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Indian Economy & Trade Information
Introduction
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.
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.
Foreign Exchange Reserves
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.
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.
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%.
Consumer Market
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.
India is rated as the fifth most attractive emerging
retail market. It has been ranked second in a Global Retail
Development Index of 30 developing countries drawn up by A T
Kearney. A.T. Kearney has estimated India's total retail market
at $202.6 billion, is expected to grow at a compounded 30 per
cent over the next five years. The share of modern retail is
likely to grow from its current 2 per cent to 15-20 percent over
the next decade, analysts feel.
The Indian FMCG sector is the fourth largest sector
in the economy with a total market size in excess of US$ 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.
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.
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.
Capital Market
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.
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.
Economic
Reforms and Liberalization
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.
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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