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Key Economic Data 
  2002 2001 2000 Ranking(2002)
Millions of US $ 515,000 481,400  460,616 11
GNI per capita
 US $ 480 470 450 159
Ranking is given out of 208 nations - (data from the World Bank)

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India has emerged as one of the dominant players in the international system and a regional power in the South Asian subcontinent. Located in the heart of South Asia, India is unique for its cultural heritage, geographical diversity, and democratic ethos. India's ancient history was marked by series of invasions and foreign rule beginning with the entry of the Aryans in 1500 B.C., the advent of the Mughals in A.D 1000, culminating in British imperial rule around 1858. During this period, India was one of the richest countries in the world. It was renowned for its international trade in spices and textiles. Along with its rich resources, India's geographical location made it an attractive colony. The British wanted to exploit India as a market for the sale of its manufactured goods. They set up a centralized form of administration, built an extensive network of highways, railroads and post and telegraph systems. They also imparted western education to the Indians which led to the emergence of a middle class conscious of their own rights.
To overthrow British tutelage, a section of erudite Indians led by Surendra Nath Banerjee established the Indian National Congress in 1885. The Indian nationalist movement evolved through different phases and the INC emerged as the single largest representative of the Hindus in India. It became an umbrella organization and leaders like Bal Gangadhar Tilak and Lala Lajpat Rai were at the forefront in India's struggle for independence. Of the most famous of India's "freedom fighters", was a man called Mohandas Karamchand Gandhi. In the struggle for liberation against British rule, Gandhi developed concepts like ahimsa (non violence), satyagraha (search for truth) and civil disobedience. As the national movement picked up momentum, British rule began to weaken. From the 1940s, the Muslim League, a party representing the Muslims of India, demanded the creation of a Muslim majority state. The Indian National Congress was ill-prepared for these demands and tensions brewed amongst members of both camps leading to large scale Hindu-Muslim rioting. Finally in 1947, the Congress leaders acceded to the division of the country along religious lines which led to the creation of the separate nation of Pakistan. Partition left a deep impact on the secular fabric of the country. Close to half a million Hindus, Muslims and Sikhs were killed. On August 1947, India gained independence from the British. Yet, the memories of partition remained etched in the minds of Hindus and Muslims and were soon to become the root of an intractable conflict over Kashmir. 
From the time of independence, India has fought four major wars with Pakistan (1947, 1965, 1971 and 1999) and one with China (1962). While India suffered a severe debacle at the hands of the Chinese in the 1962 war, the dispute over Kashmir with Pakistan remains unresolved and has led to incessant crises on both sides. The roots of the Kashmir dispute date back to partition and the events of 1947. The end of British rule had compounded the problem of achieving a unified India. In the months after partition, the prince of Kashmir, Maharaja Hari Singh faced tremendous pressure from both India and Pakistan but refused to accede to either country. During the first week of October 1947, a tribal rebellion broke out in Poonch, a region in southwestern Kashmir. Sections of the Pakistani army aided the rebels with arms and men. Within two weeks, the insurgents were close to Srinagar, the capital of Jammu and Kashmir. At this point, Hari Singh appealed to India for protection against the intruders. India's Prime Minister Jawaharlal Nehru agreed to provide assistance to Hari Singh only if the Maharaja acceded to India and the accession was endorsed by Sheikh Abdullah, the political leader of Kashmir. Once the Maharaja signed the Instrument of Accession, Indian troops were airlifted into Kashmir. On 1 January 1948, India referred the Kashmir dispute to the UN Security Council by invoking articles 34 and 35 of the UN Charter. On 24 April, 1948, the UN Security Council passed a resolution stating that India and Pakistan should bring about a cessation of all hostilities and move towards the early restoration of peace in the region. It also urged both countries to conduct a free and fair plebiscite to determine the wishes of the Kashmir people. This resolution was held as the principal term of reference for future negotiations between the two countries. However, the UN achieved little and the dispute continued to rock the relations between the two countries. The problem of Kashmir took on a different dimension from the late 1980s when there was a rise in insurgency within the state of Kashmir. This was the first time that India was witnessing the start of cross-border terrorism. Moreover, while Pakistan has repeatedly sought third party mediation and looked towards the United States to play such a role, India has reiterated its position of resolving the dispute bilaterally. 
India's relations with China took a downslide after the 1962 war and also when the Chinese tested their first nuclear device in 1964. However, India has not been engaged in any major conflict with China since 1962 but continues to be wary of the Chinese presence north of the Himalayas. Another one of India's concerns with regard to China has been the technical and material support that China provided to Pakistan in developing the latter's nuclear weapons arsenal. 
With regard to the United States, India has predominantly enjoyed a cordial relationship. During the height of the Cold war between the US and the erstwhile Soviet Union, India advocated a policy of non-alignment and sought to distance itself from the power struggle between the two super powers. The United States was not very interested in South Asia during the Cold War but was careful not to allow the spread of communism to the region. Most of America's strategic interests in the region during the Cold War were guided by its fear of communist expansion. America maintained stronger relations with Pakistan and established a military alliance with Pakistan in 1954. While the US provided military assistance to both India and Pakistan, by 1964, Washington was unhappy with both countries and began to withdraw itself from the region. It was only after 1979 and the early 1980s that Washington began again to take an interest in India. In the period after the Cold war, Washington was particularly concerned with the development of India's nuclear capabilities and pushed for non-proliferation efforts in the region. The conduct of India's nuclear tests in the summer of 1998, followed by the Kargil war of 1999 between India and Pakistan raised fears in the international community about the possibility of a nuclear war between the two adjacent neighbors. Since then, the United States has repeatedly urged both countries to exercise restraint.

