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India : The promise of growth
 India is today one of the six fastest growing economies of the world. The country ranked fourth in terms of Purchasing Power Parity (PPP) in 2001. The business and regulatory environment is evolving and moving towards constant improvement. A highly talented, skilled and English-speaking human resource base forms its backbone.
The Indian economy has transformed into a vibrant, rapidly growing consumer market, comprising over 300 million strong middle class with increasing purchasing power. India provides a large market for consumer goods on the one hand and imports capital goods and technology to modernize its manufacturing base on the other.
An abundant and diversified natural resource base, sound economic, industrial and market fundamentals and highly skilled and talented human resources, make India a destination for business and investment opportunities with an assured potential for attractive returns.
Far-reaching measures introduced by the government over the past few years to liberalise the Indian market and integrate it with the global economy are widely acknowledged.
The tenth five year plan document targets a healthy growth rate of 8% for the Indian economy during the plan period 2002-07.
Selected Economic Indicators
India remained relatively unscathed from the 1997-98 Asian financial sector crisis and has maintained a healthy growth rate of over 5 per cent despite recession in major world economies over the past two years. This demonstrates the size, strength and resilience of the Indian economy.
India 's GDP for the year 2001-02 was US$ 422 billion. The real GDP growth varied between 6 to 8 per cent per annum (average 6.5 per cent annum), during the 1990s.
 Were it not for the resilience of china and India , the world economy would have been in deep recession in 2002.
Source: Morgan Stanley Dean Witter report.
The Sectoral composition of GDP reflects a transition. While the agricultural and industrial sectors have continued to grow, the services sector has grown at a significantly higher pace - it currently contributes nearly half of India 's GDP.
On the external front, Cumulative foreign investment inflows have been US$ 50 billion since 1991. This includes over US$ 28 billion of Foreign Direct Investment (FDI) and about US$ 22.6 billion in portfolio investment.
Licensing has been removed from all but six sectors. The Indian government is determined to remove any remaining road blocks, real or perceived. India has one of the most transparent and liberal FDI regimes among the emerging developing economies. The union government has been continuously opening up new sectors to foreign investment, while enhancing FDI limits in others. The year 2002 saw the opening up of the defence, print media, housing and real estate and urban mass transportation sectors. Some of the key aspects of FDI in the country include:
• 100 per cent FDI is allowed in most sectors except telecommunications (49 per cent), insurance (26 per cent), banking (49 per cent), aviation (40 per cent) and small scale industries (24 per cent). FDI is excess of 24% permitted in SSI sector on 50% export obligation.
• FDI inflows grew by 65 per cent over the previous year to reach US$ 3.91 billion during 2001-02. The growth of 65 per cent is encouraging at a time when global FDI inflows have declined by 40 per cent.
• The upward trend in FDI inflows has been sustained with FDI inflows during April-June 2002 being double that of the corresponding period in 2001.
• An Economist Intelligence Unit (EIU) report on 'World investment prospects 2002' projects and annual average FDI inflow of US$ 5.3 billion into India during 2002 - 2006.
External sector
India 's external sector posted significant gains during 2001-02, despite the deepening of the global slowdown and uncertainties owing to September 11, 2001 terrorist attacks. The current account registered a surplus after a period of more than two decades. The buoyancy in capital flows bolstered in the foreign exchange.
 FDI flows to India will go up: UNCTAD
"Worldwide FDI flows will decline this year - 25 per cent in developing and 31 per cent in developed countries - but India is one of the few countries where it will go up," Karl Sauvant, Director, UNCTAD told UNI.
Source news report, 25 November 2002.
According to a recent report on global foreign direct investment inflows, India has been rated the seventh most attractive destination in the world for FDI for 2001
Indicators of liquidity and sustainability of external debt improved further. The exchange rate of the rupee remained broadly stable during the year.
Weak external demand adversely affected India 's export performance during 2001-02. This was counterbalanced by the listless domestic demand for imports and the softness in international oil prices for a greater part of the year. As a result, the trade deficit, on balance of payments basis, declined from US$ 14.4 billion during 2000 - 01 to US$12.7 billion during 2001-02. The invisible account continued to provide support to the balance of payments with the surplus increasing from US$ 11.8 billion during 2000-01 to US$ 14.1 billion during 2001-02. The current account recorded a surplus of US$ 1.4 billion. Net capital flows were higher at US$ 9.5 billion during 2001-02.
