Commercial Department Embassy of Israel New Delhi growth outlook is positive due to a young population and corresponding low ... according to Technopak's Textile and Apparel ... moving

India's Economy Report

Commercial Department Embassy of Israel

New Delhi

January 2013

Embassy of Israel

New Delhi – India

Commercial Department

3 Aurangzeb Road, New Delhi –110011 | Tel : +91.11.30.414.518 | Fax : +91.11.23.015.304 Website: http://itrade.gov.il/india

e-mail: [email protected]

Contents 1. General ........................................................................................................................................ 3

2. Doing Business in India ................................................................................................................ 3

3. Growth Potential ......................................................................................................................... 5

4. Economic Journey FY12 ............................................................................................................... 7

5. 12th Five Year Plan .................................................................................................................... 16

6. India’s International Trade ........................................................................................................ 26

7.India's Ranking in Global Competitiveness Index ....................................................................... 32

8.India Economic Statistics and Indicators – Forecast 2013 ......................................................... 35

9 Recent Reforms being taken by the Government of India: ........................................................ 37

10.Free Trade Agreements ............................................................................................................ 40

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1. General India is developing into an open-market economy, yet traces of its past autarkic policies

remain. Economic liberalization, including industrial deregulation, privatization of state-

owned enterprises, and reduced controls on foreign trade and investment, which began in

the early 1990s and has served to accelerate the country's growth, which has averaged more

than 7% per year since 1997. India's diverse economy encompasses traditional village

farming, modern agriculture, handicrafts, a wide range of modern industries, and a

multitude of services. Slightly more than half of the work force is in agriculture, but services

are the major source of economic growth, accounting for more than half of India's output,

with only one-third of its labor force. India has capitalized on its large educated English-

speaking population to become a major exporter of information technology services and

software workers. In 2010, the Indian economy rebounded robustly from the global financial

crisis - in large part because of strong domestic demand - and growth exceeded 8% year-on-

year in real terms. However, India's economic growth in 2012 slowed because of persistently

high inflation and interest rates and little progress on economic reforms. High international

crude prices have exacerbated the government's fuel subsidy expenditures contributing to a

higher fiscal deficit, and a worsening current account deficit. Little economic reform took

place in 2012 largely due to corruption scandals that have slowed legislative work. India's

medium-term growth outlook is positive due to a young population and corresponding low

dependency ratio, healthy savings and investment rates, and increasing integration into the

global economy. India has many long-term challenges that it has not yet fully addressed,

including widespread poverty, inadequate physical and social infrastructure, limited non-

agricultural employment opportunities, scarce access to quality basic and higher education,

and accommodating rural-to-urban migration.

2. Doing Business in India

The fear of an economic slowdown has turned to be a real one, as for the first time in recent

months, India’s industrial economy has actually shrunk, which may lead to job cuts, high

inflation and more bearish stock markets. In fact, the Confederation of Indian Industry (CII)

has warned of job losses and appealed for urgent measures to tackle the slowdown after the

Index of Industrial Production fallen to minus 5.1 percent in October. The CII further said a

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lack of investments can act as a drag on growth and that a continued decline in the mining

sector can have consequences on livelihoods. Economic experts say the manufacturing

sector is likely to see job losses and warned that inflation will continue to stay high even as

the stock markets may continue to be in bear grip.

The industrial output was 1.9 percent in the month of September and the fall comes after a

sustained slowdown over the past few months, led by a steep fall in production of almost

sectors, particularly manufacturing, mining and capital goods. The biggest fall has come in

the capital goods as well as in the manufacturing sector and mining. The capital goods

growth is at minus 25 percent while manufacturing activity has declined to minus 6 percent

from 2.1 percent a month ago. Factory output, as measured by the Index of Industrial

Production (IIP), had grown by 11.3 percent in October 2010. The negative growth in factory

output pulled down the BSE Sensex by 343 points or 1.12 percent on December 12 to below

the 16,000 level after two weeks. The Sensex, which had lost 664 points in the past two

trading sessions, fell further by 343.11 points to end the day at 15,870.35, closing below the

16k level after November 25. The BSE 30-share benchmark has lost over 1,000 points in the

last three sessions, eroding investor wealth by nearly Rs. 3 lakh crore. The broad-based

National Stock Exchange index Nifty has also lost 102.10 points or 2.10 percent to 4,764.60

on December 12. Though, Prime Minister’s Economic Advisory Council Advisor C.

Rangarajan hoped that the GDP growth will still be between 7-7.5 percent, it looks hard to

achieve due to lack of corrective measures on the part of the UPA government. With the

headline inflation remained above the 9 percent-mark since December 2010, the Reserve

Bank has hiked interest rates 13 times since March, 2010, to tame inflation. India Inc., had

attributed the slowdown to rising interest rates, which have led to an increase in the cost of

borrowing, thus hindering fresh investment. Some leading industrialists at the annual Indian

summit of World Economic Forum have already alleged that the Central government has

been suffering from policy paralysis.

International Finance Corp. & World Bank Group1:

This table summarizes Doing Business 2013 data for India. The first table lists the overall

"Ease of Doing Business" rank (out of 185 economies) and the rankings by each topic. The

1 http://www.doingbusiness.org/data/exploreeconomies/india

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rest of the tables summarize the key indicators for each topic and benchmark against

regional and high-income economy (OECD) averages.

3. Growth Potential 2 Emerging economies India and China are leading the global economy on a '32-62-72' growth

path, according to Gerard Lyons, Chief Economist, Standard Chartered Bank. "Despite the

crisis in the West, the world economy continues to grow, led by the likes of China and India,"

as per Lyons. Lyons used the numeric phrase '32-62-72' for evolving economic size of the

world. Explaining the phrase, the Chief Economist said the global economy had increased

from US$ 32 trillion in 2000 to just under US$ 62 trillion on the eve of the crisis and, in

nominal terms, it is set to reach US$ 72 trillion at the end of this year.

Information technology (IT) spending in the Indian manufacturing sector is expected to grow

to US$ 8.78 billion by 2016, registering a cumulative average growth rate of 14.5 per cent

2 http://www.ibef.org/artdispview.aspx?in=36&art_id=32382&cat_id=140&page=2

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between 2012 and 2016, according to a report by IDC Manufacturing Insights. The sector

with the highest IT spends in the Indian manufacturing sector in 2012 is automotive, which is

followed by chemicals and consumer products.

India's domestic IT spend is valued at US$ 30.4 billion, out of which Banking, Financial

Services and Insurance (BFSI) sector contributes to 11.1 per cent, as per a study conducted

by advisory firm, Zinnov.

The Indian application development software market is expected to cross US$ 227 million in

2012, registering an increase of 22.6 per cent over 2011, according to a study by Gartner.

India has witnessed increased transaction activity and retailer expansion in the first quarter

of 2012. Leading brands and retailers pursued expansion plans aggressively, increasing their

presence across key retail hubs, as per CBRE's latest report titled 'India Retail Market view'.

The Indian pharmaceutical market is expected to grow at a compound annual growth rate

(CAGR) of 15.3 per cent during 2011-12 to 2013-14, according to a Barclays Capital Equity

Research report on India Healthcare & Pharmaceuticals.

