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This document is downloaded from DR‑NTU (https://dr.ntu.edu.sg)Nanyang Technological University, Singapore.

Economic developments in India

Majumder, Shyamal

1988

Majumder, S. (1988). Economic developments in India. In Economic perspectives of SAARC :Dacca, Bangladesh, 19‑24 November 1988. Singapore: Asian Mass CommunicationResearch and Information Centre.

https://hdl.handle.net/10356/102312

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Economic Developments In India

By

Shyamal Majumder

Paper No.6

ATTENTION: The Singapore Copyright Act applies to the use of this document. Nanyang Technological University Library

v

> * Ananda Bazar Patrika Limited 6 Prafulla Sarkar Street Calcutta 700001 Phone 274880 & 278000 Gram Anandabazar Telex 0215468 & 0215469 ANBZ IN

* 13 November 1988

To

Mr Achal Mehra,

Senior Programme Specialist,

Asian Mass* Communications Research ov

and Information Centre,

39,Newton Road,

Singapore 1130,

Republic of Singapore

Dear Mr Mehra,

Sub:Background report on economic

developments in India

I thankyou for inciting me to participate in the

Conference on Economic Perspectives of SAARC in Dhaka from

November 19-24,1988.

A background report on the economic developments in

my country is attached,I hope that you have already received my

confirmation of participation at the conference.

I am looking forward to a response from you.

Yours sincerely.

(SHYAMAL MAJUMDER) SeniorSub Editor,

Business Standard

82 Ananda Bazar Patrika Limited Ananda Bazar Group of Publications: Anandabazar Palrika Business Standard The Telegraph Desh Sunday

SportSHortd Ravivar Anandalok Anandamela BusinessWorld Sananda


India, which began its tryst with destiny at the

stroke of midnight on August 15, 1947, has made rapid stricks

indeed. The stretegy accepted and adopted for the development

of the Indian economy is the strategy of balanced growth and

comprehensive planning. A reading of the Five xear Flans

Suggests that the strategy outlined in India has emphr.-sised

balanced and simultaneous development all over the economy.

However, this assumption of the planners did not cone

out to be true. This implies that after broadly laying down

sectoral priorities, careful assigning of priorities within each

sector was not taken up seriously.

The government has, however, woken up to the tasts and

has adopted sever 1 measures to overcome the shortcomings.

Firstly agriculture. In order to reduce the vulnerabi-

lity of agriculture to adverse weather conditons, a long time

strategy has been evolved. The most important element.of the

strategy is to rnavinise the area under assured irrigation. Flan

allocation for major and medium irrigation projects is being

augmented.

Despite emphasis, on assured irrigation, however, the

na.ior portion of cropoed area will continue to depend on rainfed

agriculture at least till the end of this ce

• • p • •

the full exploitation of groundwater in high rainfall areas

like the Gangetic region is being empha.• i: od to achieve increa-

ses in gross acreage through multiple cropping. A 'coarse grain

policy' i-s also being worked out for rainfed areas which will

integrate production plans with pricing, storage and procurement

of coarse grains, while a special 11 &. I) thrust is being given to

oilseed production under a technology Mission set up for this

purpose. r

A third dimension of the strategy is to optimise water

use in dryland agriculture by methods of water management which

will maximise the area and output per unit of water. Henceforth,

the thrust of agricultural research will also be redirected to

support the development of rainfed a.id dryland agriculture.

Afforestation programmes are being stepped up and integrated vith

programmes of irrigation and water management.

Implicit in this approach is the central role: of regional

factors in agricultural planning. Separate strategies are being

worked out for each distinct agroclimatic region to suit the require-

ments of agricultural development specific to that region.

To maintain the momentum of economic growth, the planning

Commission has accepted an annual growth r^te of 6 per cent for the

eighth five year plan (1990-31 to 1994 to 93), despite loud procla-

inations in favour of higher targets. Even a 6 per cent annual growth

^ Oil lid. . . . • Jf. 2 •


will be difficult to achieve but the rate lies within, or perhaps

right on, the feasibility frontier. And if a 6 percent target

finally ends with an achievement of 5.5 per cent per year, that

also will be a creditvcrthy record.

