FY 2000 Country Commercial Guide: India
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U.S. Department of State FY 2000 Country Commercial Guide: India The Country Commercial Guides for India was prepared by U.S. Embassy New Delhi and released by the Bureau of Economic and Business in July 1999 for Fiscal Year 2000. International Copyright, U.S. and Foreign Commercial Service and the U.S. Department of State, 1999. All rights reserved outside the United States. TABLE OF CONTENTS CHAPTER I. EXECUTIVE SUMMARY CHAPTER II. ECONOMIC TRENDS AND OUTLOOK -- Major trends and outlook -- Principal growth sectors (e.g., manufacturing, agriculture, services from an Indian macro perspective) -- Government role in the economy (India's budget priorities, privatization of state enterprises) -- Balance of payments situation -- Infrastructure (overview of infrastructure systems, India’s efforts to address the Year 2000 problem) CHAPTER III. POLITICAL ENVIRONMENT -- Nature of political relationship with the United States -- Major political issues affecting the business climate -- Synopsis of political system, schedule for elections, orientation of major political parties CHAPTER IV. MARKETING U.S. PRODUCTS AND SERVICES -- Distribution and sales channels -- Information on typical product pricing structures -- Use of agents and distributors; finding a partner 1 -- Franchising -- Direct marketing -- Joint ventures/licensing -- Steps to establishing an office -- Selling factors, techniques -- Advertising and trade promotion -- Pricing product -- Sales service and customer support -- Selling to the Government -- Protecting your product from IPR infringement -- Need for a local attorney -- Performing due diligence/checking bona fides of banks/agents/customers CHAPTER V: LEADING SECTORS FOR U.S. EXPORTS AND INVESTMENT -- Best Prospects for non-agricultural goods and services -- Best Prospects for agricultural products -- Significant investment opportunities CHAPTER VI. TRADE REGULATIONS, CUSTOMS AND STANDARDS -- Trade barriers, including tariff and non-tariff barriers -- Customs regulations -- Tariff rates -- Import taxes -- Import license requirements -- Temporary goods entry requirements -- Special import/export requirements and certifications -- Labeling requirements -- Prohibited imports -- Warranty and non-warranty repairs -- Export controls -- Standards (e.g. ISO 9000 usage) -- Free trade zones/warehouses -- Special import provisions -- Membership in free trade arrangements -- Customs contact information CHAPTER VII INVESTMENT CLIMATE -- Openness to foreign investment -- Right to private ownership and establishment -- Protection of property rights 2 -- Adequacy of laws and regulation governing commercial transactions -- Foreign Trade Zones/free ports -- Major taxation issues affecting U.S. business -- Performance requirements/incentives -- Transparency of the regulatory system -- Corruption -- Labor -- Efficiency of capital markets and portfolio investment -- Conversion and transfer policies -- Expropriation and compensation -- Dispute settlement, including enforcement of foreign arbitral awards -- Political violence -- Bilateral investment agreements -- OPIC and other investment insurance programs -- Capital outflow policy -- Major foreign investors -- Contact information for investment related inquiries CHAPTER VIII. TRADE AND PROJECT FINANCING -- Description of the banking system -- Foreign exchange controls affecting trade -- General availability of financing -- Types of available export financing and insurance -- Availability of project financing -- Types of projects receiving financing support -- List of U.S. banks CHAPTER IX. BUSINESS TRAVEL -- Business customs -- Travel advisory and visa -- Holidays -- Work week -- Business infrastructure -- Temporary entry of goods CHAPTER X. ECONOMIC AND TRADE STATISTICS APPENDICES -- A. Country data -- B. Domestic economy -- C. Trade -- D. Investment statistics 3 CHAPTER XI. U.S. AND COUNTRY CONTACTS APPENDIX E -- U.S. and Country contacts CHAPTER XII. MARKET RESEARCH AND TRADE EVENTS APPENDICES -- F. Market Research -- G. Trade Event Schedule CHAPTER I. EXECUTIVE SUMMARY This Country Commercial Guide (CCG) presents a comprehensive look at India’s commercial environment using economic, political and market analysis. The CCG’s were established by recommendation of the Trade Promotion Coordinating Committee (TPCC), a multi-agency task force, to consolidate various reporting documents prepared for the U.S. business community. Country Commercial Guides are prepared annually at U.S. Embassies through the combined efforts of several U.S. Government agencies. The Indian economy grew at a moderate 5.5 percent in the Indian fiscal year (IFY) to March, 1999. In IFY 1999-2000, the government projects real GDP growth will be 6 to 7 