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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: 004 - (01/06/04)

Political Events 
The month of May has been a rather dramatic one with regard to the end of India's elections. In a spectacular turn of events, the BJP which seemed certain of forming the government at the Center was routed by the Congress party; a phenomenon that reflects the true democratic ethos of India, further exemplified by the manner in which the outgoing PM, Vajpayee, accepted the decision of the electorate. 
Not only did the BJP get defeated at the polls, in yet another stunning development, Sonia Gandhi, President of the Congress Party refused to accept the position of Prime Minister in leading the Congress. Prior to Gandhi's supposed ascendancy, there was controversy in Indian political circles over allowing a woman of Italian descent to take over the reins of the country. However, Gandhi's refusal certainly worked as a strategic ploy. It was a move aimed at strengthening the Congress party's base in addition to protecting it against vilifying attacks from the BJP. The victory of the Congress party at the Center was fuelled by its successes in two of the largest states in India, namely Uttar Pradesh and Andhra Pradesh. State assembly elections in these states changed the fortunes of the Congress at the Center. Also, the BJP's defeat at the Center can be explained by first, the increase in intra alliance factionalism and second, through the dilution of the "Hindutva" element which came through in the BJP's election strategy of strengthening its Muslim vote bank. Part of the BJP like Vishwa Hindu Parishad (VHP) President, Ashok Singhal, have stated that both Vajpayee and Advani failed to promote Hindu interests. Moreover, the Congress's steadfast commitment towards improving the condition of the masses in the villages and its strong campaign techniques clearly worked in bolstering its position. 
Sonia Gandhi's non-acceptance of thePM's post has paved the way for Dr. Manmohan Singh as the most suitable candidate for the position. Singh along with 62 other ministers was sworn in as the PM of India in an oath taking ceremony on May 21, 2004. Singh, former Finance Minister of India in the early 1990's played a major role in the spate of India's market reforms in the 1990s. Equipped with a degree from Oxford and a fine record of promoting economic welfare, Singh appeared to be a fitting contender for the PM's post. It is believed that Singh will restructure the Indian economy, strengthen Indian secularism and introduce certain critical changes in India's foreign policy. The Congress government now formed is an alliance of the Rashtriya Janata Dal (RJD) and the Nationalist Congress Party (NCP). The BJP has formed the party in the opposition. In the newly formed government, prominent stalwarts of the Congress have been recognized for their services by being assigned some major portfolios. P.Chidamabaran, Harvard educated economist is Finance Minister, Shivraj Patil is Union Home Minister, Pranab Mukherjee is Defense Minister and K Natwar Singh is India's new Foreign Minister. These politicians have years of experience in their own fields and appear promising for India's political future. 

India-Pakistan Relations
The change of government at the Center may add a new dimension to the relations between India and Pakistan. It will be interesting to see how the Congress intends to improve relations between the two countries. While it is still early to make strong predictions, speculation suggests that the Congress party may adopt a path different from its predecessor. With a change of government at the Center, nuclear talks between India and Pakistan to be held between May 25 and May 26, have now been postponed until next month. These talks were part of the confidence building measures (CBMs) between the two countries to work towards facilitating a more positive approach in bilateral relations. These talks are aimed at improving crisis management and strategic stability. Pakistani Foreign Office Spokesman, Masood Khan recently stated that Pakistan wants the Hurriyat conference to come together and arrive at a common solution to the Kashmir issue. Signals from the Indian government have also been seen as encouraging by the Pakistanis. Indian Prime Minister Manmohan Singh's speech on India-Pakistan relations was welcomed by the Pakistanis as "very positive, constructive and forward looking". Pakistan has also declared its unwillingness to raise the Kashmir issue at the ASEAN Regional Forum. Moreover, in a fresh step towards enhancing diplomatic relations between the two countries, Pakistani President General Pervez Musharraf has extended an invitation to Congress President Sonia Gandhi to visit Pakistan. Musharraf also congratulated Gandhi and expressed his desire to work towards peace and normalcy in the region. However it is only premature to consider these initiatives as being foolproof. Time will be a better judge of any significant restructuring in India-Pakistan relations. 