The country is rapidly becoming a preferred destination for international companies,

according to Electric Lamps and Components Manufacturers Association of India (ELCOMA).

Lighting demand in India has registered a growth of 12-15 per cent a year in the last five

years.

The US$ 89 billion Indian textile and apparel industry would grow 9.5 per cent to become

US$ 221 billion by 2021, according to Technopak's Textile and Apparel Compendium 2012.

India has witnessed increased market activity in the first half of 2012, as per a report 'India

Logistics Market View'. Some of the tier II and tier III cities have emerged as favored

destinations for development of logistics parks and warehouses in India. In addition, fast

moving consumer good (FMCG) majors, white goods and consumer electronics firms are on

an expansion spree and are increasing their footprint in India.

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India continues to urbanize at a strong pace driven by a combination of up trending

consumption, robust job creation and growing financial penetration, according to Morgan

Stanley's proprietary Alpha Wise City Vibrancy Index. The report reveals that Bengaluru,

Chandigarh, Hyderabad, Pune and Chennai are the top 5 vibrant cities.

4. Economic Journey FY12

Gross Domestic Product

The Gross Domestic Product (GDP) in India expanded 0.80 percent in the second quarter of

2012 over the previous quarter. GDP Growth Rate in India is reported by the OECD.

Historically, from 1996 until 2012, India GDP Growth Rate averaged 1.65 Percent reaching an

all-time high of 6.10 Percent in March of 2010 and a record low of -1.50 Percent in March of

2004. The Gross Domestic Product (GDP) growth rate provides an aggregated measure of

changes in value of the goods and services produced by an economy. India's diverse

economy encompasses traditional village farming, modern agriculture, handicrafts, a wide

range of modern industries, and a multitude of services. Services are the major source of

economic growth, accounting for more than half of India's output with less than one third of

its labor force. The economy has posted an average growth rate of more than 7% in the

decade since 1997, reducing poverty by about 10 percentage points.

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GDP Annual Growth Rate

The Gross Domestic Product (GDP) in India expanded 5.50 percent in the second quarter of

2012 over the same quarter of the previous year. GDP Annual Growth Rate in India is

reported by the Ministry of Statistics and Program Implementation. Historically, from 2004

until 2012, India GDP Annual Growth Rate averaged 8.13 Percent reaching an all-time high of

10.10 Percent in September of 2006 and a record low of 5.30 Percent in March of 2012. The

annual growth rate in Gross Domestic Product measures the increase in value of the goods

and services produced by an economy over the period of a year. Therefore, unlike the

commonly used quarterly GDP growth rate the annual GDP growth rate takes into account a

full year of economic activity, thus avoiding the need to make any type of seasonal

adjustment. This page includes a chart with historical data for India GDP Annual Growth

Rate.

Inflation Rate

The inflation rate in India was recorded at 7.24 percent in November of 2012. Inflation Rate

in India is reported by the Ministry of Statistics and Program Implementation. Historically,

from 1969 until 2012, India Inflation Rate averaged 7.75 Percent reaching an all-time high of

34.68 Percent in September of 1974 and a record low of -11.31 Percent in May of 1976. In

India, the wholesale price index (WPI) is the main measure of inflation. The WPI measures

the price of a representative basket of wholesale goods. In India, wholesale price index is

divided into three groups: Primary Articles (20.1 percent of total weight), Fuel and Power

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(14.9 percent) and Manufactured Products (65 percent). Food Articles from the Primary

Articles Group account for 14.3 percent of the total weight. The most important components

of the Manufactured Products Group are Chemicals and Chemical products (12 percent of

the total weight); Basic Metals, Alloys and Metal Products (10.8 percent); Machinery and

Machine Tools (8.9 percent); Textiles (7.3 percent) and Transport, Equipment and Parts (5.2

percent).

Industrial Production

Industrial Production in India increased 8.20 percent in October of 2012 over the same

month in the previous year. Industrial Production in India is reported by the Ministry of

Statistics and Program Implementation. Historically, from 1994 until 2012, India Industrial

Production averaged 7.23 Percent reaching an all-time high of 20 Percent in November of

2006 and a record low of -7.20 Percent in February of 2009. In India, industrial production

measures the output of businesses integrated in industrial sector of the economy such as

manufacturing, mining, and utilities.

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Currency – Indian Rupee

The USD/INR spot exchange rate appreciated 1.4900 or 2.75 percent. Historically, from 1973

until 2012, the USDINR averaged 31.2300 reaching an all-time high of 57.1200 in June of

2012 and a record low of 7.1900 in March of 1973.

After achieving gain over the US Dollar in two consecutive months, rupee again weakened in

Oct 2012 as the effect of domestic reform measures faded away and RBI indicated no

monetary easing before Jan 2013 on inflation concern. Moreover, parliamentary approval

for some of the reform measures remained uncertain. On the global front, US Dollar

gathered strength ahead of US election as the economy showed some signs of faster

recovery than expected and US Fed assured to support the recovery process. Rupee dropped

by 1.8% (SBI closing rate) during the month.

Money Supply

Money Supply in India increased to 79476.20 INR Billion (USD 1471 Bn) in November of

2012 from 79003.10 INR Billion (USD 1463 Bn) in October of 2012. Money Supply in India is

reported by the Reserve Bank of India. Historically, from 1972 until 2012, India Money

Supply averaged 12841.9 INR Billion(USD 238 Bn) reaching an all-time high of 79476.2 INR

Billion ( USD 1471 Bn) in November of 2012 and a record low of 123.5 INR Billion (USD 2.28

Bn) in January of 1972.

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Balance of Trade

India recorded a trade deficit of 1056.48 INR Billion(USD 19.56 Bn) in November of 2012.

Balance of Trade in India is reported by the Directorate General of Commerce. Historically,

from 1978 until 2012, India Balance of Trade averaged -105.89 INR Billion(USD 1.96 Bn)

reaching an all-time high of 13.91 INR Billion (USD .25 Bn) in April of 1991 and a record low

of -1111.46 INR Billion (USD 20.58 Bn) in October of 2012. India is leading exporter of gems

and jewelry, textiles, engineering goods, chemicals, leather manufactures and services. India

is poor in oil resources and is currently heavily dependent on coal and foreign oil imports for

its energy needs. Other imported products are: machinery, gems, fertilizers and chemicals.

Main trading partners are European Union, The United States, China and UAE.

Exports

Exports in India decreased to 1221.48 INR Billion (USD 22.62 Bn) in November of 2012 from

1232.64 INR Billion (USD 22.82 Bn) in October of 2012. Exports in India are reported by the

Directorate General of Commerce. Historically, from 1978 until 2012, India Exports averaged

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223.97 INR Billion (USD 4.14 Bn) reaching an all-time high of 1421.73 INR Billion(USD 26.32

Bn) in March of 2012 and a record low of 3.75 INR Billion(USD 0.07 Bn) in May of 1978.

Exports amount to 22% of India’s GDP. Gems and jewelry constitute the single largest export

item, accounting for 16 percent of exports. India is also leading exporter of textile goods,

engineering goods, chemicals, leather manufactures and services. India’s main export

partners are European Union, United States, United Arab Emirates and China. This page

includes a chart with historical data for India Exports.

