] and the main catalyst for the Age of Discovery.[22]

The citizens of the Indus Valley civilisation, a permanent settlement that flourished between 2800 BC and 1800 BC, practiced agriculture, domesticated animals, used uniform weights and measures, made tools and weapons, and traded with other cities. Evidence of well planned streets, a drainage system and water supply reveals their knowledge of urban planning, which included the world’s first urban sanitation systems and the existence of a form of municipal government.[23]

Maritime trade was carried out extensively between South India and southeast and West Asia from early times till around the fourteenth century AD. Both the Malabar and Coromandel Coasts were the sites of important trading centres from as early as the first century BC, used for import and export as well as transit points between the Mediterranean region and southeast Asia.[24] Over time, traders organised themselves into associations which received state patronage. However, state patronage for overseas trade came to an end by the thirteenth century AD, when it was largely taken over by the local Jewish and Muslim communities, initially on the Malabar and subsequently on the Coromandel coast.[25] Further north, the Saurashtra and Bengal coasts played an important role in maritime trade, and the Gangetic plains and the Indus valley housed several centres of river-borne commerce. Most overland trade was carried out via the Khyber Pass connecting the Punjab region with Afghanistan and onward to the Middle East and Central Asia.[26] Although many kingdoms and rulers issued coins, barter was prevalent. Villages paid a portion of their agricultural produce as revenue to the rulers, while its craftsmen received a part of the crops at harvest time for their services.[27]

Silver coin minted during the reign of the Gupta king Kumara Gupta I (AD 414–55)

Religion, especially Hinduism, and the caste and the joint family systems, played an influential role in shaping economic activities.[28] The caste system functioned much like medieval European guilds, ensuring the division of labour, providing for the training of apprentices and, in some cases, allowing manufacturers to achieve narrow specialization. For instance, in certain regions, producing each variety of cloth was the specialty of a particular sub-caste. Textiles such as muslin, Calicos, shawls, and agricultural products such as pepper, cinnamon, opium and indigo were exported to Europe, the Middle East and South East Asia in return for gold and silver.[29]

Assessment of India’s pre-colonial economy is mostly qualitative, owing to the lack of quantitative information. The Mughal economy functioned on an elaborate system of coined currency, land revenue and trade. Gold, silver and copper coins were issued by the royal mints which functioned on the basis of free coinage.[30] The political stability and uniform revenue policy resulting from a centralised administration under the Mughals, coupled with a well-developed internal trade network, ensured that India, before the arrival of the British, was to a large extent economically unified, despite having a traditional agrarian economy with a dominant subsistence sector dependent on primitive technology.[31] After the decline of the Mughals, western, central and parts of south and north India were integrated and administered by the Maratha Empire. After the loss at the Third Battle of Panipat, the Maratha Empire disintegrated into several confederate states, and the resulting political instability and armed conflict severely affected economic life in several parts of the country, although this was compensated for to some extent by the localised prosperity in the new provincial kingdoms.[32] By the end of the eighteenth century, the British East India Company entered the Indian political theatre and established its dominance over other Eurpoean powers. This marked a determinative shift in India’s trade, and a less powerful impact on the rest of the economy[33]

Colonial period (1773-1947)

An aerial view of Calcutta Port taken in 1945. Calcutta, which was the economic hub of British India, saw increased industrial activity during World War II.

    There is no doubt that our grievances against the British Empire had a sound basis. As the painstaking statistical work of the Cambridge historian Angus Maddison has shown, India’s share of world income collapsed from 22.6 per cent in 1700, almost equal to Europe’s share of 23.3 per cent at that time, to as low as 3.8 per cent in 1952. Indeed, at the beginning of the 20th Century, “the brightest jewel in the British Crown” was the poorest country in the world in terms of per capita income.

    – Manmohan Singh[34]

Company rule in India brought a major change in the taxation and agricultural policies, which tended to promote commercialisation of agriculture with a focus on trade, resulting in decreased production of food crops, mass impoverishment and destitution of farmers, and in the short term, led to numerous famines.[35] The economic policies of the British Raj caused a severe decline in the handicrafts and handloom sectors, due to reduced demand and dipping employment.[36] After the removal of international restrictions by the Charter of 1813, Indian trade expanded substantially and over the long term, showed an upward trend.[37] The result was a significant transfer of capital from India to England, which, due to the colonial policies of the British, led to a massive drain of revenue instead of any systematic effort at modernisation of the domestic economy.[38]

Estimates of the per capita income of India (1857–1900) as per 1948–49 prices.[39]

India’s colonisation by the British created an institutional environment that, on paper, guaranteed property rights among the colonizers, encouraged free trade, and created a single currency with fixed exchange rates, standardised weights and measures, capital markets. It also established a well developed system of railways and telegraphs, a civil service that aimed to be free from political interference, a common-law and an adversarial legal system.[40] This coincided with major changes in the world economy—industrialisation, and significant growth in production and trade. However, at the end of colonial rule, India inherited an economy that was one of the poorest in the developing world,[41] with industrial development stalled, agriculture unable to feed a rapidly growing population, a largely illiterate and unskilled labour force, and extremely inadequate infrastructure.[42]

The 1872 census revealed that 91.3% of the population of the region constituting present-day India resided in villages,[43] and urbanisation generally remained sluggish until the 1920s, due to the lack of industrialisation and absence of adequate transportation. Subsequently, the policy of discriminating protection, coupled with the second world war, saw the development and dispersal of industries, encouraging rural-urban migration, and in particular the large port cities of Bombay, Calcutta and Madras grew rapidly. Despite this, only one-sixth of India’s population lived in cities by 1951.[44]

The impact of the British rule on India’s economy is a controversial topic. Leaders of the Indian independence movement, and left-nationalist economic historians have blamed colonial rule for the dismal state of India’s economy in its aftermath and that financial strength required for Industrial development in Europe was derived from the wealth taken from Colonies in Asia and Africa. At the same time right-wing historians have countered that India’s low economic performance was due to various sectors being in a state of growth and decline due to changes brought in by colonialism and a world that was moving towards industrialization and economic integration.[45]

Pre-liberalisation period (1947-1991)

Compare India (orange) with South Korea (yellow). Both started from about the same income level in 1950. The graph shows GDP per capita of South Asian economies and South Korea as a percent of the American GDP per capita.

