Economic Reforms In India Bytarun Das

Economic Reforms in IndiaScope, Rationale, Progress and Unfinished Agenda

Dr. Tarun Das*, Economic Adviser, Ministry of Finance and Government Nominee Director, Bank of Maharashtra

December 2002 _______________________________________________________________________ _ ∗ ∗

The authour would like to thank the Bank of Maharashtra for inviting him to deliver this lecture at their Head Quarter at Pune on the 21st December 2002. The paper expresses personal views of the authour, which donot necessarily imply the views of either the Ministry of Finance and Company Affairs, Government of India or the Bank of Maharashtra.

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Contents Contents 1. Introduction 2. Rationale and scope of economic reforms 3. Macro stabilisation policies (a) Fiscal reforms since 1991 (b) Central government budget for 2002-03 (c) Financial sector reforms (d) Monetary and credit policies for 2002-03 (e) Exchange rate policies 4. Structural reforms (a) reforms in industry and infrastructure (b) social sector policies and reforms (c) agricultural policies and reforms (d) Trade and tariff policies and reforms 5. Unfinished agenda on reforms 6. Key Policy issues (a) fiscal policy (b) Money and capital markets (c) External sector policies (d) Infrastructure policies and reforms (e) Strategy for social sector development (f) Structural policies 7. Role of managers in the post reforms period 8. Concluding remarks

Pages 3 5 8 8 13 14 15 17 18 18 20 21 22 23 24 24 25 26 27 28 29 30 31

Tables 1. Paradigms of economic reforms in India since 1991 2. Fiscal reforms: progress to date 3. Financial sector reforms since 1991 4. Trend of excise and customs duties and corporate tax rates 5. Tax/GDP ratios since 1990-91 6. Progress of structural reforms 7. India: Trends of macro-economic indicators since 1990-91 8. Basic economic indicators of selected Asian economies in 2000 9. Growth of output in selected Asian economies in 1980s and 1990s 10. Tax policies in selected Asian economies in 1990 and 2000 11. Fiscal incentives in selected Asian economies 12. Tariff barrier indicators in selected Asian economies 13. Global integration indicators of selected Asian economies 14. Private sector development in selected Asian economies 15. Financial depth and efficiency in selected Asian economies 16. Foreign investment regime in selected Asian economies

7 9 11 12 12 19 34 37 38 39 40 41 42 43 44 45

References

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Economic Reforms in IndiaScope, Rationale, Progress and Unfinished Agenda Dr. Tarun Das, Economic Adviser, Ministry of Finance And Government Nominee Director, Bank of Maharashtra

1. Introduction It is well known that since 1991 India has started a sort of economic revolution to exploit fully the country’s potentials to achieve higher growth. Credible reforms have been taken in industry, trade, infrastructure, fiscal, financial and public sectors to improve efficiency, productivity and international competitiveness of Indian industries and to impart dynamism to the overall growth process. As the initial reforms take root and secondgeneration reforms unfold, India is emerging as one of the favourable destinations for foreign investment and a land of immense opportunity for all. India’s reforms program is characterised by the following unique features: 

 

 

Gradual, Step by Step, Evolutionary approach not a Big Bang, Shock Therapy or Revolutionary Approach General political consensus Strong emphasis on “human face” Practically no sacrifice made by people No write-off / rescheduling of external debt

India’s reforms programme has emphasized gradualism, step by step approach and evolutionary transition rather than “shock therapy” or “a big bang approach” as was done in Latin American countries or the Commonwealth of Independent States (CIS). Because of slow pace of reforms, some foreign investors compare India with a tortoise. But, everyone knows the story that ultimately the race was won by the tortoise and not by the proud hare. In my view, India is an elephant: huge, cautious slow moving; but bold, strong firm-footed determined, self-willed and always forward-looking. India has a multi-party democracy and “growth with social justice” has been one of the basic objectives of our planing since 1951. No reforms program can succeed unless we are able to take the people along with us. Therefore, all our reforms are based on general political consensus and have a bias for employment generation and poverty reduction. More than eleven years have passed since the reforms started. Eleven years is a long period for an individual, but for a country as complex and large as India and with a multiparty democracy, eleven years is a short period to expect completion of all reforms,

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particularly when the global economy is changing at a fast speed. However, it is a matter of some satisfaction that the results until now had been highly encouraging (see Table-7).

India has moved up on a higher growth path with higher employment and higher real wages, less inflation and lower level of poverty. It has the distinction of coming out of a severe crisis in the external sector without recourse to debt rescheduling or debt write-off. On contrary, India was able to prepay a part of its external debt to the multilateral funding agencies and bilateral countries. India is one of the few countries of the world, which have reaped these benefits without serious economic disruptions and without any sacrifice made by the people. In many countries with significant reforms, there were high rates of inflation, unemployment and poverty at the initial stage. There had been no such adverse situation in India. Indian reform programme emphasised development of appropriate safety nets for the vulnerable and weaker sections that might be adversely affected by structural reforms. Despite global recession and hardening of international prices of oil in recent years and the border conflicts with Pakistan, India has emerged as one of the fasted ten growing economies of the world. Inflation has come down from more than 16 per cent in June 1991 to around three percent today. Poverty ratio has come down from 36 per cent in 1993-94 to 26 per cent in 1999-2000. There had been no wage freeze, no denial of dearness allowance and no retrenchment of employees or shutting down of companies. There has been significant improvement in India’s external sector. Total foreign exchange reserves which dwindled to US$1 billion, equivalent to only two weeks level of imports, in June 1991 have increased to more than US$67 billion equivalent to more than one year of imports. The current account balance, which showed a deficit of 3.1 per cent of GDP in 1990-91, had a surplus amounting to 0.3 per cent of GDP in 2001-02. Foreign investment inflows improved significantly in 1990s and amounted to $5.1 billion in 2000-01 and $5.9 billion in 2001-02 compared with only US$1 billion throughout the whole decade of 1980s. The growth in foreign investment was the result of the stability of the exchange rate, continual reforms in infrastructure, liberalisation of foreign investment policies. External debt indicators also show steady improvement. Among the top ten debtor developing countries of the world, India ranked third after Brazil and Mexico. In the year 2000, while Brazil still ranks the first in stock of external debt, India’s position has improved to the ninth rank after Brazil, Russian Federation, Mexico, China, Argentine, Indonesia, Korean republic and Turkey. The external debt-to-GDP ratio declined continuously from 38.7 per cent at end March 1992 to 19.7 per cent at end March 2002. The debt-service ratio (i.e. the ratio of total debt services to gross receipts on the current account of the external sector) also declined continuously from 35.3 per cent in 1990-91 to 13 per cent in 2001-02. The share of short-

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term debt in total external debt declined continuously from 10.3 per cent in 1991 to 2.8 per cent in 2001. Due to these improvements, India is now categorized as “a low indebted country” compared with its classification as “a moderately indebted country” in 1991. 2. Rationale and Scope of Economic Reforms During the decade of 1980s India successfully completed the Sixth (1980-1985) and the Seventh (1985-1990) Five Year plans and moved on a higher growth path with an average growth rate of 5.7 per cent per annum compared with a trend rate averaging 3.5 per cent until the end of 1970s. However, sustainability of the growth process came under serious doubt due to large and persistent macro economic imbalances manifested in rising fiscal deficits, precarious balance of payments situation and high inflationary pressures. During 1980s the overall economic philosophy in India was to liberalise imports to some extent, promote export-oriented industries, reduce physical controls and regulations in industry, encourage capacity augmentation and technological upgradation and allow flexible exchange rate and attract foreign investment in selected sectors on the basis of case by case approvals. However, these liberalisation measures were not carried to full extent and not supplemented by fiscal prudence, monetary discipline, private participation, reforms in taxation policies or in monopolistic trade and industrial licenses. India still adopted a very restrictive policy as regards foreign equity, capacity expansion for economies of scale and private participation in infrastructure and other strategic sectors. In the pre-reforms period, Indian economy in general was characterised by:         

Mixed economy, but too closed Far behind world wide globalisation High level of control, licenses and regulation Monopolistic practices in public utilities Complex tax regime with high rates High tariff walls and Quantitative Restrictions (QRs) on imports Rigid factor markets for land, labour and capital High levels of fiscal deficits and public debt Precarious balance of payments situation

Over control, excessive regulation, high protection, licensing raj and high taxes and duties resulted in:       

Low efficiency and productivity High transactions cost High cost economy and rent seeking Non-optimal allocation of resources Sub-optimal choice of technology and location of industries Low quality but high prices of products and services Bureaucratic inefficiency and corruption

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Due to these inefficiencies Indian economy entered the decade of the 1990s with large imbalances on internal and external account, which made the economy highly vulnerable to internal and external shocks. These problems were exacerbated by the Gulf crisis in 1990-1991 and consequent hardening of international prices of oil. There was precarious balance of payments situation and our foreign exchange reserves dwindled to US$1 billion, which was sufficient to finance only two weeks’ level of imports as compared to prudent level of three months imports. India was on the verge of external default. International credit rating organisations downgraded Indian scrips and put them in the no investment grade. Our non-resident Indians started withdrawing their deposits at a faster speed as they lost confidence in the Indian banking system. The window of commercial borrowing was closed to the Indian banks, financial institutions and the corporate bodies. Rate of inflation reached 16 per cent hurting everybody, particularly the weaker sections of the society whose incomes are not indexed to prices. There was also widespread unemployment. Indian government has to lift physically gold from the chest of the Reserve Bank of India and deposit it with the Bank of England and the Bank of Tokyo to create international confidence on India. The new government in June 1991 and the then Finance Minister Manmohan Singh, recognizing that there was no time to lose, immediately adopted a number of stabilisation measures designed to restore internal and external confidence. The government also announced comprehensive reforms in industry, trade, financial and fiscal sectors to improve competitiveness of Indian economy. Fortunately for us, the reforms program was supported by quick-disbursing finance from the International Monetary Fund (IMF), World Bank and the Asian Development Bank and also individual donor countries, particularly Japan. Paradigms of reforms since 1991 are summarised in Table-1. Basic objectives of these reforms were thew following:  To encourage private participation including foreign investment in the development process. Over the years, government had widened its scope and was participating in the activities where private initiatives might be more productive and useful.  In many cases, twin objectives of the government (namely growth and equity) were intermixed and one objective was taken as an alibi for failure for another. In the process, both the prospects of higher growth and social justice were impaired.  It was recognised that as there are imperfections in the markets, there are also imperfections in the government. It was, therefore, necessary to redefine the role and scope of the government and to open the economy to both internal and external market competitions. Having discussed the rationale and objectives of the economic reforms, the purpose of this paper is to make a review of the ongoing reforms and to answer a number of questions, particularly the following:  How far have we progressed?

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 Where do we want to go?  How to prioritize, sequence these reforms with what speed and intensity?  What are their likely impact on growth, output and employment? Table-1 Paradigms of Economic Reforms in India since 1991 Pre-Reforms Period

Post Reforms Period

1. Quantitative licensing on trade and industry 2. State regulated monopolies of utilities and trade 3. Govt control on finance and capital markets 4. Restrictions on foreign investment and technology

1. Abolition of industrial and trade licensing 2. Removal of state monopolies, privatization & divestment 3. Liberalisation of financial and capital markets 4. Liberal regime for FDI, portfolio investment, foreign technology

5. Import substitution and export of primary goods 6. High duties & taxes with multiple rates and large dispersion 7. Sector-specific monetary, fiscal and tariff policies 8. End-use and sector-specific multiple and controlled interest rates

5. Export promotion and export diversification, no import bias 6. Reduction and rationalization of taxes and duties 7. Sector-neutral monetary, fiscal and tariff policies 8. Flexible interest rates without any enduse or sector specifications

9. Foreign exchange control, convertibility of rupee 10. Multiple and fixed exchange rates

no 9. Abolition of exchange control, full convertibility on current A/C 10. United and market determined exch.rates 11. Administered prices for minerals, 11. Abolition of all administered prices utilities, essential goods except for few drugs 12. Tax concessions on exports and savings 12. Rationalised and being phased out 13. Explicit subsidies on food, fertilisers, and some essential items 14. Hidden subsidies on power, urban transport, public goods, POL 15. General lack of consumers protection and other rights

13. No change, budget subsidies on LPG and kerosene introduced 14. No change, but user charges are being rationalised, and subsidies targeted 15. Acts governing consumer rights, IPR, independent regulatory authority

16. Central planning, discretionary process, high degree of bureaucracy 17. Outdated Companies Act 18. No exit policy for land and labour

16. Decentralisation, sound institutional framework, reforming civil services 17. No change 18. No change in labor policy, slow progress of reforms in land markets

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19. Outdated legal system

19. No change

Macro adjustment policies can be broadly divided into two groups- stabilisation policies and structural reforms. While stabilisation policies aim at reducing macro economic imbalances by attacking demand, structural adjustment policies aim at increasing supply and improving productivity and growth by imparting competitiveness, efficiency and dynamism to the system. These policies encompass the following specific measures: Macro stabilization policies: (a) Fiscal policies (b) Monetary and credit policies (c) Exchange rate adjustment (d) Tariff policy (e) Wage-income-price policies Structural adjustment policies (a) Reforms in trade and external sector (b) Reforms in industry and infrastructure (c) Reforms in agriculture (d) Public sector reforms (e) Factor market reforms- land, labour and capital (f) Administered price policy 3. Macro Stabilisation Policies (a) Fiscal Reforms Since 1991 The basic objective of fiscal reforms since 1991 had been the reduction of fiscal deficits to sustainable levels by augmenting resources and containing expenditure, and to simplify rules and procedures for taxes and duties. The basic objective of tax reforms is to create a tax system, which is simple, equitable, progressive and stable, and interferes least with the efficient allocation of resources. Government desires to gradually increase the scope of direct taxes and to move towards a system of value added tax system. Government is also focusing attention on contingent liabilities and is trying to have reforms in provident funds, pension funds and insurance funds. The Government desires to have a Fiscal Responsibility Act indicating limits on government borrowing and overall fiscal deficit as percentage of GDP. Table-2 summarises major reforms in fiscal policies and Table-3 summarises major reforms in money and capital markets since 1991, while Table-4 indicates trends of income and corporate taxes and excise duties, and Table-4 indicates trends of tax-GDP ratios since 1990-91. 8

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Table- 2 Fiscal Reforms: Progress to Date (As in December 2002) continued Status in June 1991 Fiscal deficit of the Central government at 6.6 per cent of GDP, revenue deficit at 3.3 per cent of GDP and primary deficit at 2.8 per cent of GDP in 1990-91 was unsustainable.