Imports

Imports in India decreased to 2277.96 INR Billion (USD 42.18 Bn) in November of 2012 from

2344.10 INR Billion(USD 43.4 Bn) in October of 2012. Imports in India are reported by the

Directorate General of Commerce. Historically, from 1978 until 2012, India Imports averaged

331.35 INR Billion (USD 6.13 Bn) reaching an all-time high of 2344.10 INR Billion(USD 43.4

Bn) in October of 2012 and a record low of 4.98 INR Billion (USD 0.09 Bn) in April of 1978.

India is poor in oil resources and is currently heavily dependent on coal and foreign oil

imports for its energy needs. Other imported products are: machinery, gems, fertilizers and

chemicals. Main import partners are European Union, Saudi Arabia and United States.

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India Foreign Trade Trend3

Exports, in US dollar terms during September 2012 decreased by 10.8 percent and imports

increased by 5.1 per cent over September 2011. Oil imports increased by 30.7 per cent and

non-oil imports decreased by 4.5 per cent during September 2012 over September 2011.

India Foreign Trade in USD Billions

FY

2006

FY

2007

FY

2008

FY

2009

FY

2010

FY

2011

FY

2012

Export 103 126 163 185 179 251 305

Import 149 186 252 304 288 370 489

Total 252 312 415 489 467 621 794

Deficit 46 60 89 119 109 119 184

3 http://commerce.nic.in/eidb/default.asp

http://commerce.nic.in/eidb/default.asp

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Major Import Items in USD Billions in FY 2012

Petroleum Crude 155

Gold & Jewelry 62

Electronic Goods 33

Pearls & Precious Stones 31

Non Electrical Machinery 30

Organic & Inorganic Chemicals 19

Coal, Coke 17

Transport Equipment 14

Misc. Ores & products 13

Iron & Steel 12

0

100

200

300

400

500

600

700

800

FY 2006 FY 2007 FY 2008 FY 2009 FY 2010 FY 2011 FY 2012

India Foreign Trade All figures in Billion US $

Export

Import

Total

Deficit

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Top Import Sources FY 2012 in USD Billion

China 58

UAE 36

Switzerland 32

Saudi 31

USA 23

Iraq 19

Kuwait 16

Germany 16

Australia 15

Indonesia 15

Israel 2.5

Overall Economic Prospect: (Outlook - Stable) Despite the rising risk of political and

economic policies, the overall economic outlook of India in the long run is still intact. There

could be a greater risk of high fiscal deficit followed by the increase in current account

deficit due to sharp decline in Indian Rupee and rise in oil prices, which will increase reduce

the revenue to the government. Tighter monetary policy and a modest reduction in the

deficit will help cool demand somewhat. After moderating towards the end of 2010,

Petroleum Crude 40%

Gold & Jewellery 16%

Electronic Goods 9%

Pearls & Precious Stones

8%

Non Elecrical Machinery

8%

Organic & Inorganic Chemicals

5%

Coal, Coke 4%

Transport Eq 4%

Misc Ores & products

3% Iron & Steel 3%

Major Import Items in FY 2012

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inflation has veered up again and remains high. Moreover, inflationary pressures have

become more generalized, with non-food prices accelerating.

Details 2011 2012 2013

Real GDP Growth 6.9 4.4 6.5

Inflation 8 8.2 7

Consumer Price Index 8.4 10 7.7

Wholesale Price Index (WPI) 8.9 7.6 6.7

Short-term Interest Rate 8.1 7.9 6.6

Long-term Interest Rate 8.4 8.3 8

Fiscal Deficit (per cent of GDP) -8.2 -8.5 -8.1

Current Account Deficit (per cent of

GDP)

-4.2 -3.2 -3.1

Data Source: OECD, World Bank, VMW Analytic Services and IMF.

Ratings and Economic Outlook provided by UNIDOW Financial Intelligence.

5. 12th Five Year Plan4

The Government of India approved the 12th Five-Year Plan (2012-17) document that aims to

achieve annual average economic growth rate of 8.2%, down from 9% envisaged earlier, in

view of fragile global recovery. In view of the ongoing global problems, the average annual

growth target for the 12th Plan has been scaled down to 8.2% from 9% envisaged in the

Approach Paper to the 12th Plan. During the 11th Plan (2007-12), India has recorded an

average economic growth rate of 7.9%( lower than the 9 per cent targeted in 11th Plan).

Highlights of 12th Five Year Plan are:

4% agriculture sector growth,

manufacturing sector has been targted at 10 %,

Estimated Size of Plan is Rs.47.7 Lakh crore

Estimated Poverty Alleviation from current 30% to 27%.

4 Source: http://planningcommission.nic.in/plans/planrel/12thplan/pdf/vol_1.pdf

http://planningcommission.nic.in/plans/planrel/12thplan/pdf/vol_1.pdf

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The Eleventh Five Year Plan (2007-08 to 2011-12) had aimed at achieving faster and more

inclusive growth. Rapid GDP growth, targeted at 9.0 per cent per annum, was regarded

necessary for two reasons: first, to generate the income and employment opportunities that

were needed for improving living standards for the bulk of the population; and second, to

generate the resources needed for financing social sector programs, aimed at reducing

poverty and enabling inclusiveness. The economy has performed well on the growth front,

averaging 8.2 per cent in the first four years.

Growth in 2011-12, the final year of the Eleventh Plan was originally projected at around 9.0

per cent continuing the strong rebound from the crisis, which saw an 8.5 per cent growth in

2010-11. Instead, the economy actually slowed down somewhat in 2011-12 compared to the

previous year – a phenomenon common to all major economies reflecting the fact that 2010

was a rebound from depressed levels in 2009. Growth in 2011-12 is likely to be around 8.0

per cent. The economy is therefore, likely to achieve an average GDP growth of around 8.2

per cent over the Eleventh Plan period, which is lower than the 9.0 per cent targeted

originally, but higher than the 7.8 per cent achieved in the Tenth Plan. This implies a nearly

35 per cent increase in per-capita GDP during this period. It has also led to a substantial

increase in government revenues, both at the Centre and the States, resulting in a significant

step-up of resources

for the programs aimed at inclusiveness. A healthy increase in aggregate savings and

investment rates, particularly in the private sector, testifies to the strength of our economy

as it enters the Twelfth Plan period. The slowdown in 2011-12 is a matter of concern, but

can be reversed if the investment climate is turned around and fiscal discipline is

strengthened.

Inter-State and Inter-Sectorial Variations

One important feature of the growth experienced in the Eleventh Plan, which is relevant for

Inclusiveness is that high rates of economic growth have been more broadly shared than

ever before across the States. While most States have shown sustained high rates of growth,

several of the economically weaker States have demonstrated an improvement in their

growth rates. Amongst them are Bihar, Orissa, Assam, Rajasthan, Chhattisgarh, Madhya

Pradesh, Uttarakhand and to some extent Uttar Pradesh. No State has averaged GSDP

growth of less than 6.0 per cent during the Eleventh Plan period. While the economically-

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weaker states are catching up in growth rates, there is growing concern about the

backwardness of individual districts. The Backward Regions Grant Fund (BRGF) and various

other regional initiatives have been specially designed to address this problem.