A steady growth at 6 per cent per year will mean a gross

domestic product rising by 33.6 per cent in five yc^r, which is

considerably above the 27.6 per cent increase resulting from a

5 per cent annual growth. There will of course be year-to-year

oscillations around the target rate, but what is desired is a

series of annual growth rates th&t are arithmetically equivalent

to a compound growth rate of 6 per cent. If the population growth

rate during the period can be kept below KXK 2.2 per cent year,the

scope for imDroving the income, distribution will be fairly large.

The government has also started levying surcharges on

personal income tax, corporate income tax, wealth tax and customs

duty. Several external assistance initiatives have been taken to

mobilise and accelerate the dislbursal of external capital.

The outlay on successive central plans have also been

stepped up to maintain the priority for development.

In the industrial sector, several changes are being

introduced to e.isure thct competitive pressures bring in cost-

efficiency. The important reforr.-is in the area of industrial

Contd.....P.4.


• • A • •

policy in the recent past have emphasised relaxing licensing

constraints on entry in priority sectors, growth (capacity re -

endorsement), flexibility to respond to changing demand condi-

tions (broad-banding) and cost efficiency (e.g. prescribing

minimum scales of product!on in a number of commodities). The

impact of these policy initiatives is to some extent, reflected

in acceleration of industrial growth in recent years.

i

Apart from regulating the overall level of credit in

the economy, the objective of credit policy is to promote an

effective lise of credit and also to encourage the spectrum of

borrowers covered by bank credit keeping in view the national

priorities laid down from time toliLaie.

The governments' growing budget deficit has raised

several eyebrows. The government is the "largest player" in

the economy; its "economic performance" is, therefore, crucial

to the country's economic well-being. Perhaps more important

than the growing budget deficit is the use of the capital account

surplus for purposes of revenue expenditure. Hence there is a

strong case for curtailing non-plan revenue expenditure or alter-

natively, raising taxes.

It is not without reason that ilr. Michel Comdessus

expressed his apprehensions abo.it the budget deficit. Even the

3. 3 I annual report for the year ended June, 1988, called for a

Contd F.5.


http://abo.it

• • *s • *

cautions monetary stand to check inflation which is running at

10 per cent annually.

It is not known if the H E I policy of "backdoor"

devoluation will improve the current account balance.

The following is an item-wise discuss*ion on different

e c on o:riic sect or s.


R U R A L

Rural India is the backbone of the country's economy as over

70 per cent of population l ives in the rural areas. Despite concerted

indus t r ia l i sa t ion in the l a s t two decades, agriculture occupies a place

of pr ide.

The country's foodgrains production is expected to touch

170 million tonnes in the current year. Commercial crops are also

expected to do exceptionally well with cotton output projected at 110

lakh bales and sugar 10 million tonnes. Recent trends in edible o i l

production also reflect the large kharif crop expected th is year.

This re f lec t s the resi l ience shown by Indian agriculture

luring severe droughts in three consecutive years.

Cooperative credit to farmers during t h i s year ' s rabi season

registered an unprecedented increase. The bulk of i t was handed over to

;he growers in kind, in the form of f e r t i l i s e r . The pancity of wheat

seed was made good by drawing some quanti t ies of grains from food stocks

ind using them as seeds. These were supplied to the s ta tes at a huge

rub sidy.

The planning commission has decided to implement a projec t ,

hich alms at more diversified agricul ture, covering, besides crop

usbandry, poultry farming, dairying and agro-processing.

Agriculture is also the main support for India ' s transport

ystem, since the railways and roadways secure bulk of t he i r business

rom the movement of agr icul tural goods..Finances of the government,

specia l ly the s ta te governments depend, to a large extent , upon the

rosperi ty of agr icul ture .