Traditionally fiscal deficit was financed by : (a) The RBI through ad hoc treasury bills issued at fixed rate of interest of 4.6%; (b) the banking system which holds dated securities to meet SLR obligations; (c) direct market borrowings through open market operations by sale of govt. bonds/securities; (d) public funds such as pension/provident funds and small savings; and (e) external debt. Combined fiscal deficit of the Centre and States was 9.4 per cent of GDP in 1990-91: Central government 6.6 States & UTs 3.3 Centre & States/ UTs 9.4

Public debt as percentage of GDP (a) Central Govt 66% - Internal 49% - External 17% (b) States 19% - Internal 19% © General Govt 72% - Internal 55% - External 17%

Status in December 2002 Fiscal deficit of the Central Government as per cent to GDP is reduced to: Year Fiscal Revenue Primary Deficit Deficit Deficit 1990-91 6.6 3.3 2.8 1991-92 4.7 2.5 0.7 1992-93 4.8 2.5 0.7 1993-94 6.4 3.8 2.2 1994-95 4.7 3.1 0.4 1995-96 4.1 2.4 0.0 1996.97 4.0 2.3 -0.2 1997-98 4.7 3.0 0.5 1998-99 5.1 3.8 0.7 1999-00 5.4 3.5 0.7 2000-01 5.7 4.1 0.9 2001-02 RE 5.9 4.0 1.1 2002-03 BE 5.3 3.8 0.7 RE= Revised estimate, BE = Budget estimate.

(a) Ad-hocs have been replaced by the Ways and Means Advances (WMAs); (b) SLR and CRR reduced significantly to allow banks more private lending; (c) Govt. securities are auctioned at market rates. Primary dealer system for government securities introduced. (d) Changes in pension and provident fund system and small savings. (e) Govt. emphasises inflows of non-debt financial flows and raising of equity. Overall fiscal deficit of the Centre and States remained more or less invariant over 1990s. 2001-2002 2002-2003 Central government 5.7 5.3 States and UTs 4.5 3.8 Central & State / STs 9.9 8.7

Public debt as percentage of GDP (a) Central Govt 68% - Internal 58% - External 10% (b) States 28% - Internal 28% © General Govt 81% - Internal 71% - External 10%

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Table- 2 Fiscal Reforms: Progress to Date (As in December 2002) completed Status in June 1991

Status in December 2002

Direct budgetary support to central public enterprises amounted to 1.5% of GDP in addition to a variety of subsidies, and financing at below market prices. No hard budget constraints for PSEs. No disinvestment policy by the government.

Budgetary support curtailed to 0.6% of GDP, financing from domestic capital market has increased, preferential access to bank credits / price preference eliminated. MOUs with CPSEs strengthened. Disinvestment of govt. equity to the extent of an average of 20% of equity has been realised.

High monetisation of government debt.

Ad-hocs are replaced by WMAs, which would also be phased out.

Control on interest rate on government securities.

Government securities are auctioned and sold at market determined rates.

Irrational duty structure and very high rates of both direct and indirect taxes. Maximum Rates Excise duties 110% Import duties 400% Income tax 54% Corporate taxes: Domestic cos. 49% and 54% Foreign cos. 65%

Both direct and indirect taxes have been reduced and rationalised. Maximum Rates Excise duties 16% CENVAT+ 16% SED Import duties 30% + 4% SAD Income tax 30% + surcharge of 5% Corporate tax : Domestic cos. 35% + surcharge of 5% Foreign cos. 40% + surcharge of 5%

Multiple rates for excise (19 major rates) and customs duties (20 major rates) depending on end-uses. Many rates were specific.

Specific rates are replaced by ad-valorem rates. Only two major rates for excise, and four major rates for customs duties.

No service taxes. No Minimum Alternate Tax (MAT). No Value Added Tax (VAT). No MRP-linked excise duties. No presumptive income tax. No estimated income scheme for retail trades.

Double dividend tax on both individual incomes and companies profits. Existence of gift tax. Limited cases of tax holidays.

End-use specifications are abolished.

Tax base widened by introducing service taxes on 51 services. MAT introduced except for exporters. MODVAT introduced for many sectors. Concept of MRP introduced for consumption goods and other products. Estimated income scheme for retail trades is introduced. Presumptive income tax scheme introduced for individuals owning houses, motor vehicles, telephone, or having traveled abroad.

Dividend tax only at the individual level. Gift tax abolished. Tax holidays extended to many infrastructure and eco-friendly sectors, public safety and security projects, IT industries, backward areas etc.

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Table-3: Financial sector Reforms since 1991 Status in June 1991

Status in December 2002

Highly regulated and controlled banking system with strict entry and branching rules.

Guidelines for entry of new private banks formulated, and new private banks set up. Restriction on opening or closing branches relaxed. Government share of equity in public sector banks are being brought down to 49 per cent and aim at bringing down to 33 per cent. Equity participation in new private banks by FIIs and NRIs is allowed to the extent of 40%. Bank deposit rates except for savings account are liberalised and allowed to be determined by the banks. The minimum maturity of term deposit is reduced to seven days. The office of CCI is abolished. Independent regulatory authority i.e. SEBI is established for orderly growth of capital markets. Lending rate is determined by the banks, and PLR is ranging between 10,75 to 12%. Banks are also allowed to lend at below PLR rates. Bankwise limits on issuance are abolished.

Bank deposit rates fixed according to account types and maturities. Minimum maturity of fixed deposit is 30 days. Ceiling rate on deposits announced by the RBI. Issuing and pricing of securities, shares and bonds determined by the Controller of Capital Issues (CCI) under the Ministry of Finance. Bank lending rates are fixed according to loan size and uses, floor rate on loans exceeding Rupees two lakhs fixed by the RBI at 21%. Interest rates on CDs are free, but bankwise limits on issuance of CDs are fixed by RBI. At least 40 per cent of bank credits channelised to the priority sectors at concessional rates. Government pre-empted large portion of bank reserves through CRR of 25% and SLR of 38.5%.RBI Bank rate at 12%. PLR was high at above 21%. Inadequate norms concerning income recognition, provisioning and capital adequacy. Portfolio investment by foreign investors in Indian companies is not allowed. Foreigners not allowed to buy government securities or government equity shares disinvested from PSUs.

Number if directed credit categories rationalised, and interest rate subsidy is reduced. No concessional rates except for small loans up to Rs.25000. CRR reduced to 4.75%. SLR reduced to 25%. Bank rate is reduced to 6.25%. PLR is free. Present PLR is 10.75%-11.5%. Regulations, monitoring and norms on asset classification, provisioning, capital adequacy tightened as per international best practices. FIIs, NRIs and OCBs are allowed to operate in India’s stock markets subject to individual ceiling of 10% for FIIs and 5% for NRIs/OCBs, cumulative ceiling 49% for FIIs and 10% for NRIs/OCBs and collective ceiling of 49% of paid up capital. FIIs are allowed to buy government securities and debt issues, NRIs/ FIIs/ foreign companies are allowed to buy disinvested shares subject to the limits on foreign equity in the respective sectors.

Indian firms not allowed raising funds from foreign stock exchanges.

Indian firms allowed to raise funds abroad through Global Depository Receipts (GDRs), Foreign Currency Convertible Bonds and

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offshore fund.

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Table-4: Trend of Excise and Customs duties and Corporate Tax rates since 1991 Year

Excise duty (%)

Customs tariff rate (%)

150

Basic surcharg e or Sp. Cus. duty 0

SAD (Special additiona l duty) 0

No. of services covered under service tax 0

16

110

0

0

0

110

16

85

0

0

0

17

110

12

65

0

0

3

1995-96

12

50

9

50

0

0

3

1996-97

9

40

8

50

2% SCD

4

6

1997-98

10

40

7

40

5% SCD

4

18

1998-99

11

40

7

40

5% SCD

4

26

1999-00

6

5

40

26

5

4

38.5

10% surcharge 10% surcharge

4

2000-01

4

26

2001-02

2

4

35

0

4

41

35% + 2% sur

48

2002-03

2

24 +16%SED 16% CENVAT +24%SED 16% CENVAT +16%SED 16% CENVAT +16%SED

4

30

0

4

51

35% + 5% sur

40% + 5% sur

Peak basic rate

1991-92

No. of duty rates 19

Peak basic rate

110

No.of major duty rates 20

1992-93

19

110

1993-94

19

1994-95

Corporate tax rate Domes- Foreign tic compani compan es ies 45% + 65 15% sur 45% + 65 15% sur 45% + 65 15% sur 40% + 55 15% sur 40% + 55 15% sur 40% + 55 7.5%sur 35% + 48 0% sur 35% + 48 0% sur 35% + 48 10% sur 35% + 48 13% sur

Table-5: Tax to GDP ratio (%) Year

Customs

Central Excise

Others

Total

1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-2000 2000-2001 2001-2002 2002-2003

3.6 3.4 2.7 2.6 3.0 3.1 2.6 2.3 2.5 2.3 2.3 2.4

4.6 4.4 3.9 3.6 3.4 3.3 3.2 3.1 3.2 3.3 3.3 3.6

0.3 0.0 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1

8.5 7.8 6.7 6.3 6.5 6.5 5.9 5.5 5.8 5.7 5.7 6.1

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(b) Central government budget for 2002-03 The Central Government Budget for 2002-03, formulated against the background of a large slippage of fiscal situation, targeted the fiscal deficit at 5.3 per cent of GDP and attempted to stimulate industrial and infrastructure growth by announcing several fiscal and other incentives. These include rationalisation of customs and excise duties and reduction of the maximum tariff rate to 30 per cent. The budget also announced a commitment to reduce these rates further by 5 percentage points every year until 2004-05 to reach 20 per cent and to move to a two-tier tariff structure in the medium term. On the revenue side, key initiatives included an increase in the income tax surcharge from 2 per cent to 5 per cent, a rationalisation of excise and customs duties, and an extension of service tax to 51 services. On the expenditure side, the main initiatives included modest reduction of fertilizer subsidies and surplus manpower, and expansion of the scope of conditional fiscal and structural reforms by the states. During 2002-03 progress was made in some aspects of structural reforms. In particular, bold steps were taken to accelerate the pace of disinvestment. Another key achievement was the dismantling of the Administered Price Mechanism (APM) for petroleum products, and announcing a timetable for phasing out the remaining subsidies on kerosene and domestic LPG. Related to trade liberalisation, statutory peak tariff rates were reduced from 35 per cent in 2001-02 to 30 per cent in 2002-03. The Budget attempted to stimulate the economy by leaving direct taxes unchanged and increasing public expenditure on agriculture, infrastructure and rural development. Policies were announced to stimulate capital markets, corporate restructuring, capital provisioning for weak banks, research and development, construction and housing, information technology and knowledge based industries. Budget had also a strong commitment to the development of social sectors for achieving distributive justice, strengthening the public distribution system and poverty alleviation programmes, improving rural infrastructure and generation of employment. Major fiscal measures announced in the budget for 2002-03 include the following:  Corporation tax applicable to foreign company reduced to 40 per cent.  A surcharge of 5 per cent imposed on all categories of taxpayers.  Higher depreciation rates allowed for capacity expansion.  Peak rate of customs duty reduced from 35 to 30 per cent, and a road map is given to reduce customs duties every year by 5 per cent and to reach 20 per cent by 2005.  Special Economic Zones (SEZs) entitles to procure duty free equipment, raw materials, components etc. whether imported or purchased locally.  Import duty reduced on a number of items used in iron and steel industry, seaports and airports, agriculture, IT industry etc.  Service tax extended to inland cargo handling, storage warehousing (except for agriculture), event management, rail travel agents, and corporate bodies providing financial service. Services provided by hotels continue to be exempted.