Progress in Reducing Poverty

Reducing poverty is a key element in our inclusive growth strategy and there is some

progress in

that regard. According to previous official poverty estimates, the percentage of the

population living below the poverty line had declined by 8.5 percentage points between

1993-04 and 2004-05. Thus, poverty declined at roughly 0.8 percentage points per year

during the 11 year period before the Eleventh Plan. The Eleventh Plan had set a more

ambitious target of achieving a decline in poverty ratio of 2 percentage points per year.

While the actual performance in this regard was below this target, it was better than it was

in the earlier decade. Preliminary estimates using the latest NSS survey for 2009-10 suggest

that the percentage of the population in poverty declined, at a faster pace than before, by

approximately one percentage point per annum, during the five-year period 2004-05 to

2009-10. Since 2009-10 was a drought year, and poverty in that year could have increased

temporarily, the underlying rate of decline is probably more than one percentage point per

year. It is also possible that the pace of poverty reduction accelerated in the last two years of

the Eleventh Plan period, since by then several Eleventh Plan programs aimed at increasing

inclusiveness would have begun to have a fuller impact. A summary assessment is that the

pace of poverty reduction has accelerated, though it may still be short of the target.

Nevertheless, it is heartening to note that looking ahead; India is well poised to meet the

Millennium Development Goal target of 50 per cent reduction of poverty between 1990 and

2015. The largest numbers of poor, primarily landless workers, are in rural areas and the

majority of them still rely on farm work for their livelihood. It is comforting to see that

during the period 2007-10 (calendar years), the average real wage rates increased by 16.0

per cent at the all India level. The growth was the fastest in:

Andhra Pradesh (42%) and

Orissa (33%).

Even in states like Bihar and Uttar Pradesh, real farm wages went up by 19 and 20

per cent respectively, over the three year period.

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Plan Programs for Inclusiveness

The Eleventh Plan gave a special impetus to several programs aimed at building rural and

urban infrastructure and providing basic services with the objective of increasing

inclusiveness and reducing poverty. Some of these programs were new, while others

augmented existing initiatives.

Most of these programs are Centrally Sponsored Schemes (CSS), which are implemented by

State Government agencies, but are largely funded by the Central Government with a

defined State Government share. The total expenditure on these schemes by the Central

Government in 2011-12 (budget estimate) is Rs.188,573 crore, and the total expenditure

during the Eleventh Plan period is almost Rs. 700,000 crore. As one would expect, the

effectiveness of their implementation varies from State to State. Instances of misuse of

funds are frequently reported in studies and press reports, and these are a legitimate source

of concern that needs attention. However, it must be kept in mind that while instances of

misuse or leakage present serious problems, they do not necessarily imply that the overall

impact of the program is not positive. For example, Mahatma Gandhi National Rural

Employment Guarantee Act

(MGNREGA), which was started in 2006-07 and extended to cover the whole country during

the Eleventh Plan, has seen several instances of misuse of funds, but it has also notched up a

remarkable success. It must be admitted, however, that there has been a proliferation of

Centrally Sponsored Schemes over a period of years. This has led to poor implementation,

duplication, lack of convergence and sub-optimal results.

There is an urgent need to transform the system and sharply reduce the number of schemes.

This will enable more focused and effective implementation.

With a people-centered, demand-driven architecture, completely different from the earlier

rural

employment programs, MGNREGA has directly led to the creation of 987 crore person-days

of work since its inception in 2006-07. In financial year 2010-11, MGNREGA provided

employment to 5.45 crore households generating 253.68 crore person-days. It has also

successfully raised the negotiating power of agricultural labor, resulting in higher agricultural

wages, improved economic outcomes leading to reduction in distress migration. This is not

to deny that with better project design, implementation leakages could be greatly reduced;

and the assets so created could make a larger contribution towards increase in land

productivity.

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Reforms in implementation of Plan schemes are a priority and should receive focused

attention

in the Twelfth Plan. There is need for more flexibility in the design of the schemes to reflect

the ground realities across the States. Additional provisions should be considered for

encouraging innovation; also special efforts to promote convergence at the level of

implementation to prevent duplication and to create synergies that improve the quality of

outcomes.

Demographics

The country’s total population, as recorded in Census 2011, at 1.21 billion, is slightly more

than

what was forecasted. But the population growth rate has decelerated from 1.97 per cent per

annum between 1991 and 2001, to 1.64 per cent per annum between 2001 and 2011.

Notably, it declined in almost every State including those of the populous Gangetic plains.

The deceleration reflects a much-needed decline in the Total Fertility Rate (TFR) which is

estimated to have fallen to 2.6 per cent and is expected to decline to 2.3 per cent in the first

half of the present decade. The Southern States have reached, or are close to reaching, the

replacement level of fertility. Fertility levels in the northern states are also falling, but are

still much higher than the replacement level.

India has a younger population not only in comparison to advanced economies but also in

relation to the large developing countries. As a result, the labor force in India is expected to

increase by 32 per cent over the next 20 years, while it will decline by 4.0 per cent in

industrialized countries and by nearly 5.0 per cent in China. This ‘demographic dividend’ can

add to growth potential, provided two conditions are fulfilled. First, higher levels of health,

education and skill development must be achieved.

Second, an environment must be created in which the economy not only grows rapidly, but

also enhances good quality employment/livelihood opportunities to meet the needs and

aspirations of the youth.

Employment and Livelihood

For growth to be inclusive it must create adequate livelihood opportunities and add to

decent

employment commensurate with the expectations of a growing labor force. As noted above,

India’s young age structure offers a potential demographic dividend for growth, but this

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potential will be realized only if the extent and quality of education and skill development

among new entrants to the workforce

is greatly enhanced. One of the most remarkable things brought out by the 66th round

National Sample Survey Organization (NSSO) survey on Employment (2009-10) is that the

number of young people in education, and therefore, out of the workforce, has increased

dramatically causing a drop in the labor participation rate.2 The total number of young

working-age (15-24) people who continued in educational institutions doubled from about

30 million in 2004-05 to over 60 million in 2009-10.

The survey also shows that between 2004-05 and 2009-10, the overall labor force expanded

by only 11.7 million. This was considerably lower than comparable periods earlier, and can

be attributed to the much larger retention of youth in education, and also because of lower

labor force participation among working-age women. Over the same period, 18 million job

opportunities were created on current daily status basis. Thus, in absolute terms,

unemployment came down by 6.3 million; and the unemployment rate which had increased

from 6.06 per cent in 1993-94 to 7.31 per cent in 1999-2000 and further to 8.28 per cent in

2004-05, came down to 6.60 in 2009-10.

The lower growth in the labor force is not expected to continue in future and we can assume

that much larger numbers of educated youth will be joining the labor force in increasing

numbers during the Twelfth Plan and in the years beyond. The clear implication of this is

that the pace of job/ livelihood creation must be greatly accelerated. Part of this must come

from a significant boost to the manufacturing sector of the economy, such that it grows at a

rate that is faster than most other parts of the economy. However, this may not be enough,

in part because not all categories of manufacturing are labor intensive. Although GDP from

manufacturing increased at 9.5 per cent per annum between 2004-05 and 2009-10 along

with some increase in employment in the organized manufacturing sector, the survey

suggests that overall employment in manufacturing actually declined during this period. The

implied shake-out of

labor from the un-organized manufacturing sector needs to be examined in detail and

appropriate steps taken so that the obvious potential of the MSME sector as a source of

jobs/livelihoods is realized fully.

