Economy, Trade & Industry A New Era Though agriculture has been the main preoccupation of the bulk of the Indian population, the founding fathers saw India becoming a prosperous and a modern State with a sound industrial base. Programmes were formulated to build adequate infrastructure for rapid industrialisation. Since independence, India has achieved a good measure of self-sufficiency in manufacturing a variety of basic and capital goods. The output of the major industries includes aircraft, ships, cars, locomotives, heavy electrical machinery, construction equipment, power generation and transmission equipment, chemicals, precision instruments, communication equipment and computers. Early planners in free India had to keep in mind two aims: all-round development and generation of large-scale job opportunities. Economic development strategies were evolved with an eye on these twin objectives. Economic Restructuring The Process of liberalisation was initiated by the late Prime Minister Rajiv Gandhi and it gathered steam in subsequent years, irrespective of the government in power. The present Prime Minister Dr.Manmohan Singh is widely hailed as the chief architect of India ’s economic reforms. The new Congress-led coalition Government has reiterated very clearly that there is no going back on economic reforms. But these reforms will be carried out with “ a human face ”.It implies that the reforms must stimulate growth, investment and employment. India has become an attractive destination for foreign investment. The process of economic reforms is well on course. Duties have been lowered, repatriation of profit made liberal and levels of foreign equity raised considerably. While several multinational companies have entered India, many Indian companies have also gained international recognition. Forbes magazine has been listing Indian companies among the world ’s most successful companies outside the US. In the field of computer software, India is among the major exporting nations with an overflow of scientists in the field. A clear acknowledgement of Indian talent is the fact that 100 out of 500 Fortune companies have set up R &D centers in India. India is a member of the World Trade Organization (WTO) and hopes that developing nations will not suffer on account of any protectionism. India and other developing countries have repeatedly stressed that the WTO needs to improve the transparency of its functioning to instill confidence in developing countries, necessary for the rule-based multilateral trading system to work satisfactorily. Foreign trade has been crucial to India ’s economic growth. The country ’s total external trade in 2002-03 crossed $111 billion and between April and November 2003 it was 16 percent higher than the corresponding period in 2002.In 2002-03, exports also crossed the milestone of $50 billion to register $51.7 billion. In dollar terms, India was able to more than double its exports of merchandise in the last 10 years. This was achieved at a time when most economies were struggling to revive. At $112 billion India ’s foreign exchange reserves exceeded the forex reserves of the US, France, Russia and Germany. Remittances from expatriates and software earnings have been rising continuously. Consumer Boom In the wake of liberalization, many international business houses, attracted by the sheer volume of over 250 million buyers have flooded the Indian market. The landscape in many urban commercial centers has come to be dominated by big shopping malls, plazas and multiple entertainment complexes, displaying the latest in consumer and fashion goods, not to speak of global fast food chains. Stock Exchange According to the World Federation of Exchanges, India ’s National Stock Exchange (NSE)with 172 million transactions in 2001 was the third largest exchange in the world,after NASDAQ and NYSE. In the same year the Bombay Stock Exchange (BSE) with 133 million transactions was ranked sixth. Stock exchange activities in the country are monitored by the Securities and Exchange Board of India (SEBI). Infrastructure In view of its crucial importance for the development of the country, special attention is given to the infrastructure sector in India. As a result, the infrastructure sector has been registering a healthy rate of growth in recent years. Power The installed capacity of power generation in the country at the end of March 2003 was 107,972.8 MW, most of which was thermal power with hydro (including wind) and nuclear generation together contributing about 30 percent. The policy of inviting private sector has been well received. The Government has set an objective of providing ‘Power for All by 2012 ’ and has launched ‘Mission 2012 – Power for All ’ in this direction. Coal Coal is the most important source of energy in India and the country has ample fossil fuel reserves. The country ’s industrial heritage was built upon indigenous coal. Commercial energy consumption in India has grown several-fold in the last five decades. The current per capita primary energy consumption in India is below that of developed countries. Driven by the rising population, expanding economy and a quest for improved quality of life, energy usage in India is expected to rise to around 450 kgoe/year in 2010. Considering the limited reserve potentiality of petroleum &natural gas, eco-conservation, restriction on hydel project and geo-political perception of nuclear power, coal will continue to occupy center-stage of India ‘s energy scenario. Hard coal reserves of over 206 