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U.S. DEPARTMENT OF STATE
INDIA: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICES
BUREAU OF ECONOMIC AND BUSINESS AFFAIRS





                              INDIA

                     Key Economic Indicators
        (Billions of U.S. dollars unless otherwise noted)
           (Indian fiscal year is April 1 to March 31)


                                  1992/93   1993/94   1994/95 1/

Income, Production and Employment:

Real GDP (1981 prices) 2/            87.0      83.5      88.1
Real GDP Growth (pct.)                4.6       4.0       5.5
GDP (at current prices) 2/          243.6     252.8     289.5
GDP Share by Sector: (pct.)
  Agriculture                        30.3      30.0      30.1
  Energy/Water                        2.5       2.5       2.5
  Manufacturing                      22.0      22.2      22.4
  Construction                        4.4       4.5       4.5
  Rents                               5.1       5.1       5.1
  Financial Services                  5.9       5.9       6.0
  Other Services/Government/
    Health/Education                 29.8      29.8      29.4
Real Per Capita GDP
  (1981 prices/USD)                  99.8      93.9      97.1
Labor Force (millions)                330       338       346
Unemployment Rate (pct.)             22.0      22.5      22.5

Money and Prices:  (annual percentage growth)

Money Supply (M3)                    15.7      18.2      17.5
Base Interest Rate                   19.0      19.0      14.5
Personal Saving Rate                 17.4      17.5      18.0
Retail Inflation                      9.6       7.5       8.0
Wholesale Inflation (pct.)           10.1       8.4       9.0
Consumer Price Index (1982=100)       240       258       279
Exchange Rate (USD/rupee)
  Official                          28.96     31.37     31.37
  Parallel                           31.0      33.0      32.5

Balance of Payments and Trade:

Total Exports (FOB) 3/               18.4      22.2      25.0
  Exports to U.S.                     3.5       4.0       4.7
Total Imports (CIF) 3/               21.7      23.2      26.7
  Imports from U.S.                   2.2       2.7       3.4
Trade Balance 4/                     -3.3      -1.0      -1.7
  Trade Balance with U.S.             1.3       1.3       1.3
Aid from U.S. (mil. USD) 4/           141       142       148
Aid from Other Countries/
  Institutions                        3.5       3.3       3.5
External Public Debt 5/              79.2      81.4      82.0
Debt Service Payments                 7.0       7.6       9.4
Gold and Foreign Exch. Reserves       9.8      19.3      25.0


1/ 1994 figures are all estimates based on data available in
October 1994.
2/ GDP at market prices.
3/ Merchandise trade.
4/ Figures refer to Indian fiscal years: April 1-March 31.
5/ Excludes rupee debt of $10 billion to the former USSR.

Sources:  Government of India (GOI) Economic Survey, GOI
budgets, Reserve Bank of India bulletins, and the World Bank.



1.  General Policy Framework

    By mid-1994, India's economic reform program had achieved
remarkable macroeconomic stability and substantially
liberalized its trade, investment and financial sectors. 
India's decision in 1991 to move away from a "mixed" economy,
marked by slow growth, a highly protected market and state
control of the economy's "commanding heights," has potentially
important ramifications for the international economy.  The
Indian economy is already the sixth largest in terms of
purchasing power, and is home to roughly 15 percent of the
world's population.  India's middle-class is estimated to be 
between 150 - 250 million.  A sustained period of rapid
economic growth would sharply reduce poverty in India and
provide major opportunities for international trade and
investment.

    Progress toward reducing the government's unsustainably
high fiscal deficit, which helped trigger India's 1990-91
economic crisis, has been mixed.  After reaching nine percent
of GDP in FY 1990/91, the fiscal deficit fell to 5.7 percent of
GDP in FY 1992/93 before rebounding to 7.3 percent of GDP the
following year.  Buoyant receipts and better expenditure
controls imply a fiscal deficit of about six percent of GDP for
FY 1994/95; little progress is expected in the run-up to the
1996 national elections.  However, the Finance Minister and
Reserve Bank of India (RBI) Governor reached agreement to place
a Rs. 60 billion ($1.9 billion) cap on the issuance of ad hoc
Treasury bills during 1994, the principal source of
inflationary money creation.  The issuance of ad hoc Treasury
bills is to be abolished by FY 1997/98. 

