ECONOMY OF INDIA

Economy of India From Wikipedia, the free encyclopedia Jump to: navigation, search Economy of The Republic of IndiaModern Indian notesRank11th (nominal) / 4th (PPP)Currency1 Indian Rupee (INR) () = 100 PaiseFiscal yearCalendar year (1 April — 31 March)Trade organizationsWTO, SAFTA, G-20 and othersStatisticsGDP$1.367 trillion (nominal: 11th; 2009)[1]$3.862 trillion (PPP: 4th; 2009)[1]GDP growth8.9% (2010, Q2)[2]GDP per capita$1,124 (nominal: 142th; 2009)[1]$3,176 (PPP: 127th; 2009)[1]GDP by sectorservices (57%), industry (28%), agriculture (15%) (2009-10)Inflation (CPI)8.62% (September 2010)[3]Populationbelow poverty line37% (2010)[4]Gini index36.8 (List of countries)Labour force467 million (2nd; 2009)Labour forceby occupationagriculture (52%), industry (14%), services (34%) (2009 est.)Unemployment9.4% (2009-10)[5]Main industriestelecommunications, textiles, chemicals, food processing, steel, transportation equipment, cement, mining, petroleum, machinery, information technology, pharmaceuticalsEase of Doing Business Rank134th[6]ExternalExports$176.5 billion (18th; 2009)Export goodssoftware, petroleum products, textile goods, gems and jewelry, engineering goods, chemicals, leather manufacturesMain export partnersUS 12.3%, UAE 9.4%, China 9.3% (2008)Imports$287.5 billion (15th; 2009)Import goodscrude oil, machinery, gems, fertilizer, chemicalsMain import partnersChina 11.1%, Saudi Arabia 7.5%, US 6.6%, UAE 5.1%, Iran 4.2%, Singapore 4.2%, Germany 4.2% (2008)FDI stockHome: $161.3 billion (24th; 2009)Abroad: $77.4 billion (24th; 2009)Gross external debt$223.9 billion (31 December 2009 est.)Public financesPublic debt58% 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 BookAll values, unless otherwise stated, are in US dollars Throughout this article, the unqualified term quot;
dollarquot;
and the $ symbol refer to the United States dollar. The economy of India is the eleventh largest economy 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] Contents[hide]1 History 1.1 Pre-colonial period (upto 1757) 1.2 Colonial period (1757-1947) 1.3 Pre-liberalisation period (1947-1991) 1.4 Post-liberalisation period (since 1991) 2 Sectors 2.1 Industry and services 2.2 Agriculture 2.3 Banking and finance 2.4 Energy and power 3 External trade and investment 3.1 Global trade relations 3.2 Balance of payments 3.3 Foreign direct investment in India 4 Currency 5 Income and consumption 6 Employment 7 Economic trends 7.1 Issues 7.1.1 Agriculture 7.1.2 Corruption 7.1.3 Government 7.1.4 Education 7.1.5 Infrastructure 7.1.6 Labour laws 7.1.7 Economic disparities 8 See also 9 Notes 10 References 11 External links [edit] History Main articles: Economic history of India and Timeline of the economy of India [edit] Pre-colonial period (upto 1757) The spice trade between India and Europe was one of the main drivers of the world economy HYPERLINK quot;
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[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 punch mark coin of the Maurya empire, with symbols of wheel and elephant. 3rd century BC. 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, siver 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 HYPERLINK quot;
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[33] [edit] Colonial period (1757-1947) 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, quot;
the brightest jewel in the British Crownquot;
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. HYPERLINK quot;
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[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, HYPERLINK quot;
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[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] [edit] 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] [edit] 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] [edit] Sectors [edit] 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 quot;
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and quot;
anti-hoarding measuresquot;
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] [edit] Agriculture Farmers work inside a rice field in Andhra Pradesh. India is the second largest producer of rice in the world after China HYPERLINK quot;
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[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] [edit] 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 5,910 crore (US$ 1.31 billion) in 1970-71 to 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] [edit] 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] [edit] External trade and investment Further information: Globalisation in India [edit] 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] [edit] 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 $61.72 billion.[121] Due to the global late-2000s recession, both Indian exports and imports declined by 29.2% and 39.2% respectively in June 2009.[122] The steep decline was because countries hit hardest by the global recession, such as United States and members of the European Union, account for more than 60% of Indian exports.