billion tonnes, of which about a third are proven, are spread over 27 major coalfields, mainly in eastern and south central parts of the country. The lignite reserves stand at a level around 26 billion tonnes, of which 90 per cent occur in the southern State of Tamil Nadu. Petroleum and Natural Gas The country ’s economic liberalization programme has brought some fundamental changes and restructuring of the Indian oil and gas industry. Recent initiatives by the Government allow private oil companies, both foreign and Indian, to explore new oil and natural gas reserves, develop proven reserves, and establish petroleum refineries and pipelines. The entire Indian petroleum sector has been opened to the private sector, domestic and foreign, for investments through joint ventures and strategic alliances. The Administered Pricing Mechanism (APM) has been dismantled from April 1,2002 and oil companies have been allowed the freedom to set retail prices in transport fuels. An estimated investment of US$100-150 billion is needed over the next 10 to 15 years to meet the projected demand. Additional refining capacity of 110 million tonnes per annum will be required by the year 2010 for domestic consumption. Extensive oil and gas distribution infrastructure such as cross-country pipelines, port terminals, tankages and strategic reserves build-up will have to be developed to meet the projected requirements. The refining sector has been opened to the joint and private sector. Total planned refining capacity by the year 2006 is expected to be about 170 MMTPA. Railways The over 150-year-old Indian Railways are the largest rail network in Asia and the world ’s second largest under one management. In 24 hours, the Indian Railways network covers a distance four times the distance between the earth and the moon. Crisscrossing the country ’s vast geographical spread, Indian Railways are a multi-gauge, multi-traction system covering over 100,000 track kilometers with 63,140 of route-kilometers. Its rolling stock fleet includes about 8000 locomotives, 39,000 coaches and about 300,000 freight wagons. Its work force is 1.47 million and it runs some 15,000 trains everyday, including 9,000 passenger trains. Freight traffic on Indian Railways has registered an impressive growth in the last four decades. Increase in the last few years have been particularly striking. From 73.2 million tonnes in 1950-51,the revenue freight traffic reached 492.5 million tonnes in 2001-02.This has been despite the ever-increasing pressure of passenger traffic, which was 493.5 billion passengers in 2001-2 against 66.52 billion in 1950-51.Over the years, Indian Railways have built up an elaborate and well-established manual information system to help them monitor their moving assets. Delhi Metro The Delhi Metro (suburban) rail project, a new landmark of the metropolis, promises to radically change the public transport system in the national capital. It is a combination of surface, underground and elevated corridors, being built to international specification of safety and construction. Delhi is choked with cars and people, and of the 11.7 million daily transit trips, 99 percent are road-based, making it necessary for the city to have a Metro system. Two sections of the Metro are already in operation, touching eastern and northern parts of the city. It is now proposed to extend the Metro not only to the rest of the city but also to its extended suburbs. In fact, the Delhi Metro has already attracted wide attention, nationally as well internationally. Apart from many large Indian cities, a number of foreign countries, as far apart as Sri Lanka, Colombia and Indonesia, have evinced keen interest in replicating the Delhi Metro system. Roads With over 3.3 million kilometres of roads, India has the second largest road network in the world. But industrialization demands more and better roads, which will result in enormous savings, estimated to be between Rs 200 and 300 billion ($5.7-8.6 billion) per annum. Improvement of the road network will also enable commercial vehicles to run 500-600 km per day, which is the average distance covered by them in the developed world, as opposed to the 200-300 km per day average in India currently. Under execution at present is the world ’s largest infra-structure project, the Rs 540 billion/$12.6 billion National Highways Development Project which promises to achieve a major turnaround in the road sector by the end of 2007.NHDP comprises the 5846 km long golden quadrilateral (GQ) connecting four major cities of Delhi, Mumbai, Chennai and Kolkata and the 7300 km long north-south, east-west corridors connecting Srinagar in north to Kanyakumari in South and Silchar in east to Porbandar in West respectively. Shipping The natural advantage of a vast coastline requires India to use sea transport for the bulk cargo transport. Following the policy of liberalization, the Indian shipping industry, major ports, as also national highways and water transport have been thrown open to the private sector. Most of the categories of ships viz. crude tanker, product tanker, bulk carriers etc. have been brought under the Open General Licence (OGL)to facilitate acquisition at competitive price. Automatic approval is also available for acquisition by ship-owning companies for the categories which are not covered under OGL i.e. barges, tugs and boats etc. Shipping companies have been allowed to retain sale proceeds of their ships abroad and utilize them for fresh acquisition. Time Charter of ships by Indian Shipping