Indian economic policy after independence was influenced by the colonial experience, which was seen by Indian leaders as exploitative, and by those leaders’ exposure to democratic socialism as well as the progress achieved by the economy of the Soviet Union.[42] Domestic policy tended towards protectionism, with a strong emphasis on import substitution, industrialization, state intervention, a large public sector, business regulation, and central planning,[46] while trade and foreign investment policies were relatively liberal.[47] Five-Year Plans of India resembled central planning in the Soviet Union. Steel, mining, machine tools, water, telecommunications, insurance, and electrical plants, among other industries, were effectively nationalised in the mid-1950s.[48]

Jawaharlal Nehru, the first prime minister of India, along with the statistician Prasanta Chandra Mahalanobis, formulated and oversaw economic policy during the initial years of the country’s existence. They expected favorable outcomes from their strategy, involving the rapid development of heavy industry by both public and private sectors, and based on direct and indirect state intervention, rather than the more extreme Soviet-style central command system.[49][50] The policy of concentrating simultaneously on capital- and technology-intensive heavy industry and subsidizing manual, low-skill cottage industries was criticised by economist Milton Friedman, who thought it would waste capital and labour, and retard the development of small manufacturers.[51] The rate of growth of the Indian economy in the first three decades after independence was derisively referred to as the Hindu rate of growth, because of the unfavourable comparison with growth rates in other Asian countries, especially the East Asian Tigers.[52][53]

Since 1965, the use of high-yielding varieties of seeds, increased fertilizers and improved irrigation facilities collectively contributed to the Green Revolution in India, which improved the condition of agriculture in India by increasing productivity of food as well as commercial crops, improving crop patterns and strengthening forward and backward linkages between agriculture and industry.[54] However, it has also been criticised as an unsustainable effort, resulting in the growth of capitalistic farming, ignoring institutional reforms and widening income disparities.[55]

Post-liberalisation period (since 1991)

Main articles: Economic liberalization in India and Economic development in India

In the late 70s, the government led by Morarji Desai eased restrictions on capacity expansion for incumbents, removed price controls and reduced corporate taxes and small scale industries are created in large numbers. However the subsequent government policy of fabian socialism hampered the benefits of the economy leading to high fiscal deficits and a worsening current account. The collapse of the Soviet Union, which was India’s major trading partner, and the first Gulf War, which caused a spike in oil prices, caused a major balance-of-payments crisis for India, which found itself facing the prospect of defaulting on its loans.[56] India asked for a $1.8 billion bailout loan from IMF, which in return demanded reforms.[57]

An industrial zone near Mumbai, India.

In response, Prime Minister Narasimha Rao along with his finance minister Dr. Manmohan Singh initiated the economic liberalization of 1991. The reforms did away with the Licence Raj (investment, industrial and import licensing) and ended many public monopolies, allowing automatic approval of foreign direct investment in many sectors.[58] Since then, the overall direction of liberalisation has remained the same, irrespective of the ruling party, although no party has tried to take on powerful lobbies such as the trade unions and farmers, or contentious issues such as reforming labour laws and reducing agricultural subsidies.[59] By the turn of the century, India had progressed towards a free-market economy, with a substantial reduction in state control of the economy and increased financial liberalisation.[60] This has been accompanied by increases in life expectancy, literacy rates and food security.[61]

While the credit rating of India was hit by its nuclear tests in 1998, it has been raised to investment level in 2007 by S&P and Moody’s.[62] In 2003, Goldman Sachs predicted that India’s GDP in current prices will overtake France and Italy by 2020, Germany, UK and Russia by 2025 and Japan by 2035. By 2035, it was projected to be the third largest economy of the world, behind US and China. India is often seen by most economists as a rising economic superpower and is believed to play a major role in the global economy in the 21st century.[63][64]

Sectors

 Industry and services
See also: Information technology in India, Business process outsourcing in India, and Retailing in India

India has one of the world’s fastest growing automobile industries[65][66] Shown here is the Tata Motors‘ Nano, the world’s cheapest car.[67]

Industry accounts for 28% of the GDP and employ 14% of the total workforce.[19] However, about one-third of the industrial labour force is engaged in simple household manufacturing only.[68][verification needed] In absolute terms, India is 16th in the world in terms of nominal factory output.[69]

Economic reforms brought foreign competition, led to privatisation of certain public sector industries, opened up sectors hitherto reserved for the public sector and led to an expansion in the production of fast-moving consumer goods.[70] Post-liberalisation, the Indian private sector was faced with increasing domestic as well as foreign competition, including the threat of cheaper Chinese imports. It has since handled the change by squeezing costs, revamping management, and relying on cheap labour and new technology. However, this has also reduced employment generation even by smaller manufacturers who earlier relied on relatively labour-intensive processes.[71]

Textile manufacturing is the second largest source for employment after agriculture and accounts for 26% of manufacturing output.[72] Ludhiana produces 90% of woolens in India and is also known as the Manchester of India. Tirupur has gained universal recognition as the leading source of hosiery, knitted garments, casual wear and sportswear.[73] Dharavi slum in Mumbai has gained fame for leather products. Tata Motors‘ Nano attempts to be the world’s cheapest car.[67]

India is fifteenth in services output. It provides employment to 23% of work force, and it is growing fast, growth rate 7.5% in 1991–2000 up from 4.5% in 1951–80. It has the largest share in the GDP, accounting for 55% in 2007 up from 15% in 1950.[19]

