Trade Research Report
India
Prepared By:
Angelina Chan 260051086
Anoush Gundjian 119114830
For:
CPL2-561-781
North America and the Global Economy
McGill University Continuing Education
Submitted:
March 10, 2005
“Under this flag, there is no difference between a prince and a peasant, between the rich and the poor, between man and woman.”
~ Sarojini Naidu, prominent Indian political figure
Table of Contents
1 Country Profile……………………………………………………...….. 4
1.1 Brief History……………..……………………………………………….. 4
1.2 Demographics.………………………………………………………...… 4
1.3 Geography……………………………………………………………….. 5
1.4 Economy…………………………………………………………………. 6
1.5 Politics……………………………………………………………………. 7
1.6 International Organizations…………………………………………….. 8
1.7 Global Rankings………………………………………………………… 8
2 International Trade…………………………………………………….. 9
2.1 Global Exports and Imports……………………………………………. 9
Exports…………………………………………………………………….. 9
Imports……………………………………………………………….……. 11
Trade Balance……………………………………………………………. 12
2.2 Global Investment………………………………………………………. 13
Foreign Investments in India……………………………………………. 13
Indian Investments to the Rest of the World………………………….. 14
2.3 Balance of Payments…………………………………………………... 14
2.4 Canada-India Trade and Trade Relations……………………………. 15
Historical Overview…………………………………………………….… 15
Trade Statistics…………………………………………………………… 15
Investment Statistics…………………………………………………….. 18
Present Relations and Agreements………………………………….… 19
2.5 International Trade Issues…………………………………………...… 19
3 Trade Policy and Strategy………………………………………….… 21
3.1 Foreign Trade Policy………………………………………………….… 21
3.2 International Trade Agreements…………………………………….… 23
Existing Trade Agreements……………………………………………... 23
Trade Agreements in Development……………………………………. 23
3.3 India’s Position in WTO’s Doha Round………………………….…… 26
4 Assessment and Outlook…………………………………………….. 27
4.1 International Perspective………………………………………………. 27
4.2 Canadian Perspective………………………………………………..… 27
5 Bibliography…………………………………………………………..… 29
6 Appendix…………...……………………………………………………. 31
6.1 Ministry of Commerce and Industry Documents..………………….... 31
6.2 India’s Export Destinations…………………………………………….. 32
6.3 India’s Commodities Exports………………………………………...… 33
6.4 India’s Import Sources………………………………………………….. 33
6.5 India’s Commodities Exports…………………………………………... 34
6.6 Treaties Between Canada and India………………………………….. 35
Country Profile
The world's largest democracy and second most populous country has emerged as a major power after a period of foreign rule and several decades during which its economy was virtually closed. It has developed the capacity to strike at China and arch-rival Pakistan with its own missiles, and has carried out a program of nuclear tests in defiance of world opinion. However, India is still struggling with huge social, economic and environmental problems.
1.1 Brief History
The Indus Valley civilization, one of the oldest in the world, dates back at least 5,000 years. Aryan tribes from the northwest invaded about 1500 B.C.; their merger with the earlier inhabitants created the classical Indian culture. Arab incursions starting in the 8th century and Turkish in the 12th were followed by European traders, beginning in the late 15th century. By the 19th century, Britain had assumed political control of virtually all Indian lands. Indian armed forces in the British army played a vital role in both World Wars. Non-violent resistance to British colonialism under Mohandas GANDHI and Jawaharlal NEHRU led to independence in 1947. The subcontinent was divided into the secular state of India and the smaller Muslim state of Pakistan. A third war between the two countries in 1971 resulted in East Pakistan becoming the separate nation of Bangladesh. Fundamental concerns in India include the ongoing dispute with Pakistan over Kashmir, massive overpopulation, environmental degradation, extensive poverty, and ethnic and religious strife, all this despite impressive gains in economic investment and output.[1]
1.2 Demographics
Although India occupies only 2.4% of the world's land area, it supports over 15% of the world's population. Only China has a larger population. Almost 40% of Indians are younger than 15 years of age. About 70% of the people live in more than 550,000 villages, and the remainder in more than 200 towns and cities. Over thousands of years of its history, India has been invaded from the Iranian plateau, Central Asia, Arabia, Afghanistan, and the West; Indian people and culture have absorbed and changed these influences to produce a remarkable racial and cultural synthesis.
The second most populous country in the world, India’s population is estimated to be 1.1B (July 2004 est. = 1,065, 070,607) while the population growth rate is estimated to be 1.4%.[2] Population density stands at 358 people per square kilometer.[3]
Indian Age Distribution0-14 years: / 31.7%
15-64 years: / 63.5%
65 years and over: / 4.8%
Indian Ethnic Groups (2000)
Indo-Aryan / 72%,
Dravidian / 25%,
Mongoloid and other / 3%
The main religions include: Hinduism, Islam, Christianity, Sikhism, Buddhism and Jainism.