RURAL DEVELOPMENT SCHEMES

The government has Implemented severa l r u r a l development

schemes with t he main objec t ive of a l l ev i a t i ng pover ty . The schemes ii

lude Integrated Rural Development ProTranime, Nat ional Rural Employment

Programme, Rural Landless Employment Guarantee programme, Training

of Rural Youth for Self-Employment e t c .

The Schemes have however fai led to be much of a success

due to several factors .

There i s widespread under-employment with regional

var ia t ions in the levels of development in the country. Similarly,

there i s highly skewed dis t r ibut ion pattern of resource base in

the form of landholdings, productive assets and levels of technology

adopted in v i l l ages .

Further, there are wide differences in the pat tern of

income, saving potent ia l* investment capab i l i t i e s , r i sk- tak ing ,

educational levels and access to knowledge about improved agriculture

fac tors .

Proof growth of agro-based industries for providing

supplementary part-t ime employment to farmers and t h e i r families i s

also another major constra int .


To o f f s e t t hese problems, severa l banks, f i n a n c i a l

i n s t i t u t i o n s and companies have taken up v i l l a g e adoption schemes for

market ing farm surpluses and providing loans and exper t i se to educatec

anemployed you ths .


MANUFACTURING

Due to pragmatic policy i n i t i a t i v e s , the growth rate

for the manufacturing sector, which accounts for 77 per cent

of to t a l indus t r i a l production, has been impressive, showing

a growth ra te of around 8 - 1 0 per cent In recent years

despite severe drought.

India i s now almost self sufficient and her manufacturing

sector produces everything - from pin to a i r c r a f t . India can

now sustain the l ikely growth of most of her industries with

domestic production of the capi ta l goods and only with marginal

imports . The infras t ructure , including R & D capability has

shown a remarkable growth.

I t i s important to note that while there are large

var ia t ions In growth performance across indus t r ies , the

growth I s not confined to a narrow base, but i s fair ly

widely dispersed in the manufacturing sector . Industries

accounting for over two-thirds of the t o t a l weight of the

manufacturing sector have shown posit ive r a t e s of growth

during th i s period, while the weight of indus t r ies ,

regis ter ing a growth rate of over 10 per cent add up to

about 21 per cent of the t o t a l weight of the sector .

4


Although t echno log ica l ly , we are s t i l l way behind,

the l a t e s t t h r u s t i s on updating, l i b e r a l i s e d imports

the indus t ry i s being exposed to ex te rna l compet i t ion .

R e s t r i c t i o n s on capacity are also being removed. With

a view t o encouraging export production, under tak ings ,

which have obtained export o rders , have been permit ted

t o take up manufacture of the items concerned without

having t o obtain an i n d u s t r i a l l icence provided the e n t i r e

product ion covered by such permission i s exported*

The scheme for broadbanding have been extended to

cover new areas to enable the industry d ive r s i fy i t s product

range on s i m i l a r l i n e s . For example, a t ruck manufacturer

can now produce ca r s as w e l l . Similary, s t e e l m i l l s have

been allowed to produce end-products l i t e s t e e l pipes and

bear ings*

3

Al l these have r e su l t ed in buoyancy in i n d u s t r i a l

product ion*

Apart from big and medium-sized u n i t s , small s c s l e

i n d u s t r i e s have a l so shown a steady growth in terms of

volume of production and expo r t s . The share of small scale


sector in India1 s to ta l exports was 25.3 per cent in

1985-86. A number of promotional efforts provided by the

Government has led to progressive diversif icat ion in this

sec tor . The range of products varies from electronics to

handic ra f t s . Different banks and financial i n s t i t u t i ons also

provide loans at easy repayment f a c i l i t i e s . The Government

has also decided to set up a Small Industries Development

Bank with a corpus of Rs. 300 crore.

The Country's economy i s heavily dependent on public

sector un i t s* with a massive outlay of Rs. 1,80,000 c ro re .

Our F i r s t Prime Minister Jawaharlal Nehru's dream th^t

the public sector uni ts wi l l take us tp the commanding

heights of economy has not been ful f i l led to ta l ly because

of the low l eve l of returns on investment.