Business services (information technology, information technology enabled services, business process outsourcing) are among the fastest growing sectors contributing to one third of the total output of services in 2000. The growth in the IT sector is attributed to increased specialization, and an availability of a large pool of low cost, but highly skilled, educated and fluent English-speaking workers, on the supply side, matched on the demand side by an increased demand from foreign consumers interested in India’s service exports, or those looking to outsource their operations. The share of India’s IT industry to the country’s GDP increased from 4.8 % in 2005-06 to 7% in 2008.[74][75] In 2009, seven Indian firms were listed among the top 15 technology outsourcing companies in the world.[76] In March 2009, annual revenues from outsourcing operations in India amounted to US$60 billion and this is expected to increase to US$225 billion by 2020.[77]

Organised retail such supermarkets accounts for 24% of the market as of 2008.[78] Regulations prevent most foreign investment in retailing. Moreover, over thirty regulations such as “signboard licences” and “anti-hoarding measures” may have to be complied before a store can open doors. There are taxes for moving goods to states, from states, and even within states.[78]

Tourism in India is relatively undeveloped, but growing at double digits. Some hospitals woo medical tourism.[79]

Mining forms an important segment of the Indian economy, with the country producing 79 different minerals (excluding fuel and atomic resources) in 2009-10, including iron ore, manganese, mica, bauxite, chromite, limestone, asbestos, fluorite, gypsum, ochre, phosphorite and silica sand.[80]

Agriculture

Farmers work inside a rice field in Andhra Pradesh. India is the second largest producer of rice in the world after China[81] and Andhra Pradesh is the second largest rice producing state in India with West Bengal being the largest.[82]

Main articles: Agriculture in India, Forestry in India, Animal husbandry in India, and Fishing in India

See also: Natural resources in India

India ranks second worldwide in farm output. Agriculture and allied sectors like forestry, logging and fishing accounted for 15.7% of the GDP in 2009-10, employed 52.1% of the total workforce, and despite a steady decline of its share in the GDP, is still the largest economic sector and plays a significant role in the overall socio-economic development of India.[83] Yields per unit area of all crops have grown since 1950, due to the special emphasis placed on agriculture in the five-year plans and steady improvements in irrigation, technology, application of modern agricultural practices and provision of agricultural credit and subsidies since the Green Revolution in India. However, international comparisons reveal the average yield in India is generally 30% to 50% of the highest average yield in the world.[84]

India receives an average annual rainfall of 1,208 millimetres (47.6 in) and a total annual precipitation of 4000 billion cubic metres, with the total utilisable water resources, including surface and groundwater, amounting to 1123 billion cubic metres.[85] 546,820 square kilometres (211,130 sq mi) of the land area, or about 39% of the total cultivated area, is irrigated.[86] India’s inland water resources comprising rivers, canals, ponds and lakes and marine resources comprising the east and west coasts of the Indian ocean and other gulfs and bays provide employment to nearly 6 million people in the fisheries sector. In 2008, India had the world’s third largest fishing industry.[87]

India is the largest producer in the world of milk, cashew nuts, coconuts, tea, ginger, turmeric and black pepper.[88] It also has the world’s second largest cattle population with 175 million heads in 2008.[89] It is the second largest producer of rice, wheat, sugarcane, cotton and groundnuts, as well as the second largest fruit and vegetable producer, accounting for 10.9% and 8.6% of the world fruit and vegetable production respectively.[89] India is also the second largest producer and the largest consumer of silk in the world, producing 77,000 million tons in 2005.[90]

Banking and finance

Main article: Finance in India

See also: Banking in India and Insurance in India

The Indian money market is classified into the organised sector (comprising private, public and foreign owned commercial banks and cooperative banks, together known as scheduled banks); and the unorganised sector (comprising individual or family owned indigenous bankers or money lenders and non-banking financial companies (NBFCs)).[91] The unorganised sector and microcredit are still preferred over traditional banks in rural and sub-urban areas, especially for non-productive purposes, like ceremonies and short duration loans.[92]

Mumbai is the financial and commercial capital of India. Shown here is the World Trade Centre of Mumbai

Prime Minister Indira Gandhi nationalised 14 banks in 1969, followed by six others in 1980, and made it mandatory for banks to provide 40% of their net credit to priority sectors like agriculture, small-scale industry, retail trade, small businesses, etc. to ensure that the banks fulfill their social and developmental goals. Since then, the number of bank branches has increased from 8,260 in 1969 to 72,170 in 2007 and the population covered by a branch decreased from 63,800 to 15,000 during the same period. The total deposits increased from Indian Rupee ₹5,910 crore (US$1.31 billion) in 1970-71 to Indian Rupee ₹3,830,922 crore (US$846.63 billion) in 2008-09. Despite an increase of rural branches, from 1,860 or 22% of the total number of branches in 1969 to 30,590 or 42% in 2007, only 32,270 out of 500,000 villages are covered by a scheduled bank.[93][94]

The public sector banks hold over 75% of total assets of the banking industry, with the private and foreign banks holding 18.2% and 6.5% respectively.[95] Since liberalisation, the government has approved significant banking reforms. While some of these relate to nationalised banks (like encouraging mergers, reducing government interference and increasing profitability and competitiveness), other reforms have opened up the banking and insurance sectors to private and foreign players.[19][96]

More than half of personal savings are invested in physical assets such as land, houses, cattle, and gold.[97] India’s gross domestic saving in 2006-07 as a percentage of GDP stood at a high 32.7%.[98]

Energy and power

Main article: Energy policy of India

ONGC platform at Mumbai High in the Arabian Sea. As of 2010, India is the world’s fifth largest consumer of oil.[99]

India’s oil reserves meet 25% of the country’s domestic oil demand.[19][100] As of 2009, India’s total proven oil reserves stood at 775 million metric tonnes while gas reserves stood at 1074 billion cubic metres.[101] Oil and natural gas fields are located offshore at Mumbai High, Krishna Godavari Basin and the Cauvery Delta, and onshore mainly in the states of Assam, Gujarat and Rajasthan.[19][101] In 2009, India imported 2,560,000 barrels (407,000 m3) of oil per day, making it one of largest buyers of crude oil in the world.[102] The petroleum industry in India mostly consists of public sector companies such as Oil and Natural Gas Corporation (ONGC), Hindustan Petroleum Corporation Limited (HPCL) and Indian Oil Corporation Limited (IOCL). There are some major private Indian companies in oil sector such as Reliance Industries Limited (RIL) which operates the world’s largest oil refining complex.[103]

India has the world’s fifth largest wind power industry, with an installed wind power capacity of 9,587 MW. Shown here is a wind farm in Muppandal, Tamil Nadu.

