India's Economy and Infrastructure

India's Economy and Infrastructure

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India's Economy and Infrastructure

India is rich in natural resources and manpower and has made significant economic progress since attaining independence in 1947. India's economy encompasses traditional village farming, forestry, fishing, modern agriculture, handicrafts, a wide range of modern industries, and a multitude of support services.
Economy transformed from primarily agriculture, forestry, fishing, and textile manufacturing in 1947 to major heavy industry, transportation, and telecommunications industries by late 1970s. Central government planning in 1950 through late 1970s giving way to economic reforms and more private-sector initiatives in 1980s and 1990s. A sophisticated industrial base has been created and a large pool of skilled manpower has emerged. Nevertheless, 67% of India's labor force (nearly 400 million) works in agriculture, which contributes 30% of the country's GDP.
Production, trade, and investment reforms since 1991 have provided new opportunities for Indian businesspersons and an estimated 300 million middle class consumers. New Delhi has avoided debt rescheduling, attracted foreign investment, and revived confidence in India's economic prospects since 1991. Many of the country's fundamentals - including savings rates (26% of GDP) and reserves (now about $24 billion) - are healthy. Inflation eased to 7% in 1997, and interest rates dropped to between 10% and 13%. Even so, the Indian Government needs to restore the early momentum of reform, especially by continuing reductions in the extensive remaining government regulations. Moreover, economic policy changes have not yet significantly increased jobs or reduced the risk that international financial strains will reemerge within the next few years. Nearly 40% of the Indian population remains too poor to afford an adequate diet.
India's exports, currency, and foreign institutional investment were affected by the East Asian crisis in late 1997 and early 1998, but capital account controls, a low ratio of short-term debt to reserves, and enhanced supervision of the financial sector helped insulate it from near term balance-of-payments problems. Export growth, has been slipping in 1996-97, averaging only about 4% to 5%—a large drop from the more than 20% increases it was experiencing over the prior three years—mainly because of the fall in Asian currencies relative to the rupee. Energy, telecommunications, and transportation shortages and the legacy of inefficient factories constrain industrial growth, which expanded only 6.7% in 1997—down from more than 11% in 1996. Growth of the agricultural sector is still fairly slow rebounding to only 5.7% in 1997 from a fall of 0.1% in 1996. Agricultural investment has slowed, while costly subsidies on fertilizer, food distribution, and rural electricity remain.

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Nevertheless, even if a series of weak coalition governments continue to rule in New Delhi over the next few years and are unable to push reforms aggressively, parts of the economy that have already benefited from deregulation will continue to grow. Indian government projects GDP growth of at least 5.5% in 1998.

KEY ECONOMIC INDICATOR (based on 1997 data unless otherwise stated)
GDP - US$1.534 trillion
- real growth rate 5%
- per capita US$1,600
- GDP composition by sector
Agriculture 30%
Manufacturing 28%
Services 42%

Inflation rate - consumer price index : 7%

Labor Force - nearly 400 million
- Labor force composition by sector :
Agriculture 67%
Manufacturing 18%
Services 15%
- Average Indian's worker salary Rs 2000 – Rs 5000 per month with others allowance such as:
§ Annual bonus
§ Cost of living allowance (amount about 10% of monthly salary)
§ Tenure gratuity (15 days per working year)

Currency - 1 Indian rupee (Rs) = 100 paise
- Exchange rates: Indian rupees (Rs) per US$ 1 - 39.358 (January 1998)
- 36.313 (1997)
- 35.433 (1996)
- 32.427 (1995)

Debt - US$ 90.7 billion

Exports - commodities: gems and jewelry, clothing, engineering goods (iron, metal, plastic, etc), chemicals, leather manufactures, cotton yarn, and fabric.
- partners: US, Hong Kong, UK, Germany

Imports - commodities: crude oil and petroleum products, machinery, gems, fertilizer, and chemicals.
- partners: US, Belgium, Germany, Kuwait, Saudi Arabia, UK, Japan

Deficit Trade Statistic (1990-1995) in Billions Rupee (Rs)
1990/1991 1991/1992 1992/1993 1993/1994 1994/1995
Export 325.53 440.41 536.88 697.51 826.74
Import 431.98 478.51 633.75 731.01 899.71
Deficit 106.45 38.10 96.87 33.50 72.97
GDP 4,778.14 5,527.68 6,301.82 7,231.03 8,541.03
Deficit as % of GDP 2.2% 0.69% 1.54% 0.47% 0.85%

Foreign Economic Aid - Most aid provided by consortium such as: World Bank, Asia Development Bank (ADB), OPEC, Aid to India Consortium and Japan India's largest aid granter and lender - $337 million grants and $2.4 billion loans between period 1984-1993.