The Government has now started opening core sectors

of the economy to the private sector, giving b i r th to a

new generation of entrepreneurs.


ENERGY

This i s one of the fas tes t growing sectors in India*

Electr ic i ty

Requirement for power has gone up phenomenally due to rapid

indus t r ia l i sa t ion , dispersal of industr ies in far flung rural

areas and massive rural e lec t r i f ica t ion programme*

The country's ins ta l led capacity for power generation i s

nearly 60,000 mw* The capacity i s targeted to he raised to over

100,000 mw within the next 12 years. Several massive power project

have already been ident i f ied and negotiations are in progress with

world Bank, Asian Development Bank and other countries for

f inancial tieups*

Our energy programme envisages a balanced growth in a l l three

areas of generation - thermal, hydel and nuclear*

In nuclear power sector, as such as 10,000 mw capacity has

been planned*

With several measures taken to step up thermal generation, i t

i s now expected to increase steeply in the current year* In the

context of the recurring drought, various measures l i k e demand

management, regulation of supply to different sectors and

transfer of surplus power irons s tates and regions have also

been taken to even out shortages to the extent possible*

In hydel power generation, the potential i s very large,

especially in the Himalayan mountains and the western Ghats*

However, the growth in th i s sector has"not been a t par with

expectations due to long bad time, deforestation and delayed

monsoons leading to reduced inflows in water reservoirs*


The o v e r a l l s a t i s f ac to ry performance of power generation

has been poss ible l a r g e l y because of a progressive increase in the

p lant Load Factor of thermal power s ta t ions«

Coal ;

I nd i a produces around 160 mi l l ion tonnes of coal a year and the

growth has been a t the r a t e of 8-10 per cent a year . Though the

coun t ry ' s premier organisa t ions - Coal I n d i a Limited and Singareni

C o l l i e r i e s Co* Ltd have improved performance, overa l l coal production

s t i l l remains sho r t of requirements* As a r e s u l t , we do n o t import

any coal fo r power generat ion, b u t have to import i n order to meet

tile requirements of tiie s t e e l industry*

A major problem with Indian coal i s i t s high ash content ,

affect ing smooth and e f f i c i e n t operat ion of b l a s t furnaces and t h e i r

production. The indigenous b o i l e r manufacturing indus t ry has however

been able to evolve a technology t h a t can handle coal up to 50

per cent ash content*

Petroleum i

Though the count ry ' s requirement i s about 50 mi l l ion tonnes

a year , we are hardly able to produce 50 percent of the requirements

This n e c e s s i t a t e s l a r g e s c a l e impor ts , involving huge foreign

exchange drainage*

Two public s ec to r undertakings - o i l & Natural Gas Commssion

and Oil Ind ia Limited - have i n t e n s i f i e d the hunt for o i l , both

onshore and con t inen ta l shelf* Several foreign o i l was l i k e chevron


exaco have been allowed o i l explorat ion to explore o i l in offshore

reas on a production sharing b a s i s .

as :

In view of the emergency importance of gas in the n a t i o n a l economic

^ene, an independent author i ty Called tiie "Gas Authority of I n d i a

=s s e t up in August, 1986 with the primary ob jec t ive of gas t ran spor t atio;

ud d i s t r i b u t i o n . The immediate task before the Author!ty i s to execute

i.e HBJ gas p ipe l ine p r o j e c t a t an estimated cos t of Rs. 1,700 crore

ieluding a fore ign exchange component of Rs. 680 c r o r e .

Gas ava i lab le from th i s p ipe l ine wi l l meet the fedstock requirement

s ix f e r t i l i s e r s p l a n t s and fuel requirement of two power p l a n t s .


S E R V I C E

Banking; : The banking sector in the country has grown

by leaps and bounds, encompassing the length and breadth of the

country. 'Since i t s nationalisation in 1969, the bank branches have

spread extensively. Today, banking f a c i l i t i e s are available in almos

a l l backward areas.