As of 2010, India had an installed power generation capacity of 164,835 megawatts (MW), of which thermal power contributed 64.6%, hydroelectricity 24.7%, other sources of renewable energy 7.7%, and nuclear power 2.9%.[104] India meets most of its domestic energy demand through its 106 billion tonnes of coal reserves.[105] India is also believed to be rich in certain renewable sources of energy with significant future potential such as solar, wind and biofuels (jatropha, sugarcane). India’s huge thorium reserves — about 25% of world’s reserves — is expected to fuel the country’s ambitious nuclear energy program in the long-run. India’s dwindling uranium reserves stagnated the growth of nuclear energy in the country for many years.[106] However, the Indo-US nuclear deal has paved the way for India to import uranium from other countries.[107]

External trade and investment

Further information: Globalisation in India

Global trade relations

In March 2008, India’s annual imports and exports stood at US$236 and US$155.5 billion respectively.[108] Shown here is the Chennai Port.

India’s economy is mostly dependent on its large internal market with external trade accounting for just 20% of the country’s GDP.[109] Until the liberalization of 1991, India was largely and intentionally isolated from the world markets, to protect its economy and to achieve self-reliance. Foreign trade was subject to import tariffs, export taxes and quantitative restrictions, while foreign direct investment (FDI) was restricted by upper-limit equity participation, restrictions on technology transfer, export obligations and government approvals; these approvals were needed for nearly 60% of new FDI in the industrial sector. The restrictions ensured that FDI averaged only around US$200 million annually between 1985 and 1991; a large percentage of the capital flows consisted of foreign aid, commercial borrowing and deposits of non-resident Indians.[110] India’s exports were stagnant for the first 15 years after independence, due to the predominance of tea, jute and cotton manufactures, demand for which was generally inelastic. Imports in the same period consisted predominantly of machinery, equipment and raw materials, due to nascent industrialization.

Since liberalization, the value of India’s international trade has increased sharply.[111] India’s major trading partners are the European Union, China, the United States and the United Arab Emirates.[112] The exports during April 2007 were $12.31 billion up by 16% and import were $17.68 billion with an increase of 18.06% over the previous year.[113] In 2006-07, major export commodities included engineering goods, petroleum products, chemicals and pharmaceuticals, gems and jewellery, textiles and garments, agricultural products, iron ore and other minerals. Major import commodities included crude oil and related products, machinery, electronic goods, gold and silver.[114] Its September 2010 exports were reported to have increased 23% year-on-year to US $18.02bn, while its imports were up 26.1% at $27.14bn. At US$13.06bn August’s trade gap was the highest in 23 months but the economy is well on the road to cross $200 billion mark in exports for the financial year 2010-11.[115]

Indian exports in 2006

India is a founding-member of General Agreement on Tariffs and Trade (GATT) since 1947 and its successor, the WTO. While participating actively in its general council meetings, India has been crucial in voicing the concerns of the developing world. For instance, India has continued its opposition to the inclusion of such matters as labour and environment issues and other non-tariff barriers into the WTO policies.[116]

Balance of payments

Cumulative Current Account Balance 1980-2008 based on the IMF data

Since independence, India’s balance of payments on its current account has been negative. Since economic liberalisation in the 1990s, precipitated by a balance of payment crisis, India’s exports rose consistently, covering 80.3% of its imports in 2002–03, up from 66.2% in 1990–91.[117] However, the global economic slump followed by a general deceleration in world trade saw the exports as a percentage of imports drop to 61.4% in 2008-09.[118] India’s growing oil import bill is seen as the main driver behind the large current account deficit,[119] which rose to $118.7 billion, or 9.7% of GDP, in 2008-09.[120] In 2007-08, India imported 120.1 million tonnes of crude oil, more than 3/4th of the domestic demand, at a cost of $61.72 billion.[121]

Due to the global late-2000s recession, both Indian exports and imports declined by 29.2% and 39.2% respectively in June 2009.[122] The steep decline was because countries hit hardest by the global recession, such as United States and members of the European Union, account for more than 60% of Indian exports.[123] However, since the decline in imports was much sharper compared to the decline in exports, India’s trade deficit reduced to Indian Rupee ₹25,250 crore (US$5.58 billion).[122]

India’s reliance on external assistance and commercial borrowings has decreased since 1991–92, and since 2002–03, it has gradually been repaying these debts. Declining interest rates and reduced borrowings decreased India’s debt service ratio to 4.5% in 2007.[124] In India, External Commercial Borrowings (ECBs) are being permitted by the Government for providing an additional source of funds to Indian corporates. The Ministry of Finance monitors and regulates these borrowings (ECBs) through ECB policy guidelines.[125] India’s foreign exchange reserves have steadily risen from $5.8 billion in March 1991 to $283.5 billion in December 2009. [126]

Foreign direct investment in India

Share of top five investing countries in FDI inflows. (2000–2010)[127] Rank     Country     Inflows

(million USD)     Inflows (%)

1     Mauritius     50,164     42.00
2     Singapore     11,275     9.00
3     USA     8,914     7.00
4     UK     6,158     5.00
5     Netherlands     4,968     4.00

As the fourth-largest economy in the world in PPP terms, India is a preferred destination for foreign direct investments (FDI);[128] India has strengths in telecommunication, information technology and other significant areas such as auto components, chemicals, apparels, pharmaceuticals, and jewellery. Till 2008-09, services sector attracted 54.93 per cent of India’s total FDI as cumulative basis. Despite a surge in foreign investments, rigid FDI policies resulted in a significant hindrance. However, due to some positive economic reforms aimed at deregulating the economy and stimulating foreign investment, India has positioned itself as one of the front-runners of the rapidly growing Asia Pacific Region.[128] India has a large pool of skilled managerial and technical expertise. The size of the middle-class population stands at 300 million and represents a growing consumer market.[129]