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 Distribution tax of 10 per cent on companies and mutual funds is abolished, and dividend tax re-imposed on the recipients.  Tax rebate on specified savings is made graded with no tax rebate for persons with taxable income greater than Rupees five lakh.  Tax exemption is available to certain categories of employees receiving amounts up to Rs.0.5 million as VRS compensation. For medium term management of the fiscal deficit, the government introduced a Fiscal Responsibility Bill in the parliament. The Bill proposes limit on fiscal deficit, limit on government borrowing, limit on total stock of public debt and complete elimination of deficit on the current account of the Budget within next five years. The Bill has been examined by the Standing Parliamentary Committee on the Finance and their suggestions are under review by the Ministry of Finance. (c) Financial sector reforms Several measures were taken since 1991 to strengthen the banking system, to increase banks’ operational autonomy, and to improve the functioning of money and capital markets. With this objective in view the policy package for commercial banks included a reduction of CRR from 25 per cent in 1991 to 4.75 per cent in 2002, a reduction of SLR from 38.5 to 25 per cent, a reduction of nominal interest rates from over 21 per cent to 10.75 per cent to 12 per cent in 2002, tightening of prudential norms for capital adequacy and provisioning for non-performing assets, an active open market operations and abolition of selective credit controls. Other measures included decontrol of the prime lending rates of the commercial banks and deposit rates for term deposits. An array of capital market reforms has been introduced encompassing primary and secondary markets, equity and debt and foreign institutional investment. These measures resulted in a strong growth in bank deposits due to high real interest rates, particularly longer-term rates. There was abundant liquidity in the system but slow growth of commercial credit due to sluggish consumer demand and external trade. The low offtake of commercial credit also reflected a more cautious approach to credit appraisal by banks, which sought to avoid the accumulation of non-performing assets under the Reserve Bank’s new prudential norms. By contrast there was a substantial increase of investments by commercial banks in government securities and bonds, debentures, and shares of the corporate sector. Commercial bank credits traditionally comprised banks loans, cash credits, overdrafts and inland and foreign bills purchased and discounted. However, with deregulation of the financial sector, there has been a shift in the banks’ asset portfolio mix with investments in money and capital market instruments such as commercial paper, shares and debentures issued by the commercial sector. Banks also held government securities far in excess of their obligations for the statutory liquidity ratio (SLR).

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As a part of second generation reforms, several measures were announced in the Budgets for 2001-2002 and 2002-03 to strengthen the banking system, to increase banks’ operational autonomy, and to improve the functioning of money and capital markets. These measures include the following:

• • • • • • • • • • • • • • •

Establishment of Clearing Corporation Screen based trading in G-securities Replacement of Public Debt Act by Government Securities Act Reduction of Govt equity in banks Voluntary Retirement Scheme for commercial banks Legislation on securitisation and foreclosure in banking sector FII portfolio investment will not be subject to the sectoral limits for FDI. Indian companies are allowed to invest up to US $100 million abroad. A pilot Asset Reconstruction Company to be set up to initiate measures for taking over NPAs in the banking sector and develop a market for securitised loans. Foreign banks allowed to operate as branches or to set up subsidiaries. Full convertibility is permitted for deposits by non-resident Indians. NRIs can also repatriate their current earnings in India in foreign currency. Indian mutual funds are allowed to invest in securities in countries with fully convertible currencies. Administered interest rates to be bench marked to the average annual yields of Government securities of equivalent maturity. State governments allowed prepaying their high cost debts from additional sources at lower interest rates.

Scheduled commercial banks (SCBs) improved their performance in 2001-02. The ratio of operating profits to total assets improved from 1.53 per cent in 2000-01 to 1.94 per cent in 2001-02. There was also a decrease of net non-performing assets (NPAs) of the commercial banks, which amounted to 5.5 per cent of net advances at end March 2002 compared with 6.2 per cent at end March 2001 and 9.2 per cent in 1996. 92 commercial banks out of 97 banks attained the minimum capital adequacy ratio (CAR) of 9 per cent by end March 2002. The ratio is to be raised to 10 per cent by end March 2003. 23 banks out of 27 public sector banks and 62 banks out of 70 private sector banks had already achieved CAR exceeding 10 per cent by end March 2002. (d) Monetary and credit policies for 2002-03 The basic objective of monetary policies announced by RBI in April 2002 and October 2002 was to contain inflation around 4 per cent alongwith sustaining overall GDP growth rate in the range of 5 to 5.5 per cent. In the face of a distinct moderation of the inflation

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rate, the thrust of the monetary policy in 2002 was to ensure adequate flow of credits to the productive sectors of the economy and to support revival of investment demand. In the financial sector, loan classification and provisioning regulations were tightened, and foreign entry to the banking system was further liberalised through the lifting of limits on FDI and FII investment. Actions were taken to strengthen capital markets including the restructuring of the Unit Trust of India (UTI), Industrial Development Bank of India (IDBI) and the Industrial Finance Corporation of India (IFCI). In pursuit with the monetary and credit policy stance announced in April 2002, the cash reserve ratio (CRR) was reduced by 0.5 percentage point to 5 per cent with effect from June 2002. A flexible stance was indicated with respect to bank rate prevailing at 6.5 per cent since October 2001. A system of variable interest rates and deposit rates was introduced and banks were directed to disclose maximum spread over and below the Prime Lending Rate (PLR) for greater transparency. In order to boost economic activities, the mid-year monetary policy announced by the RBI on the 29th October 2002 reduced the bank rate from 6.5 per cent to 6.25 per cent and CRR by 0.25 percentage point to 4.75 per cent and focused on the twin objectives of consolidating reforms in the long run and providing adequate liquidity in the short run. Despite significant reduction of RBI bank rate, lending rates of the commercial banks did not fall commensurately and domestic credit growth continued to decelerate. Bank lending and deposit rates fell by only 50-150 basis points during 2001-2002. The prime lending rate (PLR) virtually remained unchanged, reflecting the rigidities arising from administered rates on small savings. However, banks are lending below PLR and have also reduced the maximum spread over PLR and so effective lending rates have declined by 50-100 basis points. The sanctions and disbursements of the long-term credit by the financial institutions declined in 2002-03 implying weak investment demand. However, lending by the commercial banks, which are generally for working capital and trade finances, increased significantly in 2002-03 due to revival of industrial growth and pick up of exports. Other major measures announced in the Mid Term policy include the following:  Regional rural banks, local area banks and co-operative banks advised not to pay additional interest on savings accounts over what is payable by commercial banks.  Banks were allowed to determine their PLR and sub-PLR rates for export credits.  Banks were free to issue Certificates of Deposits (CDs) on floating rate basis.  In order to improve credit delivery to the priority sectors, scope of credits to agriculture, small business and weaker sections of people were expanded.  System of micro credit finance institutions was strengthened.  Establishment of offshore banking units in the Special Economic Zones as branches of banks operating in India was allowed.

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 Residents were permitted to open bank accounts in foreign currency with foreign exchange earned abroad and remittances received from outside. (e) Exchange rate policies In international categorizations by the International Monetary Fund (IMF), India is regarded as one of the countries having independent floating exchange rate arrangement. The day to day fluctuations in the exchange rate of Indian rupee are determined by free market forces for supply and demand for foreign exchange, such fluctuations reflect both economic fundamentals and short term speculation. The rupee is also fully convertible on current account and almost fully convertible on capital account for the non-residents. The broad principles that have guided India after the Asian crisis of 1997 are: • • •

Careful monitoring and management of exchange rates without a fixed target or a preannounced target or a band. A policy to build a higher level of foreign exchange reserves which takes into account not only current account deficits but also ‘liquidity at risk’ arising from unanticipated capital movements; A judicious policy for management of capital account. India has adopted the golden principle for capital account convertibility i.e. first liberalising inflows of non-debt creating financial flows and concentrating on concessional loans from the multilateral funding agencies followed by liberalisation of the long term commercial loans with strict monitoring on short-term external loans.

In order to further liberalise the movement of cross-border capital flows, especially in the area of outward foreign direct investment, inward direct and portfolio investment, nonresident deposits and external commercial borrowings, RBI announced the following important measures relating to current and capital account during 2002: •

Considerable liberalisation of release of foreign exchange for individual residents for most purposes like travel, education, medical expenses etc.

•

Non-Resident Indians/ Persons of Indian Origin (NRIs/ PIOs) were permitted to repatriate assets in India acquired by way of inheritance/legacy, and current income like rent, dividend, pension and interests.

•

Units located in Special Economic Zones (SEZs) are permitted to remit premium for general insurance policies taken from insurance companies outside India.

•

Insurance companies registered with IRDA are allowed issuance of general insurance policies denominated in foreign currency.

•

Corporates are permitted to prepay External Commercial Borrowings (ECBs) up to US $100 million without permission from RBI up to end-March 2003.

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4 Structural Reforms (a) Reforms in industry and Infrastructure Government has abolished licensing for both industrial production and exports except for a few sectors, which are important on considerations of national security, public health and environment. Industrial licensing is now required for only 6 industries which account for less than 7 per cent of output in manufacturing. Only 4 industries (viz. defense products, atomic energy, railways, and minerals required for atomic energy) are now reserved for the public sector. Foreign investment policy has been liberalised significantly since July 1991. Most of the sectors (except a few such as agriculture, retail trade etc.) are now open for foreign investment subject to sectoral caps on equity. Majority participation and equity up to 100 per cent are allowed in most of the infrastructure sectors. Indian firms are allowed to raise funds abroad through Global Depository Receipts (GDRs), Foreign Currency Convertible Bonds and offshore fund. Foreign Institutional Investors (FIIs), Non-resident Indians (NRIs) and Overseas Corporate Bodies (OCBs) are allowed to operate in India’s capital markets subject to an individual FII holding by 10 per cent and collective holding up to 49 per cent of paid up capital for the FIIs, and individual holding of 5 per cent and cumulative holding of 10 per cent by the NRIs/OCBS. Foreign investors are permitted to pick up disinvested shares of public enterprises, dated government securities and treasury bills and shares of unlisted companies. The Foreign Exchange Regulation Act have been amended, and FERA companies (i.e. companies with more than 40% of foreign equity) can operate like any other Indian Company, and can own real estate, use their trade marks and brand names for internal sale. India has become a member of the Multilateral Investment Guarantee Agency (MIGA) and signed treaties for avoidance of double taxation with 42 countries. Second generation reforms in industry and infrastructure include the following:

• Electricity Bill 2001 introduced in Parliament • Reforms in SEBs for Energy audit, commercia-lisation of distribution and restructuring of SEB • Accelerated Power Development and Reform

• Enactment of Energy Conversation Act 2001 • Larger funds for National Highway Development • Model BOT schemes for roads/ bridges 21

• Corporatisation of DOT and ports • Private investment in airports • Convergence Bill to cover telecommunications, IT and broadcasting

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Table-6 Progress of structural reforms since 1991 Status in June 1991 (a) (b) (c) (d)

Status in December 2002

1. Industry and infrastructure: Government licensing required for most industries, which accounted for 66% of new investment. Restrictions on expansion under MRTP Reservation of 836 items for SSI units 18 major industries reserved for public sector.

(a) Licensing abolished except for 6 industries, which account for less than 8% of production. (b) MRTP Act amended. (c) Many items dereserved. (d) Only four industries viz. Defense products, atomic energy, minerals required by atomic energy, and rail transport reserved for public sector. (e) Almost all the sectors are open for foreign investment except a few which are strategic on considerations of national security, public health, and environment. (f) Competition Bill approved by the Cabinet.

(e) Restricted foreign investment policy.

(f) No Competition Act. 2. Public sector: (a) Budget support to PSEs: 1.5% of GDP (b) Price and purchase preference for PSEs

(a) Support reduced to 0.6% of GDP (b) No price preference, but purchase preference exists (c) No preferential treat-ment for bank credits (d) MOUs with PSEs strengthened (e) Divestment allowed (f) SICA amended to refer loss-making PSUs to BIFR.

(c) Preferential treatment for bank credits (d) No hard budget constraints (e) No disinvestment (f) SICA does not include sick PSUs

(a) (b) (c) (d) (e) (f) (g)

3. External Sector reforms: Fixed exchange rate determined by RBI QRs on 91% of imports Imports of 55 goods canalized 439 items of exports are subject to export licenses. Export taxes on agro products and minerals Rupee not convertible. No capital account convertibility.

(a) (b) (c) (d)

Exchange rate is market determined Most QRs removed Most items decanalised Abolished except for minerals & agriculture. (e) Abolished (f) Fully convertible on current account. (g) Significant convertibility on capital account.