Companies has been provided as also automatic approval for foreign direct investment of up to 74%in shipping. At the end of March 2003,140 shipping companies were in operation in India, with the Shipping Corporation of India being the biggest in the country claiming a 42 percent share of the total Indian tonnage. The country has 12 major ports, 184 other ports, nine shipyards and a coastline of 7517 km. Aviation Following the opening up of air cargo services to private operators in 1990,several private international airlines have begun to operate cargo flights. The result is an improvement in the availability of timely cargo services at competitive rates, decline in cargo rates and increase in the volumes handled by as much as 15 to 20 per cent a year. A similar ‘open skies ’ policy was introduced for passenger traffic in 1994, which ended the monopoly of public sector domestic and international carriers. Currently, Indian Airlines and its subsidiary, Alliance Airways, and two scheduled and 40 non-scheduled operators serve the domestic passenger market. The private operators ’ market share of domestic passenger traffic has risen to over 52 per cent. Overall capacity has risen significantly, and consumer choice and competition has led to enhanced service quality. The entry of private airlines has also accelerated the growth of passenger air traffic. The Government has taken several measures to support the development of adequate airport infrastructure, like the opening of airport construction to the private sector. Pipelines Pipelines occupy key position in the petroleum sector logistics. Both Public Sector Undertakings and the private sector players in India are trying to ensure a hold over this safe and cheap mode of transportation. Initially each of these players had plans of laying their own pipelines but the government wanted a systematic and integrated distribution network. Consequently, ‘Petronet India Ltd ’ came into existence with public sector oil and gas companies jointly holding 50 percent stake in the company and five financial institutions holding the rest. A 1,700-km pipeline is already in existence. Besides, India has nearly 7,000 km of pipelines mainly for the transportation of crude oil and its products. Telecommunications Sweeping changes over the past decade have contributed to the rapid growth of the Indian telecommunication system which had begun in 1851 with a telegraph line between Kolkata (then Calcutta)and Diamond Harbour. Among these changes are the adoption of advanced switching and transmission technologies; permitting private entry into equipment manufacture; liberalization of equipment imports and the lowering of import tariffs. And in the last five years, the reforms have accelerated, aiming at a total transformation of the market. India with 100 million basic and mobile phones has the fifth largest telecom network in the world. Yet, given the low telephone penetration rate – only 1.5 per 100 of population, which is 1/10th of the global average —India offers vast scope for growth. The country has one of the fastest-growing telecommunications systems in the world, with system size (total connections) growing at an average of over 20 per cent a year. The cellular customer base has been growing at the rate of about two million per month. Steel The economic reforms initiated by the Government since 1991 have added new dimensions to industrial growth in general and steel industry in particular. Licensing requirement for capacity creation has been abolished, except for certain locational restrictions. Steel industry has been removed from the list of industries reserved for the public sector. Automatic approval of foreign equity investment up to 74 per cent is now available. Price and distribution controls have been removed to make the steel industry efficient and competitive. Restrictions on external trade, both in import and export, have also been removed. Import duty rates have been reduced drastically. Certain other policy measures such as reduction in import duty of capital goods, convertibility of rupee on trade account, permission to mobilise resources from overseas financial markets and rationalisation of existing tax structure for a period of time have also benefited the Indian Steel Industry. Today, India is the eighth largest steel producing country in the world. The annual growth rate of crude steel production jumped to eight percent in 2002-03 from 3.7 percent in 2001-02.The production of finished steel increased to 32.99 million tonnes in 2002-03 from 29.27 million tonnes in 2000-01. Engineering and machine tools The Indian machine and machine tool manufacturers and exporters with their pursuance of a systematic approach to quality control and product standardization coupled with a long history of engineering excellence have hence carved a niche market position for themselves in the international arena. More than 2500 firms from the engineering sector have acquired ISO 9000 accreditation in areas of casting and forging, automobile parts, machine tools, electrical machinery, primary iron and steel products, industrial machinery, IC engines, pumps, textile machinery, etc. The Indian machine tool industry manufactures almost the complete range of metal-cutting and metal-forming machine tools. There has been a perceptible change in the image of the ‘Made in India ’ brand in overseas markets – particularly true for Indian-built machine tools. Enhanced features, competitive price and marketing focus have increased demand for Indian-made