    During the first six months of FY 1994/95, M3 rose by an
estimated 17.5 percent.  The RBI hopes to contain M3 growth at
16 percent for the year, a rate it considers consistent with a
four percentage point decline in inflation and GDP growth of
5.5 percent.  Government and private forecasters now predict an
average retail inflation rate of about eight percent during
FY 1994-95, following inflation of 7.5 percent in the previous
year.  The rate of increase in RBI credit to the government
declined by about 50 percent during the first half of
FY 1994/95.  This permitted the government to reduce the
Statutory Liquidity Ratio (SLR) from 33.75 in September 1993 to
31.5 percent in October 1994.  Further cuts are planned as the
government seeks to avoid crowding out private borrowers. 

    Other economic indicators underscore India's sharp break
with its socialist past.  Foreign investment inflows and steady
export growth expanded foreign exchange reserves from $1.1
billion in June 1991 to $19.0 billion in October 1994.  Reform
has made India one of the most sought-after emerging markets 
for institutional investors.  After stagnating for several
years, private investment is expected to fuel industrial growth
in FY 1994-95 of about 8.0 percent, and GDP growth in excess of
5.0 percent.  Most importantly, India's liberalization program
has received solid backing from the middle- and upper-classes
that have been its early beneficiaries.


2.  Exchange Rate Policy

    India has utilized exchange rate policy to improve its
export competitiveness.  On March 1, 1993, the exchange rate
was unified and made fully convertible on the trade account. 
On August 20, 1994, the current account was fully liberalized. 
Controls remain on capital account transactions, but their
gradual removal is expected as foreign exchange reserves grow
and India's capital markets merge more completely with
international financial markets.  The RBI has intervened in the
foreign exchange market to rebuild reserves and defend the
rupee's stability.  However, foreign investment inflows have
been an equally important factor in maintaining the rupee at
roughly Rs. 31.5 per dollar since March 1993.  As a result, the
real effective exchange rate has appreciated by over 10 percent
since 1992.


3.  Structural Policies

    Price Policies:  Central and state governments still
regulate the prices of most essential products, including food
grains, sugar, edible oils, basic medicines, energy,
fertilizers, water and many industrial inputs.  Agricultural
commodity procurement prices have risen substantially during
the past three years, while nitrogenous fertilizer, rural
electricity and irrigation costs remain well below market
levels.  However, acute power shortages are forcing several
states to arrest the financial decline of state electricity
boards by raising tariffs.  The federal government has also
begun to scrutinize more carefully the cost of its subsidies. 
Many basic food products are under a dual pricing system:  some
output is supplied at fixed prices through government
distribution outlets ("fair price shops"), with the remainder
sold by producers on the free market.  Prices are usually
regulated according to a cost-plus formula; some formulas have
not been adjusted in more than a decade.  Regulation of basic
drug prices has been a particular problem for U.S.
pharmaceutical firms operating in India, although changes in
national drug policy will sharply reduce the number of
price-controlled formulations by late-1994.

    Tax Policies:  India's tax policies suffer from several
problems common to developing countries.  Public finances
remain highly dependent on indirect taxes, particularly import
tariffs.  Between 1990 and 1993, indirect taxes accounted for
75 percent of central government tax revenue.  India's direct
tax base is excessively narrow, with only eight million
taxpayers out of a total population of about 900 million. 
Marginal rates are high by international standards, although
the FY 1994/95 budget lowered the corporate income tax rate for
foreign companies from 65 percent to 55 percent.  Tax evasion
is widespread, and the government has stated that future tax 
rate cuts will depend upon its efforts to improve compliance. 
The government has begun streamlining the nation's tax regime
along the lines recommended by a government-appointed
committee:  increasing the revenue share from direct taxes,
introducing a value-added tax (VAT), and replacing India's
complex tax code with one that is simple and transparent.  The
Indian government is also experimenting with tax incentives for
specific targeted areas, such as a five-year tax holiday for
power projects.

