India's economy and economic development

India is amongst the most populated nations in the world and is one of the oldest civilizations in the world. The economy of India has been an important in the study of world economies for many years. The purpose of this discussion is to provide a detailed view of India's economy. We will focus on Current Statistics such as; exchange rates, inflation, interest rates, Gross National Product, and Gross Domestic Product. The discussion will also discuss the currency that the country currently utilizes. In addition, we will examine current trading partners and policies. We will also discuss trade agreements and dominant industries and companies. Finally, our discussion will focus on the black market transactions that take place in the country.

Current Statistics

According to the world fact book India's economy consist of agriculture, participation in a large range of industries, village farming, and handicrafts. (India) The factbook explains that India's large population has crippled the economy of the country. (India) Other threats to India's economy include conflict between religious and political groups throughout the country. (India)

Exchange Rates, Inflation and Interest rates

According to the Universal currency converter at the current exchange rate 1.00 USD is equivalent to 44.6884 INR. Like wise 1.00 Euro is equivalent to 54.1701 INR. (Universal Currency Converter) Inflation was at 5.91% for the week ending February 7, 2004. Current interest rates for FNCR deposits in India are between 1.19 and 1.35 for 1-2-year loans. (Banknet India) The rates are 1.00 to 2.14 for 2-3-year loans and they are at 1.40 to 2.76 for 3 yr loans. (Banknet India) Interest rates for other instruments are displayed in the graph below, which was taken from India Profile: Monetary system, currency and exchange rates.

Interest Rate

30-Mar-01

11-Jan-02

29-Mar-02

10-Jan-03

Bank Rate

IDBI1

PLR2

Deposit Rate3 (>one year)

Call Money (Borrowings)

(low/high) 4

CDs

CPs

91-day T-Bills

364 days T-Bills

Relates to January 15, 2003

Relates to December 27, 2002

** Relates to January 15, 2002

Notes:

1. Minimum Term Lending Rate (MTLR).

2. Prime Lending Rate relates to five major banks.

3. Deposit rate relates to major banks for term deposits of more than one year maturity.

4. Data cover 90-95 per cent of total transactions reported by participants.

This table can be found at http://www.saarcnet.org/newsaarcnet/countryprofile/India/india3.htm

Gross Domestic Product and Gross national Product

Gross Domestic Product in 2003 was 4.0%. (Economy Probe) According to India's Economy Probe, published in January of 2004,

The Central Government expects GDP to grow by 8.1% in the current fiscal year, on the back of the best monsoon in a decade. In FY04, the agriculture sector is estimated to grow by 9.1% compared with a decline of 5.2% last fiscal year. On the back of a booming economy and rising consumer demand, the manufacturing sector is expected to register a growth of 7.1% as against 6.2% in the year-ago period. The services sector, which contributes over 50% to the GDP, is likely to grow by 8.4% in FY04 as against 7.1% in the previous fiscal year."(Economy Probe)

The report asserts that the continued growth of the agricultural sector will continue to enhance the nation's Gross Domestic Product. For instance, foodgrains production is expected to increase by 14.2% and the non-foodgrain production will increase by 13.1%. (Economy Probe) In India the Gross National Product per Capita income for the fiscal year 2001-2002 was 20813.5. (India Info)

Currency

Indian Rupees are the currency that is currently being used in the country. The article India Profile: Monetary system, currency and exchange rates, explains that the monetary policy in India has been transformed from a system that was heavily dependent on direct instruments to one that depends more on indirect instruments. (India Profile: Monetary system, currency and exchange rates) The article also asserts,

The stance of monetary and credit policy for 2002-03 remained more or less the same as in 2001-02. The stance, as articulated by the RBI in its Annual Policy Statement (April 29, 2002), is to provide adequate liquidity to meet credit growth and support investment demand in the economy, while continuing a vigil on movements in price level. In line with the above, the Annual Policy Statement indicated that the present stance on soft interest rates and emphasis on imparting greater flexibility to the interest rates structure would continue." (India Profile: Monetary system, currency and exchange rates)

Trading Partners and Policies

India is a country that enjoys trade with nations around the world. These nations include; America, the UK, and China. (India) According to the world factbook America is India's chief trading partner with 22% of all Indian exports being sent to America. The UK and UAE are both at 4% while China, Hong Kong and Germany hover around 4.5%.(India) The country's import partners include; Singapore, China, Belgium, the United States, and the United Kingdom. (India) The Economic Probe report explains that exports from April of 2003 to December of 2003 were estimated at 42.5 billion. This was a 13.3% growth rate over the previous year. (Economic Probe)

India is an important part of the World Trade Organization (WTO). There are several policies that govern trade in India. I will attempt to provide a brief overiew of these EXIM Policies. The current Exim Polocies cover everything from Service Exports to export clusters. According to Highlights of EXIM Policy 2002-2007, Service Exports are duty free if they have a minimum exchange earning of 10 Lakhs. (Highlights of EXIM Policy 2002-2007) There are also special previsions for hardware and software which allow India to benefit from technology and create economic growth. The policies that govern trade in India also assert that,

Sales from Domestic Tariff Area (DTA) to SEZs to be treated as export. This would now entitle domestic suppliers to Drawback / DEPB benefits, CST exemption and Service Tax exemption. Agriculture/Horticulture processing SEZ units will now be allowed to provide inputs and equipments to contract farmers in DTA to promote production of goods as per the requirement of importing countries. This is expected to integrate the production and processing and help in promoting SEZs specialising in agro exports. Foreign bound passengers will now be allowed to take goods from SEZs to promote trade, tourism and exports." (Highlights of EXIM Policy 2002-2007)

Trade agreements and dominant industries, companies and the black market

Many of India's trade agreements are with the United States, the United Kingdom, China and Iran. India signed an agreement with China to setup another point of border trade in Changgu of Sikkim on the India side and Renqinggang of the Tibet Autonomous Region on the Chinese side. (Memorandum between the Government of the Republic of India...)This agreement ensured that these areas would contain a venue for a border trade market. This agreement was made in an effort to promote friendly relations between the two nations.(Memorandum between the Government of the Republic of India...) These agreements allow India to pursue economic growth in a range of different sectors.