Country Report 1St Quarter 1998 © the Economist Intelligence Unit Limited 1998 2
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COUNTRY REPORT India Nepal 1st quarter 1998 The Economist Intelligence Unit 15 Regent Street, 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. For over 50 years it has been a source of information on business developments, economic and political trends, government regulations and corporate practice worldwide. The EIU delivers its information in four ways: through subscription products ranging from newsletters to annual reference works; through specific research reports, whether for general release or for particular clients; through electronic publishing; and by organising conferences and roundtables. The firm is a member of The Economist Group. London New York Hong Kong The Economist Intelligence Unit The Economist Intelligence Unit The Economist Intelligence Unit 15 Regent Street The Economist Building 25/F, Dah Sing Financial Centre London 111 West 57th Street 108 Gloucester Road SW1Y 4LR New York Wanchai United Kingdom NY 10019, US Hong Kong Tel: (44.171) 830 1000 Tel: (1.212) 554 0600 Tel: (852) 2802 7288 Fax: (44.171) 499 9767 Fax: (1.212) 586 1181/2 Fax: (852) 2802 7638 e-mail: [email protected] e-mail: [email protected] e-mail: [email protected] Website: http://www.eiu.com Electronic delivery EIU Electronic Publishing New York: Lou Celi or Lisa Hennessey Tel: (1.212) 554 0600 Fax: (1.212) 586 0248 London: Moya Veitch Tel: (44.171) 830 1007 Fax: (44.171) 830 1023 This publication is available on the following electronic and other media: Online databases CD-ROM Microfilm FT Profile (UK) Knight-Ridder Information World Microfilms Publications (UK) Tel: (44.171) 825 8000 Inc (US) Tel: (44.171) 266 2202 DIALOG (US) SilverPlatter (US) Tel: (1.415) 254 7000 LEXIS-NEXIS (US) Tel: (1.800) 227 4908 M.A.I.D/Profound (UK) Tel: (44.171) 930 6900 Copyright © 1998 The Economist Intelligence Unit Limited. All rights reserved. Neither this publication nor any part of it may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of The Economist Intelligence Unit Limited. All information in this report is verified to the best of the author’s and the publisher’s ability. However, the EIU does not accept responsibility for any loss arising from reliance on it. ISSN 0269-5294 Symbols for tables “n/a” means not available; “–” means not applicable Printed and distributed by Redhouse Press Ltd, Unit 151, Dartford Trade Park, Dartford, Kent DA1 1QB, UK 1 Contents 3 Summary India 5 Political structure 6 Economic structure 7 Outlook for 1998-99 13 Review 13 The political scene 20 Economic policy 24 The economy 26 Agriculture 28 Industry 30 Infrastructure and telecommunications 32 Energy 35 Foreign trade and payments Nepal 38 Political structure 39 Economic structure 40 Outlook for 1998-99 41 Review 41 The political scene 44 Economic policy and the economy 47 Energy 48 Tourism 48 Aid and development 50 Quarterly indicators and trade data List of tables 13 India: forecast summary 14 India: the 11th Lok Sabha 19 India: progress in reforms 28 India: company performance 29 India: value addition by Indian companies, 1996/97 35 India: import duties on petroleum products 50 India: quarterly indicators of economic activity 51 Nepal: quarterly indicators of economic activity 52 India: foreign trade 54 India: major partners’ trade EIU Country Report 1st quarter 1998 © The Economist Intelligence Unit Limited 1998 2 List of figures 10 India: non-food credit, 1997 13 India: gross domestic product 13 Indian rupee real exchange rate 24 India: bank investment 25 India: industrial production, 1997 26 India: inflation 41 Nepal: gross domestic product 41 Nepal: Nepalese rupee real exchange rate EIU Country Report 1st quarter 1998 © The Economist Intelligence Unit Limited 1998 3 February 1st 1998 Summary 1st quarter 1998 India Outlook for 1998-99: A general election will take place in February and March. The BJP will be strengthened by Congress defections and new alliances. A “fourth force”, including the BSP and RJP, may develop. Three or four major groupings could emerge from the election, none with an overall majority, and each rent by internal divisions. The broad consensus on economic policy will remain intact. A tax windfall will prevent a sharp increase in the budget deficit. Industry will remain sluggish. GDP growth will slow in both 1997/98 and 1998/99. Inflation will rise. The rupee will depreciate further in 1998, and bouts of volatility are likely. The trade and current-account deficits will widen, but foreign-exchange reserves will remain ample. The capital account will stay sus- ceptible to negative sentiment. The political scene: The UF