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Many policies were announced in the 2002-03 Budget to encourage private investment in industry and infrastructure. These measures include the following: • • • • •

• • •

Public investment in key infrastructure sectors increased and an infrastructure Equity Fund set up to help in providing equity investment fund for infrastructure projects. One time settlement scheme in regard to State Electricity Board (SEB) over dues to the Central Public Sector Utilities through securitisation and bonds. Corporatisation of major ports in a phased manner. Concession package for private sector participation in green-field airports. Urban Reform Incentive Fund set up to provide incentive for reforms of Rent Control Act, rationalisation of high stamp duty regime, streamlining approval process for construction and development of sites, simplification of legal procedures and realistic user charges to convert agricultural land into non-agricultural use. Dismantling of Administered price mechanism for petroleum products from April 2002. Subsidies on LPG and kerosene to be phased out in the next 3-5 years. Dereservation of 50 items relating to agricultural equipment, chemicals and drugs etc. reserved for the small-scale sector. Increase in issue price of urea, DAP and MOP fertiliser by about 5 per cent and reduction in the subsidy for SSP. (b) Social sector policies and reforms

Growth with social justice and alleviation of poverty has been primary objectives of Indian planning since its inception in 1951. Several anti-poverty measures have been in operation for decades focusing the poor as the target groups. These include programmes for the welfare of weaker sections, women and children, and a number of special employment programmes for self- and wage employment in both rural and urban areas. The government has relied mainly on two approaches for poverty alleviation: the first based on the anticipation that economic growth will have a “trickle down effect” on the levels of living of all groups in society; and the second that direct anti-poverty programmes are also required. More recently, government shifted public expenditure away from investment in infrastructure and industry towards social sectors, and improved targeting of subsidies through changes in the public distribution system. India’s anti-poverty strategy comprises of a wide range of poverty alleviation and employment generation programmes many of which have been in operation for several years and have been strengthened to generate more employment, create productive assets, impart technical and entrepreneurial skills and raise the income level of the poor. India is committed to achieve the UN MDG targets by 2015. According to the Human Development Report (UNDP 2001) India is one of the 11 countries in the world that is on track to meet the UN MDG while 70 other countries are lagging or slipping. The 24

report acknowledges the significant reduction of poverty ratio from 36 per cent in 19931994 to 26 per cent in 1999-2000, and also significant improvement in literacy rate. There has been continuous increase in the share of expenditure on social services of the Centre, States and Union Territories taken together in their total expenditure from 14.4 per cent in the Sixth Five Year Plan (1980-1985) to 21.7 per cent in the Ninth Five Year Plan (1997-2002). (c) Agricultural policies and reforms Indian agriculture suffers from a mis-match between food crops and cash crops, lower yields per hectare than the world average, except for wheat, volatility in production and wide disparities of productivity over regions and crops. Domestic production of pulses and oilseeds are still below the domestic requirements and India has to depend on imports of pulses and edible oils to satisfy domestic demand. Although the country holds a record buffer stock of foodgrains at 60 million tonnes, food management is inefficient with unsustainable level of food subsidies. The rural economy and the private sector lack the basic infrastructure to build up sufficient buffer stocks, and agriculture remains vulnerable to weather shocks. In recent years, government has provided various fiscal incentives for improving rural storage facilities. The central government is also providing financial assistance to the States for procurement and distribution of foodgrains at subsidised rates particularly to the families below the poverty line. The enhanced availability of bank credits through priority lending to agriculture and agro based industries, favourable terms of trade, liberalised domestic and external trade for agricultural products have attracted greater private investment in agriculture in recent years. The Central Government Budgets for 2001-02 and 2002-03 stepped up public investment significantly for rural electrification, rural roads, rural employment, irrigation, agriculture research and public distribution system for foodgrains. Other major measures taken for the development of agriculture and rural sector include the following: • • • • • • • • •

Greater thrust on rural infrastructure Review of Essential Commodities Act Higher credit to agriculture Introduction of Kisan credit cards Setting up Agricultural Export Zones Watershed development Amendment of the Milk and Milk Products Control Order 1992 on March 26, 2002 to remove restrictions on new milk processing capacity. Decanalisation of exports of agricultural commodities and phasing out of the remaining control on agricultural exports. Expansion of futures and forward trading to cover all agricultural commodities.

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• • • • • •

Additional allocations to the states for decontrol and deregulation of agriculture. Additional allocation for construction of cold storage and rural warehouses. Strengthening the micro credit delivery system through Self-Help Groups. One time settlement of bank loans for small and marginal farmers. Setting up a new Corporation for Agriculture Insurance. To prepare a modern integrated food law affecting food and food processing sector.

With two-thirds of the Indian population still dependent on agriculture and nearly 75 per cent of the poor living in the rural areas, further increase in rural investment, income and employment is necessary for accelerating the overall economic growth and reducing the disparities between rural and urban sectors. (d) Trade and tariff policies and reforms The Five Year EXIM policy for the period 2002-2007 announced on March 31, 2002 includes removal of QRs on all exports (except a few sensitive products reserved for exports through the state trading enterprises), a farm-to-port approach for exports of agricultural products, special focus on exports of handicrafts and assistance to States for development of infrastructure for exports. 32 Agri Export Zones (AEZs) have so far been sanctioned in 15 states to promote the export of agro products and agro-based processed products. Export capabilities of the small-scale sector, which accounts for about 50 per cent of Indian exports, were strengthened through a special program for the “Cottage Sector and Handicrafts”. Several measures including abolition of licensing regime and zero customs duty on imports of rough diamonds were undertaken to enable India to emerge as a major international centre for diamonds. Important measures were taken to provide a fillip to jewellery exports, including reduction in value addition norms for export of plain jewellery from 10 to 7 per cent and allowing mechanized unstudded jewellery exports at a value addition of only 3 per cent. Facilities for special Economic Zones (SEZs) include the following: • Income tax concessions and 100 per cent deduction of export profits for five years.

• Exemption from Central sales tax and duty drawback for on supplies from the domestic area (DTA). • No restrictions on external commercial borrowing and overseas investment.

• Freedom to carry out commodity hedging. • Overseas Banking Units exempted from the RBI SLR and CRR obligations are allowed to be set up in the SEZs. • Supplies from DTA are treated as exports for the purpose of all duties and taxes under the Income Tax Act and Customs Act.

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In order to boost the hardware industry, the Electronic Hardware Technology Park (EHTP) Scheme was modified to enable the sector to avail of the zero duty regimes under the Information Technology Agreement under the WTO. Transport subsidy was extended to units located in the hilly regions to offset the disadvantages of being far away from the seaports. In order to encourage re-location of industries to India, import of plant and machinery was permitted without any license where the depreciated value of such relocating plants exceeded Rs.500 million. 5 Unfinished Agenda on Reforms Since the early 1990s, the Indian authorities have made considerable progress in addressing the underlying structural distortions in the economy and encouraging private sector activity. Trade and tariff reforms, financial sector liberalisation, and the opening of the investment regime prompted strong supply responses. However, the rapid pace of economic growth witnessed in 1992-2000, which was partly cyclical, could not be sustained in 2001-2002 due to inherent adjustment lags in industrial restructuring and lack of both internal and external demand. Although normal business cycles and contagion from the regional crisis and global recession had contributed partly to the slowdown, there are a number of fundamental structural constraints affecting growth. Insufficient fiscal adjustment kept pressure on real interest rates, and infrastructure bottlenecks and incomplete reforms in public enterprises, small-scale sector and agriculture constrained output and export growth. These were compounded by uncertainties created by the September 2001 terrorist attack in the USA and subsequent US retaliation in Afghanistan and by the severe drought in 2002. A comprehensive agenda of “second generation reforms” was announced by the then Finance Minister in the 2001-02 budget and the thrust continued in the 2002-03 budget by extending these reforms to the state levels. But the reforms in critical areas appear to have been delayed. Particularly, the privatisation program of the government has slowed and the reforms in labour markets have not started due to socio-political reasons. Revival of higher growth in industry and trade, sustaining rapid progress toward poverty alleviation and maintaining the momentum of reform would require determined implementation of the government’s policy agenda. In particular, ambitious fiscal consolidation and broad based structural reforms are needed to allow resources to be redirected from servicing public debt toward development and social programs and to create enabling environment for private investment. Areas where further reforms would promote greater efficiency include the following:  Privatisation of public enterprises at a faster speed,

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 Elimination of the practice of restricting entry and foreign investment in certain sectors reserved for the small-scale industries,  Liberalisation in land and labour markets,  Formulation of an effective exit policy for bankrupt firms  Coordinating state level reforms  Reforms in municipalities and corporations  Strengthening regulation in infrastructure  Development of debt and bond markets  Setting up an independent public debt office  Reforms in provident funds and pension fund  Thrust on state provision of basic needs Assuming that there would be no major internal or external shocks, which might have destabilising effects on the Indian economy, no monsoon failures and no political instability, India would be able to sustain real GDP growth rates in the range of 8 per cent in the medium term. Industrial production is expected to show upturn largely driven by cyclical factors and induced by a rise in liquidity, lower interest rates, moderate crude oil prices, rise in rural income and increased public spending on physical infrastructure. Services sectors, particularly trade, commerce and financial sectors and others, which had been quite buoyant in the post-reforms period and now account for more than 50 per cent of GDP are expected to achieve significant growth rates. Higher growth would be feasible through a sustained pace of fiscal adjustment combined with second-generation economic reforms. Increased public and private sector savings will boost India’s investment rate and provide necessary resources for upgrading critical areas of infrastructure. While some increased use of foreign capital, particularly of direct foreign investment and portfolio investment, is consistent with external sector viability, the bulk of the savings will be generated domestically. 6. Key policy issues The Tenth five-year Plan (2002-2007) has set a target of 10 per cent for industrial growth and 8 per cent for overall GDP growth. The Plan has highlighted that the overwhelming priority is to speed up second-generation reforms to regain the growth momentum and boost domestic and foreign investment. At present, inflation is low and both food stocks and foreign exchange reserves are high. But both industrial growth and overall growth continue to be slow and are likely to be much lower in the first year (i.e. 2002-03) of the plan than the plan targets. Although the outcome in 2002-03 is partly due to adverse weather conditions, it highlights the need to implement reforms at a faster speed to generate broad-based and high quality growth for reduction of poverty. (a) Fiscal Policy The fiscal situation has deteriorated, raising concerns regarding sustainability. The combined fiscal deficit of the central and state governments has increased from 9.1 28

percent of GDP in 2000 to 10 percent of GDP in 2001, causing combined public debt of the general government to reach 85 percent of GDP, reflecting sluggish revenue growth and expenditure overruns (including interest payments, pensions, and subsidies). Although the average interest rate on the existing public debt is around 8.5 percent and the debt servicing does not cause immediate problem, this reflects the effect of concessional external borrowing and the practice of automatic monetisation of budget deficit through low cost borrowing from the Reserve Bank of India in the past. However, financial sector reforms are reducing the scope to roll over government debt at low real interest rates, and funding costs are considerably higher for the states. The government is committed to fiscal consolidation but the results to date are not encouraging. Large revenue and primary deficits with nearly one third of revenues going toward interest payments, high and growing amounts of public debt, poor physical and social infrastructure, and high levels of poverty and inequality are not conducive to sustained high growth. Moreover, such a situation limits the scope for use of fiscal policies to support economic activity, complicates the conduct of monetary policy, and erodes the government's credibility with investors. There is also a risk that high fiscal deficits might slow down potential growth, by crowing out private investment and by constraining public investment in much needed infrastructure and social programmes. The public debt of the government may need to be viewed from the perspective of developments in government's quasi fiscal activities, unfunded liabilities (viz. Liabilities arising from unfunded public pension, provident fund, small savings or insurance schemes) and contingent liabilities (viz. Loan guarantees, exchange rate guarantee, deposit insurance etc.). From the viewpoint of prudent long term fiscal management, the pension, provident funds, small savings and insurance schemes need to be fully funded and managed on the basis of international best practices, instead of the present "pay as you go approach" adopted by the government. A significant increase in the revenue/ expenditure ratio would be an essential prerequisite to successful fiscal consolidation. Given commitment to lowering customs duties, significant offsetting measures would be required to achieve the needed increase in the revenue ratio. Revenues need to be raised through broadening of tax base, rationalisation of tax rates and exemptions, continued improvement in tax administration, introduction of a comprehensive Value Added Tax (VAT) and further widening the service tax base. Disinvestment of government equity in public enterprises needs to be expedited and a part of the privatisation receipts may be earmarked for high priority social expenditures and pre-payment of more expensive public debt. It is equally important to put limits on fiscal subsidies, to improve the public delivery system, to target poverty reduction programs, to downsize government, and to increase efficiency of public spending. The government desires to formulate a medium-term strategy to put the fiscal balances on a sustainable path. Fiscal consolidation and debt reduction programs have to be made an integral part of a more comprehensive, coherent and multi pronged strategy consisting of tax and expenditure reforms. The passage of the Fiscal Responsibility and Budget Management Act would be important as a signal for fiscal reforms.