During 2000-10, the country attracted $178 billion as FDI.[130] The inordinately high investment from Mauritius is due to routing of international funds through the country given significant tax advantages; double taxation is avoided due to a tax treaty between India and Mauritius, and Mauritius is a capital gains tax haven, effectively creating a zero-taxation FDI channel.[131]

India’s recently liberalised FDI policy (2005) allows up to a 100% FDI stake in ventures. Industrial policy reforms have substantially reduced industrial licensing requirements, removed restrictions on expansion and facilitated easy access to foreign technology and foreign direct investment FDI. The upward moving growth curve of the real-estate sector owes some credit to a booming economy and liberalised FDI regime. In March 2005, the government amended the rules to allow 100 per cent FDI in the construction sector, including built-up infrastructure and construction development projects comprising housing, commercial premises, hospitals, educational institutions, recreational facilities, and city- and regional-level infrastructure.[132]

A number of changes were approved on the FDI policy to remove the caps in most sectors. Fields which require relaxation in FDI restrictions include civil aviation, construction development, industrial parks, petroleum and natural gas, commodity exchanges, credit-information services and mining. But this still leaves an unfinished agenda of permitting greater foreign investment in politically sensitive areas such as insurance and retailing. The total FDI equity inflow into India in 2008-09 stood at Indian Rupee ₹122,919 crore (US$27.17 billion), a growth of 25% in rupee terms over the previous period.[133]

 Currency

The RBI headquarters in Mumbai
Main articles: Indian rupee and Reserve Bank of India

The Indian rupee is the only legal tender in India. The exchange rate as on 23 March 2010 is 45.40 INR to the USD,[134] 61.45 to a EUR, and 68.19 to a GBP. The Indian rupee is accepted as legal tender in the neighbouring Nepal and Bhutan, both of which peg their currency to that of the Indian rupee. The rupee is divided into 100 paise. The highest-denomination banknote is the 1,000 rupee note; the lowest-denomination coin in circulation is the 25 paise coin (it earlier had 1, 2, 5, 10 and 20 paise coins which have been discontinued).[135] India’s monetary system is managed by the Reserve Bank of India (RBI), the country’s central bank.[136] Established on 1 April 1935 and nationalised in 1949, the RBI serves as the nation’s monetary authority, regulator and supervisor of the monetary system, banker to the government, custodian of foreign exchange reserves, and as an issuer of currency. It is governed by a central board of directors, headed by a governor who is appointed by the Government of India.[137]

The rupee was linked to the British pound from 1927-1946 and then the U.S. dollar till 1975 through a fixed exchange rate. It was devalued in September 1975 and the system of fixed par rate was replaced with a basket of four major international currencies — the British pound, the U.S. dollar, the Japanese yen and the Deutsche mark.[138] Since 2003, the rupee has been steadily appreciating against the U.S. dollar.[139] In 2009, a rising rupee prompted the Government of India to purchase 200 tons of gold for $6.7 billion from the IMF.[140]

Income and consumption

Main article: Income in India

See also: Poverty in India

Percentage of population living under the poverty line of $1 (PPP) a day, currently 356.35 rupees a month in rural areas (around $7.4 a month).

World map showing the Gini coefficient, a measure of income inequality.

India’s gross national income per capita in 2008 was $1040.[141] Indian official estimates of the extent of poverty have been subject to debate, with concerns being raised about the methodology for the determination of the poverty line.[142] As of 2005, according to World Bank statistics, 75.6% of the population lives on less than $2 a day (PPP), while 41.6% of the population is living below the new international poverty line of $1.25 (PPP) per day.[143][144][145] However, data released in 2009 by the Government of India estimates the percentage of the population living below the poverty line to be 37%.[146]

Housing is modest. According to Times of India, “a majority of Indians have per capita space equivalent to or less than a 10 feet x 10 feet room for their living, sleeping, cooking, washing and toilet needs.” and “one in every three urban Indians lives in homes too cramped to exceed even the minimum requirements of a prison cell in the US.”[147] The average is 103 sq ft (9.6 m2) per person in rural areas and 117 sq ft (10.9 m2) per person in urban areas.[147]

Around half of Indian children are malnourished. The proportion of underweight children is nearly double that of Sub-Saharan Africa.[148][149] However, India has not had famines since the Green Revolution in the early 1970s. A 2007 report by the state-run National Commission for Enterprises in the Unorganised Sector (NCEUS) found that 65% of Indians, or 750 million people, lived on less than Indian Rupee ₹20 (US$0.44) per day,[150] with most working in “informal labour sector with no job or social security, living in abject poverty.”[151]

Since the early 1950s, successive governments have implemented various schemes, under planning, to alleviate poverty, that have met with partial success. All these programmes have relied upon the strategies of the Food for work programme and National Rural Employment Programme of the 1980s, which attempted to use the unemployed to generate productive assets and build rural infrastructure.[152] In August 2005, the Indian parliament passed the Rural Employment Guarantee Bill, the largest programme of this type in terms of cost and coverage, which promises 100 days of minimum wage employment to every rural household in all the India’s 600 districts. The question of whether economic reforms have reduced poverty or not has fuelled debates without generating any clear cut answers and has also put political pressure on further economic reforms, especially those involving the downsizing of labour and cutting agricultural subsidies.[153][154] Recent statistics in 2010 point out that the number of high income households has crossed lower income households.[155]

Employment

See also: Indian labour law

Agricultural and allied sectors accounted for about 52.1% of the total workforce in 2009-10.[83] While agriculture has faced stagnation in growth, services have seen a steady growth. Of the total workforce, 8% is in the organised sector, two-thirds of which are in the public sector. The NSSO survey estimated that in 1999–2000, 106 million, nearly 10% of the population were unemployed and the overall unemployment rate was 7.3%, with rural areas doing marginally better (7.2%) than urban areas (7.7%). India’s labour force is growing by 2.5% annually, but employment only at 2.3% a year.[156]