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Agriculture

A weakness in the economic performance thus far is that growth in the farm sector

(agriculture

and allied activities), though better than in the Tenth Plan, remains short of the 4.0 per cent

Plan

target. The farm sector has grown at an average rate of around 3.2 per cent during the first

four years of the Eleventh Plan and assuming conditions remain favorable in 2011, the

average farm sector growth in the Eleventh Plan period may be a little over 3.0 per cent. This

is a marked improvement from the average growth of about 2.0 per cent during the Tenth

Plan period. Still, with half of our population dependent on agriculture and allied activities,

we need faster farm sector growth to benefit poor farmers, many of whom are women. The

below target growth in this sector is one of the reasons for increase in food prices over the

last two years. Global development experience, especially from the BRIC countries, reveals

that one percentage point growth in agriculture is at least two to three times more effective

in reducing poverty than the same magnitude of growth emanating from non-agriculture

sector.

Since agriculture is a State subject, the Centre will have to work hand in hand with the States

to

bring coherence in policies and strategies. Overall investment in agriculture, which had

dipped to less than 10.0 per cent of agri-GDP in 2002-03 has been substantially raised and

today stands at more than 21.0 per cent of agri-GDP. Higher levels of investments in

agriculture, both by the public and private sector can yield much better results if the reforms

are undertaken to streamline not only the incentive structures for the farmers, but also the

institutional framework in which agriculture and related activities take place. Seeds and

irrigation are priority areas, which can be catalysts for raising productivity on the supply

side. On the demand side, there is urgent need to remove most of the controls that have

denied a unified and seamless all India market for most agri-products. Finding the most

effective ways of ushering in these changes must be a key priority area in the Twelfth Plan.

Health Care Sector

The Eleventh Plan had drawn attention to the fact that India’s health outcome indicators

continue to be weaker than they should be, at our level of development. The Plan had

therefore expressed the necessity of allocating additional resources to health and laid down

monitor able targets for parameters relating to Infant Mortality Rate (IMR), Maternal

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Mortality Rate (MMR), institutionalized delivery, extent of full immunization, etc. Data on

these parameters, available for the first three years of the Eleventh Plan, show some

improvement. The Infant Mortality Rate (IMR) fell from 57.0 per cent in 2006 to 50.0 per

cent in 2009. The percentage of deliveries in institutions increased from 54.0 per cent in

2006 to 73 per cent in 2009, while the Maternal Mortality Rate (MMR) came down by 32

points to 212 (2007-09). These are marked improvements but their rate of decline is lower

than what is needed for achieving the desired targets. We must accelerate the pace of

progress in this area in the Twelfth Plan.

In the Eleventh Plan, the total public expenditure on health in India by Centre and the States

was less than 1.0 per cent of GDP and it needed to be increased to 2.0 or 3.0 per cent. The

process has begun and the percentage is estimated to have increased to around 1.4 per cent

in 2011-12 (BE). If expenditure on drinking water and sanitation in rural areas, which are

critical for better health outcomes, is included, the percentage would be higher at 1.8 per

cent. Regardless, a larger allocation of resources will definitely be needed in the Twelfth Plan

to achieve the objective. We should aim to increase total health expenditure as percentage

of GDP to 2.5 per cent by the end of Twelfth Plan.

Education

The Eleventh Plan had articulated the need for expanding educational facilities and

improving

quality of education, as key instruments for achieving faster and inclusive growth. The Right

to Education (RTE) Act, which became operational in 2009, has laid a solid foundation on

which we need to build. A major achievement is that most children are now in school. The

ASER 2010 report shows that for the age group 6–14 years in all of rural India, the

percentage of children who are not enrolled in school has dropped from 6.6 per cent in 2005

to 3.5 per cent in 2010.

Infrastructure Development

Inadequate infrastructure was recognized in the Eleventh Plan as a major constraint on rapid

growth. The Plan had, therefore, emphasized the need for massive expansion in investment

in infrastructure based on a combination of public and private investment, the latter through

various forms of public-private partnerships.

The total investment in infrastructure which includes roads, railways, ports, airports,

electricity, telecommunications, oil gas pipelines and irrigation is estimated to have

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increased from 5.7 per cent of GDP in the base year of the Eleventh Plan to around 8.0 per

cent in the last year of the Plan.

Compared to other developing countries, India has been slow to urbanize, but the pace of

urbanization is expected to accelerate over the next two decades. The 2011 Census also

shows an increase in the urban population from 27.8 per cent in 2001 to 31.2 per cent in

2011, and it is likely to exceed 40.0 per cent by 2030. This would generate a heavy demand

for better quality infrastructure in urban areas, especially water, sewerage, public transport

and low cost housing. Since it takes time to create urban infrastructure, it is necessary to

have a sufficiently long term focus on urban planning in the Twelfth Plan.

The Energy Challenge

The energy needs of rapid growth will pose a major challenge since these requirements have

to be met in an environment where domestic energy prices are constrained and world

energy prices are high and likely to rise further. For the GDP to grow at 9.0 per cent,

commercial energy supplies will have to grow at a rate between 6.5 and 7.0 per cent per

year. Since India’s domestic energy supplies are limited, dependence upon imports will

increase. Import dependence in the case of petroleum has always been high and is projected

to be 80 per cent in the Twelfth Plan. Even in the case of coal, import dependence is

projected to increase as the growth of thermal generation will require coal supplies which

cannot be fully met from domestic mines.

Natural Resource Management – Water, Land and Forests

Economic development will be sustainable only if it is pursued in a manner which protects

the

environment. With acceleration of economic growth, these pressures are expected to

intensify, and we therefore, need to pay greater attention to the management of water,

forests and land.

Management of water resources poses increasingly difficult challenges that will require

attention in the Twelfth Plan. The total quantity of usable fresh water annually available in

India is fixed, but its demand from expanding agriculture and other sectors is increasing.

Water resources in many parts of the country are under severe stress leading to excessive

exploitation of ground water.

Agriculture accounts for 80.0 per cent of water needs at present, and there is considerable

scope for increasing efficiency of water use in this area.

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Normally, efficient use of scarce resources requires appropriate pricing, but pricing of water

is a

sensitive issue. This problem can be solved by providing ‘lifeline’ water supplies for drinking

and cooking at very low prices, while charging appropriately for additional water use by

domestic consumers.

The Global Context

India’s growth prospects depend largely on an ability to tackle supply side constraints in the

domestic economy, but they cannot be viewed in isolation from developments in the world

economy, if only because our economy is now much more globally integrated. The share of

exports of goods & services in GDP has increased from 14.0 per cent in 2000-01 to 22.0 per

cent in 2010-11 and India is now viewed as an important destination for FDI.

