India at a glance

Capital: New Delhi
Population: 1,129,866,154
Government Type: Federal Republic

GDP: $1 trillion (2006 est.)
Imports: $192 billion (FY 2006–2007)
Exports: $127 billion (FY 2006–2007)

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. About three-fifths of the work force is in agriculture, leading the government to articulate an economic reform program that includes developing basic infrastructure to improve the lives of the rural poor and boost economic performance.

The government has reduced controls on foreign trade and investment. Tariffs averaged 12.5% on non-agricultural items in 2006. Higher limits on foreign direct investment were permitted in a few key sectors, such as telecommunications. However, tariff spikes in sensitive categories, including agriculture, and incremental progress on economic reforms still hinder foreign access to India’s vast and growing market. Privatization of government-owned industries remained stalled in 2006 and continues to generate political debate.

India - U.S. Relations

Recognizing India as a key to strategic U.S. interests, the United States has sought to strengthen its relationship with India. The two countries are the world’s largest democracies, both committed to political freedom protected by representative government. India is also moving gradually toward greater economic freedom. The United States and India have a common interest in the free flow of commerce and resources, including through the vital sea lanes of the Indian Ocean. They also share an interest in fighting terrorism and in creating a strategically stable Asia.

In 2001, President Bush lifted sanctions imposed under the terms of the 1994 Nuclear Proliferation Prevention Act following India’s nuclear tests in May 1998. In a meeting between President Bush and Prime Minister Vajpayee, the two leaders expressed a strong interest in transforming the U.S.-India bilateral relationship. In January 2004, the United States and India launched the Next Steps in Strategic Partnership (NSSP), which was both a milestone in the transformation of the bilateral relationship and a blueprint for its further progress.

In July 2005, President Bush and Prime Minister Singh announced the successful completion of the NSSP. Other initiatives announced at this meeting include the following: an U.S.-India Economic Dialogue, Technology Cooperation, Democracy Initiative, an Agriculture Knowledge Initiative, a Trade Policy Forum, Energy Dialogue and CEO Forum. In March 2006, the progress of these initiatives was reviewed and new initiatives were launched. In July 2007, the United States and India completed negotiations on the bilateral agreement for peaceful nuclear cooperation. This agreement, which has met with some opposition, would govern civil nuclear trade between the two countries and open the door for American and Indian firms to participate in each other’s civil nuclear energy sector.

Best Export Opportunities

The United States is India’s largest trading partner. Bilateral trade in 2006 was $32 billion. Principal U.S. exports are diagnostic or lab reagents, aircraft and parts, advanced machinery, cotton, fertilizers, ferrous waste/scrap metal, and computer hardware. The rapidly growing software sector is boosting service exports and modernizing India’s economy. Software exports crossed $28 billion in FY 2006–2007, while business process outsourcing (BPO) revenues hit $8.3 billion. Personal computer ownership is 14 per 1,000 persons. The cellular/mobile market surged to 140 million subscribers by November 2006. The country has 54 million cable TV customers.

Exporters interested in opportunities in India will find more detailed information in the Country Trade Sourcebook’s best export opportunities section for India.

Economy

India’s population is estimated at more than 1.1 billion and is growing at 1.3% a year. It has the world’s 12th largest economy and the 3rd largest economy in Asia behind Japan and China — with total GDP of around $4.164 trillion. Services, industry, and agriculture account for 55%, 27%, and 18% of GDP respectively. Seven hundred million Indians live on $2 per day or less, but there is a large and growing middle class of 325–350 million with disposable income for consumer goods.

India is continuing to move forward with market-oriented economic reforms that began in 1991. Recent reforms include liberalized foreign investment and exchange regimes, industrial decontrol, significant reductions in tariffs and other trade barriers, reform and modernization of the financial sector, significant adjustments in government monetary and fiscal policies, and safeguarding intellectual property rights. Real GDP growth for the fiscal year ending March 31, 2007, was 9.4%, up from 9.0% growth in the previous year. Growth for the year ending March 31, 2008, is expected to be between 8.5–9.0%. Foreign portfolio and direct investment inflows have risen significantly in recent years. They have contributed to $255 billion in foreign exchange reserves by June 2007. Government receipts from privatization were about $3 billion in fiscal year 2003–2004, but the privatization program has stalled since then.

Economic growth is constrained by inadequate infrastructure, a cumbersome bureaucracy, corruption, labor market rigidities, regulatory and foreign investment controls, the “reservation” of key products for small-scale industries, and high (although declining) fiscal deficits. The outlook for further trade liberalization is mixed. India eliminated quotas on 1,420 consumer imports in 2002 and has incrementally lowered non-agricultural customs duties in recent successive budgets. However, the tax structure is complex, with compounding effects of various taxes.

U.S. exporters can find more information on India’s intellectual property rights and regulatory transparency in the Trade Data section of the India country profile.

Investment

The United States is India’s largest investment partner. India’s total inflow of U.S. direct investments is estimated at more than $9 billion through 2006. Proposals for direct foreign investment are considered by the Foreign Investment Promotion Board and generally receive government approval. Automatic approvals are available for investments involving up to 100% foreign equity, depending on the kind of industry. Foreign investment is particularly sought after in power generation, telecommunications, ports, roads, petroleum exploration/processing, and mining.

India’s external debt was $155 billion in 2006–2007, up from $126 billion in 2005–2006. Foreign assistance was approximately $3 billion in 2006–2007, with the United States providing about $126 million in development assistance. The World Bank plans to double aid to India to almost $3 billion a year, with focus on infrastructure, education, health, and rural livelihoods. The investment section of the India country profile offers more detailed investment information.

Transportation

India borders the Bay of Bengal, the Arabian Sea and the Indian Ocean. The main seaports are Chennai, Jawaharal Nehru, Kandla, Kolkata (Calcutta), Mumbai (Bombay), New Mangalore and Vishakhapatnam. Chennai International Airport, Sahar International Airport in Mumbai and Indira Gandhi International Airport in New Delhi are the principal airports in the country.

Map of India