[123] However, since the decline in imports was much sharper compared to the decline in exports, India's trade deficit reduced to 25,250 crore (US$ 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] [edit] Foreign direct investment in India Share of top five investing countries in FDI inflows. (2000–2010)[127]RankCountryInflows(million USD)Inflows (%)1Mauritius50,16442.002Singapore11,2759.003USA8,9147.004UK6,1585.005Netherlands4,9684.00 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. 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 $178 billion as FDI.[130] The inordinately high investment from Mauritius is due to routing of international funds through the country given significant tax advantages; double taxation is avoided due to a tax treaty between India and Mauritius, and Mauritius is a capital gains tax haven, effectively creating a zero-taxation FDI channel.[131] India's recently liberalised FDI policy (2005) allows up to a 100% FDI stake in ventures. Industrial policy reforms have substantially reduced industrial licensing requirements, removed restrictions on expansion and facilitated easy access to foreign technology and foreign direct investment FDI. The upward moving growth curve of the real-estate sector owes some credit to a booming economy and liberalised FDI regime. In March 2005, the government amended the rules to allow 100 per cent FDI in the construction sector, including built-up infrastructure and construction development projects comprising housing, commercial premises, hospitals, educational institutions, recreational facilities, and city- and regional-level infrastructure.[132] A number of changes were approved on the FDI policy to remove the caps in most sectors. Fields which require relaxation in FDI restrictions include civil aviation, construction development, industrial parks, petroleum and natural gas, commodity exchanges, credit-information services and mining. But this still leaves an unfinished agenda of permitting greater foreign investment in politically sensitive areas such as insurance and retailing. The total FDI equity inflow into India in 2008-09 stood at 122,919 crore (US$ 27.17 billion), a growth of 25% in rupee terms over the previous period.[133] [edit] 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, HYPERLINK quot;
quot;
cite_note-133quot;
[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] [edit] 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 $1.25 (PPP) per day.[143][144][145] However, data released in 2009 by the Government of India estimates the percentage of the population living below the poverty line to be 37%.[146] Housing is modest. According to Times of India, quot;
a majority of Indians have per capita space equivalent to or less than a 10 feet x 10 feet room for their living, sleeping, cooking, washing and toilet needs.quot;
and quot;
one in every three urban Indians lives in homes too cramped to exceed even the minimum requirements of a prison cell in the US.quot;
[147] The average is 103 sq ft (9.6 m2) per person in rural areas and 117 sq ft (10.9 m2) per person in urban areas.[147] Around half of Indian children are malnourished. The proportion of underweight children is nearly double that of Sub-Saharan Africa.[148][149] However, India has not had famines since the Green Revolution in the early 1970s. A 2007 report by the state-run National Commission for Enterprises in the Unorganised Sector (NCEUS) found that 65% of Indians, or 750 million people, lived on less than 20 (US$ 0.44) per day,[150] with most working in quot;
informal labour sector with no job or social security, living in abject poverty.quot;
[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] [edit] 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 $27 billion or about 3% of India's GDP.[161] [edit] Economic trends India's 300 million strong middle-class population is growing at an annual rate of 5%.[162] Shown here is a residential area in Mumbai. In the revised 2007 figures, based on increased and sustaining growth, more inflows into foreign direct investment, Goldman Sachs predicts that quot;
from 2007 to 2020, India’s GDP per capita in US$ terms will quadruplequot;
, 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 quot;
motor for the world economyquot;
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] [edit] Issues [edit] 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: quot;
India Country Overview 2008quot;
[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, HYPERLINK quot;
quot;
cite_note-irrigation-85quot;
[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. [edit] 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] [edit] 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 quot;
one of the world's top ten biggest problems — of the order of AIDS and climate changequot;
.[171] The Economist's 2008 article about the Indian civil service stated that the Indian central government employs around 3 million people, including quot;
vast armies of paper-shuffling peonsquot;
.[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] [edit] 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] [edit] 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 quot;
how the agency is embedded in the relationships between politics and the citizens who are the consumers.quot;
[191] [edit] 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] [edit] 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]

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