machine tools in overseas markets. Indian-made machine tools are currently exported to over 50 countries, including United States, Italy, Brazil, Germany, and the Middle East. Software Most countries today are beginning to understand the value addition that information technology is bringing to economies -introducing both efficiency and benefits. Businesses around the globe have been investing heavily in the IT software infrastructure. India is rapidly emerging as a leader in the field of IT. According to a Mckinsey Report,7 percent of India ’s GDP will come from IT services and back office work by 2008 when it will become a $57 billion annual export industry, employing 4 million Indians. The IT revolution has become the new mantra in the Indian economic landscape. Software Engineering, Web-based Services, E-commerce Solutions and Business Process Outsourcing (BPO) have emerged as the new jewels of the Indian economy. The Indian IT industry has emerged as one of the fastest growing sectors in the Indian economy with a growth rate of over 26 percent during 2002-03 and a turnover of $12.7 billion and exports of $10 billion. In terms of GDP share, the IT industry figures have risen to 2.4 percent in 2002-03 from 0.59 percent in 1994-95. The Indian IT software and services industry has provided employment to 6,00,000 IT professionals by March 2003.Many global giants outsource their mission critical software requirements to India. GE Capital saves up to $340 million a year by performing some 700 tasks in India. India is seen by many as an Ideas Superpower. The Internet market is also growing steadily in terms of subscribers, which was estimated at 4 million in December 2003.This represents a substantial increase over the 1.1 million figure in March 2001. Pharmaceuticals With its inherent strength in technology, R&D facilities, institutional infrastructure and skilled manpower, the $6 billion Indian pharmaceutical industry has grown to rank fifth in the world in terms of volume, behind USA, Japan, Europe and China. Its growth rate in the last five years has been more than 20 percent, twice the world rate.By 2010,the Indian pharma industry is likely to grow to $75 billion. Exports in 2002-03 stood at $ 2.5 billion with the US accounting for $450 million. As an incentive for the pharma sector, the Government has offered exemptions from import licences to foreign pharmaceutical units setting up units in special economic zones. It is 40 percent cheaper to set up a plant in India than any developed country and the cost of bulk drug production is 60 to 70 percent cheaper. The Indian pharma industry has the largest number of plants approved by the FDA outside the USA. Automotives Good logistic management, high productivity and skills, have brought to India an increasing number of global automobile manufacturers to establish and expand their presence in the country. Suzuki and Hyundai have made India their global small car export hub. India ’s own Tata Motors is exporting cars to Rover (UK) as City Rover. General Motors, Ford, Daimler, Chrysler, Hyundai, Fiat, Toyota, and Caterpillar are some of the companies that are outsourcing from India. India exports $2 billion worth of cars, trucks, SUVs, two wheelers and auto components. Auto component exports in 2003 stood at $800 million and by 2006 it may touch $2.6 billion. Indian component manufacturers have won global recognition and awards. Textiles The textile industry occupies a vital place in Indian economy and contributes substantially to employment generation and export earnings. It represents about 14 percent of the national industrial production and 25 percent of the total export earnings. It provides employment to about 35 million persons. India is the second largest producer of silk, largest producer of jute, one of the largest production bases for cotton/denims and never-tried-before blends of linen. India is the world ’s largest exporter of cotton yarn, claiming a 25 percent global share. The Indian Textile industry has one of the highest growth rates in Indian industries and contributes around 5%to the GDP. It is also the largest foreign exchange earner. In 2002-2003,textile exports grossed Rs.513.55 billion/$11.4 billion, representing a growth of 11.14%in a year. Recent developments in the European markets on eco-friendly textiles have sent the Indian Industry into a flurry of activity to adapt itself to market requirements. Globalization, abolition of quotas, establishment of WTO and its $6 billion modernization programme will provide further impetus to the industry. Planning for Development The Planning Commission, headed by the Prime Minister, draws up five-year plans under the guidance of the National Development Council to ensure growth, self-reliance, modernization and social justice. Its role has been redefined in the eighth plan document: from a centralized planning system, India is moving towards indicative planning which will outline the priorities and encourage a higher growth rate. The Tenth Five-Year Plan has envisaged a growth rate of 8 per cent. Traditional Industry Indian handicrafts have withstood competition from machines over the years. The skills are passed on from one generation to the next. The handicraft and handloom sector is a major source of rural employment and earns substantial foreign exchange. Traditional textiles are as popular abroad as they are within the country. The major export items include hand-knotted carpets, art metal ware, hand-printed textiles and leather, wood and cane wares.