government has fallen. The BJP has formed alliances with regional parties in the south and east. Sonia Gandhi has reinvig- orated the Congress campaign. The UF has remained largely united. The break- away RJD has hurt the UF’s prospects in some important states. The BJP is likely to win the most seats. The tally for the UF and Congress will determine the next government. The UF government’s record on reform has been laudable. Economic policy and the economy: The rupee’s fall has dominated economic concerns. The central bank has raised interest rates and tightened liquidity. Concerns about the budget deficit have abated. The tax amnesty scheme has been a success. Privatisation has stalled. Indian banks have so far avoided a financial crisis. The outgoing industry minister has cleared all pending investment projects. Official growth forecasts have been lowered. Industrial growth has been disappointing, although select sectors have fared well. Infla- tion has slowed. The number of new primary market issues has slumped. Agriculture and industry: The monsoon was normal, but there have been sharp regional variations. Foodgrain output will rise, but the kharif harvest will contract. Some 3m tonnes of wheat and rice have vanished from government stocks. Output of some cash crops has fallen. Tea output has increased. British Gas has bought Gujarat Gas. The vehicle industry has remained depressed, fuelling competition. Steel and cement have recorded modest growth. Infrastructure and telecommunications: Access to the Internet has been unlocked. Public telecommunications companies have become more compet- itive. Indian Railways has blocked a mine development. More incentives have been offered to private road projects. Tatas have bid to launch a new airline. Energy: Enron’s projects have advanced, as have some “fast-track” private power projects. Poor power transmission has remained a concern. Political con- siderations have stalled an India-Bangladesh gas pipeline. Two LNG terminals have been approved. The downstream oil market has been deregulated further. Domestic petroleum demand has slowed. EIU Country Report 1st quarter 1998 © The Economist Intelligence Unit Limited 1998 4 Foreign trade and payments: Imports have outpaced exports in the April- October period. Garment exports have contracted. A five-year export strategy has been announced. Threats of credit rating downgrades has caused alarm. Indian companies have been less active in foreign capital markets. Foreign portfolio investors have been net sellers. FDI flows have risen. Nepal Outlook for 1998-99: The NDP-NC-NSP coalition government will face a no-confidence vote. If the Thapa government falls, the CPN-UML and the NNDP will form a government. The CPN-UML will try to force an election, which they will win. The trade and budget deficits will widen. Review: The king has intervened in a constitutional crisis. The main parties are riven by factional divisions. The NDP has split. Exports of garments and carpets have slowed, as has inflation. The trade and current-account deficits have widened. Tax targets have been missed. VAT has been introduced. Food subsidies have been cut but fertiliser prices have been raised. The rupee has slipped. Tourist arrivals have risen slightly. The Pancheswar power project has stalled. Bilateral and multilateral donors have pledged aid. Editor: Elisabeth Paulson All queries: Tel: (44.171) 830 1007 Fax: (44.171) 830 1023 EIU Country Report 1st quarter 1998 © The Economist Intelligence Unit Limited 1998 India 5 India Political structure Official name Republic of India Form of state Federal republic, 26 states and six union territories Head of state President, currently Kocheril Raman Narayanan, re-electable for five-year terms, elected indirectly by national and state legislatures The executive Prime minister heads Council of Ministers chosen from elected members of parliament National legislature Bicameral: upper house, Rajya Sabha, 250 members (238 indirectly elected by states and union territories, 12 appointed by president); lower house, Lok Sabha, 543 members elected from single-member constituencies (79 seats reserved for Scheduled Castes, 40 for Scheduled Tribes) and two appointed by president. Lower house has final authority over finance; Lok Sabha elections every five years State legislatures Uni- or bicameral, elected members, state governor appointed by president; state elections every five years Legal system Based on 1950 constitution and English common law National government The United Front (UF) coalition government fell in late 1997 following the withdrawal of parliamentary support by the Congress (I) party. The first UF government came to power in June 1996,