Official unemployment exceeds 9%. Regulation and other obstacles have discouraged the emergence of formal businesses and jobs. Almost 30% of workers are casual workers who work only when they are able to get jobs and remain unpaid for the rest of the time.[156] Only 10% of the workforce is in regular employment.[156] India’s labour regulations are heavy even by developing country standards and analysts have urged the government to abolish them.[11][157]

Unemployment in India is characterised by chronic or disguised unemployment. Government schemes that target eradication of both poverty and unemployment (which in recent decades has sent millions of poor and unskilled people into urban areas in search of livelihoods) attempt to solve the problem, by providing financial assistance for setting up businesses, skill honing, setting up public sector enterprises, reservations in governments, etc. The decline in organised employment due to the decreased role of the public sector after liberalization has further underlined the need for focusing on better education and has also put political pressure on further reforms.[158] [159]

Child labour in India is a complex problem that is basically rooted in poverty. The Indian government is implementing the world’s largest child labour elimination program, with primary education targeted for ~250 million. Numerous non-governmental and voluntary organizations are also involved. Special investigation cells have been set up in states to enforce existing laws banning employment of children (under 14) in hazardous industries. The allocation of the Government of India for the eradication of child labour was $10 million in 1995-96 and $16 million in 1996-97. The allocation for 2007 is $21 million.[160]

In 2006, remittances from Indian migrants overseas made up $27 billion or about 3% of India’s GDP.[161]

Economic trends

India’s 300 million strong middle-class population is growing at an annual rate of 5%.[162] Shown here is a residential area in Mumbai.

In the revised 2007 figures, based on increased and sustaining growth, more inflows into foreign direct investment, Goldman Sachs predicts that “from 2007 to 2020, India’s GDP per capita in US$ terms will quadruple”, and that the Indian economy will surpass the United States (in US$) by 2043.[13] In spite of the high growth rate, the report stated that India would continue to remain a low-income country for decades to come but could be a “motor for the world economy” if it fulfills its growth potential.[13] Goldman Sachs has outlined several things that it needs to do in order to achieve its potential by 2050, including improving governance, education, infrastructure and environmental quality, controlling inflation, introducing a credible fiscal policy, liberalising financial markets, increase trade with its neighbours and raising agricultural productivity.[163]

Issues

 Agriculture

An Indian farmer

Main article: Agriculture in India

    Slow agricultural growth is a concern for policymakers as some two-thirds of India’s people depend on rural employment for a living. Current agricultural practices are neither economically nor environmentally sustainable and India’s yields for many agricultural commodities are low. Poorly maintained irrigation systems and almost universal lack of good extension services are among the factors responsible. Farmers’ access to markets is hampered by poor roads, rudimentary market infrastructure, and excessive regulation.

    – World Bank: “India Country Overview 2008″[164]

India’s population is growing faster than its ability to produce rice and wheat.[165] The low productivity in India is a result of several factors. According to the World Bank, India’s large agricultural subsidies are hampering productivity-enhancing investment. While overregulation of agriculture has increased costs, price risks and uncertainty, governmental intervention in labour, land, and credit markets are hurting the market. Infrastructure and services are inadequate.[166] Further, the average size of land holdings is very small (less than one hectare) and is subject to fragmentation, due to land ceiling acts and in some cases, family disputes. Such small holdings are often over-manned, resulting in disguised unemployment and low productivity of labour. Adoption of modern agricultural practices and use of technology is inadequate, hampered by ignorance of such practices, high costs, illiteracy, slow progress in implementing land reforms, inadequate or inefficient finance and marketing services for farm produce and impracticality in the case of small land holdings. The allocation of water is inefficient, unsustainable and inequitable. The irrigation infrastructure is deteriorating.[166] Irrigation facilities are inadequate, as revealed by the fact that only 39% of the total cultivable land was irrigated as of 2010,[86] resulting in farmers still being dependent on rainfall, specifically the monsoon season. A good monsoon results in a robust growth for the economy as a whole, while a poor monsoon leads to a sluggish growth.[167] Farm credit is regulated by NABARD, which is the statutory apex agent for rural development in the subcontinent.

India has many farm insurance companies that insure fruit, rice and rubber farmers in the event of natural disasters or catastrophic crop failure, under the supervision of the Ministry of Agriculture. One notable company that provides all of these insurance policies is Agriculture Insurance Company of India and it alone insures almost 20 million farmers.

Corruption

Overview of the index of perception of corruption, 2010

Main article: Corruption in India

Corruption has been one of the pervasive problems affecting India. The economic reforms of 1991 reduced the red tape, bureaucracy and the Licence Raj that had strangled private enterprise and was blamed by Chakravarthi Rajagopalachari for the corruption and inefficiencies. Yet, a 2005 study by Transparency International (TI) India found that more than half of those surveyed had firsthand experience of paying bribe or peddling influence to get a job done in a public office.[168]

The Right to Information Act (2005) and equivalent acts in the Indian states, that require government officials to furnish information requested by citizens or face punitive action, computerisation of services and various central and state government acts that established vigilance commissions have considerably reduced corruption or at least have opened up avenues to redress grievances.[168] The 2010 report by Transparency International ranks India at 87th place and states that significant setbacks were made by India in reducing corruption.[169][170]

Government

Main article: Government of India

See also: Taxation in India and Corruption in India

The number of people employed in non-agricultural occupations in the public and private sectors. Totals are rounded. Private sector data relates to non-agriculture establishments with 10 or more employees.[152]

The current government has concluded that most spending fails to reach its intended recipients.[171] Lant Pritchett calls India’s public sector “one of the world’s top ten biggest problems — of the order of AIDS and climate change”.[171] The Economist‘s 2008 article about the Indian civil service stated that the Indian central government employs around 3 million people, including “vast armies of paper-shuffling peons”.[171]

At local level, administration can be worse. It is not unheard of that a majority of a state’s assembly seats can be held by convicted criminals.[172] One study found that 25% of public sector teachers and 40% of public sector medical workers could not be found at the workplace. India’s absence rates are one of the worst in the world.[173][174][175]

Education

Main article: Education in India

India has made huge progress in terms of increasing primary education attendance rate and expanding literacy to approximately two thirds of the population.[176] The right to education at elementary level has been made one of the fundamental rights under the eighty-sixth Amendment of 2002, and legislation has been enacted to further the objective of providing free education to all children.[177] However, the literacy rate of 65% is still lower than the worldwide average and the country suffers from a high dropout rate.[178]

Infrastructure

See also: Transport in India, Indian Road Network, Ports in India, Electricity sector in India, States of India by installed power capacity, Water supply and sanitation in India, and Communications in India

Shown here is the Mumbai Pune expressway in Maharashtra.