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The deteriorating fiscal situation of the states needs to be tackled urgently. Although encouraging steps are being taken in some states (e.g., the passage of fiscal responsibility legislation and measures to curb borrowing and contingent liabilities), much more needs to be done for reversing the sharp deterioration in states' finances. Key steps include accelerating power sector reforms, rationalising user charges for public utilities, closely monitoring irrigation projects, restructuring state financial companies, disinvestment of state level PSUs, implementing the VAT as scheduled in April 2003, and introducing more stringent ways to prevent the build up of state debt and contingent liabilities. (b) Money and capital markets Monetary policy has been well managed in the face of a difficult domestic and external environment. In this respect, the gradual reduction of the Statutory Liquidity ratio (SLR), Cash Reserve Ratio (CRR), Bank Rate and the Prime Lending Rates (PLR) of the commercial banks and financial institutions is welcome. However, the scope for further reduction of lending rates is constrained by the commercial banks’ ability to lower deposit rates. Efforts are needed to impart greater flexibility to deposit rates through innovative measures. Progress has been made in some areas, but many reforms, particularly those requiring new legislation or amendments of existing legislation, remain to be implemented. The enactment of the securities act, the restructuring of the UTI, IDBI and IFCI, and steps to strengthen SEBI's enforcement ability are steps in the right direction. The work underway on the Prompt Corrective Action Framework and preparations to move to forward looking and risk based supervision are also promising. But, the emerging new international financial architecture will impose fresh disciplines and challenges for developing countries like India, especially in fiscal and financial systems. (c) External sector policies Despite the substantial progress that was achieved in the 1990s, there is considerable room for more ambitious trade and tariff liberalisation. Following the balance of payments crisis in 1991, the peak tariff rate was reduced from 400 percent in 1990 to 30 percent in 2002, and the number of major tariff bands was reduced significantly from 20 in 1991-92 to 4 in 2002-2003. All the quantitative import restrictions (QRs) had also been removed with effect from March 2001 as per commitments with the WTO. However, India’s average tariff rate is still one of the highest in the world, and the trade system remains exceptionally complex with widespread concessions and exemptions. First, India still has a fair distance to travel on the path of trade liberalisation and tariff reduction (see Tables 10-12). This will require a pro-active stance towards multilateral trade negotiations and a workable commitment to “open regionalism” in the context of SAPTA, ASEAN and APEC. It will also require fulfillment of commitments given by the

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successive Finance Ministers to bring down India’s customs duties to 20 per cent by April 2004. Second, given the favourable foreign exchange and balance of payments situation, progress towards greater capital account convertibility is both desirable and inevitable, but such progress will have to be carefully calibrated to reduce the down side risks that had been brought home so vividly by the recent East Asian crisis. Third, although the exchange rates of Indian rupee per major currencies are broadly in line with macro-economic fundamentals, the exchange rate might need to adjust to the effects of capital account and trade liberalisation, domestic deregulation in industry and infrastructure, fiscal consolidation and more difficult external environment. While RBI’s policy of occasional market intervention to maintain orderly exchange market conditions had helped broader macro-economic stability, market forces need to be given more freedom in times ahead to provide adequate incentives to risk management and smoother adjustments in exchange rates to changing circumstances. Fourth, the strong foreign exchange reserves position provides a good opportunity to gradually allow greater flexibility in the exchange rate in both directions, which in turn would help to develop a deeper market for foreign exchange transactions. Such flexibility would also encourage greater hedging of currency risk by corporates, which will increasingly be needed with India's continued integration with the global economy. (d) Infrastructure policies and reforms Infrastructure constraints in a number of key sectors of the economy, particularly power, telecommunications, roads and ports have come to the fore, since reforms and investment in these sectors have failed to keep pace with increase in demand, and have limited further improvement in growth potential of the economy. The poor performance of power is largely a reflection of the deteriorating financial health of the State Electricity Boards, which, in turn, is due to high transmission and distribution losses including power theft, very low tariffs for agriculture and operational inefficiencies. Transportation is another problem area. Road transportation, which currently accounts for about 80 per cent of both passenger and freight traffic, is hindered by the large proportion of unsurfaced roads (50 percent of total road network) and over-dependence on national highways, which account for less than 2 percent of the road network, but carry as much as 40 percent of total traffic. Rail transport suffer from over aged assets, over crowded corridors, lack of desired connectivity in many parts of the country, irrational fright rates for goods traffic and lack of resources for capacity expansion.

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Port capacity is also insufficient to meet existing demand by external trade, and the ports are characterised by outdated technology, restrictive labor practices, and slow custom clearance procedures. These results in pre-berthing delays, longer ship turnaround time, and higher costs compared to other ports in the Asian region. Government policy has focused on improving the efficiency of public sector infrastructure provision and encouraging a greater role for the private sector. In general, while many contracts have been awarded to the private sector, relatively few deals have reached financial closure. There is an urgent need to formulate a comprehensive inter-modal transport plan and to rationalise tariff charges for all service sectors to generate internal resources and to encourage investment for capacity expansion and to improve quality of services. (e) Strategy for social sector development The development and proper utilisation of vast human resources is the essence of the social sector development strategy followed by the government. Significant progress has been made over the years in human resource development which is reflected in improved demographic indicators such as expectation of life, infant, child and maternal mortality rates, health care services, progress in the field of education and adult literacy rates. The Approach Paper to the Tenth Five-Year Plan (2002-2007), which outlines a strategy to achieve a GDP growth rate of 8 per cent, has a specific focus on human development. The Approach Paper stipulates that growth in per capita GDP should be accompanied by significant improvement in human development indicators and basic services to the people such as basic health, education, drinking water and sanitation. It also includes the expansion of economic and social opportunities for all individuals and groups, reduction in disparities and a greater participation of people in the decision making process. The Plan indicates the following monitorable targets:  Reduction of poverty ratio by 5% points by 2007 and by 15% points by 2012.  Providing gainful employment to the additional labour force over the Tenth Plan.  All children to go to schools by 2003.  All children to complete at least five years of schooling by 2007.  Reduction of gender gaps in literacy and wage rates by at least 50 per cent by 2007.  Reduction in the decadal rate of population growth to 16.2 per cent in 2011.  Increase in the literacy rate to 75 per cent during the Tenth Five-Year Plan.  Reduction in the infant mortality rate to 45 by 2007 and to 28 by 2012.  All villages to have access to potable drinking water within the plan period.  Cleaning of major polluted rivers by 2007 and other notified stretches by 2012.  Increase in the forest and tree cover to 25 per cent by 2007 and 33 per cent by 2012. The attainment of these targets not only necessities a substantial allocation of resources for the social sectors but also involves an enhanced role for the government in the provision of social services and development of urban and rural infrastructure. 32

(f) Structural Policies The following structural reforms need to be given priority:  Although major reforms have been done at the macro level and in production sectors, credible reforms need to be taken at the municipal and corporation levels particularly with regard to sale, acquisition and transfer of land.  Indian labour is highly protected. Reforms are necessary in labour markets for enhancing employment.  Regaining the momentum of the disinvestment program is critical. The privatisation process has already yielded sizable gains to the government. A long delay in implementation of the rest of the disinvestment program in the year will have negative consequences on the Centre’s budget and could derail the process of disinvestment at the states. It will also have adverse effects on the stock markets.  Notwithstanding the recovery in FDI recorded so far in the year and measurement issues, that suggest that such flows are understated, India is clearly not fulfilling its potential for FDI.  Further liberalisation of the non-debt creating financial flows including FDI is required for petroleum, real estate, telecommunications, civil aviation, banking and financial sectors. There are synergies between the disinvestment program and the FDI strategy, and serious consideration may be given to use disinvestment as a magnet for foreign investment. 

Global integration indicators for India are very low as compared to many Asian economies (see Table-13). There is significant scope for India to increase its exports by encouraging both labour-intensive and high technology products.

 India will have to face and surmount the challenges posed by new technologies and market places, such as Internet and e-commerce.  It will be important to lock in recent gains on the inflation front. Although inflation eased considerably during 2001-2002, continuous increase in oil prices and large public sector deficit have again put pressure on inflation. Management of inflation and protecting the interest of the vulnerable and weaker sections of the society remain a priority area for the government.  Another priority of the government is to reduce wide spread poverty ratios, inter-state disparities and interregional inequality, although substantial gains have been achieved in these areas during reforms period since 1991.

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7. Role of managers in post reforms period In the post reforms period, there is a change of the role of the government:    

From a controller to an enabler, From a supplier to a facilitator, From an operator to a policy maker, and From a regulator to a trustee of social equity and environmental sustainability.

In the post reforms period, there is re-orientation of public policies. The basic job of the government is now: To create enabling environment for public-private partnership, To link fiscal, monetary and other incentives to productivity, To streamline public investment and social welfare programs, To put emphasis on consultations, flexibility, decentralisation, selectivity, monitoring and co-ordination of policies and operations,  To repair market failures, and  To strengthen institutional structures and legal system.    

In the post reforms period, the managers in the government or in the public sector enterprises have to change their mind set to fulfill these objectives. At the same time, there is need for greater co-ordination, co-operation and partnership between private and public sectors. We must realise that:  Both well-governed state and well functioning markets are essential for high growth and sustainability.  Government and free markets should supplement and complement each other.  Government should withdraw from sectors where private participation is more productive and more efficient.  Scope of government to remain large in social sectors and infrastructure. Responsibility of a manager in a public sector enterprise has also increased in the post reforms period. In the pre-reforms period, a public sector enterprise was under the strict control of a government department. As the economy was relatively closed and free market operations were limited, there was less risk; and whatever risk was there was shared by an enterprise and the government department. But today there is less interference by the government department; PSUs have been given more autonomy and more freedom and are run by independent board of directors. PSUs have to bear full responsibility for their performance. A manager has now greater risk and greater responsibility for the following reasons:  World is now a global village.

34

Knowledge and technology are the most valuable assets. There is wider choice of resources- domestic/ foreign, debt/ equity/ portfolio etc. There is greater competition among the operators. There is greater risk due to fluctuations of exchange rate, interest rate, commodity prices, and composition of currency and markets.  Emphasis on decentralisation, consultation and risk sharing.    

PSUs therefore need to strengthen systems for:        

Management information Asset-Liability Management Measurement and management of risk Project appraisal and post evaluation Quality control Inventory management Performance evaluation Prediction of sickness 8. Concluding Remarks

Indian economy has many positive factors to achieve higher growth in future. • • • • • •

•

•

•

India is the fourth largest economy in the world after USA, Japan and China in terms of purchasing power parity adjusted GDP. India possesses the eighth largest industrial estate in terms of stock of capital. It possesses huge domestic market with the second largest population after China and a middle class in the range of 150-200 million. India has the third largest pool of scientific and technical manpower. India is the largest democracy with multi-party system, free press, independent judiciary, efficient administration, a long history of private enterprise and a strong institutional base for development. India has vast natural resources. It ranks sixth in coal and iron ore reserves, fifth in bauxite, 17th in crude petroleum, and 23rd in natural gas reserves, India ranks first in production of milk, millet, ground nut, tea, jute, mangoes and bananas, stocks of cattle and buffaloes, second in arable land and irrigated area, production of rice, wheat, rapeseed, sugarcane and tobacco, and third in production of cotton, natural rubber. India ranks 19th in terms of value added in industry (first in production of sugar, fourth in nitrogenous fertilisers and coal, fifth in cement and iron ore, ninth in electricity generation, tenth in steel, 13th in commercial vehicles, and 20th in crude petroleum production. India has cheap but reasonably skilled and dedicated labour force and peaceful industrial relations.

35

• • • • •

Language does not pose any problem as English is an accepted language in educational institutions, government offices and corporate houses. India has a strategic location to cater the markets in the South, East and West Asia and can even be gateway to the markets in Europe and Africa. India has a mature banking and financial system with several large commercial banks, financial institutions and insurance companies. India has a vibrant capital market with around 10,000 listed companies (second highest in the world) and a market capitalisation of over US$250 billion. India has a diversified and well-spread infrastructure. It ranks one of the 20 largest telecom networks in the world. It possesses largest network of post offices in the world, ranks first in the rail network and third in the road network.

Economic reforms since 1991 helped India to utilise some of its potentials. However, there is significant scope for improvement in all sectors of the economy. 













Among the democratic countries, India achieved the highest average growth rate of 5.8 per cent over a 20-year period of 1980-2000. Among the major economies, India’s growth rate was exceeded by only by China in 1980s and 1990s. Growing cross-border tradability of services supported by the growth of Internet and e-commerce helped India to increase exports of services where India has a comparative advantage. Invisible exports in fact increased four and half times from US$7.5 billion in 1990-91 to US$34.5 billion in 2000-01. Services made significant contributions to GDP growth with an average growth rate of 8 per cent in 1990s. Share of services in GDP increased from 39 per cent in 199091 to 50 per cent in 2001-02. However, India is a price-taker in all services with a very low share in global service exports as is the case with India’s share in global merchandise exports. Services exports should therefore grow rapidly in the next decade or so. Exports of goods and services have tripled in terms of US$ in the past decade. The share of merchandise exports in GDP have increased from 5.5% in 1990-91 to 9% in 2001-01 and that of services from 3% to 8.5% over the same period. Export potential in agricultural products, textiles, garments, gems and jewellery, and engineering goods remains far from being fully exploited. Higher export earnings and remittances from abroad enabled India to service its obligations on current account with less dependence on capital flows. Although the share of imports increased from 8% of GDP in 1990-91 to 13% of GDP in 2001-02, India was able to build up its foreign exchange reserves from US$1 billion in June 1991 to about US$67 billion in December 2002. The present foreign exchange reserves are equivalent to about 13 months of imports. Only China has a higher level of import cover. 36











External sector liberalisations, tariff reductions, industrial delicensing and financial sector liberalisations contributed to more efficient allocation of capital and resources. But the gains were limited to a few sectors like aluminium, steel, automobiles, drugs and pharmaceuticals, telecommunications and information technology. India has comparative advantages in services, knowledge-based, resource-intensive, and agro-based industries. But vast potentials of labour-intensive and agro-based industries remain untapped. Reforms in agricultural production and trade and labour markets are essential to reap these benefits. Government is still pre-empting a large portion of capital through market borrowings and SLR held by commercial banks. Fiscal reforms and disinvestment at faster speed are required to encourage further private investment in infrastructure and services. The new development strategy must attach a high priority to the development and maintenance of efficient infrastructure so that existing bottlenecks in power, transport and telecommunications may not inhibit economic growth. As the infrastructure needs are large and public resources are limited, the private sector and foreign investors will have to play a more active and critical role in developing and modernising infrastructure. Low wages, rich natural resources and fiscal incentives are no longer regarded as principal determinants for international competitiveness. The new sources of competitive advantage will be knowledge, modern technology and the human skill. In view of pivotal role of human resources in industrial and technological upgradation, there is a need for more rigorous attention to the development of human capital at various levels of government, in business houses and industrial enterprises.