    Regulatory Policies:  The "New Industrial Policy" announced
in July 1991 relaxed considerably government's regulatory hold
on investment and production decisions.  The new policies
withdrew industrial licensing from all but 16 specified
industries and removed most of the strictures on plant
location.  These reforms have been followed by more recent
adjustments, including the announcement in mid-1994 of more
liberal policies for the pharmaceutical and telecommunications
industries.  Local sourcing requirements have also been
abolished.  Nevertheless, Indian industry remains highly
regulated by a powerful bureaucracy armed with excessive rules
and broad discretion.  As many as 92 approvals are still
required to establish an industrial plant; the speed and
quality of regulatory decisions governing important issues such
as zoning, land-use and environment can vary dramatically from
one state to another.  Political opposition has slowed or
halted important regulatory reforms governing areas like labor,
bankruptcy, and company law that would enhance the efficiency
of foreign and domestic investment.  However, international
competition for capital is gradually forcing India's federal
and state governments to implement more investor-friendly
regulatory policies.


4.  Debt Management Policies

    External Debt Management:  India's reliance during the
1980's on debt-financed deficit spending to boost economic
growth meant that commercial debt and Non-Resident Indian (NRI)
deposits provided a growing share of the financing for India's
mounting trade deficit.  The result was a hefty increase in
external debt, compounded by rising real interest rates and a
declining term structure that reflected India's falling
creditworthiness.  Total external debt rose from $20 billion in
FY 1980/81 to about $84 billion in FY 1990/91.  Fueled by
rising debt service payments, foreign exchange reserves fell to
$1.1 billion during the FY 1990/91 balance of payments crisis,
the equivalent of only two weeks of imports.  By October 1994,
India's reform program had succeeded in boosting reserves to
$19.0 billion.  This remarkable surge in reserves has obviated
the need to renew its Standby Arrangement with the
International Monetary Fund (IMF), and allowed India to prepay
$1.1 billion in credits to the IMF during 1994.

    External Debt Structure:  India's total external debt
(including ruble and defense-related debt) reached $91.4
billion by mid-1994, making India one of the world's major
borrowers.  India's debt-service payments exceeded $8.0 billion
in each of the last four years (FY 1990/91 - FY 1993/94). 
However, roughly two-thirds of the country's foreign currency
debt is composed of multilateral and bilateral debt, much of it
on highly-concessional terms.  The stock of short-term debt
constituted only $4.6 billion during FY 1993/94.  The addition
of new debt has slowed substantially, as the government
maintained a tight rein on commercial borrowing and
defense-related debt and encouraged foreign equity investment
rather than debt financing.  As a result, the ratio of total
external debt to GDP fell from 39.8 percent in FY 1992/93 to
about 36 percent in FY 1993/94.

    Relationship with Creditors:  India has an excellent debt
servicing record.  U.S. and Japanese rating agencies downgraded
Indian paper in 1990, as India encountered balance of payment
difficulties exacerbated by the Persian Gulf conflict and a
sharp downturn in trade with the former Soviet Union.  The
sharp growth in official reserves and the enthusiastic response
of institutional and foreign direct investors to India's
economic reforms are restoring creditor confidence.  Japanese
agencies recently upgraded India's rating, and in late-1994
Moody's began reviewing India's foreign currency debt rating. 
(India is currently rated BA2/BB plus by Moody's.)  Citing its
growing foreign exchange reserves and ample food stocks, India
chose not to negotiate an Extended Financing Facility with the
IMF when its Standby Arrangement expired in May 1993.  


5.  Significant Barriers to U.S. Exports

    Import Licensing:  U.S. exports have benefited from
significant reductions in India's import-licensing
requirements.  Until 1992, India's extraordinarily complex
import regime featured 26 commodity lists with numerous
approval and licensing procedures.  Since that time, the
government has eliminated the licensing system for imports of
intermediates and capital goods, and steadily reduced the
import-weighted tariff from 87 percent to 33 percent at
present.  U.S. exports to India rose from $2.0 billion in 1991
to $2.8 billion in 1993, according to U.S. Department of
Commerce trade data.  Imports of phosphate fertilizer, kerosene
and liquid propane gas were opened to the private sector in
1993.  A few commodity imports (mostly bulk agricultural
commodities) are still "canalized" through state trading
companies, but their number is steadily declining. 
Notwithstanding this progress, U.S. exporters face a negative
list of import items affecting roughly one-third of all tariff
lines, and tariff protection that is still very high by
international standards.  Import licenses are still required
for most consumer durables, certain electronics, pesticides and
insecticides, fruits, vegetables and processed food products,
breeding stock, most pharmaceuticals and chemicals, and
products reserved for small-scale industry.  This licensing
requirement serves in many cases as an effective ban on
importation.

