Economics, trade, politics and infrastructure of India

This section provides you with recent information on India’s economic performance, economic prospects, trade and investments, politics and international relations and infrastructure.

Economic performance

Following the economic reforms in the 1990s rapid economic development emerged. India became one of the fastest growing major economies. Foreign trade and direct investment inflows have tremendously increased as a result of the liberalisation of the economy. At the same time India remains a country with large disparities within its society, with a large informal economy. The emerging economy continues to face challenges on several aspects, including poverty and corruption. Economic growth in India accelerated in Fiscal Year (FY) 2015 and prospects for continued rapid growth are solid, notwithstanding unexpected delays in some economic reform. Inflation has stayed subdued, 5.0% on average in FY2015. Albeit the monsoon has been weak for two years in a row. Exports declined 18% in FY2015 as a result of lower commodity prices and weak global demand. Imports are estimated to have decreased as well (by 15.5%) in FY2015. Mainly caused by oil imports, which fell by more than 40%. Imports of capital goods such as machinery, transport equipment, and iron and steel remained weak, while imports of consumption goods stabilized. Higher service exports and remittances helped to narrow the current account deficit to an estimated 1.3% of GDP, as reported by the Asian Development Bank (ADB).

Economic outlook

According to the Economist Intelligence Unit (EIU) India’s economic growth is estimated to be strong up, on average more than 5% up to 2050. This positive prospect is based on the assumption that policy will be implemented in order to pursue comprehensive economic reform, continue technical innovation and adopt best practices. Short-term growth is expected to continue well above 7% in 2016 and 2017, according to the Asian Development Bank (ADB). Main drivers for economic growth have been public investment and increased urban consumption. Private investment and rural consumption in India will be decisive to remain developing. This is key to counterbalance the weak prospect for global trade and slow recovery of most Western countries. Domestic demand, private investment and strengthening of the public banks’ capital are key to foster growth in 2017.

Key Indicators
Population

1.295 bln (2014)

Capital

New Delhi

Currency

Rupee

Time zone

UTC +5:30

GDP at market prices

$2.049 trillion (2014)

Real GDP growth

7,3% (2014)

GDP per capita

$1,582 (2014)

Doing Business in Index*

130 out of 189 (2016)

Corruption Index**

76 out of 168 (2015)

Source: WorldBank (2016)
* doingbusiness.org
** transparency.org

Trade and investments

India is the second most populous country with over 1.2 billion people. This makes India a huge potential market for trade and investment. Additionally India’s economy has been one of the fastest growing during the last decades and outlooks on economic growth continue to be optimistic. The lion’s share of FDI comes from Mauritius and Singapore, 34% and 16% respectively. Followed by UK, Japan, USA and the Netherlands ranging between 8 and 6%. Sector-wise most FDI goes to the service sector, followed by the construction development sector. India’s level of government debt is substantial, although trade deficit decreased with 11% to US$144 bn in 2014, as reported by EIU. India’s main exports are engineering goods and petroleum products, both accounting for more than one fifth of the total exports in 2013/2014, as reported by the Economist Intelligence Unit. Agriculture & allied products, which includes fisheries and aquaculture, and gems & jewellery score third and fourth on the export sector list, both about 13,5%. Leading markets for these export products are the United States of America (13%) and the United Arab Emirates (10%). The UAE is an important trading partner for India, as third supplying country as well. Petroleum products are the key imports, accounting for more than one third of total imports to India. Second major imports are gold and silver accounting for 9% of the total imports. Leading supplying countries are China (13%) and Saudi Arabia (7%), as presented by the EIU. India ranks 130 among 189 countries surveyed in the World Bank’s Doing Business 2016, above neighbouring countries Pakistan (138) and Bangladesh (174), but well below Nepal (99) and Sri Lanka (107). According to EIU, the business environment is expected to further improve as reforms will reduce red tape and support investment. Be aware that state characteristics vary, also with regard to the pace of reforms.

Politics and international relations

India, being the largest democracy in the world, has been a democracy since its independence in 1947. The parliamentary system of government consists of two legislative houses: Lok Sabha (the lower house of parliament) and Rajya Sabha (the upper house). The last parliamentary election took place in 2014 and is generally held once in five years. The president, Pranab Mukherjee, was elected in July 2012 for a five-year term. The central government has exclusive jurisdiction over all matters of national interest such as defence, banking and currency, international trade and foreign affairs. The state governments have primary responsibility for matters such as law and order, education, health and agriculture. During the last decades regional parties perform exceedingly well, enabling them to influence national politics and making coalition government the norm. India’s heterogeneous population, caused by it various religions, languages, castes, races, has led to political parties representing interests of one or a combination of these groups. Economic issues like poverty, unemployment and economic development are main issues in Indian politics. Structural reforms are needed, e.g. to kick-start, the often delayed, large-scale infrastructure projects and to improve India’s business environment, as reported by the EIU. However the government struggles to realize ambitious aspects of its agenda due to impediments from opposition parties and to reluctance, and focus on short term, to antagonise voters including farmers that could face temporary losses. India is a member of the Asia-Pacific Trade Agreement (APTA), the South Asian Association for Regional Cooperation (SAARC) and the World Trade Organization (WTO).

Infrastructure

India has a coastline spanning 7516.6 kilometres, which is serviced by 13 major ports, 200 notified minor and intermediate ports. Except for India’s capital, New Delhi, the other main cities in India, Mumbai (Mumbai Port), Kolkata (Haldia Port) and Chennai (Chennai Port or Madras Port), are located at the coast and have major sea harbours. The quality of the ports, related to infrastructure and bureaucracy, differ greatly from port to port. The World Economic Forum Global Competitiveness Report ranked India 71th out of 144, well above neighbouring countries Bangladesh (109st) and Pakistan (129th). Out of 12 topics, the main areas for improvement for India are technical readiness, innovation and infrastructure. The quality of electricity supply and the use of ICT score weak. However, keep in mind the enormous differences in regional variation. Cities as Bangalore or Mumbai should be considered separately from some rural areas for instance. The World Bank reported as well that transport infrastructure and energy security, its overstressed power grid, should be top priorities for India to achieve its economic potential.

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