MNCs happy operating in India , 61% in black
".A survey on FDI conducted by FICCI shows that the performance of 385 foreign investors operating in India was satisfactory, with 61 per cent reporting profits or break-even. And around 51 per cent of the respondents have expansion plans on the cards. Despite the overall conditions of slowdown, over 71 per cent respondents reported a capacity utilization of 50-75 percent.
As many as 93 percent of the respondents find the handing of approvals and applications at the center to be good average. The simplification of the approval procedure at the centre can be gauged by the fact that number of applications going through the automatic route has risen from 16 per cent in 2000 to 29 per cent in 2001. Also the ratio of FDI inflows to approvals had gone up to 52.8 per cent in 2000 compared to 29 per cent in 1996.
Around 63 percent find the overall policy framework to be the good to average. " The apparent increase in the FDI inflow shows that the improved policy environment is having a positive impact ," Say a senior official at FICCI. FDI this year has risen by 61 per cent to US$ 2.37 billion in April - November 2001 compared to US$ 1.47 billion in the corresponding period last year. Besides 70 per cent feel that bringing funds in to the country is relatively easy and 69 per cent say that funds repatriation can be carried out fairly easily."
Source: India business world, April 2002.
India 's foreign exchange reserves have risen significantly to over US$ 68 billion by the end of December 2002. This has provided the much needed stability to the exchange rate and strengthening of the rupee.
 The external debt to GDP ratio of the country has improved significantly from 38.7 per cent in 1992 to around 22.3 percent in 2001. Among developing countries, India has one of the lowest external debt to GDP ratios.
The value of foreign trade has increased substantially. Both exports from and imports into India are increasing. The total volume of foreign trade in 2001-02 was over US$ 95 billion. In order to boost exports and attract foreign investments, the government had announced in April 2000 the establishment of special Economic Zones (SEZs) policy. The SEZs would offer world class infrastructure, attractive financial and tax incentives and procedural ease of a duty-free trading area. For all practical purposes, units located in the SEZs are given deemed foreign territory treatment.
A unique feature of the transition of the Indian economy has been an element of high growth with stability. Both at the central and state levels and across political affiliations of the Indian federal and state polity, there is consensus on further economic liberalization. The reforms programme and the market oriented policies of the government are irreversible.
Agriculture
 Two thirds of India 's population lives in rural areas. Agriculture and related activities are the main source of livelihood for them. The performance of the agricultural sector has continuously been improving (Over many decades), helping the country achieve a surplus in the food grains production. This has been facilitated through new agricultural techniques and tools acquired by Indian farmers, mechanization, use of high yielding varieties of seeds, increasing use of fertilizers and irrigation facilities, on going operational research in the country's numerous agricultural universities and colleges, etc. with liberalization of trade in agricultural commodities, India enjoys a competitive advantage in a number of agricultural and processed food products exports.
While the share of agriculture in GDP (26.6 per cent in 2000-01) is declining because of faster growth of the services sector, production in absolute term has been steadily rising. Agriculture accounts for 62 per cent of total employment. Some other key highlights include:
• India had a buffer stock of foodgrains (wheat and rice) of nearly 50 million tones (Dec.02) as against the target of 20 million tones at any given point in time. This has helped India enter the foodgrains export market in a significant way.
• India is the largest producer and consumer of tea in the world and accounts for 28 per cent of world production and 15 per cent of world trade.
• Agri-export account for 13 - 18 per cent of total annual exports of the country. Agri-export amounted to over US$ 6 billion in 2000-01.
• The value of agricultural imports of inputs like fertilizers, etc. are approximately one-fourth the value of exports.
Manufacturing
 India has moved from an agrarian to a manufacturing and services led economy. The manufacturing sector contributes around one -fourth of total GDP. The country has built a diversified industrial base comprising traditional handicrafts, small, medium and large manufacturing companies and high technology-oriented product. The industrial output has grown to approx US$ 65 billion.
The Country has emerged as an important global manufacturing hub - many multinational corporations (MNCs) like Pepsi, General Electric (GE), General Motors (GM), Ford, Suzuki, Hyundai, Gillette, LG, etc. have followed India 's economic liberalization process from close quarter and set up successful operations in the country in recent years. They have been able to leverage cost advantages while adhering to global manufacturing facilities.
