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External Sector |
India’s external trade has risen significantly since the introduction of trade liberalisation. Trade openness i.e. external trade as a share of GDP, has risen from 10.7% in 1991 to nearly 24% in 2005-06. However, trade openness is still below several countries, such as China (38%) and the Netherlands (55%).
Exports and Imports:
India’s principal imports are petroleum and oil goods, capital goods/machinery, gold & silver, precious and semiprecious stones, electronic goods and chemicals. Principal merchandise exports are textiles/clothing, gems & jewellery, engineering goods, chemicals/pharmaceuticals, agriculture products, and leather goods. India’s service exports are not captured in the merchandise data but appear as invisibles in the trade account.
In 2001, India removed all quantitative restrictions on trade imposed on balance of payments considerations. Imports as well as exports have grown rapidly during 2001-05. Exports grew from US$ 43.827 billion in 2001 to US$ 80.540 billion in 2005, and imports, from US$ 51.413 billion to US$ 109.173 billion in the same period
However, imports as well as exports face an increasing number of non-tariff barriers. India is among the most active users of anti dumping measures.
Exports and Imports (US$ Million) |
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| Category |
| |
2004-05 |
2005-06 (Apr-Nov) |
| Principal Exports |
| Textiles |
539962.4 |
369948.6 |
| Gems & Jewellery |
615805.8 |
445875 |
| Chemicals & Allied Products |
569606.2 |
379837.2 |
| Engineering Goods |
655432.4 |
471992.1 |
| Agriculture & Allied Products |
271114.1 |
182822 |
| Petroleum Products |
305181 |
292670 |
| Principal Imports |
| Petroleum Crude & Products |
1340940 |
1222570 |
| Pearls, precious & semi precious stones |
423409 |
295656 |
| Machinery |
481210 |
376413 |
| Electronic goods |
437589 |
314125 |
| Gold & Silver |
486355 |
323891.2 |
| Organic & Inorganic Chemicals |
239713.8 |
177706 |
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| Source: Ministry of Commerce & Industry |
| Foreign Exchange reserves |
| In 2006, India had the sixth largest foreign exchange reserves (US$ $175 billion in December 2006) in the world, and has come a long way since the economic crisis in 1991, when foreign currency reserves plunged to less than six-weeks import cover, and led to an IMF assisted restructuring of international debt. |
| External Debt |
| In September 2005, India’s external debt stood at US$ 124.3bn of which short-term debt (less than one-year maturity) accounted for $8.3bn. India is a large beneficiary of World Bank loans and other multilateral credit bodies in the region, and enjoys high credit worthiness on the strength of its payment record. In recent years, India has preponed its principal payments to multilateral institutions. |
| Foreign Investment |
India continues to be among the top ten global destinations for foreign direct investment. After exhibiting a downward trend for two years since 2001-02 FDI flows grew by 36 per cent in 2004-05.
The principal sectors for foreign investment have been electrical equipment (including computer software and electronics) and the service sectors. In terms of cumulative inflows, Mauritius, the US Japan, Netherlands and UK are the top five origins. Mauritius’s top ranking is on account of its special tax treaty with India which exempts capital gains taxes for investments from Mauritius, and therefore is essentially a conduit for investments from other origins. |
| Table Share of top investing countries in FDI inflows, US$ million |
| Country |
2004-05
(April – March) |
2005-06
(April – Sept) |
Cumulative Inflows (Aug1991-Sep 2005) |
% in total |
| Mauritius |
1127 |
882 |
10096 |
35.55 |
| USA |
668 |
320 |
4856 |
16.49 |
| Japan |
126 |
78 |
1993 |
6.93 |
| Netherlands |
267 |
37 |
1954 |
6.90 |
| UK |
101 |
192 |
1905 |
6.60 |
| Germany |
145 |
38 |
1317 |
4.43 |
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| Source: Ministry of Commerce & Industry |
| India has continued to liberalize foreign investment in several sectors, with an increasing cap for FDI in several sectors, and the permissibility of FDI into sensitive sectors such as print media, defence production, aviation, banking, real estate, etc. |
| Outbound investments from India |
A rather interesting phenomenon in India is the rising tide of outbound investment by Indian companies, to respond to opportunities thrown up by globalisation. Outbound investments have picked up enormous momentum following liberal capital transfer guidelines issued by the Reserve Bank of India, and a periodic upward revision in the limits of permissible investment. Manufacturing (mainly steel, automotive components, pharma and textiles) and Information Technology are the major areas of outbound investments.
Under present rules, Indian entities have automatic approvals to invest up to two times their entire net worth in overseas subsidiaries, and there is considerable flexibility in the means of financing, which includes equity swap, loan-leveraged purchases, raising equity or debt securities outside India, etc. The acquisition of Arcelor by Mittal Steel and the bid for Corus Steel by Tata Steel were high points in Indian overseas investments in the EU. In 2006, the Netherlands was the largest recipient of Indian overseas investments, with $ 244 million of the US$ 1.6 billion approved during April 2005-January 2006. This is attributed to its highly investor-friendly investment climate and wide usage of English, which makes it a preferred location for Indians to set up EU operations. |
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ICREON