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  2003 2002 2001 Ranking(2003)
Millions of US $ 598,966 515,000  481,400 12
GNI per capita
 US $ 530 480 470 160
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Update No: 030 - (27/07/06)

On July 11, 2006, a series of blasts rocked Mumbai's commuter trains during rush hour killing more than 200 and injuring 800 people. The blasts came as a shock to the Indian community and tested the nerves and resolve of Mumbaikars (the term frequently used to refer to the people of Mumbai) to get back to their daily lives. One of the most widely believed reasons for the serial bomb blasts is the confrontation between two extremist political forces in Mumbai; India's Hindu nationalist Shiv Sena party and Muslim reactionary forces. According to intelligence sources, any of the terrorist outfits like the Lashkar-e-Toiba, the Students' Islamic Movement of India (SIMI) and the Kafila-e-Shakt could be the main organizations behind the 7/11 attacks. There is some speculation indicating that members belonging to SIMI and Lashkar-e-Toiba have allegedly received training for three to six months at camps in Jalalabad, Muzaffarabad and other places in Pakistan-administered Kashmir. The terrorists are said to be deployed in various parts of the country, and since they are well trained and highly motivated, they do not need a lot of time to plan and carry out attacks when required to do so. The Mumbai government has apprehended a number of suspects but has not so far reached any conclusive findings. 

In the aftermath of the Mumbai blasts, Indian Defence Minister Pranab Mukherjee has made a statesmanlike formal declaration stating that India would continue to maintain cooperative and friendly relations with Pakistan. However, he cautioned that undemocratic states are often the ones that provide havens for terrorist activities and pursue terrorism as a state policy. He further argued that there was an important distinction between the way democratic and autocratic states constructed their defence and security policies. Therefore, although Mukherjee extended his hand of friendship to Pakistan, there was an underlying message in his statement, that those who harbour terrorists, will be dealt with severely. Despite the underlying reference to the threat of terrorism posed by Pakistan, Mukherjee's basic focus has been on cooperation among South Asian nations to accelerate economic growth and prosperity of their people. In his words, "We want our neighbours to take full advantage of our growing market and rapidly globalising economy". 

The US House of Representatives has passed landmark legislation approving the US-India nuclear agreement by a massive 359-68 margin and rejecting several 'killer amendments' on the way. The US Nuclear Cooperation Promotion Act of 2006 is to be renamed the Hyde Amendment. 218 Republicans and 141 Democrats supported the deal, and only nine Republicans and 59 Democrats opposed it. An amendment that would have the US audit India's fissile material stock annually was rejected by a 155-268 margin. Another amendment that would restrict the export of uranium to India until the President certified that New Delhi had frozen its fissile material production was rejected 184-241. When these two amendments were defeated, opponents of the agreement tried to link the deal to India further supporting US in its campaign against Iran. But that too was defeated 192-235 by supporters who argued that New Delhi had already proved its loyalty to the US as a faithful partner opposed to nuclear proliferation in the Iran context. About the only significant amendment that was passed without contest was one that enjoins the United States to only support India's civilian nuclear program, and not any nuclear weapons capability enhancement. 

On a separate issue, India blamed the US for its rigid stand on the controversial issue of farm subsidies and the collapse of WTO talks in Geneva. India said it would stick to its position until certain "structural flaws" in the global trading system were corrected. Back from the meeting of G-6 countries, which failed to bridge differences in the Doha Round of trade talks, Commerce Minister Kamal Nath said in the Lok Sabha and later at a press conference that there was "no roadmap for the future". "There are big gaps in mindsets. The US brought nothing to the table. It (US) wants market access in India and other developing countries for their subsidized agricultural products at the cost of security of livelihood of our farmers and this is not acceptable," he said. "The US offer (to reduce subsidies) is not enough. In fact, it is no offer," he said. The US gives 19.5 billion dollars as domestic support and wants the flexibility to increase it by another three billion dollars. With the future of WTO talks uncertain, Nath said India would be discussing ways to unite with other developing countries to surmount the obstacles posed by the unfair rules of the WTO. It may be in India's favour that the European nations have supported the cause of developing countries like India and Brazil.Asked whether the breakdown of talks could impact India's economic growth or trade, Nath's answer was a categorical "No." India's GDP would continue to grow at 8-9 per cent per year. 

India is stepping up vigil on its borders with Nepal and Bangladesh after investigations into the Mumbai bombings revealed the possibility of militants and weapons being smuggled from these areas. While the number of border guards on the open frontier with Nepal would be doubled to nearly 11,000, troops are engaged in building up a fence on the Bangladesh border and use high-technology equipment to monitor the area. The Inspector General of Police is believed to have said that "with penetration impossible from the northern side due to strong presence of army and police, the militants are using the eastern side to infiltrate." Two of the four men arrested so far in connection with the blasts were from the eastern state of Bihar, which along with West Bengal and Sikkim states, shares borders with Nepal. India shares a 1,750-km open border with Nepal and a 4,000-km frontier with Bangladesh. While about half the Bangladesh border being fenced, there are no barriers along the Nepal frontier. "The border with Nepal and Bangladesh is emerging prominently in our investigation as the terror route," said KP Raghuvanshi, the chief of the Anti-Terrorist Squad investigating the blasts in India's financial capital. "Militants are using the twin borders to send their cadres to Pakistan and this is a big threat to India's security," he said. According to the media Indian investigators suspect Pakistan-based Islamist militant group Lashkar-e-Taiba and the Pakistani military spy agency Inter-Services Intelligence to be behind the attacks, although it should be noted that ISI are always likely to be blamed in such circumstances (when the culprits are not yet identified). They say the two outfits were suspected to have armed and trained Indian Muslims to bomb train carriages and railway platforms in the crowded city. Pakistan has denied any connection with the bombings and Pakistani President Pervez Musharraf said New Delhi should desist from a "blame game" without any evidence. 