Although we can take some comfort in the favourable impact of the reforms program, we must recognise that much more needs to be done if we want to reap the full benefits of reforms. Eleven years are not enough to complete the kind of reforms, which are essential to break the age-old bonds of poverty and unemployment. We have to continue boldly with our reforms agenda to achieve our goals of sustained growth, modernisation and equity. We have no alternatives but to persevere with our reforms program. Carried to their logical ends, reforms would enable India to emerge as one of the most dynamic economies in Asia by the end of this decade. India is “an economic miracle” waiting to happen. All of us have to contribute to that process of exciting development.

37

Table-7: INDIA- Macro-economic Trends: 1990-2001: continued I T E MS

1990-91 1991-92 1997-98 1998-99 1999-00 2000-01 2001-02 Actual Actual Actual Actual Actual Actual Actual

Per Capita GNP ( Rupees ):

6688

6760

15657

17558

19123

20320

21844

GDP growth rate at constant fc GR agriculture GR industry GR manufacturing GR non-manufacturing GR services

5.6 4.1 7.7 6.1 10.0 5.3

1.3 -1.5 -0.6 -3.6 5.4 4.8

4.8 -2.4 4.3 1.5 9.5 9.8

6.5 6.2 3.7 2.7 5.6 8.3

6.1 1.3 4.9 4.2 6.1 9.5

4.0 -0.2 6.3 6.7 5.8 4.8

5.4 5.7 3.1 2.8 3.5 6.5

GDP (const. fc) sectoral shares Agriculture Industry Services

100.0 31.6 29.7 38.7

100.0 30.8 29.3 39.9

100.0 26.5 27.7 45.8

100.0 26.4 27.0 46.6

100.0 25.2 26.7 48.1

100.0 24.2 27.3 48.5

100.0 24.3 26.7 49.0

17.9 13.6 12.1 15.1

24.7 13.9 13.6 19.4

37.2 6.8 4.4 18.0

42.1 13.1 5.9 19.4

43.3 3.4 3.3 14.6

45.7 3.8 7.2 16.8

47.7 4.3 3.6 14.2

Gross Domestic Investment as % of 26.3 GDP -- Private sector 11.6 -- Public sector 14.7 Gross Domestic Savings as % of GDP 23.1 -- Household sector 19.3 -- Private corporate sector 2.7 -- Public sector 1.1 BALANCE OF PAYMENTS (US$ million) Merchandise exports, fob 18477 Merchandise imports, cif 27915 Trade balance -9438 Other goods, services and income -2771 Non factor services 982 Investment income -3753 Unrequited income 2529 Private transfers 2068 Official transfers 461 Net invisibles -242 Current account balance -9680

22.6

24.6

22.7

24.3

24.0

25.3

9.5 13.1 22.0 17.0 3.1 2.0

17.4 7.2 23.1 17.6 4.2 1.3

15.7 7.0 21.7 18.9 3.7 -1.0

16.8 7.5 23.2 20.3 3.7 -0.9

16.6 7.4 23.4 20.9 4.2 -1.7

17.5 7.8 25.5 21.0 4.5 0.0

18266 21064 -2798 -2623 1207 -3830 4243 3783 460 1620 -1178

35680 51187 -15507 -2202 1319 -3521 12209 11830 379 10007 -5500

34298 47544 -13246 -1379 2165 -3544 10587 10280 307 9208 -4038

37542 55383 -17841 505 4064 -3559 12638 12256 382 13143 -4698

44894 59264 -14370 -1343 2478 -3821 13134 12798 336 11791 -2579

44915 57618 -12703 1545 4199 -2654 12509 12125 384 14054 1351

Average Exchange Rate (Rs/US$) Inflation rate in terms of CPI Inflation rate in terms of WPI Growth rate of broad money supply (%)

38

Table-7: INDIA- Macro-economic Trends: 1990-2001: continued I T E MS Capital inflows (US$ million; fy) External assistance,net External commercial borrowings Foreign investment Direct foreign investment Portfolio investment IMF, net NRI deposits,net Other capital,net Change of reserves [increase (-) ] Foreign exch. reserves (US$mn,end fy) Foreign Exch.Res. (months of imports) Growth rates : Fiscal Year Merchandise exports Merchandise imports EXTERNAL DEBT (US$ Mn. end fy) Total outstanding and disbursed Debt-service ratio (to XGS in per cent) Debt/GDP ratio (in per cent) Debt/exports ratio (in per cent) Short term debt/ Total Debt ratio (%) Short term debt/Foreign exch. ratio (%) Public ext.debt/ Total Debt ratio (%) Concessional to total debt ratio (%) Indebtedness classification Memo Items: As per cent of GDP at current mp: Merchandise exports, fob Merchandise imports, cif Trade balance Other goods, services and income Non factor services Investment income Unrequited income Private transfers Official transfers Net invisibles Current account balance

1990-91 1991-92 1997-98 1998-99 1999-00 2000-01 2001-02 Actual Actual Actual Actual Actual Actual Actual 8505 4696 9393 7867 10840 8409 10406 2210 3037 907 820 901 427 1204 2248 1456 3999 4362 313 4011 -1147 103 133 5390 2412 5181 5102 5925 97 123 3562 2480 2157 2342 3905 6 10 1828 -68 3024 2760 2020 1214 786 -618 -393 -260 -26 0 1536 290 1125 960 1540 2317 2754 1091 -1139 -1410 -294 3165 -3422 1670 1175 -3518 -3893 -3829 -6142 -5830 -11757 5834 9220 29367 32490 38036 42281 54106 2.5 5.3 6.9 8.2 8.2 8.6 11.3 9.0 14.4

83801 35.3 28.7 453.5 10.2 382.0 59.6 45.9 Severe

-1.1 -24.5

-3.9 -7.1

9.5 16.5

19.6 7.0

0.0 -2.8

85285 93531 96886 30.2 19.5 18.9 38.7 22.8 23.4 466.9 262.1 282.5 8.3 5.4 4.4 125.6 19.4 14.5 59.8 49.7 47.6 44.8 39.5 38.5 Moderate Moderate Severe

98263 15.7 22.1 261.7 4.0 11.2 47.7 38.9 Less

99704 15.4 21.8 222.1 3.5 8.8 44.2 36.0 Less

98138 13.7 20.5 218.5 2.8 6.1 43.9 35.9 Less

8.4 12.4 -4.0 0.1 0.9 -0.8 2.8 2.8 0.1 3.0 -1.1

9.8 13.0 -3.1 -0.3 0.5 -0.8 2.9 2.8 0.1 2.6 -0.6

9.4 12.1 -2.7 0.3 0.9 -0.6 2.6 2.5 0.1 2.9 0.3

5.8 8.8 -3.0 -0.9 0.3 -1.2 0.8 0.7 0.1 -0.1 -3.1

6.9 7.9 -1.1 -1.0 0.5 -1.4 1.6 1.4 0.2 0.6 -0.4

39

4.5 4.6

8.7 12.5 -3.8 -0.5 0.3 -0.9 3.0 2.9 0.1 2.4 -1.3

8.3 11.5 -3.2 -0.3 0.5 -0.9 2.6 2.5 0.1 2.2 -1.0

Table-7: INDIA- Macro-economic Trends: 1990-2001: Completed I T E MS Capital flows (as % of GDP) External assistance,net External commercial borrowings Foreign investment Direct foreign investment Portfolio investment IMF, net NRI deposits,net Other capital,net Change in reserves [increase (-)] Foreign exch. reserves at end year

1990-91 1991-92 1997-98 1998-99 1999-00 2000-01 2001-02 Actual Actual Actual Actual Actual Actual Actual 2.7 1.8 3.6 2.5 3.6 3.0 3.4 0.7 1.1 0.2 0.2 0.2 0.1 0.3 0.7 0.5 1.0 1.1 0.1 0.9 -0.2 0.0 0.1 1.3 0.6 1.2 1.1 1.2 0.0 0.0 0.9 0.6 0.5 0.5 0.8 0.0 0.0 0.4 0.0 0.7 0.6 0.4 0.4 0.3 -0.2 -0.1 -0.1 0.0 0.0 0.5 0.1 0.3 0.2 0.3 0.5 0.6 0.3 -0.4 -0.3 -0.1 0.7 -0.7 0.3 0.4 -1.3 -1.0 -0.9 -1.4 -1.3 -2.5 1.8 3.5 7.2 7.9 8.5 9.3 11.3

CENTRAL GOVT. FINANCE (As % of GDP): Current revenue 9.7 Taxes 7.6 Non-taxes including external grants 2.1 Current expenditure 12.9 Capital receipts 5.6 Recovery of loans 1.0 Disinvestment of govt.equity 0.0 Govt. borrowings & other liabilities 4.6 Capital expenditure 4.4 Total expenditure 17.3 Central government (% of GDP) Fiscal deficit (+) 6.6 Primary deficit (+) 2.8 Budget deficit (+) 2.0 Revenue deficit (+) 3.3 States governments (% of GDP) Fiscal deficit (+) 3.3 Primary deficit (+) 1.8 Budget deficit (+) 0.0 Revenue deficit (+) 0.9 Centre & States combined (% of GDP) Fiscal deficit (+) 9.4 Primary deficit (+) 5.0 Budget deficit (+) 2.0 Revenue deficit (+) 4.2

40

10.1 7.7 2.4 12.6 5.1 0.9 0.5 3.7 3.6 16.2

8.8 6.3 2.5 11.8 5.5 0.5 0.1 4.9 2.4 14.2

8.6 6.0 2.6 12.4 6.1 0.6 0.3 5.2 2.2 14.7

9.4 6.6 2.8 12.9 6.0 0.5 0.1 5.4 2.5 15.4

9.2 6.6 2.7 13.3 6.4 0.6 0.1 5.7 2.3 15.6

9.3 6.2 3.1 13.4 6.7 0.7 0.2 5.8 2.6 16.0

4.7 0.7 1.0 2.5

-4.8 -0.5 0.1 -3.1

-5.1 -0.7 0.0 -3.8

-5.4 -0.7 0.0 -3.5

-5.7 -0.9 0.0 -4.1

-5.8 -1.1 0.0 -4.0

2.9 1.2 0.0 0.9

2.9 0.9 -0.1 1.1

4.3 2.2 0.2 2.5

4.7 2.4 0.2 2.8

4.2 1.7 -0.2 2.5

4.6 1.8 0.3 2.6

7.0 2.3 1.0 3.4

7.3 2.1 0.0 4.1

9.0 3.7 0.2 6.4

9.6 3.9 0.2 6.3

9.4 3.7 -0.2 6.5

9.9 3.6 0.3 6.6

Table-8 Basic Economic Indicators of selected Asian countries in 2000 Country

Population million 2000

Area '000 sq.km. 2000

GNP GNP PPP GNP PPP GNP US$ billion per capita US$ billion Per capita (US $) (US $) 2000 2000 2000 2000

Adult Literacy (%) 2000

Life Expectancy (years) 2000

79 72 76 75

80 73 78 76

69 64

70 67

53 64 52 71 59 66 69 68

54 66 54 72 60 69 69 69 61 61 63 68 58 63 73

Newly Industrializing Economies (NIEs) Hong Kong

7

1

176

25920

174

25590

Korea,Republic

47

99

421

8910

818

17300

Singapore

4

1

99

24740

100

24910

Taiwan,China

22

36

280

12670

..

..

China & Mongolia China

1262

9598

1063

840

4951

3920

Mongolia

2

1567

0.9

390

4

1760

Cambodia

12

181

3

260

17

1440

Indonesia

210

1905

120

570

596

2830

Lao, PDR

5

237

1.5

290

8

1540

Malaysia

23

330

79

3380

194

8330

Myanmar

48

677

..

..

..

..

Philippines

76

300

79

1040

319

4220

Thailand

61

513

122

2000

384

6320

Vietnam

79

332

30

390

157

2000

South-East Asia

South Asia Bangladesh

131

144

48

370

209

1590

Bhutan

0.8

47

0.5

590

1.2

1440

1016

3287

455

450

2375

2340

Maldives

0.3

0.3

0.5

1960

1.2

4240

Nepal

23

147

6

240

32

1370

Pakistan

138

796

61

440

257

1860

Sri Lanka

19

66

16

850

67

3460

58 48 62 63 55 60 72

3436

27080

80

81

65 68 68 69 66 61 52 77 67

64 69 69 70 68 63 47 78 66

India

East Asia Japan

127

378

4519

35620

World Low & middle income East Asia & Pacific

5154 1855

101491 16385

6315 1962

1230 1060

19980 7609

3910 4130

Europe & Central Asia

474

Latin America & Carib.