Companies in the manufacturing sector have consolidated around their area of core competence by tying up with foreign companies to acquire new technologies, management expertise and access to foreign markets. The cost benefits associated with manufacturing in India , have positioned India as a preferred destination for manufacturing and sourcing for global markets.
Services
The services sector currently accounts for almost half of the country's GDP. Expanding at the rate of 8-10 per cent per annum, services is the fastest growing sector in the Indian economy. In fact the growth in India 's GDP, despite the global slowdown, is attributed largely to its strong performance.
Availability of highly skilled workers has encouraged many international companies to carry out their research and development activities in India . IT, biotech, tourism, health, financial services and education hold the promise of sustainable high growth. To give a perspective:
• The Indian IT industry has grown from US$ 0.8 billion in 1994-95 to US$ 10.1 billion in 2001-02. Domestic software has grown at 46 per cent while software exports have grown at 62 per cent over the last 5 years.
• The last decade has seen the Indian entertainment industry grow exponentially. The key drivers for this have been technology and the government's recognition of the importance of the sector. The industry is expected to grow at a compound annual growth rate (CAGR) of 27 per cent. Revenues are projected to increase from US$ 3 billion in 2005.
• Information Technology enabled services (ITeS) with elements like call centres, back office processing, contents development and medical transcription are key to rapid growth. The sector has an employment potential of 1.1 million by 2008.
Infrastructure
The infrastructure sector in India , traditionally reserved for the government, is progressively being opened up for private sector participation.
Ports
 The country has a 7500 km long coastline dotted with numerous major and minor ports. The area that have been identified for participation and investment by the private sector include leasing out existing assets of the ports, construction of additional assets such as container terminals, cargo berths, handing equipment, repair facility, captive power plants and captive facilities for port based industries. Foreign investment up to 100 per cent equity participation is permitted in ports through the automatic route for construction and maintenance of ports and harbours.
A number of private companies have already set up port facilities in the country. Two Greenfield ports i.e. Pipavav and Mundra in Gujarat have been set up through private participation and these have been able to compete with existing major ports. Many multinational and domestic player have taken over existing port facilities and are operating them. Recently the container terminal at Chennai Port has been taken over by an Australian port major.
Roads
India has the second largest road network in the world, spanning 3.3 million kilometers. Most of the private investment in this sector has traditionally been through the build - operate- transfer schemes. However, now many new projects are being bid out on toll collection mechanism.
Currently, the National Highways Authority of India (NHAI) is implementing the national highways development project (NHDP). NHDP is the largest ever highway development project to be undertaken in the country. The project involves widening of over 13,000 km of highways in the country. The investment for this project is estimated at US$ 13.2 billion at 1999 prices. The project has been broken up into a large number of smaller segments, many of which have been commissioned. Currently work has been completed on 1976 kilometers and another 5222 kilometers of length is under construction.
Airports
India has 122 airports, controlled by the Airports Authority of India (AAI). The total passenger traffic handled by these airports in 2001-02 was over 40 million, while the cargo traffic handled was around 854,000 tonnes. The government is in the process of leasing out the four major international airports at Delhi , Mumbai, Chennai and Kolkata to private operators.
Power
 Power sector, hitherto, had been funded mainly through budgetary support and external borrowings. But given the budgetary support limitation due to growing demands from other sectors, particularly social sector and the severe borrowing constraints, a new financing strategy was enunciated in 1991 allowing private enterprise a larger role in the power sector.
The all India installed capacity of electric power generating stations under utilities was 104917 MW as on March 2002 consisting of 26261 MW hydro, 74428 MW thermal, 2720 MW nuclear and 1507 MW wind. A capacity addition target of 4764 MW consisting of 1536 MW of hydro and 3228 MW of thermal was envisaged for the year 2001-02 of which 3115 MW consisting of 1106 MW of hydro and 2009 MW of thermal was achieved.
Presently, restructuring and regulatory reforms include bringing about reforms in the state Electricity boards (SEBs) through establishment of the state Electricity regulatory commission. Reforms are progressing steadily in the sector and privatisation of SEBs have already begun. The government is also planning a massive restructuring of the finances of SEBs and is looking at a one-time settlement of dues to SEBs. In effect, a large amount of liquidity will be injected in the sector.