Japan's special envoy to Sri Lanka, Yasushi Akashi, has urged India to play a "more influential role" in salvaging the country's peace process. In an interview at his office in Tokyo, Akashi said he attached "great importance for the role India does play and can play in the future" in Sri Lanka, where a Norwegian-sponsored peace mission has run into rough weather." Akashi was aware that Indians had suffered a great deal at the hands of the LTTE in the 1980s and India's intervention in Sri Lanka had indirectly led to the assassination of Prime Minister Rajiv Gandhi. Despite, India's unsavoury experience in Sri Lanka, Akashi believes that India's stake in maintaining peace and stability in Sri Lanka is "unmistakable." Akashi also remarked that "Norway is the diplomatic facilitator, Japan is the aid coordinator, while the US has its unquestioned military and political clout, and the European Union combines the resources of Europe. So if India could sort of associate itself with us, if not organizationally at least in substance, with India's unquestioned role in South Asia, I think the international community will have added weight to bear on the Sri Lankan situation." Akashi is scheduled to visit Sri Lanka again next month, and the Japanese diplomat also plans to meet LTTE Velupillai Prabhakaran too. India once provided sanctuary to Sri Lankan Tamil militant groups. But in 1987 it signed a peace pact with Colombo to end Tamil separatism. Indian troops deployed in Sri Lanka's northeast, however, ended up fighting the LTTE, and returned home in March 1990 after suffering nearly 1,200 dead. India in 1992 became the first country to outlaw the LTTE in the wake of the Gandhi assassination. In recent times India has been urging Sri Lankan leaders to evolve a national consensus on devolving powers to the minorities. It will be interesting to see how New Delhi responds to this proposal made by the Japanese diplomat. While it is true that India has a stake in maintaining peace and stability in South Asia, the costs of doing so in Sri Lanka might outweigh the gains, compelling India to hold back and just remain a mere spectator. 

India's decision to block sales of stakes in state-owned companies could be a blow to investor sentiment as it raises fears that the country's larger program of economic changes might get entwined in politics. Prime Minister Manmohan Singh said that privatisation plans were "pending review" after a coalition partner whose support was crucial to the government's survival threatened to withdraw support. As a consequence of this, the benchmark stock market index in Mumbai fell 258 points. "This is not good news," said Chetan Ahya, executive director and India economist of JM Morgan Stanley in Mumbai, Global investors will view this as a "reaffirmation of the government's inaction over privatisation," Ahya said. The 10 per cent stakes that were to be sold in National Aluminum and the power generator Neyveli Lignite are relatively insignificant in themselves, as the government owns more than three-quarters of each. But investors see setbacks to the whole process of economic restructuring. Foreign institutional investors are bullish about the Indian economy and its 8 per cent growth rates poured more than US$10 billion into equities in 2005 and US$8.4 billion in 2004. But a stock market sell-off in May reversed the mood. Now, analysts say the move to stop sales of stakes in government-owned companies could further discourage investors. "The reform process is much larger than just the sale of stakes in a few companies," said Mahesh Vyas, chief executive of Center for Monitoring Indian Economy, a research group in Mumbai. "We are moving in the general direction of economic reforms." But even the larger process of economic restructuring has become mired in politics. The government, for instance, has been unable to make changes to the often convoluted rules that govern the hiring or dismissal of employees. Similarly, proposals like selling stakes in Indian banks have been repeatedly discussed and shelved. And while global retailers like Wal-Mart Stores and Tesco knock on India's doors, the government has rejected foreign direct investment in retailing. In India, consensus politics rules, Vyas said and added that "The government has to be sensitive to the concerns of all its allies in and out of the government." Even in sectors like infrastructure and finance, where restructuring is relatively uncontroversial, the pace has been slow. About the only recent decision of any significance has been the privatisation of India's busiest airports, in Mumbai and New Delhi. Still, some investors say India's fundamental growth factors are still in place. "We remain positive and unambiguous about India," said Narayanan, of Carlyle Group. But Ahya, the economist, said investors could "go through some pain" because of the slowing of the program of economic changes.

Japanese auto giant Honda plans to double its production capacity in India by next year, set up a fully owned subsidiary and invest US$650 million into its business there over the next decade, according to President and CEO Takeo Fukui. Fukui said that Honda Motors sees India as a more important market than China, and the growth potential here is the highest. Expanding business in India is "one of Honda's three key global strategies, together with strengthening the foundation of our business in the US and Japan, and enhancing Honda's leadership commitment to protect the environment," Fukui said after a series of meetings with Indian partners. But the company won't commit to any big-ticket investment right away. As of now, it plans to invest about 30 billion rupees (US$650m) - much less than the billions of dollars the company has invested in China - over the next 10 years. Although India's booming economy has increasingly lured Western investors in recent years, Japanese firms have been cautious about expanding their operations here, largely because of stringent labour laws and doubts over whether the current boom would be sustained. Both Honda and Toyota have had labour unrest at their plants. But Fukui said Honda usually prefers to scale up its operation "step by step" as it did in other places including the US. "In Honda, we say: 'start small and grow big'." Its auto plant in Greater Noida, which neighbours New Delhi, currently has a capacity to make 50,000 cars. Honda entered India in 1984, setting up a joint venture with a local company to manufacture motorcycles. That company - Hero Honda Motors - has since become India's largest motorcycle manufacturer, selling 3.6 million bikes last year, according to company figures. Masahiro Takedagawa, who will head Honda's new subsidiary, said the company expects its share in the Indian motorcycle market - the world's second largest after China - to increase from the current 48 per cent in the coming year.

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