Global economic prospects are clouded with uncertainty. The world has avoided a prolonged

Down turn that was feared at one stage as a possible consequence of the 2008 crisis. The

industrialized countries have resumed positive growth after contracting in 2009, but growth

in these countries remain anemic with serious macro-economic imbalances and concerns

about sovereign debt. Emerging markets are growing much more robustly, and India has

been one of the leaders in this process. However, concern about sovereign debt and fiscal

unsustainability in industrialized countries not only weakens the prospects of an early return

to robust growth in these countries, but also creates uncertainty about the export markets

in industrialized countries. An adverse development globally, which affects India directly, has

been the rise in oil prices, and also the prices of other commodities, including food.

Economic management over the next two to three years will have to cope with this

uncertainty. Taking a longer view, however, the changes taking place in the world economy,

with a shift in economic strength towards emerging markets and especially in Asia, are

inherently favorable for India.

The important point emerging from these projections is that India has the potential to

become

the third largest GDP in the world in two decades. However, to realize this potential we must

ensure sustained rapid growth. China has grown around 10.0 per cent per year in real terms

for 30 years and is now expected to slow down. India is currently behind China, but the

evidence suggests that India has now developed the potential for sustained rapid growth

over the next two decades, provided appropriate supportive policies are put in place. These

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policies must promote and support changes in many sectors.

Our infrastructure, industrial sophistication, management of cities, and also management of

a whole range of knowledge promoting institutions, particularly the universities, will have to

change dramatically. Institutional changes will be necessary. These changes take time to

bring about, but it is important to begin now if we want the Indian economy to occupy its

rightful potential in the world.

Prospects for the Twelfth Plan

The message emerging from this overview is that the economy has gained in strength in

many

dimensions and is therefore well placed to achieve faster, sustainable and more inclusive

growth. Having achieved 8.2 per cent growth during the Eleventh Plan, it is reasonable to

aim at 9.0 per cent growth for the Twelfth Five Year Plan. As pointed out in Chapter 2, this is

a feasible target from a macro-economic perspective but it cannot be viewed as an assured

outcome. Global economic conditions are very uncertain and energy prices are likely to

remain high. To achieve rapid growth, the economy will have to overcome constraints posed

by limited energy supplies, increase in water scarcity, shortages in infrastructure, problems

of land acquisition for industrial development and infrastructure, and the complex problem

of managing the urban transition associated with rapid growth. Greater efforts also need to

be made in agriculture, health and education to ensure inclusion of the most excluded and

sometimes invisible parts of our population.

6. India’s International Trade5

Towards Increased Global Integration through Trade

India’s total merchandise trade increased over three-fold from US$ 252 bn in FY

2006 to

US$ 794 bn in FY 2012

Both exports and imports have trebled during the period

Trade-GDP ratio increased from 30.2% in FY 2006 to 42.9% in FY 2012

Exports-GDP ratio increased from 12.4% in FY 2006 to 16.5% in FY 2012

5 Source: Ministry of Commerce & Industry, Government of India

http://www.eximbankindia.com/fore-trade.pdf

http://www.eximbankindia.com/fore-trade.pdf

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New Delhi – India




Share of India in world merchandise export – 1.67% in 2011; Rank– 19 (up from 28th

in 2006)

India – Israel: Export Data

43.64

26.77

8.21

6.37

4.45

3.76 2.38

1.45 1.44 1.43

Israel's Export to India - FY 2012

Diamonds & Precious stones

Minerals, Chemicals, Fertilizers & Paints

Communication

Optics & Laboratory equipment

Mechanical & Electric Machinery &appliance

Base Metals, Stone products & Glass

Other

Medical equipment &Pharmaceutics

Electronics & Components

Transportation

Source: Israel’s Custom,

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New Delhi – India




Direction of exports moving towards the Southern countries, particularly Asia and Africa

region. Share of Asia, Africa and LAC regions increased sharply from 47% in 2001-02 to

62.7% in 2011-12; Of this, share of Asia region rose from 40% to 52% during this period.

Future trade flows to be geared towards the developing nations.

2,320

1,831

2,878 2,985

1,966

4,003

3,027

4,774 5,082

3,317

0

1,000

2,000

3,000

4,000

5,000

6,000

2008 2009 2010 2011 2012*

Israel - India's 2008-2012 Trade figures

,Source: Israel’s Custom היקף סחר מאזן מסחרי סכום יבוא סכום יצואNovember 2012

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New Delhi – India




India’s Major Trading Partners

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India’s Trade Basket

India’s Trade in Services

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New Delhi – India




India’s Direct Investment Flow

Diversified Regional ODI Flow 2012

Destination analysis of Indian ODI

flow reveals that the share of

developing and emerging countries

is relatively higher vis-a-vis that of

developed countries.

Mauritius was the largest

destination of Indian ODI in 2011-

12, followed by Singapore.

Other important ODI destination

among emerging markets include,

Australia, Netherlands, Panama, UK

and USA.

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New Delhi – India




7. India's Ranking in Global Competitiveness Index6

India ranks 59th overall, down three places from last year. Since reaching its peak at 49th in

2009, India has lost 10 places. Once ahead of Brazil and South Africa, India now trails them

by some 10 places and lags behind China by a margin of 30 positions. India continues to be

penalized for its disappointing performance in the areas considered to be the basic factors

underpinning competitiveness. The country’s supply of transport, ICT, and energy

infrastructure remains largely insufficient and ill-adapted to the needs of the economy

(84th).

Indeed, the Indian business community repeatedly cites infrastructure as the single biggest

hindrance to doing business, well ahead of corruption and bureaucracy. It must be noted,

however, that the situation has been slowly improving since 2006. The picture is even

bleaker

in the health and basic education pillar (101st). Despite improvements across the board over

the past few years, poor public health and education standards remain a prime cause of

India’s low productivity. Turning to the country’s institutions, discontent within the business

community remains high about the lack of reforms and the perceived inability of the

government to push them through. Indeed, public trust in politicians (106th) has been

weakening for the past three years. Once ranked a satisfactory 37th in this dimension, India

now ranks 70th. Meanwhile, the macroeconomic environment (99th) continues to be

characterized by large and repeated public deficits and the highest debt-to-GDP ratio among

the BRICS. On a more positive note, inflation returned to single-digit territory in 2011.

Despite these considerable challenges, India does possess a number of strengths in the more

advanced and complex drivers of competitiveness. This “reversed” pattern of development

is characteristic of India. It can rely on a fairly well developed and sophisticated financial

market (21st) that can channel financial resources to good use, and it boasts reasonably

sophisticated (40th) and innovative (41th) businesses.