The official language of the country is Hindi, while English is the language of commerce.
1.3 Geography
India is located in Southern Asia, bordering the Arabian Sea and the Bay of Bengal. Its area totals 3,287,590 sq km (land: 2,973,190 sq km, water: 314,400 sq km). Its bordering countries include Bangladesh, Bhutan, Burma, China, Nepal and Pakistan.
The land is rich in natural resources including the world’s fourth-largest reserve of coal, iron ore, manganese, mica, bauxite, titanium ore, chromites, natural gas, diamonds, petroleum, and limestone.
The land is exposed to several types of natural hazards such as: droughts, flash floods, widespread and destructive flooding from monsoon rains, severe thunderstorms and earthquakes. Furthermore, several environmental issues jeopardize the resources including: deforestation, soil erosion, overgrazing, desertification, air pollution from industrial effluents and vehicle emissions, water pollution from raw sewage and runoff of agricultural pesticides.
India’s tap water is not potable throughout the country and the huge and growing population is overstraining its supply of natural resources.[4]
The Capital city of New Delhi enjoys a rich history and is a popular tourist destination along with Bombay.
1.4 Economy
India's economy encompasses traditional village farming, modern agriculture, handicrafts, a wide range of modern industries, and a multitude of support services. Two-thirds of India's population work in agriculture. Together, agriculture, forestry and fishing account for around 25% of GDP. However, the majority of landholdings are farmed at subsistence level and many farming families live below the poverty line.
Government controls have been reduced on foreign trade and investment, and privatization of domestic output has proceeded slowly. The economy has posted an excellent average growth rate of 6% since 1990, reducing poverty by about 10 percentage points. India is capitalizing on its large numbers of well-educated people skilled in the English language to become a major exporter of software services and software workers. Despite strong growth, the World Bank and others worry about the continuing public-sector budget deficit, running at approximately 20% of GDP.[5] Thus far, it has been called “unsustainable” by experts, and has held back economic growth. Some recent policy changes have been a step in the right direction, although continuing further reforms are needed.[6]
Real GDP growth for the fiscal year ending March 31, 2004 was 8.17%, up from the drought-depressed 4.0% growth in the previous year. Growth for the year ending March 31, 2005 is expected to be between 6.5% and 7.0%. Foreign portfolio and direct investment in-flows have risen significantly in recent years. They have contributed to the $120 billion in foreign exchange reserves at the end of June 2004. Government receipts from privatization were about $3 billion in fiscal year 2003-04.[7]
Economic growth, however, is constrained by inadequate infrastructure, a cumbersome bureaucracy, corruption, labor market rigidities, regulatory and foreign investment controls, the "reservation" of key products for small-scale industries, and high fiscal deficits. The outlook for further trade liberalization is mixed. India eliminated quotas on 1,420 consumer imports in 2002 and has announced its intention to continue to lower customs duties. However, the tax structure is complex with compounding effects of various taxes.
GDP: / US$576 B (2003)GDP Growth Rate: / 8.3% (2003)
GDP per capita: / US$543 (2003)
GDP composition per sector: / Agriculture: 22.7%
Industry: 25.7%
Services: 51.6% (2003)[8]
Gross Fixed Investment Rate: / 23.1% of GDP (2003)
Inflation Rate: / 3.8% (2003 est.)
Unemployment Rate: / 9.5% (2003)
Industries: / Textiles, Chemicals, Food Processing, Steel, Cement, Mining, Petroleum, Machinery, Software
Agriculture products: / Rice, Wheat, Oilseed, Cotton, Tea, Sugarcane Cattle, Water Buffalo, Sheep, Goats, Poultry, Fish
Budget: / Revenues: US$86.69 B
Expenditures: US$114.6 B (2003)
Public Debt: / US$112 B
Public Debt-to-GDP ratio: / 20%
Budget Deficit / 4.9 % of GDP[9]
Balance of Payments: / US$31.4 B (2001)
Total Exports: / US$63 B (2004 est.)
% GDP Exported / 10.9%
Imports: / US$77 B (2004 est.)
% GDP Imported / 13.3%
Current Account Balance: / US$3.41 B (2003)
FDI / US$3.1 B (2003)
Foreign Exchange Reserves & Gold: / US$102.3 B (2003)
Foreign Debt: / US$101.7 B (2003 est.)
Foreign Debt as % of GDP: / 17%
International Investment position: / -US$48 B (2004 est.)
