Economy of India

India has one of the most dynamic economies worldwide. India has the fifth largest GDP in the world outrunning countries like France and the Great Britain.

Over ten years (1995-2004), India achieved 50-percent increase of industrial production and 65-percent increase of high-technology products export. In 2004, the GDP growth was 9,1%, the inflation was 4,6%, and the currency reserves increased up to US $ 119,3 billion and the foreign investments amounted US $ 3 billion

The country development strategy that was presented to Indian society in form of India: Vision – 2020 program determines strategic directions of the Indian economy development in the medium and long term. They are defined as follows: power industry (including nuclear power), the information technologies cluster (the core of the "new technological structure" of the national economy that is being established now), "strategic industries" (military industrial complex, air and space sector, aircraft industry, most sophisticated electronic engineering, nuclear industry, telecommunications, etc.). Development of those sectors is the highest priority for India.

The current economic climate in India is estimated as stable and developing. In Financial Year 2006/07, according to preliminary estimates of the Central Statistical Organization, the size of GDP at current prices reached $837.3 milliard (growth in benchmark prices in Financial Year 1999/2000 by 9.4%). Structure of GDP (Financial Year 2006/07): services (55.1%), industry (26.4%), farming (18.5%). Increase in rural production amounted to 2.7% (in Financial Year 2005/06 – 6.0%), in industry – 12.3% (9.3%) and in service sector – 13% (9.8%). It is forecasted that in Financial Year 2007/08 GDP will grow by 8.5%, agriculture production - by 3% (share in GDP will equal 17.5%), industry – by 9.3% (26.6%) and service sector – by 9.9% (55.9%).

The Indian government generally maintains financial stability of the country over the last few years. For a long period of time India has a deficit budget. In Financial Year 2006/07 the deficit of the state budget amounted to $34.4 milliard, or 2.7% of GDP.

In Financial Year 2006/07 inflation rate was 6.1% (in 2005/06 – 4.7%).

International reserves achieved $199.2 milliard at Financial Year –end 2006/07 (growth by 32.3% against Financial Year 2005/06).

In 2006 total foreign debt of India increased by 19.7% compared to 2005 and equaled $142.66 milliard.

National income per capita equals 32 117 Indian rupees in current prices ($723).

In Financial Year 2006/07 average currency rate of the Indian rupee is 44.4 Indian rupees per US dollar.

In Financial Year 2006/07 the volume of foreign direct investment (FDI) into the Indian economy reached $16.4 milliard (increase by 119% compared to Financial Year 2005/06). Main fields of investments are service sector, production of electrical equipment and cars, telecommunication, metallurgy, chemical industry and pharmaceutics.

The volume of foreign portfolio investment amounted to $9 milliard in 2006 (in 2005 – $10.4 milliard).

India not only attracts capitals from abroad but also in recent years it more and more actively invests funds into an economy of other countries. Main share of Indian investment goes to the USA, United Kingdom, France, Germany, Belgium, Russia and Brasilia and essentially into oil and gas sector, mining operations, metallurgy, pharmaceutics, telecommunication and production of chemical goods. After lifting restriction on the volume of acquired foreign assets in Financial Year 2005/06 (not exceeding $100 million), volume of foreign investment of Indian companies grew more than 10 times in Financial Year 2006/07. Indian companies announced that they bought 480 foreign companies totaling more than $43 milliard. In January-February alone, 2007 they declared their foreign investment totaled $23 milliard.

At the present time Indian companies are allowed to invest abroad assets constituting up to 300% of their shareholders' equity as well as allocate up to 35% of net profit for portfolio investment.

Bank and financial sector of India is quite stable and characterised by dominance of state and state-controlled banks. 288 commercial banks operate in India, which have more than 69 thousand branches around the country. 75% of all deposits, 70% of loans and 76% of all bank assets fall to their share. As of December 31, 2007 joint deposits totaled $132.1 milliard (annual growth 22.5%) including in foreign banks - $32.5 milliard. Deposit rate is 7.75-8.5% per year. Lending rate is 10.75-10.8%.

Bank lending to commercial sector grew by 15.8% in Financial Year 2006/07 (in 2005/06 – 13.3%) and amounted to $92.4 milliard. Nonfood loans grew by 31.8% (in Financial Year 2005/06 growth – by 17%) up to $6.6 milliard, food credits – by 1.7% (in Financial Year 2005/06 growth – by 13%) up to $4.4 milliard.

The number of stock exchanges is 23. Market capitalisation was $944 milliard at year-end 2006/07. Annual growth is 29%.

In 2007 34 Indian companies were included by Forbes magazine in the list of The World's 2,000 Largest Public Companies. Among 10 largest Indian companies are Oil and Natural Gas Corporation (place 239), Reliance Industries (258), State Bank of India (326), Indian Oil Corporation (399), NTPC Ltd (494, power industry), ICICI Bank (536), Steel Authority of India Ltd. (800), TATA Consultancy Services (1047), TATA Steel (1128), Infosys (1130).

According to the Index of Economic Freedom 2007, which Wall Street Journal together with Heritage Foundation calculated, India occupies the 104th place. For example, China and Russia take the 119th and 120th places respectively.

Friendly economic prospects of India, positive tendencies in developing bank and financial system of the country, external balance and developing the bond market allowed the global rating agency Standard & Poor's to raise the Indian sovereign rating from “BB+/B” to “BBB-/A3” in January, 2007. The forecast of changing the rating: stable.

Among problems of the Indian economy the following ones should be noted:

• Strong dependence on the import of naphtha (the state meets 77% of needs of this article through the import). Developed reserves of metallurgy coal are highly limited, quality of power station coal is low, the country suffers from a persistent power outage;

• Due to almost ¼ of the country lives below the poverty line, the authorities is bounded to spend means to provide them with the subsistence minimum through different grants and subventions;

• In major sectors of the economy there is still dominance of state-run corporations, which tells upon developing rivalry and other market mechanisms;

• Excessive regimentation and bureaucratization of the executive decision-making process, widespread corruption;

• Underdeveloped infrastructure;

• Many problems in farming, which life of a great deal of Indians is tied to, including a small amount of modern farms, low level of agricultural engineering, shortage of agricultural products storages, a big amount of intermediary organizations, dependence of farming on weather conditions and so on;

• High unemployment rate, which ranges from 9% in the country to 12% in cites;

In a short run the Indian government announced the following aims as priority:

• Maintaining persistent year-on-year growth of the economy at the level 8-9%;

• Accelerated development of the industry (minimum 10% per year);

• Implementing fundamental reforms in the rural sector to resolve problems which it faces and bringing it up to a brand new level;

• Increasing state export up to $160 milliard in Financial Year 2007/08;

• Holding annual inflation rate at 5%;

• Upgrading efficiency and transparency of the financial system, transition of foreign banks operating in India to the Basel II standards in Financial Year 2007/08 and in Financial Year 2008/2009 – Indian commercial banks;

• Providing with the annual inflow of direct foreign investment not less than $25 milliard per year.

According to the Trade Representation of Russia in India