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Introduction
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A unique feature of the transition of the Indian economy is that it has become the
second fastest growing economy of the world in the year 2003 - 04. In the second
quarter of 2005-2006 the GDP growth has averaged 8%. India has recorded one of the
highest growth rates in the 1990s. The target of the 10th Five Year Plan (2002-07)
is 8% growth rate. According to the Central Statistical Organisation (CSO), real
GDP increased by 8.1% during the first quarter of 2005-2006 against 7.6% in the
first quarter of the previous year. The Quick Estimates of Index of Industrial Production
(IIP) with base 1993-94 for the month of October 2005 have been released by the
Central Statistical Organisation of the Ministry of Statistics and Programme Implementation.
The General Index stands at 221.3, which is 8.5% higher as compared to the level
in the month of October 2004.
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The fundamentals of the Indian economy have become strong and stable. The macro-economic
indicators are at present the best in the history of independent India with high
growth, healthy foreign exchange reserves, and foreign investment and robust increase
in exports and low inflation and interest rates. The unique feature of Indian economy
has been high growth with stability. The Indian economy has proved its strength
and resilience when there have been crisis in other parts of the world including
in Asia in recent years.
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Foreign Exchange Reserves
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The foreign exchange reserves have reached a level of US$ 143.098 billion as on
December 9, 2005. The comfortable situation of forex reserves has facilitated further
relaxation of foreign exchange restrictions and a gradual move towards greater capital
account convertibility. Foreign Exchange Reserves (US$ 143.098 billion) now far
exceed Foreign Debt (US$ 122.1 billion) by US$ 16.2 billion providing a cover of
113.3 per cent to the external debt stock at the end of June 2005. Total foreign
exchange reserves including gold and Special Drawing Rights (SDRs) went up from
US$ 921 million to US$ 143 billion during the week ended December 2, 2005. The external
debt to GDP ratio has improved significantly from 38.7% in 1992 to 17.4% in end
of March 2005. |
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Given the large foreign exchange reserves, the Government has made premature repayment
of US$ 3 billion of 'high-cost' loans to the World Bank and the Asian Development
Bank and is considering further premature repayment of other loans. The Government
has decided to (i) discontinue receiving aid from other countries except the following
nine: Japan, UK, Germany, USA, EU, France, Italy, Canada and the Russian Federation
and (ii) to make pre-payment of all bilateral debt owed to all the countries except
the ones mentioned above. Since July 2003, India has become a net creditor to IMF,
after having been a borrower in the past. The Government has written off debts of
US$ 30 million due from seven heavily indebted countries as part of the "India Development
Initiative" announced in February 2003. The interest rate continues to be reduced
and is around 6%. This is the lowest in the last thirty years and it is stimulating
consumption and investment. |
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After reaching an all-time low of Rs. 49.06 per US dollar in May, 2002, the rupee
has strengthened against the dollar reaching a rate of US$ 1 = Rs 45.50 (December
16, 2005). The inflation rate has been contained at 4.55% as of December 16, 2005.
The inflation rate in 2004-05 had been slightly higher at 6% but slowed down at
the beginning of the current year 2005 - 06 at 5.5%. |
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Consumer Market
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India offers a large and growing market of 1 billion people of which 300 million
are middle class consumers. India offers a vibrant market of youth and vigor with
54% of population below the age of 25 years. These young people work harder, earn
more, spend more and demand more from the market, making India a dynamic and aspirational
society. Domestic demand is expected to double over the ten-year period from 1998
to 2007. The number of households with "high income" is expected to increase by
60% in the next four years to 44 million households. |
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The Indian FMCG sector is the fourth largest sector in the economy with a total
market size in excess of US$ 13.1 billion. The FMCG market is set to treble from
US$ 11.6 billion in 2003 to US$ 33.4 billion in 2015. Penetration level as well
as per capita consumption in most product categories like jams, toothpaste, skin
care, hair wash etc in India is low indicating the untapped market potential. Burgeoning
Indian population, particularly the middle class and the rural segments, presents
an opportunity to makers of branded products to convert consumers to branded products.
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The number of telecom subscribers (fixed and mobile) in the country touched 120
million in November 2005 with more than 3.5 million additions in mobiles alone.
The teledensity at the end of November was 11 per cent as compared to 10.66 per
cent in October, telecom regulator TRAI said in a statement. Computer sales in India
reached 1.01 million units during the April-June first quarter, rising 8.6 per cent
year on year. |
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The month of October 2005 witnessed the domestic sales of automobile industry growing
by more than 23% over the same month last year. The Passenger Vehicles Segment in
October 2005 grew by over 8%. The Overall
Commercial Vehicle segment grew by 19%.
The Three Wheeler segment grew by almost about 17% during this month. Two Wheeler
Segment as a whole during the month of October 2005 grew by about 26% with motorcycle
leading the growth by about 29%. Scooters segment and Mopeds segment each also witnessed
a growth of over 13% in October 2005 over October 2004. |
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Capital Market |
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Vibrant capital market comprising 23 stock exchanges with over 9000 listed companies.
Bombay Stock Exchange is the second largest after NYSE. Stock market trading and
settlement system are world class. Research shows that global fund managers rate
India above China and are shovelling funds into the Indian stock markets, said Channel
News Asia on Thursday, quoting a report by Credit Lyonnais Securities Asia, a global
investment banker. |
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The Indian Capital market witnessed a sharp bullish trend with the BSE Sensex has
crossed 9,919 mark for the first time in its history on 30 January 2006. India has
the third largest investor base in the world. India has one of the world's lowest
transaction costs based on screen-based transactions, paperless trading and a T+2
settlements cycle. |
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Economic Reforms and Liberalization
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After initiating far reaching economic reforms of deregulation and liberalization
since 1991, India and the Indians have undergone a paradigm shift. There have been
fundamental and irreversible changes in the economy, government policies, outlook
of business and industry and in the mindset of Indians in general. From a shortage
economy of food and foreign exchange India has now become a surplus one; from an
agro based economy it has emerged as a service oriented one; it is now a front runner
in the emerging knowledge based new economy; Indian companies have become globally
competitive and 'Brand India' is getting global recognition etc. |
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The solid macro-economic fundamentals and the optimistic future prospects have given
more confidence to the Government to go in for further reforms and liberalization.
This confidence is reflected in the further reduction of peak custom duties to bring
them in line with the rates in South East Asian countries, raising of ceiling on
foreign investments in core sectors, passage of a new law on Special Economic Zones
(SEZs) with flexible labour laws etc, all of which are aimed at giving a big push
to exports and foreign direct investment inflows into the country.
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