The Indian Stock Market has reacted favorably to the change in government at the Center. With Manmohan Singh becoming Prime Minister, there is hope that the Indian economy will receive a further boost. While increasing levels of economic growth is a high priority on the Congress government's agenda, sustaining such levels of growth will pose a serious challenge. India's Gross Domestic Product (GDP) has risen by 8.9% due to tremendous growth in agricultural, industrial and service sectors. In a recent development, Max New York Life India (MNYLI), has announced an agreement with Warburg Pincus to sell 29% of its equity for Rupees 200 crore. MYNLI is a joint venture between Max India and New York Life. It expects the Indian insurance market to grow at 22% annually between 2003 and 2007. 

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India's new finance minister swears by economic reforms 

India will give a big push to economic reforms with an added emphasis on agriculture, manufacturing and employment, Finance Minister P. Chidambaram said here Monday after taking charge of the key portfolio, website reported.
"I have reasons to believe that the economy is in a resilient mood in respect of growth, inflation and balance of payments," Chidambaram said.
"There is great scope to consolidate this growth momentum. Special attention will be paid to agriculture, manufacturing and employment," he said at an informal meeting with reporters.
"These sectors and others require massive investments, public and private. It will be my endeavour to pursue investments that are key to growth of jobs and income."
Chidambaram, who declined to go into specifics of any policy, said there was no doubt about the continuity of economic reforms under the Congress party-led United Progressive Alliance (UPA).
"We are going back to the days of the original reformer Manmoham Singh," he said referring to the liberalisation process initiated by the India's new prime minister as finance minister between 1991 and 1996.
"I have reasons to believe that the policies since 1991 have bought certain benefits to the Indian economy. What the new government will do is to factor in the experience gained during the last 13 years."
The 59-year-old politician, who won the Lok Sabha seat from Sivaganga in Tamil Nadu, said he was also confident that the stock markets would stabilise under the new government.
"You should check out the market now, as you walk out of the room," said the Harvard-educated lawyer-politician and darling of the bourses, as the sensitive index of the Bombay Stock Exchange shot up over 150 points or three percent.
Giving some indication on the national budget, Chidambaram said while it would not be presented during the short session of Parliament between June 2 and 10, it will be unveiled soon after.
The previous National Democratic Alliance (NDA) government had presented what is called a vote on account that authorises the government to continue to draw finances till such time as a new government presents a regular budget.
On the 'India Shining' campaign started by the Ministry of Finance under his predecessor Jaswant Singh, Chidambaram said it mocked at poorer India.
The recent election verdict clearly indicated that the people of India have protested such campaigns, he said, adding: "We want India to shine for all the people and that is an aspirational statement."
Chidambaram also allayed fears that economic reforms may suffer due to divergent ideologies of the various constituents of the Congress-led alliance. "The UPA government brings with it good politics, good economics and a lot of hard work."
He said it will be reflected in the common minimum programme of the coalition, which will form the basis for the new government.
"When it is revealed, it will enthuse all sections of the people and bring better living for all our people. 

The Road Ahead For The Indian Economy 

"A modern economy needs a strong trade policy focus, low uniform tariffs and reduced transaction costs," Jayanta Roy, said in the Financial Express. The author is principal advisor, CII and former economic advisor, ministry of commerce. 
The dust has settled on the Indian political scene. We now have two proven reformers, Manmohan Singh and P Chidambaram, in supreme command over economic policy. They will be ably aided by Kamal Nath as minister of commerce and industry. So what should be their goal? There is bound to be a lot of rhetoric in the official pronouncements in the forthcoming budget and EXIM policy, but I hope they set a clear vision of the economy in their own policy programme. In my opinion, the goal should be to put the Indian economy in the major global league within a decade. 
What are the characteristics of a major global economy? 
* Per capita income of at least $1,500. India's present per capita income is $480. 
* Low levels of abject poverty. India needs to bring down the number of people below the poverty line to around 100 million in the coming decades from about 300 million now. 
* Good governance with low corruption index. We need to sharply improve our dismal rank of 83 out of 133 in the Corruption Perception Index of Transparency International. 
* Full integration with the global economy, with exports paying for a large volume of imports needed to modernise the economy. India's share in the world exports of 0.7 per cent is a reflection of India's presence outside the major global league. 
* Demonstration of fiscal discipline with a modest overall public sector deficit. Our combined fiscal deficit is 11 per cent. 

