The Indian Economy
India is the fifth largest economy in the world and has
the second largest GDP among emerging economies, based on purchasing power
parity.
In 1994-95, the GDP was estimated at Rs. 8,541 billion (US$ 272 billion)
at current prices. About 31% of the GDP originated in the primary sector,
around 28% in the manufacturing sector and 41% in the services sector.
More than two-thirds of the working population is employed in the primary
sector (mainly agriculture), while the secondary sector (mainly manufacturing)
and the tertiary sector (mainly services, trade and commerce) employ around
14.5% and 20.5%, respectively, of the work force.
The Indian economy moved to a high growth path in the 1980s, with economic
growth averaging 5.5% per annum through the decade. This was possible
because of a high investment rate of over 22% of the GDP, financed mainly
(over 90%) by domestic savings. Annual increase in employment was estimated
at 4.3 million in the 1980s. Industrial growth averaged over 7% annually.
Population growth, which is continually decelerating had come down to
2.1% per annum.
India’s major achievements are: advances in agriculture, making India
one of the largest food grain producers in the world; a broad-based and
diversified industrial sector; a modern financial sector spread across
the country; a well developed market infrastructure; and an educational
system that produces a large pool of high quality human resources. While
the state played an active role in guiding industrial activity, private
enterprise and market mechanisms developed well in agriculture, manufacturing,
trading and in the services sector. The economy was, however, largely
shielded from foreign competition, both in production and trade.
However, despite large investments and impressive growth, the infrastructure
sector retains potential for development, both in terms of availability
and quality. The social sector remained an area of concern, and employment
opportunities could not keep pace with demand for jobs. Economic growth
was unsustainable as it led to high fiscal deficits, inflation and external
debt.
Sweeping reforms continue in policies relating to virtually every sector
of the economy - trade, industry, foreign investment, finance, taxation
and the public sector. The government is committed to a Common Minimum
Program, which ensures a continuation of the direction and pattern of
economic development. The reforms have succeeded in large measure in achieving
macro economic stabilization. The economy is now clearly on the path of
global integration, accelerating growth, improving productivity, innovation
and international competitiveness, thus making available government resources
for focusing on rural development and the social sector.
In India today, there has been a significant relaxation of regulations
on investment and production. Private participation is now permitted in
virtually all industries. Foreign investment is welcome and is generally
treated at par with domestic investment. There is ample room for all modes
of investment. The cumulative needs of investment in infrastructure over
the next five years is estimated to be US $200 billion (Rs. 7,100 billion).
India has the capacity to absorb around US $10 billion per year as FDI.
It also encourages the inflow of modern technology and management practices
into the country. Proposed foreign investment is 11.45% of total proposed
investment, which underlines the tremendous potential for further inflows.
A disinvestment commission to advise on public sector disinvestment and
restructuring is on the anvil. Import barriers including tariffs have
been brought down drastically. Capital markets are open to foreign investment.
Banking sector controls have been eased and private investment encouraged.
The tax structure has been simplified and rates reduced.
The new economic policies have substantially relaxed foreign exchange
controls. All transactions are conducted at a market determined rate of
exchange. The Indian rupee is now convertible on the current account.
For foreign investors, it is also convertible on the capital account.
The rupee, which was floated in March 1993, has shown remarkable stability
over time against the US dollar. According to experts, the rupee is expected
to remain at the current level as the fundamentals of the economy are
strong.
Source: Commerce section, Embassy of India, Washington, DC