6 Source: World Economic Forum

( http://www.weforum.org/issues/global-competitiveness )

http://www.weforum.org/issues/global-competitiveness

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India's Ranking in Global Competitiveness Index

Rank Entity Edition filter Value

1 Switzerland 2012-2013 5.721825731

2 Singapore 2012-2013 5.673013652

3 Finland 2012-2013 5.546050029

4 Sweden 2012-2013 5.527371748

26 Israel 2012-2013 5.015851961

59 India 2012-2013 4.320790911

144 Burundi 2012-2013 2.779489878

The Global Comp. Index

Performance wise India's Ranking in Global Competitiveness Index

Series Rank Value

GCI Global Competitiveness Index, 1-7 (best) 59 4.320791

Basic requirements 85 4.257153

Institutions 70 3.908555

Infrastructure 84 3.602199

Macroeconomic environment 99 4.252103

Health and primary education 101 5.265757

Higher education and training 86 3.96611

Goods market efficiency 75 4.205561

Labor market efficiency 82 4.24255

Financial market development 21 4.898939

Technological readiness 96 3.356862

Market size 3 6.239423

Business sophistication 40 4.312576

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Innovation 41 3.558677

GDP (US$ billions) 11 1676.143

Population (millions) 2 1250.232

GDP per capita (US$) 111 1388.78

GDP (PPP) 3 5.65

Efficiency Enhancers

Innovation and sophistication factors

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8. India Economic Statistics and Indicators – Forecast 20137

GDP (Constant Prices, National Currency) for India in year 2013 is INR 65,619.61 Billion. Real

GDP is expressed in billions of national currency units; the base year is country-specific.

GDP Growth (Constant Prices, National Currency) for India in year 2013 is 8.165 %. Annual

percentages of constant price GDP are year-on-year changes; the base year is country-

specific.

GDP Per Capita (Constant Prices, National Currency) for India in year 2013 is INR 51,843.84 .

GDP is expressed in constant national currency per person. Data are derived by dividing

constant price GDP by total population.

GDP Per Capita (Current Prices, US Dollars) for India in year 2013 is US$ 1,628.44 . GDP is

expressed in current U.S. dollars per person. Data are derived by first converting GDP in

national currency to U.S. dollars and then dividing it by total population.

Investment (% of GDP) for India in year 2013 is 41.052 %. Data are based on individual

countries' national accounts statistics. For many countries, the estimates of national saving

are built up from national accounts data on gross domestic investment and from balance of

payments-based data on net foreign investment.

Gross National Savings (% of GDP) for India in year 2013 is 38.318 %. Data are based on

individual countries' national accounts statistics. For many countries, the estimates of

national saving are built up from national accounts data on gross domestic investment and

from balance of payments-based data on net foreign investment.

Inflation, Average Consumer Prices (Indexed to Year 2000) for India in year 2013 is 214.204

(Index, Base Year 2000 = 100). Data for inflation are averages for the year, not end-of-period

data. The index is based on 2000=100.

7 http://www.economywatch.com/economic-statistics/country/India/year-2013/

http://www.economywatch.com/economic-statistics/country/India/year-2013/

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Inflation (End of Year Change %) for India in year 2013 is 4.246 %. Data for inflation are end

of the period, not annual average data.

Import Volume of All Items Including Goods and Services (Percent Change) for India in year

2013 is 9.395 %.

Import Volumes of Goods Only (Percent Change) for India in year 2013 is 9.265 %.

Export Volume of All Items Including Goods and Services (Percent Change) for India in year

2013 is 13.872 %.

Export Volumes of Goods Only (Percent Change) for India in year 2013 is 12.951 %.

Value of Oil Imports for India in year 2013 is US$ 135.752 Billions. Value is equal to the price

per unit of quantity of oil imports multiplied by the number of quantity units.

Value of Oil Exports for India in year 2013 is US$ 70.187 Billions. Value is equal to the price

per unit of quantity of oil exports multiplied by the number of quantity units.

Population for India in year 2013 is 1,265.72 Million .

Total Government Net Lending/ Borrowing (% of GDP) for India in year 2013 is -5.847 %.

Fiscal Year Gross Domestic Product, Current Prices for India in year 2013 is INR 115,953.30

Billions.

Current Account Balance (US Dollars) for India in year 2013 is US$ -56.337 Billion.

Current Account Balance (% GDP) for India in year 2013 is -2.733 %.

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9. Recent Reforms being taken by the Government of

India:8

The recent economic policy changes announced by India’s government on Sep. 14th 2012,

can come in at least two different ways. One allows a steady procession of changes, each

announced in turn, discussed, weighed for its merits, perhaps discussed in parliament,

eventually accepted and implemented with care and precision. With luck, a political

consensus is created around the changes, faults are found and corrected, then new ideas

can be addressed.

In India, at least for the past three years, and arguably for much longer, such an approach

has proved impossible. While the economy grew fast, politicians—both national and

regional—preferred to argue about spending revenues rather than promoting growth. Each

time Manmohan Singh, the prime minister, or his supporters, tried to raise an economic

reform, such as allowing foreign supermarkets on to Indian soil, the political rage grew

intolerable from opposition parties and the government’s own allies. Mr Singh, timid, elderly

and without robust backing from his party chief, Sonia Gandhi, would then back down.

Thus India’s way of promoting reforms has had to be different. Getting any political backing

for them has instead required a sharply slowing economy—growth is now down to nearer

5% a year, from a peak of 10%—investors who refuse to spend, a grim fiscal position and a

host of other alarming economic signs. And rather than announce changes piecemeal, the

government of Mr Singh has gone for a big bang, a rush of reforms. The political reaction

could be severe: but his boldness is both welcome and overdue.

On September 13th came an announcement of a small, but politically important, reduction

in diesel subsidies. Through state-owned firms the government has long kept the price of

diesel artificially low. But as market prices have soared, the subsidy bill has exploded,

helping to turn a bad fiscal situation into a dreadful one. India has been set to miss, by a

mile, its deficit targets.

8 http://www.economist.com/blogs/banyan/2012/09/indian-economic-reforms

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The 12% increase in the price of diesel that Indian drivers (and those with generators) are

now enduring will be politically difficult, but it is essential. It was the better-off who gained

most from costly fuel subsidies, while the fiscal problems hurt the economy as a whole.

Profligacy meant the central bank refused to cut interest rates, keeping credit pricey, so

deterring domestic investors and hurting growth. With some 13m new job-seekers entering

India’s market every year, a slower-growing economy squeezed the poor most. In the short

term, however, the rise in diesel prices will nudge up inflation too.

The next day, September 14th, brought more welcome changes. Once again the government

is pushing the idea that foreign supermarkets, like Wall-mart, will operate in India. Cleverly,

however, Mr Singh’s minister is leaving it to governments of individual states to decide what

happens in their own territories. And only larger cities will have the supermarkets, at least at

first. In addition, the foreigners will be required to improve logistics chains and much more.

The states run by Congress, Mr Singh’s party, will presumably toe the government line.

Others may prefer to wait and watch, but the chances are that all states will eventually

agree.

Congress should be able to spin this reform as benefiting Indian consumers, who have long

suffered from high food inflation. Better logistics, competitive shops, foreign expertise and

technology, all should in theory help to bring down food prices. Just as important for

Congress’s predominantly rural voters, the arrival of supermarkets can be presented as

helping Indian farmers too. Supermarkets may cut out the long chains of inefficient

middlemen, who are widely said to be so useless that they allow large quantities of fresh

produce to rot between the fields and the shops. The result could be welcome: higher prices

for farmers, and lower prices for consumers. Of course somebody will suffer: those

middlemen, the small-time traders. Their pain may be limited, assuming India’s domestic

market continues to keep growing. But in any case, thinks Congress, such traders typically

vote for the opposition Bharatiya Janata Party (BJP).