    Services Barriers:  The Indian government runs many major
service industries either partially or entirely, but the
controls are loosening.  The banking sector remains highly
regulated, with only five licenses per year to be given for new
foreign bank branches and/or expansion of existing operations. 
(Only 12 new foreign banks or bank branches were granted
operating approval between June 1993 and September 1994.) 
India does not allow foreign nationals to practice law in its
courts.  The Indian government is now reviewing its monopoly of
life and general insurance services, and is expected to approve
domestic and foreign private sector competition during 1995. 
Foreign and domestic private firms dominate advertising,
accounting, car rental and a wide range of consultancy
services.  Furthermore, policy reforms introduced in late 1994
offer foreign firms a major role in modernizing India's
telecommunications sector.  

    Standards, Testing, Labelling and Certification:  Indian
standards generally follow international norms and do not
constitute a significant barrier to trade.  However, India's
food safety laws are often outdated or more stringent than
international norms.  Where differences exist, India is seeking
to harmonize national standards with international norms.  No
distinctions are made between imported and
domestically-produced goods, except in the case of some bulk
grains.

    Investment Barriers:  The industrial policy introduced in
July 1991 achieved a dramatic overhaul of regulations
restricting foreign investment.  Government approval for equity
investments of up to 51 percent in 35 industries covering the
bulk of manufacturing activities has been entirely eliminated. 
The government has rarely denied requests to increase equity
stakes up to 100 percent, although it reserves this right.  All
sectors of the Indian economy are now open to foreign
investors, except those with security concerns such as defense,
railways and atomic energy.  Industrial licensing applies to
manufacturing activities in only 15 industries considered to be
of strategic, social or environmental importance.  As a result,
the $5.1 billion in foreign investment approved between January
1991 and July 1994 exceeded the nominal dollar value of all
foreign investment approved during the previous four decades. 
The United States and India have not negotiated a bilateral
investment treaty, although an agreement with the Overseas
Private Investment Corporation (OPIC) remains in force to
protect U.S. investors.  In 1992, India became the 113th
country to announce it would join the Multilateral Investment
Guarantee Agency (MIGA).  India ratified the Uruguay Round
agreements and became a founding member of the World Trade
Organization (WTO) on January 1, 1995.

    Government Procurement Practices:  Indian government
procurement practices occasionally discriminate against foreign
suppliers, but they are improving under the influence of fiscal
stringency.  Price and quality preferences for local suppliers
were largely abolished in June 1992.  Recipients of
preferential treatment are now concentrated in the small-scale
industrial and handicrafts sectors, which represent a very
small share of total government procurement.  Defense
procurement through agents is not permitted, forcing U.S. firms
to maintain resident representation.  When foreign financing is
involved, procurement agencies generally comply with
multilateral development bank requirements for international
tenders.

    Customs Procedures:  Liberalization of India's trade regime
has reduced tariff and non-tariff barriers, but it has not
eased some of the worst aspects of customs procedures. 
Documentation requirements, including ex-factory bills of sale,
are extensive and delays are frequent.  Interpretations
rendered by customs officials are frequently arbitrary.


6.  Export Subsidies Policies

    The 1991 budget phased out most direct export subsidies,
but a tangle of indirect subsidies remains.  Exports are exempt
from income and trade taxes, and a variety of tariff incentives
and promotional import licensing schemes, some of which carry
export quotas, still remain.


7.  Protection of U.S. Intellectual Property

    The Indian government is slowly, but steadily, revising its
treatment of intellectual property rights (IPR), bringing its
laws and enforcement in line with international practice.  The
government has traditionally contended that IPR protection
should balance the interests of rights holders with those of
consumers and broader "social" interests.  The Special-301
investigation initiated by the United States Trade
Representative in 1991 determined that Indian IPR practices --
particularly inadequate patent protection -- unduly burdened
U.S. commerce.  In response, the United States removed all
Indian-origin chemical and pharmaceutical products from
duty-free entry under the Generalized System of Preferences
(GSP) in April 1992.  