What targets do we require against each of these? 
* To reach a per capita income of $1,500 by 2020, the Indian economy needs to grow by at least 8 per cent per year. We can accelerate the process by stepping up growth to 10 per cent per annum. 
* Poverty will be reduced through high GDP growth and high export growth that will require a large contribution of exports of agro-industrial and marine products. 
* Good governance should be the main aim of the governments at the Centre and the states. A starting point could be a sharp reduction in transaction costs of trade and doing business in India, by eliminating face to face contacts between public authorities and traders and investors. 
* Our target should be to increase our share of exports in global exports to 2 per cent by 2010. This translates into an annual growth rate of 25 per cent which is achievable if we focus on policies suggested in the latter section. The share of exports of services in global services export should rise to 5 per cent from the current $24 billion to $110 billion. This will require an annual growth of 35 per cent in the coming six years. 
* The current overall fiscal deficit at 11 per cent of GDP is not sustainable in the long run. The government must take steps immediately to raise the tax/GDP ratio from 9 per cent at present to the Asian average of 16 per cent. This should be done through widening the tax base, reducing tax rates and removing most exemptions. On the expenditure front, we need to increase public investments and reduce current expenditures. While subsidies may continue given that we have a coalition in power, immediate steps need to be taken to downsize the bloated bureaucracy. Mr Chidambaram with his experience in both finance and personnel is in a good position to do this. 

Finally, some concrete suggestions towards a dynamic growth in exports. 
First, introduce a low uniform tariff with no exemptions. If Chile can introduce a rate of 6 per cent with very positive results, I don't see why we can't start with a 15 per cent rate. This will stop all lobbying, make the system transparent, and the revenue gains from removal of all exemptions and increasing all the lower rates to 15 per cent, could easily outweigh the revenue losses, and may even leave room for helping some deserving losers (for instance, life-saving drug importers). 
Second, transaction costs should be reduced through full implementation of electronic data interface, reliance on self-certification by importers, and developing the system of risk analysis and management. The target should be to bring cargo dwell times to international norms. Also, we need to streamline the procedure of exports and imports which is too cumbersome and requires a large number of approvals, most of which are outmoded. 
Third, the ministry of commerce and industry needs to have a strong trade policy focus. The present trade policy department should be revamped to take the lead in multilateral (World Trade Organisation) and bilateral (Free Trade Agreement) dialogues, taking into consideration views of other ministries and agencies and the private sector. For this, it must have a well-known economist and a reputed lawyer on a permanent basis. It also should have a strong information centre with data and analysis of all relevant topics. 

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India to remain Russia's key strategic partner

Underlining the foreign policy priorities of his second innings in office, Russian President Vladimir Putin recently declared that India will remain his country's key "strategic partner" in the world along with the US, China and Japan, reported.
"We will continue to develop our political and economic dialogue with our key strategic partners - the United States, China, India and Japan," Putin said in his annual state of the nation address to the joint session of Parliament.
In his 49-minute address - his first annual exercise since assuming second four-year term in office on May 7th, Putin said that in the last four years Russia has overcome the instability of the decade followed by the fragmentation of the Soviet Union and dismantling of the Communist system in the country.
"Russia had lost 50 per cent of its economic potential, we have regained 40 per cent of it and today we are politically, economically and financially stable and independent nation," he underlined.
"Creation of conditions for sustained economic growth, comfortable and secure environment for the nation" were named by Putin as the prime goals of Moscow's foreign policy.