Tax Structure
§ Business Tax : Corporate Income Tax : 40%
Dividend Tax : 25%
Royalty Tax : 30%
Interest on loans tax : 25%

§ Personal Income Tax : Rs 0 – Rs 35,000 : 0%
Rs 35,000 – Rs 60,000 : 20%
Rs 60,000 – Rs 120,000 : 30%
Rs 120,000 more : 40%

§ Capital Gain Tax Individual : 20% (Flat rate)
Corporation Long term : 30% (more than 3 years)
Short term : 20% (less than 3 years)

Since independence, India has seen a phenomenal growth in installed capacity and electricity generation (mainly thermal, hydroelectric and nuclear). Total installed capacity is 83,288MW. 65% is owned and operated by the State Electricity Boards (SEB) and 29% by corporations set up by the Central Government. Nuclear stations under the Central Government-owned Nuclear Power Corporation account for 2% of installed generating capacity, and four private distributors own the remaining 4%. The public sector Power Grid Corporation of India Ltd (PGCIL) is in charge of interstate transmission.
In spite of the massive growth in generation capacity, severe power shortages persist throughout India. Energy deficiency is approximately 11 % and peaking shortage 18 %. Capacity addition has fallen far short of consumption growth. The gap between demand and supply has widened over the last five years and is expected to increase in the short term.
According to the recent survey conducted by the Central Electricity Authority (CEA), demand is expected to rise at a rate of 7.5 per cent per annum over the next decade. Over the next 10 years, the minimum capacity addition needed is estimated to be over 83,000 MW. At an average cost of US$1 million per MW, the investment called for is US$83 billion. If the investment required in transmission and distribution are taken into account, the total figure rises to US$143 billion. A majority of this amount will have to be funded by the private sector, both domestic and foreign.

§ Telephone
Although India's telephone system is not adequate and still using outdated manual switchboard instead of digital but India's 21 million-line telephone subscriber is the third in Asia (after China and Republic of Korea). The Long Distance Transmission Network has nearly 1,700,000 route kilometers of low capacity microwave radio relay and co-axial cables and about 171,000 route kilometers of optical fiber cables. The present ratio of connectivity per person is very low at about 2.2 lines per hundred persons, offering a vast scope for growth.
Today, India has 22 private companies providing cellular services in 4 metro cities (Delhi, Mumbai, Chennai and Calcutta). Ever since their introduction, cellular services have shown a fair growth with the subscriber base crossing the 1 million mark by the first quarter of 1999. India has adopted the Global System of Mobile Communication (GSM) for provision of cellular services.

§ Radio
India has 96 AM stations and only 4 FM stations with approximately 70 million households own it.

§ Television
India has 274 broadcast stations which are all government controlled and 33 million households own it.

§ Highway Road

Road transport is the dominant mode of transportation in India, both for moving goods and passengers. India has a huge network of roads comprising of National Highways, State Highways, Major District Roads and other roads covering a total length of 33,000,000 kilometer. 60% of the goods and 80% of people movement takes place through roads.
Though the National Highways constitute only 2% of the entire road network, they carry about 40% of the freight and people movement. The National Highways cover a length of 52,000 kilometers and pass through every state of India. There are 259 National Highways on the basis of their route numbers. They are the vital lifelines of the economy making trade and commerce possible.

§ Railway
Before the road becomes the dominant mode of transportation, it was the railway that shouldering a major share of transportation needs in India. The history of Indian Railways dates way back to the British colonization. Britain needed a fast and reliable transport system for troop movement (to counter armed rebellion) and for exploitation of the vast resources of India.
Nowadays India's rail network consists of more than 1,000,000 track kilometers, carries more than 11 million passengers per day and transports 40% of the freight.

§ Port & Harbor
There are 12 major ports in the country and 139 minor working ports along the coastline of about 5,600 km. Major ports are the direct responsibility of the Central Government while the minor/intermediate are under the management of the state governments.
The major ports of the west coast are Kandla, Mumbai (Bombay), Mormugao, New Manglore, Cochin and Jawaharlal Nehru port. On the east coast, Tuticorin, Chennai, Visakhapatnam, Paradip and Calcutta-Haldia are the major ports.

§ Air Transport
India has bilateral air services agreements with 93 countries as on May 31, 1999. Air India Limited is the major international carrier of the country. It operates services to USA, Europe, Russian, Middle East, East Asia, Far East and Africa.

1. Manufacturing
The principal manufacturing industries are textiles, petrochemicals, food processing, steel, motor vehicles, fertilizers, cement, and petroleum.
Manufacturing accounts 27%of GDP but employed only about 9 percent of the work force.

2. Energy
India importer of petroleum and natural gas but has abundant coal, hydroelectric power (especially in parts of North India), and burgeoning nuclear power industry.

3. Mining
Less than 2 percent share of GDP and only 1 percent of labor force involved in mining and excavation. Basic minerals are iron, bauxite, copper, lead, zinc, manganese, gold, coal, mica, asbestos, limestone, and gypsum.

4. Services
Services industry are banking, insurance, real estate, transportation, health, entertainment, legal, and education. Contribute to 39% of GDP and employ about 13 percent of work force.

5. Agriculture
The principal agriculture products are rice, wheat, oilseed, cotton, corn, sorghum, jute, tea, sugarcane, and coffee. Dairy farming, fishing, and forestry are also important parts of agricultural sector. With fish catch of about 3 million metric tons per year ranks India among the world's top 10 fishing nations.
Agriculture has 30% share of GDP and employ majority of workers, 67% of total labor force. Agricultural products account 18 percent of total exports.

6. Science and Technology
The Indian government makes substantial investment in defense, nuclear, space, computer & information technology and agriculture. The government control the science and technology sector with 200 national laboratories, 200 government-sector research and development institutions, and about 1,000 research and development units in industrial sector.

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