The ministry of power has also formulated a blue print to provide reliable, affordable and quality power to all users in the country i.e. power on demand by 2012. this requires huge increase in generation capacity, upgradation of existing generation facilities and also the transmission and distribution network.
Telecommunications
India 's telecommunications network ranks among the top ten countries in the world. One of the world's largest and fastest growing telecom markets, the country has an investment potential estimated at US$ 39 billion by 2005 and US$ 69 billion by 2010.
Despite a strong base of a billion people, the country has a low telephone density of approximately 5 per cent, estimated to grow to 7 per cent by 2005 and 15 per cent by 2010. The government had allowed private participation in cellular services in 1992. The sector witnessed partial de-regulation between 1994 and 1999. The government announced the New telecom policy (NTP) in 1999 to further de-regulate the sector with respect to services like basic, international long distance (ILD), national long distance (NLD) and wireless in local loop (WILL) among others.
Financial Sector
 The Indian financial sector reforms aim at improving the productivity and efficiency of the economy. It remained stable, even when other markets in the Asian region were facing a crisis. The opening of the Indian financial market to foreign and private Indian players, has resulted in increased competition and better product offerings to consumers.
The financial sector has kept pace with the growing needs of corporates and other borrowers. Banks, capial market participants and insurers have developed a wide range of products and services to suit varied customer requirements. A trend towards mergers and acquisitions is expected in the near future due to the compulsion of size and limitations of growth of business on its own vis-à-vis growth through acquisitions. The recent favourable government policies for enhancing limits of foreign investments in the banking sector have generated interest from global banking majors.
The reserve Bank of India (RBI) has ushered in a regime where interest rates are more in line with market forces. This has increased the credit disbursements in the economy which, in turn, will boost industry. Banks and trade financiers have also played an important role in promoting foreign trade of the country.
The potential of the sector is evident from existing and projected estimates:
• Presently the total asset size of the Indian Banking sector is US$ 270 billion while the total deposits amount to US$ 220 billion in a banking network of over 66,000 branches across the country.
• The size of the insurance market with only 20 per cent the insurable population currently insured, presents an immense opportunity to new players. Foreign insurance majors have entered the country in a big way and started joint ventures in both life and non-life areas.
Disinvestment
The government over the past decade has been increasingly redefining its role from being a provider of goods and services to that of a policy maker and facilitator. Towards this objective, the government has been consistently divesting its stake in various public sector undertakings (PSUs).
• Between 1991 and 2002, the government divestment process had yielded US$ 6.3 billion to the national exchequer.
Policy Initiatives
• There has been a paradigm shift in the government's approach to selling its stake since 31 March, 2000 . From selling minority stakes, the government has started divesting majority holding and transferring management control to strategic investors in profitable undertakings.
• The government had set up a separate ministry in late 1999 to facilitate the divestment process. It has also set up a cabinet committee and an interministerial group to consider and facilitate specific divestment proposals.
Some of the key highlights of the disinvestment policy are:
• The 1991-92 Budget considered divestment of 20 per cent government equity in select PSUs in favour of public sector institutional investors, mutual funds and workers.
• The Disinvestment Commission (1997-99) made specific recommendations on 58 specific PSUs with respect to disinvestment feasibility and the methodology to be adopted.
• The second phase of disinvestment started in 1998-98. Each year since 1999, the government is pushing ahead with reforms and disinvestments. The government has now declared its willingness to reduce its stake below 26 per cent in non-strategic PSUs.
Opportunities
The successfully privatized projects during 2002-03 include the long - distance international telecom carrier - Videsh Sanchar Nigam Limited (VSNL); petroleum marketing company - IBP; petrochemical company - Indian petrochemicals limited (IPCL); metal manufacturing companies - Hindustan Zinc Limited and Bharat Aluminium Company; hotels belonging to India Tourism Development Corporation (ITDC) and the country's largest small and medium car manufacturing company - Maruti.
The government is now considering disinvestments of the shipping corporation of India and two state trading corporations (STC and MMTC) among others. One of the biggest privatization projects that the government has initiated is the leasing of international airports at the four metropolitan cities of Delhi , Mumbai, Chennai and Kolkata. The privatization mandates will provide a good opportunity to both domestic and foreign investors to pick up stakes in well- performing assets.
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