India has built numerous new airports in recent years. Shown here is new Terminal 1D at Indira Gandhi International Airport in Delhi

In the past, development of infrastructure was completely in the hands of the public sector and was plagued by corruption, bureaucratic inefficiencies, urban-bias and an inability to scale investment.[179] India’s low spending on power, construction, transportation, telecommunications and real estate, at $31 billion or 6% of GDP in 2002 had prevented India from sustaining higher growth rates. This has prompted the government to partially open up infrastructure to the private sector allowing foreign investment[152][180][181] which has helped in a sustained growth rate of close to 9% for the past six quarters.[182]

Some 600 million Indians have no means of electricity at all.[183] While 80% of Indian villages have at least an electricity line, just 44% of rural households have access to electricity.[184] Some half of the electricity is stolen, compared with 3% in China. The stolen electricity amounts to 1.5% of GDP.[184][185] Almost all of the electricity in India is produced by the public sector. Power outages are common.[183] Many buy their own power generators to ensure electricity supply. As of 2005 the electricity production was at 661.6 billion kWh with oil production standing at 785,000 bbl/d (124,800 m3/d). In 2007, electricity demand exceeded supply by 15%.[183] Multi Commodity Exchange has tried to get a permit to offer electricity future markets.[186]

India has the world’s third largest road network in the world.[187] Container traffic is growing at 15% a year.[188] Internet use is rare; there were only 7.57 million broadband lines in India in November 2009, however it is still growing at slower rate and is expected to boom after the launch of 3G and wimax services.[189]

Water supply is a major problem even in urban India, with most cities getting water for few hours during the day and in some cases, after several days.[190] A World Bank report says it is an institutional problem in water agencies, or “how the agency is embedded in the relationships between politics and the citizens who are the consumers.”[191]

Labour laws

Main article: Indian labour laws

    India’s labor regulations — among the most restrictive and complex in the world — have constrained the growth of the formal manufacturing sector where these laws have their widest application. Better designed labor regulations can attract more labor- intensive investment and create jobs for India’s unemployed millions and those trapped in poor quality jobs. Given the country’s momentum of growth, the window of opportunity must not be lost for improving the job prospects for the 80 million new entrants who are expected to join the work force over the next decade.

    – World Bank: India Country Overview 2008.[164]

India’s restrictive labour regulations hamper the large-scale creation of formal industrial jobs.[11][178][192]

India ranked 133th on the Ease of Doing Business Index 2010, behind countries such as China (89th), Pakistan (85th), and Nigeria (125th). The Constitution provides equality of opportunity and protection against child labour, slavery, forced labour etc. in form of fundamental rights, but the implementation of provisions cited is a matter of concern.[193]

Economic disparities
Main articles: Economic disparities in India and Poverty in India

    Lagging states need to bring more jobs to their people by creating an attractive investment destination. Reforming cumbersome regulatory procedures, improving rural connectivity, establishing law and order, creating a stable platform for natural resource investment that balances business interests with social concerns, and providing rural finance are important.

    – World Bank: India Country Overview 2008[164]

Slums next to high-rise commercial buildings in Kaloor, Kochi. Hundreds of people, mostly comprising migrant labourers who come to the city seeking job prospects, reside in such shabby areas.[194]

One of the critical problems facing India’s economy is the sharp and growing regional variations among India’s different states and territories in terms of per capita income, poverty, availability of infrastructure and socio-economic development.[195] Six low-income states – Bihar, Chhattisgarh, Jharkhand, Madhya Pradesh, Orissa and Uttar Pradesh – are home to more than one third of India’s population.[196]

Between 1999 and 2008, the annualised growth rates for Maharashtra (9%),[197] Gujarat (8.8%), Haryana (8.7%), or Delhi (7.4%) were much higher than for Bihar (5.1%), Uttar Pradesh (4.4%), or Madhya Pradesh (3.5%).[198] However, In 2009-10, Bihar witnessed a growth of about 12.6%, and ended up becoming the ‘fastest growing state’ , followed by Gujarat with a growth of 11.3%.

Poverty rates in rural Orissa (43%) and rural Bihar (40%) are some of the worst in the world.[191] On the other hand, rural Haryana (5.7%) and rural Punjab (2.4%) compare well with middle-income countries.[191]

The five-year plans have attempted to reduce regional disparities by encouraging industrial development in the interior regions, but industries still tend to concentrate around urban areas and port cities[199] After liberalization, the more advanced states are better placed to benefit from them, with infrastructure like well developed ports, urbanisation and an educated and skilled workforce which attract manufacturing and service sectors. The union and state governments of backward regions are trying to reduce the disparities by offering tax holidays, cheap land, etc., and focusing more on sectors like tourism, which although being geographically and historically determined, can become a source of growth and is faster to develop than other sectors.[200][201]

See also

Flag of India.svg     India portal

    * Below Poverty Line (India)
    * Bilateral investment treaty
    * Indian Construction Industry
    * Indian states ranking by families owning house
    * List of companies of India
    * List of the largest trading partners of India
    * Media of India
    * Net international investment position
    * Economic reforms in India