Political Structure and Elections

India's political structure is modeled along the British parliamentary system. Under the Indian Constitution, executive power resides in the President who represents the symbolic head of the nation. The President is also the Supreme Commander of the Indian Armed Forces. The Prime Minister is the executive head supported by a cabinet of ministers and is responsible for the actual execution of policy. The Indian Parliament consists of two houses: the Lok Sabha which is the lower house and is popularly called the House of the People and Rajya Sabha, the upper house. The members of the Lok Sabha are elected on the basis of universal adult suffrage directly from India's 25 states. The members to the Rajya Sabha are nominated by the President on the basis of their expertise in the fields of literature, science and social service. 

Since 1951, elections in India have witnessed the gradual decline of the Congress party and from the early 1990s the rise of the Bharatiya Janata Party (BJP). From 1989 to 1998, India has had four national elections and except for the period between 1996 and 1998, these elections produced unstable short term coalition governments. In the 1996 and 1998 elections, four distinct political groups emerged, namely the Congress and its allies; the BJP and its allies; the United Front and a large number of caste based and regional parties. In the 1998 elections, the BJP came to power and won 25.47 percent of the vote and 179 seats. The Bharatiya Janata Party still continues to be the dominant party at the Center and is heading a multi party coalition called the National Democratic Alliance (NDA). 

In post independence India, there were major debates about the future of the Indian economy and the type of model India should adopt for economic reconstruction. India's Prime Minister Jawaharlal Nehru was interested in building a strong decentralized state along socialist lines. In 1948, the Industrial Policy Resolution was passed which called for a mixed economy in which some industries like railroads and atomic energy would remain under the public sector while industries like coal, iron and steel and manufacturing would be open to private enterprise. As part of this model, India embarked on a set of Five Year plans which continued well into the mid 1960s. In the 1960s, India was faced with the challenge of liberalization and the Fourth Five Year Plan encompassed the need for allowing a more free hand for the market. From 1963 to 1973, a series of constitutional amendments were initiated to restructure the Indian economy. This was a period of structural reform in which Prime Minister Indira Gandhi nationalized a number of private sector banks and the government took over a large part of the private sector. From 1973 onwards, a second phase of liberalization began. However, even though the liberalization produced some changes, the Indian economy took a downslide and by the early 1990s India was practically bankrupt, forcing it to borrow loans from the International Monetary Fund (IMF). This in turn unleashed a new spate of economic reforms and led to the complete liberalization of the Indian economy. Ever since then, different governments at the Center have dealt with the process of liberalization in various ways and it remains a fundamental bedrock of the Indian economy. Over the years, India has opened up its markets to numerous multi national corporations and has become a thriving market for the import and export of international products. 

