• India's economic outlook is improving. The economy grew by 6.4% in the first quarter of 2002, comparing with 5.4% growth for the whole of 2001. Business confidence index is rising, which indicates improving domestic confidence.
• Interest rates in India have slid to their lowest rate for almost 30 years. The Reserve Bank of India cut interest rate by half a percentage point to 6.5% in October 2001. At the same time, the Bank announced a 2% cut in the cash reserve ratio, which is the minimum cash holding an Indian bank is required to maintain, to 5.5%. The ratio was further lowered to 5% in June 2002. The governor of the Bank believed that the interest rate cut and the lowering of cash reserve ratio will inject financial liquidity and help trigger industrial recovery.
• Under the Tenth Five-Year Plan (2002-07), average real GDP growth is targeted at 8% per year. In order to shift the economy into a higher growth trajectory, the government recognizes the need for a resignation of the economic reform programmed, including labor-market and power-sector reform, as well as taking steps to cut the fiscal deficit.
• During the fiscal year 2001-02 (April-March), 11 government-run enterprises were sold, raising US$698 million for the government. The biggest sale was of a 25% stake in Videsh Sanchar Nigam Limited, an international telecommunication service provider.

Current Economic Situation
Domestic economy
Resulted from the strong performance of agriculture and recovery in construction activity, the Indian economy grew by 6.4% in the first quarter of 2002. The Reserve Bank of India predicted that the economy would grow by 6-6.5% in the fiscal year 2002-2003.

Industrial production grew by 2.8% in the fiscal year 2001-02, compared to the 5% growth in 2000-01. Beverages, tobacco & related products, rubber, plastic, petroleum & coal products, and other manufacturing industries achieved the highest growth.

According to the Indian Ministry of Labor, inflation rate increased to 4.93% in the first five months of 2002 from the annual rate of 3.85% in 2001. The wholesale price inflation rose to 2.05% in mid-June 2002 from 1.56% in mid-May 2002, owing to the increase in food prices and fuel costs.

External trade
In 2001, exports rose by 3.9% to US$44.8 billion from US$43.1 billion in 2000. Due to the improving external environment, export growth has speeded up in recent months. Major export items include textile goods, gems & jeweler, machinery, transport & metal manufactures (including iron & steel), electronic goods and computer software, agricultural & allied products and chemicals & allied products. Major export destinations are the US, the United Arab Emirates, Hong Kong and the UK.

In 2001, total imports slightly dropped by 0.36% to US$55.1 billion from US$55.3 billion in 2000. Major import items include petroleum, crude & products, pearls, precious & semi-precious stones, electronic goods, machinery except electrical & electronic, and organic & inorganic chemicals. The UK, Switzerland, the US and Belgium are major suppliers.

Foreign direct investment
India welcomes foreign investment in all sectors except for defense, railway transport and atomic energy. Special incentives are provided to those companies who invest in certain key sectors such as bio-technology, civil aviation, drugs & pharmaceuticals, e-business and electronics & information technology. Special incentives include tax & customs duty deductions, tax exemption and simplified investment procedures, etc.

In the fiscal year 2001-02, foreign direct investment in India increased by 65% to US$4.06 billion from US$2.46 billion in 2000-01. Most investment projects were in telecommunications, fuels (power & oil refinery), electrical equipment (including computer software) and service (financial & non-financial) sectors. The UK, the US, Netherlands and Mauritius are the major investors.

Trade Policy
The Indian government has embarked on economic liberalization since 1991 and continued to work towards a more open trade regime. There has been elimination of quantitative restrictions, simplification of import license application and reduction of import tariffs. Since 1992, the Indian government has loosened the licensing requirement for imports of intermediate goods and capital goods.

In March 2001, the government abolished the system of special import licenses and the restricted list of imports, leaving only a small negative import list. After lifting quantitative restrictions in November 1999 on 714 items (including watches, garments and consumer electronics) on its import restriction list as per its agreement with the US, the removal of quantitative restrictions on the remaining 715 items was completed in the policy announcement of March 2001.
The freed items include 342 textile products, 147 agricultural products, cars & alcohol and 226 other manufactured products including automobiles.

Announced in India's 2002/03 budget, the peak tariff rate will be reduced from 35% to 30%. By the year 2004-05, there will only be two basic rates of customs duties: 10% covering generally raw materials, intermediates and components; and 20% generally covering final products. In addition, the government announced several safeguard measures in order to protect the domestic industry. For example, customs duty on tea and coffee will be increased to 100% and on natural rubber, poppy seeds, pepper, cloves and cardamom to 70% and pulses to 10%.

The EXIM policy for 2002-07, announced in March 2002, has been formulated with the goal of achieving at least 1% share of world exports by 2006-07 from the present level of 0.67%. In the policy plan, the government announced to abolish the import duty on rough diamonds in order to facilitate the export growth.

[As of April 2003]