 Notes

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 References

Books

    * Alamgir, Jalal (2008). India’s Open-Economy Policy. Routledge. ISBN 9780415776844.
    * Bharadwaj, Krishna (1991). “Regional differentiation in India”. In Sathyamurthy, T.V.. Industry & agriculture in India since independence. Oxford University Press. pp. 189–199. ISBN 0195643941.
    * Datt, Ruddar; Sundharam, K.P.M. (2009). Indian Economy. New Delhi: S. Chand Group. p. 976. ISBN 9788121902984.
    * Raychaudhuri, Tapan; Habib, Irfan (2004). The Cambridge Economic History of India, Volume I : c. 1200 — c. 1750. New Delhi: Orient Longman. p. 543. ISBN 9788125027096.
    * Kumar, Dharma (2005). The Cambridge Economic History of India, Volume II : c. 1757 — 2003. New Delhi: Orient Longman. p. 1115. ISBN 9788125027102.
    * Nehru, Jawaharlal (1946). The Discovery of India. Penguin Books. ISBN 0-14-303103-1.
    * Panagariya, Arvind (2008). India: The Emerging Giant. Oxford University Press. p. 514. ISBN 9780195315035.
    * Roy, Tirthankar (2006). The Economic History of India 1857-1947. Oxford University Press. p. 385. ISBN 9780195684308.
    * Sankaran, S (1994). Indian Economy: Problems, Policies and Development. Margham Publications.

Papers

    * Bernardi, Luigi and Fraschini, Angela (2005). Tax System And Tax Reforms In India. Working paper n. 51. http://ideas.repec.org/p/uca/ucapdv/45.html.
    * Centre for Media Studies (2005) (PDF). India Corruption Study 2005: To Improve Governance Volume – I: Key Highlights. Transparency International India. http://www.prajanet.org/newsroom/internal/tii/ICS2k5_Vol1.pdf. Retrieved 2009-06-21.
    * Ghosh, Jayati. “Bank Nationalisation: The Record”. Macroscan. http://www.macroscan.com/cur/jul05/cur210705Bank_Nationalisation.htm. Retrieved 2005-08-05.
    * Gordon, Jim and Gupta, Poonam (2003) (PDF). Understanding India’s Services Revolution. 12 November 2003. http://www.imf.org/external/np/apd/seminars/2003/newdelhi/gordon.pdf. Retrieved 2009-06-21.
    * Kelegama, Saman and Parikh, Kirit (2000). Political Economy of Growth and Reforms in South Asia. Second Draft.
    * Panagariya, Arvind (2004). India in the 1980s and 1990s: A Triumph of Reforms. http://ideas.repec.org/p/wpa/wuwpit/0403005.html.
    * Rodrik, Dani and Subramanian, Arvind (2004) (PDF). From “Hindu Growth” To Productivity Surge: The Mystery Of The Indian Growth Transition.
    * Sachs, D. Jeffrey; Bajpai, Nirupam and Ramiah, Ananthi (2002) (PDF). Understanding Regional Economic Growth in India. Working paper 88. Archived from the original on 2007-07-01. http://web.archive.org/web/20070701042205/http://www2.cid.harvard.edu/cidwp/088.pdf.
    * Srinivasan, T.N. (2002) (PDF). Economic Reforms and Global Integration. 17 January 2002. http://www.econ.yale.edu/%7Esrinivas/ec_reforms.pdf. Retrieved 2009-06-21.
    * “Economic reforms in India: Task force report” (PDF). http://harrisschool.uchicago.edu/News/press-releases/IPP%20Economic%20Reform%20in%20India.pdf. Retrieved 2009-06-21. </ref>

Government publications

    * “Economic Survey 2009-10″. Ministry of Finance, Government of India. http://indiabudget.nic.in/es2009-10/chapt2010/chapter.zip. Retrieved 2010-11-22.
    * “Jawahar gram samriddhi yojana”. http://rural.nic.in/jgsyg.htm. Retrieved 2005-07-09.
    * Kurian, N.J.. “Regional disparities in india”. http://planningcommission.nic.in/reports/sereport/ser/vision2025/regdsprty.doc. Retrieved 2005-08-06.

News

    * “India says 21 of 29 states to launch new tax”. Daily Times. 25 March 2005. http://www.dailytimes.com.pk/default.asp?page=story_25-3-2005_pg5_13.
    * “Economic structure”. The Economist. 6 October 2003. http://www.economist.com/countries/India/profile.cfm?folder=Profile%2DEconomic%20Structure.
    * “Regional stock exchanges – Bulldozed by the Big Two”. http://www.thehindubusinessline.com/businessline/2001/07/20/stories/042062cr.htm. Retrieved 2005-08-10.
    * “Infrastructure the missing link”. CNN. 2004-10-06. http://edition.cnn.com/2004/WORLD/asiapcf/09/03/india.eye.infra/. Retrieved 2005-08-14.
    * “Of Oxford, economics, empire, and freedom”. Chennai, India: The Hindu. 2 October 2005. http://www.hindu.com/2005/07/10/stories/2005071002301000.htm.

Articles

    * “Milton Friedman on the Nehru/Mahalanobis Plan”. http://www.indiapolicy.org/debate/Notes/fried_opinion.html. Retrieved 2005-07-16.
    * “Forex reserves up by $88 mn”. Archived from the original on 2006-05-04. http://web.archive.org/web/20060504224831/http://www.business-standard.com/bsonline/storypage.php?bKeyFlag=BO&autono=9047. Retrieved 2005-08-10.
    * “Infrastructure in India: Requirements and favorable climate for foreign investment”. http://www.asiatradehub.com/india/intro.asp. Retrieved 2005-08-14.

 External links
    Wikimedia Commons has media related to: Economy of India
    Wikiquote has a collection of quotations related to: Economy of India

Government of India websites

    * Finance Ministry of India
    * India in Business- Official website for Investment and Trade in India
    * Reserve Bank of India’s database on the Indian economy

Publications and statistics

    * World Bank – India Country Overview
    * Ernst & Young 2006 report on doing Business in India
    * CIA – The World Factbook – India

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