516

24217

953

2010

3140

6670

20459

1895

3670

3624

7080

Mid. East & N.Africa South Asia

295

11023

618

2090

1545

5270

1355

5140

595

440

2984

Sub-Saharan Africa

2240

659

24297

310

470

1044

1600

High Income

903

32315

24994

27680

24793

27770

World

6057

133806

31309

5170

44459

7410

Note: (a) Two dots (..) stand for "Data not available" Sources : (1) World Development Indicators 2002, World Bank. (2) World Development Report 2002, World Bank. (3) Asian Development Outlook 2002, Asian Development Bank, Manila.

41

Table-9 Growth of output in selected Asian countries in 1980-1990 and 1990-2000 Country

GDP growth per annum 1980-1990

GDP growth Agriculture Industry per annum Growth pa Growth pa 1990-2000 1990-2000 1990-2000 Newly Industrializing Economies (NIEs)

Manufacture Growth pa 1990-2000

Services growth pa 1990-2000

Hong Kong

6.9

4.0

..

..

..

..

Korea,Republic

8.9

5.7

2.0

6.3

7.5

5.7

Singapore

6.7

7.8

-1.6

7.9

7.1

7.8

Taiwan,China

8.8

6.1

0.5

5.3

5.5

7.0

China & Mongolia China

10.1

10.3

4.1

13.7

13.4

9.0

Mongolia

5.4

1.0

3.2

-0.5

..

0.1

South-East Asia Cambodia

n.a.

4.8

1.9

8.3

8.2

6.9

Indonesia

6.1

4.2

2.1

5.2

6.7

4.0

Lao, PDR

3.7

6.5

4.9

11.0

11.7

6.5

Malaysia

5.3

7.0

0.3

8.6

9.8

7.2

Myanmar

0.6

6.6

5.3

10.1

7.0

6.8

Philippines

1.0

3.3

1.6

3.3

3.0

4.0

Thailand

7.6

4.2

2.1

5.3

6.4

3.7

Vietnam

4.6

7.9

4.8

12.1

..

7.7

South Asia Bangladesh

4.3

4.8

2.9

7.3

7.2

4.5

Bhutan

7.5

6.2

10.2

10.5

2.5

5.7

India

5.8

6.0

3.0

6.4

7.0

8.0

Maldives

12.1

6.6

10.3

10.5

2.4

7.2

Nepal

4.6

4.9

2.5

7.2

9.2

6.2

Pakistan

6.3

3.7

4.4

3.9

3.5

4.4

Sri Lanka

4.0

5.3

1.9

7.0

8.1

6.0

-3.2

-0.4

0.5

2.5

East Asia Japan

4.1

1.3 World

Low & middle income

3.5

3.5

2.2

3.7

5.7

4.1

East Asia & Pacific

7.9

7.2

3.1

9.3

9.9

6.4

Europe & Central Asia

..

-1.5

-2.3

-3.8

..

1.6

Latin America & Carib.

1.7

3.3

2.3

3.3

2.6

3.4

Mid. East & N.Africa

2.0

3.0

2.6

0.9

3.8

4.5

South Asia

5.6

5.6

3.1

6.2

6.6

7.1

Sub-Saharan Africa

1.6

2.5

2.8

1.6

1.6

2.6

High Income

3.3

2.5

0.0

0.7

..

..

World

3.3

2.7

1.4

1.5

..

2.9

Note: (a) Two dots (..) stand for "Data not available" Sources : (1) World Development Indicators 2002, World Bank. (2) World Development Report 2002, World Bank.

42

Table-10 Tax Policies in selected Asian economies in 1990 and 2000 Country

Tax Taxes on Domestic taxes revenue income, profits on goods and as and capital gains services as % of as % of GDP % of total taxes corresponding value added

1990

2000

Export duties as Import duties as % of % of tax revenue tax revenue

1990

2000

1990

2000

1990

2000

Hong Kong

..

..

..

..

17

13,462

0.5

16

Korea,Rep

..

38

..

7

..

0

..

13

..

40

63,507

7.1

28

Singapore

16

45

50

4

5

0

0

4

3

28

400,000

16.2

26

Taiwan,China

..

..

..

..

..

..

..

..

..

..

..

..

..

Newly industrializing Economies (NIEs) .. .. .. .. ..

2000

Highest marginal Income Tax rate Individual income Corporate rate Lower limit income above which highest tax rate is applicable (US $) Times PC GNP 2000 2000 2000 2000

China and Mongolia China

7

50

7

1.5

6.5

0

0

22

7

45

12,089

14.4

30

Mangolia

22

28

16

9

16

0

2.3

20

8

..

..

..

..

South-East Asia Cambodia

..

..

..

..

..

..

..

..

..

20

38,412

147.7

20

Indonesia

17

65

65

6

6

0.1

0.5

7

2

35

20,949

36.8

30

Lao, PDR

..

..

..

..

..

..

..

..

..

40

658

2.3

..

Malaysia

..

43

..

6

..

10

..

15

..

29

39,474

11.7

28

Myanmar

3

30

35

7

4

0

0

23

9

30

..

..

30

Philippines

14

33

44

6

5

0

0

28

21

32

10,000

9.6

32

Thailand

14

26

34

9

8

0.2

0.3

24

12

37

92,829

46.4

30

Vietnam

15

..

32

..

8

..

0

..

21

50

5,695

14.6

32

Bangladesh

7

..

15

..

5

..

0

..

30

..

..

..

..

Bhutan

..

..

..

..

..

..

..

..

..

..

..

..

..

India

10

19

36

7

5

0.1

0.1

36

27

30

3,222

7.2

40

Maldives

..

..

..

..

..

..

..

..

..

..

..

..

..

Nepal

9

13

21

7

7

0.4

1

37

31

..

..

..

..

Pakistan

12

13

28

9

8

0

0

44

16

35

17,271

39.3

..

Sri Lanka

15

12

15

15

14

4

0

27

13

35

3,630

4.3

35

Japan

..

73

..

2.4

..

..

1.4

..

37

156,863

4.4

30

South Asia

East Asia 0

Note: Two dots (..) stand for "Data not available" Sources : (1) World Development Indicators 2002, World Bank. (2) World Development Report 2002, World Bank.

43

Table-11 Comparative statement on fiscal concessions in selected Asian countries Country 1. India

Corporate tax rate Local cos.35%, Foreign cos.42%

2. Bangladesh 3.Myanmer 4.Nepal

Tax holidays 5-10 years for R&D, infrastructure, EOU, EPZ, SEZ, Tech.Parks, backward areas 5-12 years for backward areas

Import duty exemptions For exports, fertilisers, EPZ, SEZ, Tech.Parks For EOUs

3 years No tax on exports, cottage industries

5.Pakistan 6. Sri Lanka

5-7 years except for cigarette, bidi, saw mill and alcohol 3 years for all, 4 yrs for rural/ backward areas For EOUs, tourism, backward areas, infra. Tax holiday for high technology 5-10 years for pioneer status Abolished in 1984

For EOUs and capital goods For power, engineering For tourism, EOUs, infra. For exports

7.South Korea 8.Singapore

30-45%

9.Indonesia

10-30%

10.Malaysia

28% 20% for SMEs 10-45%

85% exemption for 5 years for pioneer status 8 years for pioneer status

For EOU/EPZ For capital goods

12.Thailand

30%

3-8 years for IPZs, targeted industries

For EOU/ EPZ

13.Vietnam

30%

2-4 years

Local cos.55%, Foreign cos.33% 15-16.5%

2 years general, 5 years for ports none

For EOU/ EPZ For EOU/ SEZ Free port, No import duty

16.Taiwan

20%

17.Japan

52%

5 years for high tech. industries None

11.Philippines

14. China 15.Hong Kong

18.Lao, PDR

27%

4-6 years

44

For EOUs

On capital goods, R&D Low import duties (0-5%) For few items

Other fiscal concessions Incentives for utility tariffs, capital subsidy Lower import duty for backward areas Lower land leasing rate Tax rebate for backward areas Lower indirect taxes Accelerated depreciation Lower duty for high tech Capital subsidy Vat exemption for EOUs Capital subsidy Lower rates on wages, inf. Reinvestment Lower duties on capital goods Incentives for reinvestment Tax rebate for R&D, infra No excise except on POL, tobacco Cap subsidy

Remittances Free

Local govt. incentives ….

Free

Free Restricted .. Free Restricted Free Free Restricted Free Free Free Restricted Free Free Free

Free

Table-12 Tariff Barriers Indicators in selected Asian economies in 2000 Country

Latest Year

All products

Primary products

Simple Standard Weighted Share of mean deviation mean lines tariff rate of tariff tariff with rates rate world peaks % % % %

Share of lines with specific tariffs %

Manufactured Products Simple Weighted mean mean rate rate

Simple mean rate

Weighted mean rate

%

%

%

%

Newly industrializing Economies (NIEs) Hong Kong

1998

0

0

0

0

0

0

0

0

0

Korea,Rep

1999

9

6

6

5

1

12

5

8

6

Singapore

1995

0

0

0

0

0

0

0

0

0

..

..

..

..

..

..

..

..

..

..

Taiwan,China

China and Mongolia China Mangolia

2000

16

11

15

43

0

17

19

16

14

..

..

..

..

..

..

..

..

..

..

..

..

..

..

..

..

South-East Asia Cambodia

..

..

..

Indonesia Lao, PDR

..

2000

8

11

5

11

0

6

3

9

7

2000

10

8

15

12

4

19

25

9

9

Malaysia

1997

9

33

6

25

0.4

7

10

10

5

Myanmar

..

..

..

..

..

..

..

..

..

..

Philippines

2000

8

8

4

9

0

12

8

7

3

Thailand

2000

17

14

10

46

2

22

10

16

10

Vietnam

1999

15

18

19

37

0.5

22

35

14

15

South Asia Bangladesh

2000

21

14

21

52

0

24

19

21

22

Bhutan

1996

19

15

20

54

4

24

20

18

20

India

1999

33

12

29

93

1

31

23

33

33

..

..

..

..

..

..

..

..

..

..

Nepal

2000

18

21

18

19

8

14

14

19

20

Pakistan

1998

47

21

42

86

4

44

30

47

44

Sri Lanka

2000

10

9

7

22

1

15

15

9

5

7

3

8

3

3

1

Maldives

East Asia Japan

2000

4

7

2

Note: (a) Two dots (..) stand for "Data not available" Sources : (1) World Development Indicators 2002, World Bank. (2) World Development Report 2002, World Bank.

45

Table-13 Global Integration Indicators for selected Asian economies in 1990 and 2000 Country

Trade in goods % of GDP

Trade in goods

Changes in Growth in real trade as shares trade less growth Of GDP: in real GDP (% points) % of goods GDP (% change) 2000

1980-1999

1990-2000

Gross private capital flows % of GDP

Gross Foreign Direct Investment % of GDP

1990

1990

1990

2000

1990

2000

2000

Hong Kong

224

256

785

1143

210

4

..

189

..

89

Korea,Rep

53

73

103

154

122

8

6.2

11.5

0.7

3.2

Singapore

310

295

892

858

..

..

54.6

48.5

20.7

11.6

..

..

..

..

..

..

..

..

..

..

Newly industrializing Economies (NIEs)

Taiwan,China

China and Mongolia China

33

44

47

66

..

-3

2.5

12.7

1.2

4.3

Mangolia

..

93

..

180

..

..

..

10.1

..

3.4

South-East Asia Cambodia

22

40

34

46

..

8

3.2

6,8

1.7

3.9

Indonesia

42

62

64

97

-17

1

4.1

8.5

1.0

4.2

Lao, PDR

32

53

43

..

..

..

3.7

8.7

0.7

5.4

Malaysia

133

201

232

357

125

4

10.3

16.8

5.3

2.0

Myanmar

..

..

..

..

17

..

..

..

..

..

Philippines

48

99

85

193

142

4

4.4

48.4

1.2

2.8

Thailand

66

107

133

211

100

3

13.5

11.3

3.0

2.8

Vietnam

80

96

133

..

..

19

..

10.8

..

4.1

South Asia Bangladesh

18

32

..

..

131

6

0.9

3.6

0

0.6

Bhutan

..

..

..

..

..

..

..

..

..

..

India

13

20

..

..

62

4

0.8

3.0

0

0.6

Maldives

..

..

..

..

..

..

..

..

..

..

Nepal

25

43

..

..

127

6

3.5

4.8

0

0

Pakistan

33

33

..

..

-13

-2

4.2

2.5

0.6

0.5

Sri Lanka

58

73

..

..

40

3

13.1

7.6

0.5

1.1

3

5.4

10.3

1.7

0.9

East Asia Japan

17

18

44

55

39

Low & middle income

35

52

76

113

6.7

10.9

0.9

3.5

East Asia & Pacific

49

66

85

113

5.3

13.3

1.5

3.9

Europe & Central Asia

29

66

53

110

..

13.6

..

3.8

Latin America & Carib.

23

38

69

115

7.9

10.5

0.9

4.5

Mid. East & N.Africa

45

52

81

90

11.5

7.5

0.9

1.0

South Asia

17

24

..

..