The Reserve Bank of India has l iberal ised the credit

authorisat ion scheme to allow for greater access to c redi t to meet

genuine demands in production sectors without i t s pr ior sanction.

Banks have also been advised to extend l i be ra l credi t f a c i l i t y to

farmers as also f a c i l i t i e s for credi t rescheduling.

Important changes have also been made in the structure of

in te res t ra tes of banks and postal deposits e t c . to reduce the

overa l l cost of money in the economy and impart greater f l ex ib i l i t y

to in teres t r a t e policy.

Scheduled commercial banks1 data show tha t t he i r aggregate

deposits had risen by over 23 percent due to a marked acceleration

in the growth of demand deposits.

Non-food credi t also forms an important feature of the

services provided by banks. Credit to industry and exports have

risen considerably. There are several schemes to mobilise

adequate f inancial savings from small savers, in pa r t i cu la r , by

offering them a t t rac t ive real return .on^deposits.


I n t e r e s t r a t e s on both expor t c r e d i t and expor t

r e f i n a n c e have been r e v i s e d downwards. In keeping w i th t h e

f a l l i n g i n t e r e s t r a t e s abroad , i n t e r e s t r a t e s on Fore ign cu r rency

(Non-Resident) Accounts have been kep t a t l e v e l s a t t r a c t i v e f o r

Non-Res ident I n d i a n s to p l a c e d e p o s i t s under t h e scheme.

INSURANCE :

The c e n t r a l government u n d e r t a k i n g s - L i f e Insurance

C o r p o r a t i o n and t h e S u b s i d i a r i e s o f Genera l In su rance Corpora t ion

h^ve launch in su rance schemes , cover ing almost a l l a r e a s of

a c t i v i t y . The d e p o s i t s o f t h e s e c o r p o r a t i o n s have soared in

r e c e n t y e a r s due t o t h e a t t r a c t i v e premiums. The i n s u r a n c e schemes

cover c r o p i n s u r a n c e , l i f e i n s u r a n c e t o even b u r g l o r y i n s u r a n c e .

There a re s e v e r a l sma l l i n s u r a n c e companies , which

a r e main ly engaged in r e i n s u r a n c e a c t i v i t i e s .

POST & TELB3RAPH :

P r e v i o u s l y , t h i s s e c t o r was department a l l y managed.

However, t o improve pe r fo rmance , a b u s i n e s s l i k e approach has been

t a k e n . Both t h e d e p a r t m e n t s have now been brough under a

c o r p o r a t e s e t - u p . The e s t a b l i s h m e n t o f Mahanagar Te lephone Nigam

i s an impor tan t s t e p in t h i s r e g a r d .

TOURISM SECTORS :

Apart from t h e I n d i a n Tourism Development C o r p o r a t i o n ,

which has s e t up s e v e r a l l uxu ry h o t e l s , t h e p r i v a t e s e c t o r has

a l so been g iven a key r o l e f o r s e t t i n g up luxury h o t e l s and

low c o s t t o u r i s t l o d g e s .


AIR, D001DAH5HAN :

Both of these are government ouned and have increased

t h e i r sphere of a c t i v i t y considerably in recent y e a r s . The revenue

c o l l e c t i o n s have a lso been buyoout with p r i va t e companies allowed

to sponsor var ious programmes.

Due to t h e i r importance as a mass media, the government

has ruled out s eve ra l proposals for according autonomy.


INTERNATIONAL TRAPS AND FIN/NCLAL INSTITUTIONS

At the end of August, 1988, t h e c o u n t r y ' s e x t e r n a l debt

s tood of fo.54,817. c r o r e . A q u a r t e r of t h i s r e p r e s e n t s commercial

b o r r o w i n g s , ;-iuch of t h e c o u n t r y ' s e x t e r n a l l i a b i l i t i e s , have been

c o n t r a c t e d f o r on c o n c e s s i o n a l t e r m s . I t i s i n t e r e s t i n g t o n o t e

t h a t I nd i a i s t h e l a r g e s t r e c i p i e n t of V.'orld Bank c r e d i t . IBRD/IDA

a s s i s t a n c e , as of June 30, 1987, t o t a l l e d $27,326 m i l l i o n f o r 200 -

p r o j e c t s .