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Update No: 006 - (29/07/04)

The United Progressive Alliance (UPA) is in for some hard times in Parliament since it has faced a lot of opposition from allies, putting the coalition through its first big test. Sounding more critical than the Opposition National Democratic Alliance (NDA), Left parties, the largest group supporting the, have made it clear they would oppose some proposals in the Budget in every forum including the House. Although the parties on the left seem to have assured the current government that they would not withdraw support, these assurances seem less for the morale of the Congress which heads the UPA and has been uncomfortable with direct attacks from the Left and a forceful Opposition. Finance Minister P. Chidambaram briefed allies about the Budget and heard their grievances. Chidambaram held his ground by stating that the Budget was prepared in consonance with the Common minimum Programme (CMP) which had received complete support from the UPA allies while forming the government. According to a Member of Parliament, "the main point is that the Budget has not deviated from what had been pledged in the common minimum programme," but that the process of ironing out differences "was not over yet". Various allies raised other fears but that has not prevented the finance minister from deviating on his stand. 

Unveiling of the budget by the new government in power has been the major attraction this month. The Budget is the government's annual statement of revenue and expenditure for 2004-05 and is presented in the Lok Sabha (the lower House). In the month-long run-up to its preparation, India's Prime Minister Manmohan Singh, who himself was Finance Minister during 1991-96, and Chidambaram invested a lot of time and energy in framing this document. Equipped with a history of presenting five budgets, the present Prime Minister stated that "each of his sessions with the Finance Minister and his team overshot the appointed time. And he not only discussed key issues but also often wanted them to be backed by numbers." Finance Minister Chidambaram's earlier budgets were presented under the compulsions of coalition politics, guided by a general policy document agreed upon by coalition partners - the first in July 1996 and the next in February 1997 that was widely acclaimed as a 'dream budget.' This time his policies have been framed within what is being called the Common Minimum Programme. This program has an added emphasis on the country's agrarian economy.
The Budget has overall yielded some good results. The Finance Minister has increased Foreign Direct Investment Flows (FDI) for several sectors including insurance and telecom while presenting the budget and said "the key to growth is investment, public and private, domestic and foreign". Long term capital gains tax on traded securities has been abolished, short term gains tax reduced and a 0.15% transaction tax has been introduced which comes as good news for most investors and bad news for speculators. FII investment cap in debt market has been raised to $1.75 billion from $1 billion.

Economy providing much needed relief to the capital markets 
Chidamabaram introduced a differential rate system for the now infamous tax, while reducing the levy on day traders from 0.15 per cent to 0.015 per cent. The abolishing of the tax for the debt market has improved the stock market situation. The Sensex closed at 4993, a gain of nearly 36 points. The Nifty ended a tad below the 1600 level at 1581.