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Taiwan, Indian IT software organizations to hold talks over cooperation deals

Taiwan's information-technology (IT) enterprises and their Indian counterparts will hold talks in Taipei over cooperation deals as the first step of materializing their idea that cooperation between them is business conducive for both sides, China Economic News Service (CENS) reported. 
The Indian National Association of Software and Service Companies (NASSCOM), the premier trade body and the chamber of commerce of the IT software and services industry in India, will organize 10-some member companies, under the lead of chairman, Kiran Karnik, to join the meeting.
According to Taiwan's insiders, the Indian companies to visit the island are big players that have long-term partnerships with European and American multinationals. They said these Indian companies hoped to enter into alliances with the island's IT manufacturers. 
Consulting-service company TCS of the Indian delegation plans to open a research and development unit in Taiwan. Satyam of the delegation has opened a branch in Shanghai of mainland China. 
Invited by Taiwan's government-backed IT think tank Institute for Information Industry (III), the Indian delegation will visit the Computex Taipei computer trade show and will hold a conference addressing co-development of overseas markets with its Taiwanese counterparts at the sideline of the show. The meeting will be co-organized by III, Industrial Technology Research Institute (ITRI) and the Economic Daily News, a sister publication of China Economic News Service (CENS). 
Taiwan's industry watchers analysed that the cooperation between the two sides will largely benefit them on grounds that Taiwan is a world leading supplier of contract electronics devices while India is noted for its software industry. India is a potential market for IT products with its population of one billion buying only four million computers a year, on average. 
Last year alone, Indian IT industry reported revenue of US$9.5 billion, up 25% from a year earlier. Software industry accounted for around 58% of the 2003 revenue, with its over 3,000 companies. 
The lucrative market potential has piqued interest of Taiwan's IT companies including Asustek Computer, Giga-Byte Technology, Acer, BenQ and Elite-Group Computer System to tap. 
For Indian companies, Taiwan is an important market. NASSCOM vice chairwoman Sangeeta Gupta said the Indian trade delegation would use the visit as a chance to scramble for Taiwan government's digitised-service contracts. The vice chairwoman felt that Taiwan's outstanding IT hardware industry and India's software profession could form a synergy partnership. 
III pans to send some of its software personnel to receive training in India while two to three Indian companies plan to ink cooperation deals with Taiwanese companies this year. 

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Indian hotels bursting at the seams

India's hotels, having weathered nearly two years of a global tourism funk, are once again bursting at the seams, Reuters News Agency reported. 
Analysts attribute the boom over the last 12 months to the confluence of several factors; from India's red-hot economic growth, to the flood of consultants and others outsourcing to cut high labour costs at home, to reduced tensions with nuclear rival Pakistan. Some even cite a spike in domestic travel. 
With no letup of bookings in sight, hotel owners and analysts expect occupancy rates and prices to stay high at least through the end of this year since more rooms are unlikely to be added in the short term. 
"Foreign business travel has been very strong, so has domestic business and we expect a further 10-12 per cent rise in tourist arrivals this year," said Shyam Suri, Secretary General of the Federation of Hotel and Restaurant Associations of India. 
Hotel stocks, which have already been pushed up by investors, have more room to grow, some analysts say. 
Shares of the country's biggest chain, the Indian Hotels Co Ltd that owns Taj hotels, have jumped over 25 per cent since early October, while second ranked East India Hotels Ltd, which runs the glitzy Oberoi hotels, have risen about five per cent. 
Shares in ITC Hotels Ltd, the third-biggest group, have jumped 26 per cent. 
Analysts estimate average room rates will climb 10 to 15 per cent this year, to US$120-130, after rising by 15-20 per cent in the past year. That is still less than half the nearly US$300 a night for top European hotel rooms. 
For hotel owners, business travellers are king. Industry officials estimate they contributed 60 per cent of the occupancy in top-end hotels and as much as 80 per cent in premium hotels in large cities. But foreign tourists are also coming back. 
Government officials say nearly 3.0 million foreign tourists arrived in India in the fiscal year ending in March, a jump of 18.5 per cent over the previous year. But it remains below regional rivals such as Thailand, which is targeting 12 million visitors this year. 
India's economy, ranked eleventh in the world, surged ahead of China to become the fastest growing economy with 10.4 per cent growth in the October-December period from a year ago. India expanded 8.1 per cent in the full fiscal year ending in March.

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