    Under pressure from domestic industry, India strengthened
its copyright law in May 1994, placing it on a par with
international practice.  The new law entered into force in
late-1994.  Subsequently, India's designation as a "priority
foreign country" under Special-301 was revoked and India was
placed on the Priority Watch list.  Copyright and trademark
enforcement is also rapidly improving.  Classification of
copyright and trademark infringements as "cognisable offenses"
has expanded police search and seizure authority, while the
formation of appellate boards has speeded prosecution. 
Parliamentary approval is expected in late 1994 or early 1995
for strict revisions in India's Trademark Bill.  

    Indian patent law, which was revised in 1970 to shorten
patent life and end product patents for pharmaceuticals,
chemicals and food products, remains a major concern for U.S.
investors and exporters.  Widespread patent piracy has resulted
in a pronounced shortage of investment in high-tech areas, such
as pharmaceutical and bioengineering research and development,
where India enjoys a comparative advantage.  Nonetheless, the
convergence of India's economic interests with those of her
major trade and investment partners may accelerate product
patent introduction.  The Indian government has announced that
it will fully conform to the IPR-related requirements of the
Uruguay Round, including the introduction of full product
patent protection by the Year 2005 and TRIPs-related
implementing legislation by January 1, 1995.  


8.  Worker Rights

    a.  The Right of Association

    India's constitution gives workers the right of
association.  Workers may form and join trade unions of their
choice; work actions are protected by law.  Unions represent
roughly two percent of the total workforce, or about 25 percent
of industrial and service workers in the organized sector.

    b.  The Right to Organize and Bargain Collectively

    Indian law recognizes the right to organize and bargain
collectively.  Procedural mechanisms exist to adjudicate labor
disputes that cannot be resolved through collective
bargaining.  State and local authorities occasionally use their
power to declare strikes "illegal" and force adjudication.

    c.  Prohibition of Forced or Compulsory Labor

    Forced labor is prohibited by India's constitution; a 1976
law specifically prohibits the practice of "bonded labor." 
Despite implementation of the 1976 law, bonded labor continues
in many rural areas.  Efforts to eradicate the practice are
complicated by extreme poverty and jurisdictional disputes
between the central and state governments; legislation is a
central government function, while enforcement is the
responsibility of the states.

    d.  Minimum Age of Employment for Children

    Poor social and economic conditions and lack of compulsory
education make child labor a major problem in India.  The
Government of India estimates that 17 million Indian children
from ages 5 to 15 work.  Non-governmental organizations
estimate that there may be more than 50 million child
laborers.  A 1986 law bans employment of children under age 14
in hazardous occupations and strictly regulates child
employment in other fields.  Nevertheless, tens of thousands of
children are employed in the glass, pottery, carpet and
fireworks industries, among others.  Resource constraints and
the sheer magnitude of the problem limit ability to enforce
child-labor legislation.

    e.  Acceptable Conditions of Work

    India has a maximum eight-hour work day and 48-hour work
week.  This maximum is generally observed by employers in the
formal sector.  Occupational safety and health measures vary
widely from state to state and among industries, as does the
minimum wage.  

    f.  Rights in Sectors with U.S. Investment

    U.S. investment exists largely in manufacturing and service
sectors where organized labor is predominant and working
conditions are well above the average for India.  U.S.
investors generally offer better than prevailing wages,
benefits and work conditions.  Intense government and press
scrutiny of all foreign activities ensures that any violation
of acceptable standards under the five worker rights criteria
mentioned above would receive immediate attention.

  Extent of U.S. Investment in Selected Industries.--U.S. Direct
Investment Position Abroad on an Historical Cost Basis--1993

                    (Millions of U.S. dollars)
                                                                
              Category                          Amount          

Petroleum                                             (1)
Total Manufacturing                                   395
  Food & Kindred Products                     1
  Chemicals and Allied Products             143
  Metals, Primary & Fabricated               11
  Machinery, except Electrical               68
  Electric & Electronic Equipment             4
  Transportation Equipment                    5
  Other Manufacturing                       164
Wholesale Trade                                        23
Banking                                               316
Finance/Insurance/Real Estate                         (1)
Services                                               18
Other Industries                                      (2)
TOTAL ALL INDUSTRIES                                  759      

(1) Suppressed to avoid disclosing data of individual companies
(2) Less than $500,000

Source: U.S. Department of Commerce, Bureau of Economic Analysis
(###)


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