Currency: / Indian Rupee (INR)
Exchange Rate: / 46.5806 INR/US$ (2003)
Sources: http://www.state.gov/r/pa/ei/bgn/3454.htm, http://www.cia.gov/cia/publications/factbook/geos/in.html
1.5 Politics
India has maintained a democratic framework since its independence on August 15, 1947. The centralization of decision-making, particularly in the 1970s, has led to the growth of regional parties, and coalition government is now the norm. Despite poor literacy rates and widespread corruption, a high level of political awareness has ensured that democratic norms are, on the whole, respected. The Prime Minister is the head of government, requiring the support of a majority in the national parliament. The President is the head of state and, although limited in executive power, can influence the formation of governments at both the state and national level when no party has received an outright majority.[10]
Type of Government: / Federal RepublicChief of State: / President Abdul KALAM (since July 26, 2002)
Vice President: / Bhairon Singh SHEKHAWAT (since August 19, 2002)
Head of Government: / Prime Minister Manmohan SINGH (since May 13, 2004)
Cabinet: / Council of Ministers appointed by the President on the recommendation of the Prime Minister
Manmohan Singh became Prime Minister in May 2004 after the Congress Party's unexpected success in general elections. He is widely regarded as the cleanest politician in an India that is extremely concerned with corruptness among the ranks. Critics question his ability and experience as a political strategist leading a coalition party as this is his first elected position. However, as the former Finance Minister, Manmohan Singh was a major driver in India’s economic reform platform, achieving an average of 7% annual growth in GDP.[11]
1.6 International Organizations
India is a member of all major multilateral economic forums, including the International Monetary Fund (IMF), the World Bank and the Asian Development Bank (ADB). India was a founding member of both GATT and the World Trade Organization (WTO).
At the regional level, India is a member of the SAARC (South Asia Association of Regional Co-operation), the BIMSTEC (Bangladesh, India, Myanmar, Sri Lanka, Thailand Economic Co-operation), and the Bangkok Agreement.
Some of the other International Organizations in which India is involved include:
AfDB, ARF, ASEAN (dialogue partner), BIS, C, CP, FAO, G- 6, G-15, G-19, G-24, G-77, IAEA, IBRD, ICAO, ICC, ICFTU, ICRM, IDA, IFAD, IFC, IFRCS, IHO, ILO, IMO, Interpol, IOC, IOM (observer), ISO, ITU, MICAH, MONUC, NAM, OAS (observer), OPCW, PCA, SAARC, UN, UNCTAD, UNESCO, UNHCR, UNIDO, UNIFIL, UNMEE, UNMIK, UNMOVIC, UPU, WCL, WCO, WFTU, WHO, WIPO, WMO.
1.7 Global Rankings
India has some of the lowest human development indicators in the world, particularly in rural areas. At the other end of the scale, India also has a large number of highly qualified professionals, as well as several internationally established industrial groups. Without a rapid and sustained increase in overall rates of economic growth, reducing poverty will remain a considerable challenge.
Global Competitiveness / 30 (2004-2005) [12]Human Development Index / 127 out of 177 (2002) [13]
Corruption Index / Ranked 73 out of 102 with a score of 2.7 on 10
Other global listings are included on the Appendix CD.
2 International Trade
Early in the 1990’s, the Indian government identified international trade opportunities as a major driver in propelling India onto the world stage of global economics. Major reforms and policy changes were outlined in new trade policies and supported through governmental coordination. Some of these changes included: the creation of the India Trade Promotion Organisation, ambitious goals regarding increases in India’s share of global trade activities, and systematic lowering and simplification of tariffs and restrictions.
2.1 Global Exports and Imports
Exports
“Exports can act as the motive power growth for a rapidly developing Indian economy and in making India a significant player in the world market. For this, exports have to be recognised as a national priority…we cannot afford any complacency, given the dynamics of a highly competitive global market place. We have to relentlessly pursue our objective of increasing our share of world trade.”
~ Arun Jaitley, Union Minister of Commerce and Industry[14]
As a result of their continuing efforts in reforming trade policies, India has seen steady growth in the value of their exports. For the period 2003-2004, Indian exports of goods and services totalled US$63.455 B, up 20.36% from the year before and exceeding the target rate of 12%, despite an appreciating rupee against the US dollar.[15] More impressive is the comparison of export values from before the trade promotion initiatives—US$26.330 B in 1994-1995 and US$9.878 B in 1984-1985.[16] These represent percentage growths of 141% and 542%, respectively, when compared to the 2003-2004 figures.
Source: Ministry of Commerce and Industry
As can be seen in the graph above, India has shown itself capable of achieving strong, fast growth in its exports. In fact, India’s growth rate of 20% is second only to China’s 22%.[17] Also indicated above is India’s propensity to be highly affected by global economic activities, namely the recessions of 1997 in North America and 2001 in Asia. However, we also see the ability of Indian exports to bounce back to achieve high rates of export growth.
Exports as a percentage of GDP is relatively low, but experiencing positive growth. This figure has evolved from 9.4% in 2001-2002 to 10.3% in 2002-2003.[18] These numbers are indicative of India’s focus on becoming prominent in international trade.
The major destinations of Indian exports in 2003-2004 were: