Country Report India at a Glance: 2003-04
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Country Report March 2003 India India at a glance: 2003-04 OVERVIEW The current government is likely to remain in power into 2004, when the next general election is due. The Bharatiya Janata Party (BJP, the lynchpin of the ruling coalition) has been bolstered by its success in the Gujarat state assembly election and has forced the main opposition party, Congress, on the defensive. Tensions between India and Pakistan remain high, and India’s relationship with Bangladesh has deteriorated. A number of economic reforms are under discussion. The Economist Intelligence Unit forecasts that the government’s fiscal deficit target of 5.3% of GDP will be overshot in 2002/03. Inflation is forecast to increase slightly in 2003 and GDP growth in 2003/04 is expected to rise to 5.9%. Key changes from last month Political outlook • The success of the BJP in the Gujarat state election has thrown Congress on the defensive, and has rendered the outcome of the 2004 general election more uncertain. Our assumption that a Congress-led coalition would triumph has been put on hold until the results of several state elections due to take place later this year are known. These will better indicate the balance of power between Congress and the BJP. Economic policy outlook • The 2003/04 budget is likely to implement several of the recommendations of two committees that examined direct and indirect taxation: this could place pressure on revenue as the system of taxation is reformed. Economic forecast • We have lowered our forecasts for consumer price inflation in 2003 and 2004 to 4.8% and 5.1% respectively owing to continued low levels of inflation at the end of 2002. March 2003 The Economist Intelligence Unit 15 Regent St, London SW1Y 4LR United Kingdom The Economist Intelligence Unit The Economist Intelligence Unit is a specialist publisher serving companies establishing and managing operations across national borders. 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India 1 Contents 3 Summary 4 Political structure 5 Economic structure 5 Annual indicators 6 Quarterly indicators 7 Outlook for 2003-04 7 Political outlook 8 Economic policy outlook 10 Economic forecast 13 The political scene 20 Economic policy 24 The domestic economy 24 Economic trends 28 Agriculture 29 Infrastructure 30 Oil and gas 31 Financial and other services 32 Foreign trade and payments List of tables 10 International assumptions summary 12 Forecast summary 23 Recommended customs duties 24 Change in GDP and its components 25 Inflation 27 Number of telephones 29 Output of principal crops 32 Mergers and acquisitions 32 Trade, reserves and the exchange rate, 2002-03 33 Current and capital accounts 34 Exports 34 Imports Country Report March 2003 www.eiu.com © The Economist Intelligence Unit Limited 2003 2 India List of figures 12 Gross domestic product 12 Indian rupee real exchange rates 14 Gujarat state election results 24 Sales of passenger cars and multi-utility vehicles, 2002 26 Sugar production and prices 30 Oil producti0n and imports, 2002 Country Report March 2003 www.eiu.com © The Economist Intelligence Unit Limited 2003 India 3 Summary March 2003 Outlook for 2003-04 The current government is likely to remain in power into 2004 when the next general election is due. The Bharatiya Janata Party (BJP, the lynchpin of the ruling coalition) has been bolstered by its success in the Gujarat state assembly election and has forced the main opposition party, Congress, on to the defensive. Tensions between India and Pakistan remain high, and India’s relationship with Bangladesh has deteriorated. A number of economic reforms are being discussed. The Economist Intelligence Unit forecasts that the government will overshoot its fiscal deficit target of 5.3% of GDP in 2002/03. Inflation is forecast to increase slightly in 2003 and GDP growth in 2003/04 is expected to rise to 5.9%. The political scene The BJP triumphed in the Gujarat state election, despite accusations that the state government was complicit in anti-Muslim rioting earlier in 2002. Congress has been unsettled by the election result. An extensive cabinet reshuffle has taken place. Election candidates must disclose their criminal record. A proposal to appoint judges independently has been revived. The chairman investigating the Tehelka scandal has resigned. Four people have been convicted for the 2001 attack on parliament. A command structure for nuclear weapons has been set up. Relations with Bangladesh have been strained. Economic policy The states have agreed to introduce a value-added tax (VAT) on April 1st. There have been mixed signals regarding privatisation. Two task-forces looking into direct and indirect taxes have published interim reports. The first recommended that direct tax collection should be made more efficient, that the income tax structure should be simplified, that the corporate tax rate should be lowered and that customs officials should limit their scrutiny of imports. The indirect tax task-force proposed that services taxes be integrated into the VAT system. The domestic economy GDP growth remained strong in the first half of 2002/03 (April-March). Consumer price inflation fell towards the end of 2002. Gujarat’s finances are in a poor state. The introduction of buffer stocks has halted moves towards sugar liberalisation. A telecoms dispute has been resolved. The collapse of Enron has affected Indian banks. Defaults on power payments are spreading, The autumn harvest was sharply down. A new metro system has begun operating in the capital, Delhi. A massive plan to counter future droughts has been announced. The system of oil pipelines is being overhauled. The Reserve Bank of India (RBI, the central bank) has allowed trading in government bonds. Foreign trade and payments Rising reserves have forced a change in exchange-rate policy. The current account has remained strong. Exports surged in the first half of 2002/03 and import growth has also been firm. Foreign portfolio investment rules have been relaxed. Japan has resumed its programme of aid to India. Editors: Gareth Price (editor); Graham Richardson (consulting editor) Editorial closing date: February 21st 2003 All queries: Tel: (44.20) 7830 1007 E-mail: [email protected] Next report: Full schedule on www.eiu.com/schedule Country Report March 2003 www.eiu.com © The Economist Intelligence Unit Limited 2003 4 India Political structure Official name Republic of India Form of state Federal republic, with 29 states and six union territories Head of state President, currently Abdul Kalam, indirectly elected in 2002 for a five-year term by members of the central and state assemblies The executive The prime minister presides over a Council of Ministers chosen from elected members of parliament National legislature Bicameral. The Rajya Sabha, or upper house, has 245 members (233 elected by weighted votes of the elected members of parliament and the legislative assemblies of states and union territories, and 12 appointed by the president). The Lok Sabha, or lower house, has 545 members: 543 elected from single-member constituencies (79 seats are reserved for scheduled castes and 40 for scheduled tribes) and two representatives of Anglo-Indians appointed by the president State legislatures Unicameral or bicameral, with elected members; state governors are appointed by the president Legal system Based on the 1950 constitution and English common law National government The National Democratic Alliance (NDA), a coalition led