1.4

3.1

0.1

0.6

Sub-Saharan Africa

41

57

76

96

5.1

11.0

1.0

1.8

High Income

32

37

101

124

11.0

33.6

3.0

10.1

World

32

40

96

119

10.3

29.1

2.7

8.8

World

Note: (a) Two dots (..) stand for "Data not available" Sources : (1) World Development Indicators 2002, World Bank. (2) World Development Report 2002, World Bank.

46

Table-14 Private Sector Development and Investment Climate in selected Asian economies in 1990 and 2000 Country

Private fixed Domestic credit to investment as % of private sector domestic fixed As % of GDP investment 1990 2000 1990 2000

Foreign Direct Investment As % of GDP 1990

Entry and Exit Regulation in 2000 Entry

2000

Newly Industrializing Economies (NIEs) 165 159 .. 89.0

Repatriation of: Income

Capital

Hong Kong

..

..

F

F

F

Korea,Rep

87

79

66

102

0.7

3.2

RF

F

F

Singapore

..

..

97

110

20.7

11.6

F

F

F

Taiwan,China

..

..

..

..

..

..

F

F

F

China and Mongolia China

34

47

88

125

1.2

4.3

SS

F

F

Mangolia

..

..

19

8

..

3.4

..

..

..

South-East Asia Cambodia

90

61

n.a.

7

1.7

3.9

..

..

..

Indonesia

70

61

47

21

1.0

4.2

R

R

R

Lao, PDR

..

..

1

9

0.7

5.4

..

..

..

Malaysia

65

51

69

136

5.3

2.0

RF

F

D

Myanmar

..

..

5

9

..

..

..

R

R

Philippines

82

69

22

45

1.2

2.8

SS

F

F

Thailand

85

68

83

109

3.0

2.8

RF

F

F

Vietnam

..

..

3

35

0.6

4.1

..

R

R

Bangladesh

58

70

17

25

0

0.6

F

F

F

Bhutan

..

..

..

..

..

..

..

..

..

India

61

70

25

29

0

0.6

AI

F

F

Maldives

..

..

..

..

..

..

..

..

..

South Asia

Nepal

..

..

13

31

0

0

R

R

R

Pakistan

52

62

28

29

0.6

0.5

R

F

F

Sri Lanka

..

..

20

29

0.5

1.1

RF

R

F

F

F

F

East Asia Japan

84

79

195

188

1.7

0.9

0.9

3.5

15

3.9

Low & middle income

65

67

42

World 55

East Asia & Pacific

63

50

71

106

Europe & Central Asia

..

..

..

21

0

3.8

Latin America & Carib.

74

80

28

28

0.9

4.5

Mid. East & N.Africa

..

..

42

47

0.9

1.0

South Asia

56

72

25

29

0.1

0.6

Sub-Saharan Africa

..

..

43

66

1.0

1.8

High Income

82

..

108

136

3.0

10.1

World

78

..

97

120

2.7

8.8

Notes: (a) Two dots (..) stand for "Data not available" (b) Entry and exit regulations are classified as Free (F), Relatively Free (RF), Delayed (D), Selected Sectors (SS), Authorised Investors only (AI), Restricted (R). Sources : (1) World Development Indicators 2002, World Bank. (2) World Development Report 2002, World Bank.

47

Table-15 Financial Depth and Efficiency in selected Asian economies in 1990 and 2000 Country

Domestic credit Liquid liabilities provided by as % of GDP banking sector as % of GDP 1990 2000 1990 2000

Quasi-liquid assets as % of GDP 1990

2000

Ratio of bank liquid reserves to bank assets as % of GDP 1990 2000

Interest rate spread percentage points 1990 2000

Spread over LIBOR percentage points 1990 2000

Newly industrializing Economies (NIEs) Hong Kong, China

156

141

182

237

167

222

0.1

0.3

3.3

4.7

1.7

Korea,Rep

66

104

55

98

46

89

6

2

0

0.6

1.7

3.0 2.0

Singapore

76

90

123

108

101

87

4

2.5

2.7

4.1

-1.0

-0.7

Taiwan,China

..

..

..

..

..

..

..

..

..

..

..

..

China and Mongolia China

90

133

79

152

41

91

16

13

0.7

3.6

1.0

-0.7

Mangolia

73

11

56

25

15

12

2

18

..

16.5

..

23.7

Cambodia

..

7

..

15

..

11

..

47

..

10.5

..

10.9

Indonesia

46

66

40

58

29

45

5

8

3.3

6.0

12.5

11.9

Lao, PDR

5

11

7

17

3

14

3

28

..

20.0

..

25.5

Malaysia

76

143

64

130

43

106

6

14

1.3

3.4

-1.1

0.2

Myanmar

33

27

28

26

8

10

272

23

2.1

5.5

-0.3

8.7

Philippines

27

68

37

67

28

55

21

7

4.6

2.6

15.8

4.4

Thailand

91

122

75

115

66

101

3

2

2.2

4.5

6.1

1.3

Vietnam

5

35

23

44

9

24

13

9

..

6.9

..

4.0

South-East Asia

South Asia Bangladesh

24

35

23

35

17

26

13

8

4.0

6.9

7.7

9.0

Bhutan

..

..

..

..

..

..

..

..

..

..

..

..

India

52

53

43

56

28

39

15

8

9.0

4.0

8.2

5.8

Maldives

..

..

..

..

..

..

..

..

..

..

..

..

Nepal

29

43

32

52

19

35

13

11

2.5

3.5

6.1

2.9

Pakistan

51

49

40

48

10

20

9

6

..

..

..

..

Sri Lanka

43

44

35

47

23

37

10

8

-6.4

7.0

4.7

9.6

Japan

260

311

182

190

155

142

1.5

1.4

3.4

2.0

-1.4

-4.5

Low & middle income

61

69

43

66

World 27

45

13

11

East Asia & Pacific

73

116

64

124

43

86

6

11

Europe & Central Asia

..

36

..

36

..

25

..

11

Latin America & Carib.

59

38

25

30

18

21

22

15

Mid. East & N.Africa

69

70

62

62

30

37

14

10

South Asia

49

51

41

53

25

36

13

8

Sub-Saharan Africa

57

77

33

34

17

14

12

10

High Income

132

174

93

102

..

77

2

1

World

121

152

83

92

..

68

10

8.5

East Asia

Note: Two dots (..) stand for "Data not available" Sources : (1) World Development Indicators 2002, World Bank. (2) World Development Report 2002, World Bank.

48

Table-16 Comparative statement on Foreign Investment regime in selected Asian countries Country 1. India

2. Bangladesh 3.Myanmer 4.Nepal 5.Pakistan 6. Sri Lanka 7.South Korea 8.Singapore 9.Indonesia 10.Malaysia 11.Philippines

12.Thailand 13.Vietnam 14. China

15.Hong Kong 16.Taiwan 17.Japan 18.Lao, PDR

Sectors allowed Areas of 100% foreign for Foreign equity Direct Investment All except defense, 100% EOUs, FTZ, agriculture, Planta- EPZ, power, technology tion, atomic energy, parks, hospitals, rail transport shipping, priority areas All except arms, All allowed sectors drugs, forestry, nuclear power, rail Selected areas All allowed sectors, minimum of 35% All sectors Projects with FDI above Rs.20 million All except defense, In any business alcoholic beverage All areas except All allowed sectors broking, retail and personal services All sectors except All allowed sectors banned/ restricted All sectors All areas except public utilities, media, telecom and transport All sectors except FDI of at least $50 mln, retail trade and EOUs, designated advertising sectors and locations All sectors Designated sectors All sectors except 100% EOUs and media, retail trade, designated sectors engineering and accountancy All sectors except Over 80% exports, negative list designated sectors and locations All sectors except All allowed sectors, minerals, telecom, Minimum of 30% aviation, shipping All except public All allowed sectors, utilities, leasing, Minimum of 25% real estate, trust, transport All sectors except All sectors except broadcasting banking All sectors except All sectors except prohibited list restricted list All sectors except All sectors except arms,environment, prohibited list related industries Selected sectors All allowed sectors

49

Duration of FDR Unlimited

Local content obligation Abolished since 1991

Export obligations

Unlimited

Value addition for EOUs No

None except for 100% EOUs None except for EOUs No

Unlimited

No

No

Unlimited

No

No

Unlimited

No

No

Unlimited

No

No

Unlimited

No

No

30 years

51% in 20 years

No

Unlimited Unlimited

No No

No No

Unlimited

51% in 5 yrs in allied and agriculture No

No

10-30 years

No

No

Unlimited

No

No

Unlimited

No

No

Unlimited

No

No

15 years

No

No

Unlimited

20 years

No

References Acharya, Shankar (1999) Economic consequences of economic reforms, Ministry of Finance, New Delhi. Chopra, Ajay; Charles Collyns, Richard Hemming, Karen Parker, Woosik Chu and Oliver Fratzscher (1995) India: Economic Reform and Growth, International Monetary Fund, Washington, December 1995. Das, Tarun (1993a) Structural Reforms and Stabilisation Policies in India – Rationale and Medium Term Outlook, pp.20-56, in Economic Liberalisation and its Impact, edited by SP Gupta, Indian Council for Research on International Economic Relations (ICRIER), Macmillan India Limited, Delhi, 1993. Das, Tarun (1993b) Macro-economic Framework, Special Economic Zones and Foreign Investment in India, Ad-Hoc Working Group on Investment and Financial Flows, pp.1-75, TD/B/WG.1/Misc.3/ Add.3, UNCTAD, United Nations, Geneva, 1993. Das, Tarun (1994) Public Sector Reforms in India and their Impact on Productivity and Efficiency of the Public Sector Enterprises, Ministry of Finance, New Delhi, Sept 1994. Das, Tarun (1996a) Indian Planning Model – an evaluation of its scope and relevance in the context of ongoing reforms and liberalisation, pp.1-30, Institute of Economic Growth, New Delhi, March 1996. Das, Tarun (1996b) Policies and Strategies for Promoting Private Sector’s Role in Industrial and Technological Development Including Privatisation in the Asian Economies, pp.1-171, ST/ESCAP/1696, United Nations, New York, 1996. Das, Tarun (1997) Technology Transfer- Growth Nexus Towards Greater Regionalisation And Complementation of Manufacturing Production and Technology Upgrading, pp.1-258, ESCAP, United Nations, Bangkok, October 1997. Das, Tarun (1999a) East Asian Economic Crisis and Lessons for External Debt Management, pp.77-95, in External Debt Management- Issues, Lessons and Preventive Measures, edited by A. Vasudevan, Reserve Bank of India, Mumbai, April 1999. Das, Tarun (1999b) Fiscal Policies for Management of External Capital Flows, pp. 194-207, in Corporate External Debt Management, edited by Jawahar Mulraj, The Credit Rating Information Services of India Ltd. (CRISIL), Bombay, December 1999. Das, Tarun (2000) Sovereign Debt Management in India, pp.561-579, in Second Sovereign Debt Management Forum: Compilation of Presentations, Published by the World Bank, Financial Products and Financial Department, Washington, 2000.

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Das, Tarun (2002a) Implications of Globalisation on Industrial Diversification Process and Improved Competitiveness of Manufacturing in ESCAP Countries pp.ix+1-86, ESCAP, Bangkok, ST/ESCAP/2197, UN Publications Sales No.E.02.II.F.52, ISBN: 92-120116-0, March 2002. Das, Tarun (2002a) Management of Pubic Debt in India, jointly with Usha Thorat and Charan Singh of the Reserve Bank of India, pp.90-110, in Accompanying Document to the Guidelines for Public Debt Management, International Monetary Fund, Washington, October 2002. Gupta, S. P. (1993) Liberalisation: Its Impact on the Indian Economy, Indian Council for Research on International Economic Relations (ICRIER), Macmillan India Limited, Delhi, 1993. International Monetary Fund (2001) India- Recent Economic Developments and Selected Issues, IMF, Washington, June 2001. Jalan, Bimal (2002a) India's Economy in the Next Millennium: selected Essays, UBS Publishers' Distributors Pvt. Ltd., New Delhi, 2002. Jalan, Bimal (2002b) Mid-Term Review of Monetary and Credit Policy for the Year 2002-2003, Reserve Bank of India, 29 October 2002. Kumar, Nagesh (2000) Indian Economy under Reforms: An Assessment of Economic and Social Impact, Bookwell, New Delhi, 2000. Ministry of Finance (2002a) Implementation of Budget Announcements 20001-200, Ministry of Finance and Company Affairs, 28 February 2002. Ministry of Finance (2002b) Mid Year Review, Ministry of Finance and Company Affairs, November 2002. Planning Commission (2001) Approach Paper to the Tenth Five-Year Plan (2002-2007), New Delhi, September 2001. Reserve Bank of India (2002a) The Annual Report, RBI, Mumbai, September 2002. Reserve Bank of India (2002b) The Process of Globalisation in India: Its Impact, Lessons and Policy Changes, RBI, Mumbai, October 2002. Virmani, Arvind (2001) India's 1990-91 Crisis: Reforms, Myths and Paradoxes, Planning Commission, Government of India, December 2002. World Bank (1995) Economic Development in India: Achievements and Challenges, Washington D.C., October 1995. World Bank (1998) India: Reforming for Growth and Poverty Reduction, Washington D.C., May 1998. World Bank (2000) India: Reducing Poverty, Accelerating Development, Oxford University Press, 2000.

51