India Pakistan Relations
In an effort to remove the present thaw in Indo-Pak relations, heads of both countries are meeting in Islamabad to discuss the Wullar Barrage being built by India over the Jhelum river. The meeting seeks to resolve differences over a barrage being built by India on the Jhelum river which feeds neighbouring Pakistan. Under the 1960 Indus Basin Treaty, the six rivers starting in or running through the Indian-controlled Kashmir are split between India and Pakistan. The treaty gives India full rights over the Beas, Ravi and Sutlej rivers, while Pakistan has rights over the Indus, Chenab and Jhelum rivers. Islamabad claims that the Wullar Barrage being built by India over the Jhelum in its portion of Kashmir violates the treaty's provisions by affecting the flow of water and threatening irrigation and power projects downstream in Pakistan. According to a government official on the Pakistani side, their contention all along has been that it would "negatively impact downstream irrigation, power generation and other water projects.
"In the third week of July, India's External Affairs Minister K Natwar Singh and Pakistani President Pervez Musharraf met in Islamabad to work out a suitable time frame for the resolution of the Kashmir issue. However experts on the Indian side concede that the Indians seemed disappointed with the final results of the talk since there appeared to be some ambiguity in the terms of the agreement. Pakistan has labelled India's seeming disappointment as "unwarranted" as stated in the words of Pakistan Foreign Office spokesman Massod Khan. "You have to have to have time management for the Kashmir dispute. You have to resolve it in a timeframe and your goals and objectives are related to the time-line. This cannot be an open ended process and the discussions cannot go on forever," he said. (source: The Times of India). In a separate statement the External Affairs Ministry spokesman on the Indian side, Navtej Sarna stated that "we are disappointed at the tone and substance of some of the comments made in the press release issued by the Pakistan Foreign office" on Friday after the Singh-Musharraf meeting. Khan said the Kashmir issue was discussed for more than half a century. "What the President is trying to say is that we should have clear objectives and they should do this in a timeframe. This point needs to be emphasized and it should cause no resentment." Khan also declared that the peace process commonly referred to as the Composite Dialogue process was on track and there should not be any scepticism about the direction of the peace process. 
In a separate move while undertaking a three day tour of Finland, Pakistani President Pervez Musharraf defended his country's track record on fighting terrorism expressing faith in eradicating al Qaeda networks in Pakistan. His speech came after a series of bomb attacks by terrorists in Pakistan. Speaking after a meeting with Finnish President Tarja Halonen, he stated that "I am very sure that we will eliminate al Qaeda in Pakistan ... and we are doing that in our own interest. " Moreover the Pakistani President claimed that his country was the only one which had apprehended over 600 al Qaeda operatives." (Source: ) 

World Trade
With India taking a "tough stand" on the contentious agriculture issue at the World Trade Organisation, the framework agreement to be reached at the ongoing general council meeting in Geneva is expected to be completely watered down.
Commerce Minister Kamal Nath, however, said that the talks were continuing and a framework agreement is expected before the conclusion of the General Council meeting on July 30. He said that India would accept only a favourable position and would not compromise on its position on agriculture. "The bottom line is that the livelihood concerns of millions of Indian farmers will have to be addressed," he said. Agriculture still remains a difficult issue on, which lot of ground is set to be covered so as to safeguard the interest of developing countries, he said adding on Non-Agriculture Market Access and Services there was not much difficulty in the negotiations. 

Meanwhile, US Trade Representative Robert Zoellick has made it clear the US will not accept any deal to put the round back on track simply for the sake of a deal. "To live up to the promise of Doha, there must be substantial new openings for trade in agriculture, goods and services," said Zoellick. With developed and developing countries taking confrontationist positions, analysts feel the framework agreement is likely to be "virtually a no agreement". However, the 148 member countries are expected to ink some framework agreement to address their constituencies, particularly the US, which is going for Presidential polls. Some of the countries in the European Union are also in election mode. EU Trade Commissioner Pascal Lamy himself is expected to contest elections in France and with his term ending, the entire set up at EU trade commission will change.

Meanwhile, Kamal Nath held parleys with WTO Director General Supachai Panitchpakdi and G-20 on Tuesday. He told Supachai that the core issue was of market access in agriculture, which could not be given up unless the issue of artificial global prices arising out of heavy farm subsidies, prevalent in developed countries, was addressed to.

Separately, JM Morgan Stanley has said that India and China's GDP growth has been twice the global rate in the past 20 years and things only look better for the two Asian economic giants. "India and China are the big tigers of Asia. There were a whole lot of countries which were growing at a steady rate. But despite the slowdown in these economies, India will be going forward and should achieve a growth rate of over 7 per cent the next five years, said Chetan Ahya, India Economist and Senior VP of JM Morgan Stanley. China has grown at an annual average of 9.7% since 1978 while India has grown at an average of 5.8 % since 1991.
"China will maintain 8 per cent growth rate and they should be able to meet their own set of challenges over a period of time," added Ahya.

India will also maintain healthy growth numbers, but "that does not necessarily mean that India should beat China," said Ahya, adding that "India will hold its ground on its own".
Demographics will the key driver behind these two global forces and the two development models could converge in 10-15 years, according to JM Morgan Stanley. 

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