There’s more. Restrictions on “single brand” foreign investors, such as the Swedish furniture

chain IKEA, are being relaxed—foreigners can now own such outlets outright, without

needing local partners. They had already been told they could enter India, but only if they

sourced a large proportion of materials and supplies locally. Such restrictions will now be

eased.

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In other areas, too, investors should be pleased. The government will now let foreigners

invest more in India’s power sector (“trading exchanges”), in domestic broadcasting, and in

domestic aviation. The last sector had been booming in India, but local airlines have

floundered in the past year. To raise funds, too, the government plans a slew of

privatization, selling off government-owned chunks of equity in Hindustan Copper, in Oil

India, and other firms.

What now has to be seen is whether the political backlash overwhelms the government and

forces a reversal, as happened before. Or, just possibly, whether Congress is ready to bring

down its government on a point of principle—after all, Mr Singh has suggested that the

government should be "ready to go down fighting" on these reforms. In previous, more

timid, efforts to push changes, Congress had seemed woefully prepared for the anger and

resistance of its allies.

This time, crucially, the likes of Mamata Banerjee, the chief minister of West Bengal, who

helps prop up Mr Singh’s government in Delhi, will have to be allowed to pull off a delicate

act. As a populist who says she always has the interest of the poorest at heart, she ostensibly

opposes any liberalizing reforms. Thus she must be given space to harrumph and protest

against the changes. At the same time, perhaps sweetened by some decent pay-off behind

the scenes (public money for her state; a freeze on some debt repayments?) she needs the

cover to be able to quietly support Mr Singh’s changes. The fact that parliament has just

finished the monsoon session, and will not sit again for a couple of months, allows everyone

to avoid a no-confidence motion.

The position of the opposition, the BJP, is now delicate. It forced the boycott, in effect, of

parliament throughout most of the monsoon session. It may think of trying to block the

government reforms now (despite its own history of being in favor of a more market-

oriented approach to the economy) for the sake of pushing the idea of “policy paralysis” in

government. But it must also take care, both not to damage India’s main interest—getting

the economy revving again—and for not getting the blame itself if the economy does badly.

The lesson in India, such as with its reforms of 1991, is that it takes an economic crisis to get

politicians to believe that economic reform, and the pain of implementing them, are

worthwhile. Mr Singh, at last, seems ready to have another go and to push changes now. For

that he deserves applause, support and encouragement.

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Crucially, now, leading politicians have to throw their weight behind the prime minister. That

most importantly means the president of Congress, Sonia Gandhi, and her son and potential

leader-in-waiting, Rahul Gandhi. The reforms are being driven by Palaniappan Chidambaram,

the finance minister since July (and from 2004-08), but he needs backing from other wings of

the Congress party. The backlash may be strong, but Mr Singh and his supporters are

attempting to do the right thing. They deserve support.

10. Bilateral Agreements 9

India has ongoing discussions for Free Trade Agreements with many countries and regions.

The FTA’s are concluded / close to conclusion with mainly smaller nations like Nepal,

Bangladesh, Bhutan, Maldives, Mongolia, Mauritius, Sri Lanka, Chile, Pakistan, Myanmar,

Indonesia, Safta, Asean Group.

However India is also having current engagements with larger economies like Australia, New

Zealand, Korea, Singapore, EU, Canada, Russia.

India - Israel FTA is also under negotiations.

With the larger economies and developed world, it is observed that there are difficult points

on services, some commodities. The discussions are protracted and moving slow.

The list of concluded and ongoing FTA’s follows:

Agreements already concluded

Country Objective

Nepal REVISED AGREEMENT OF COOPERATION BETWEEN GOVERNMENT OF

INDIA AND THE GOVERNMENT OF NEPAL TO CONTROL UNAUTHORIZED

TRADE

Finland Economic Cooperation

SAFTA AGREEMENT ON SOUTH ASIAN FREE TRADE AREA (SAFTA)

Singapore Comprehensive Economic Cooperation Agreement

MALAYSIA Comprehensive Economic Cooperation Agreement

9 Source http://commerce.nic.in/trade/international_ta.asp

http://commerce.nic.in/trade/international_ta.asp

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Africa Global System of Trade Preferences

Chile Preferential Trade Agreement (PTA)

Afghanistan PREFERENTIAL TRADE AGREEMENT

Bhutan AGREEMENT ON TRADE, COMMERCE AND TRANSIT

JAPAN COMPREHENSIVE ECONOMIC PARTNERSHIP AGREEMENT

Korea Comprehensive Economic Partnership Agreement

MERCOSUR creating a free trade area

Nepal REVISED INDO-NEPAL TREATY OF TRADE

Sri Lanka FTA

SAARC SAARC AGREEMENT ON TRADE IN SERVICES

Nepal Treaty on Transit

Other Agreements/ Negotiations

Malaysia AGREEMENT TOWARDS IMPLEMENTING COMPREHENSIVE ECONOMIC

COOPERATION AGREEMENT

ASEAN Framework Agreement

Chile Framework agreement on Economic Cooperation

GCC States Framework Agreement

Thailand Framework Agreement

EU broad-based bilateral trade and investment agreement

USA Trade Policy Forum

Australia FTA Feasibility

BANGLADESH Trade Agreement

CEYLON TRADE AGREEMENT

Democratic People's Republic of

Korea

TRADE AGREEMENT

EU STRATEGIC PARTNERSHIP JOINT ACTION PLAN

Indonesia Feasibility Comprehensive Economic Cooperation Agreement (CECA)

MALDIVES TRADE AGREEMENT

Mangolia TRADE AGREEMENT

New Zealand Study for a Free Trade Agreement/Comprehensive Economic Cooperation

Agreement

PAKISTAN TRADING ARRANGEMENT

USA TERMS OF REFERENCE FOR THE INDIA-UNITED STATES COMMERCIAL

DIALOGUE

Russia Task Force for Comprehensive Economic Cooperation Agreement (CECA)

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Bangladesh Establishing Border ( Trade Centers )

INDONESIA Trade Agreement

VIET NAM Recognize each other as equal WTO trading partners

India's Current Engagements in RTAs

ASEAN Free Trade Agreement

Sri Lanka Comprehensive Economic Partnership Agreement (CEPA)

Thailand Comprehensive Economic Cooperation Agreement

Bangladesh-India-Sri Lanka-Thailand Multi-Sectoral Technical and Economic Cooperation

GCC Framework Agreement on Economic Cooperation

Mauritius Comprehensive Economic Cooperation and Partnership Agreement

SACU Preferential Trade Agreement

Singapore Comprehensive Economic Cooperation Agreement

Chile Framework Agreement to promote economic cooperation

MERCOSUR Preferential Trade Agreement

Pakistan Trading Arrangement

EU Broad Based Trade and Investment Agreement

EFTA broad-based Bilateral Trade and Investment Agreement

Developing countries Global System of Trade Preferences

APTA preferential tariff arrangement

New Zealand Free Trade Agreement / Comprehensive Economic Cooperation Agreement.

Canada Comprehensive Economic Partnership Agreement

Australia Comprehensive Economic Cooperation Agreement

Indonesia Comprehensive Economic Cooperation Agreement

Documents

Commercial Department Embassy of Israel New Delhi growth outlook is positive due to a young population and corresponding low ... according to Technopak's Textile and Apparel ... moving