percent. Despite this optimism, India faces difficult months during the run up to parliamentary elections in September/October 1999 due to political uncertainty and a slowdown in economic reforms. In 1998, industrial growth slowed, exports were sluggish, and monetary growth was worrisome. While long-term economic prospects are good, serious concerns remain about inadequate infrastructure, high budget deficits and barriers to trade. A fall in agricultural production in Indian Fiscal Year (IFY) 1997-98 affected rural demand, while volatile financial markets reduced consumer spending. Export growth has been slow in the past two years due to a stronger rupee and a global slowdown in trade. However, India has weathered global financial turmoil fairly well, because its manageable current account deficit and low levels of short- term foreign debt have ameliorated any severe impact. Capital markets were subdued in IFY 1998-99. Portfolio inflows until March, 1999 were USD 1.4 billion, and total 4 foreign investment at USD 3.3 billion was USD 1.7 billion lower than in the previous year. USD 1.5 billion was raised from the government’s disinvestment program during the year, and a target of USD 2.4 billion for the year was set in the 1999 budget. Inflation is currently less than 4 percent, and is projected to range from 6.5-7 percent in 1999. Foreign currency reserves stood at USD 29.5 billion in April 1999, sufficient to cover 8.8 months of imports. The Indian Rupee stabilized at Rs. 42.25-42.75/dollar over the last six months. Analysts expect the rupee to weaken by 5-7 percent vis-à-vis the dollar in IFY 1999-2000, given the growing trade deficit. The budget for IFY 1999-2000 simplified excise taxes and custom duties, raised taxation levels, increased the price of diesel fuel and enlarged the scope of areas qualifying for automatic investment approval. It also announced incentives to boost the capital market, rural development and the housing sector. In India’s adherence to its WTO commitments, the Export- Import policy announced in April, 1999 liberalized the import of more than 800 items. Political uncertainty has dashed hopes of accelerated economic reforms in the current year. The Bhartiya Janta Party (BJP) coalition government lost a no confidence motion in April, 1999. New elections, scheduled for September/October 1999, are unlikely to produce a radically different mix of party strengths. Several major legislative bills were pending when parliament dissolved, including insurance, foreign exchange management, securities and amendments to the Companies Act. While Standard and Poor (S&P) lowered India’s sovereign credit rating from BB-plus to BB in October 1998, both Moody and S&P reaffirmed the stable outlook for India’s sovereign rating despite the fall of the government, noting that the political situation was already factored into the rating. The sanctions imposed by the U.S. after India’s nuclear tests of May, 1998 were eased last October for twelve months. Operations of the U.S. Ex-Im Bank, Trade & Development Agency and Overseas Private Investment Corporation in India were allowed to re-start in October 1998, and sanctions affecting commercial bank lending to India were waived. On June 8, 1999 the full U.S. Senate approved major India-Pakistan sanctions reform legislation. However, the House has yet to approve the proposed legislation. 5 Ongoing tensions between India and Pakistan have resulted in three wars in the past. The most recent development was the start of a conflict on the Kashmir border in May, 1999. The U.S. has called for restraint by both sides to prevent the situation from escalating. India’s stock market has already been impacted negatively by the conflict, and its effect on the economy will filter through in the months ahead. By some estimates, India is spending at least Rs. 3 million per day in military and other measures related to the conflict. The following are 15 best prospect industry sectors in India for U.S. firms: computer software; telecommunications; pollution control equipment; power; mining Equipment; architecture, construction & engineering; metal working machinery; sporting goods; laboratory equipment; education services; airport equipment; medical equipment; water resource equipment; food processing & packaging equipment; cosmetics. In addition, substantial opportunities exist for U.S. firms in the oil and gas sector. Politicians and many local businesses continue to call for India to be built by Indians. We believe that these leaders can embrace nationalism without antagonizing foreigners, by establishing policies that are fair and consistent, and that address India’s economic needs. On balance, India continues to develop an attractive business environment for foreign investment. Country Commercial Guides are available for U.S.