The s t o c k of deb t has doubled i n t h e l a s t f i v e y e a r s .

I n d i a ' s cumula t ive c u r r e n t account d e f i c i t du r ing 1980-86

amounts t o ? s t a g g e r i n g $15 b i l l i o n . After t h e f i r s t o i l shock i n

1973-74 , t h e c u r r e n t account r e g i s t e r e d a s u r p l u s i n 1976 and 1977,

l a r g e l y due t o a b e t t e r expor t performance and h i g h e r r e m i t t a n c e s .

The second o i l shock i n 1979 proved t o be c r i p p l i n g . In November,

1 9 8 1 , n e t IMF r e p u r c h a s e s shot up sha rp ly as I n d i a a r r anged a SDR

5 b i l l i o n f i n a n c i n g .

The bunch ing-up of IMF repayments and o t h e r l oan a m o r t i s a t i

w i l l pu t p r e s s u r e on t h e BoP dur ing t h e r e s t of t h e e i g h t i e s , t h e

government acknowledges . The c o u n t r y ' s debt s e r v i c e r a t i o (DSR) has

r i s e n a l a r m i n g l y from 10 per cen t i n 1982-83 t o around 24 pe r cen t

i n 1987-88 . ( i f t h i s f i g u r e i n c l u d e s rupee -based t r a d e wi th t h e

S o v i e t s , t hen t h e r a t i o w i l l be much h i g h e r ) . A 20 p e r cen t DSR

i s c o n s i d e r e d to be t h e s a f e t y l i m i t .

Contd P. 2 .


: : 2 : :

Declining remittances from the Gulf area, hordening

o i l prices following the Iron-Iraq ceasefire, poor terms of

t rade, lacklust re export performance and import l ibera l i sa t ion

wi l l continue to keep the current account in the red. Not sur-

pr i s ing ly , the US-based International In s t i t u t e of Finance pro-

j ec t s India as Asia's largest debtor by 1989-90.

Many economists tend to passively viev the deficit as

" s t ruc tu ra l " , i . e . inevitable, for a developing country. Others

favour a more aggressive policy of r e s t r i c t i ng imports as a way

of correcting the def ic i t ; they tend to ignore the fact that

curbing imports may also slow down growth. The def ic i t may be viewer

from another angle as well . In national accounting terms, i t

represents a " dissaving ". I t i s , therefore, suggested that

instead of thinking simply in terms of boosting exports and

curbing imports, there i s a need to see that investment i s rasde

more produptive, that IC011 ra t ios come down.

Meanwhile, with mult i la teral assistance tapering off,

there i s a strong but so far unsuccessful bid to a t t rac t equifcy

funds and commercial borrov/ings from abroad. CTRls are a pampered

lo t these days.')

Contd P.3 .


• •

• * A • •

Uhat, then, is the alternative? One feeling that is

increasingly gaining ground is that the government should encourage

a greater inflow of equity funds. So far, there has only been a

concerted bid to attract equity funds of a portfolio nature by float-

ing offshore mutual funds. Very little has been done to attract

direct equity investment from abroad in the industrial sector. Boost-

ing direct foreign equity investment is a sensible proposal. Equity

unlike debt is far cheaper to service. Moreover, it implies a greater

commitment on the part of the investor. Foreign exchange outflow on

account of repatriation of devidends should not pose any problem if

the enterprise in question is able to generate handsome profits,

particularly on its export operations. Siphoning off foreign exchange

through dividends is a rainiscule affair compared to the outflow that

takes place through the transfer pricing operations of multinationals.

In this connection, it is also important to mention the 40 per cent

ownership rule for Fera companies. Technology transfer can only be

facilitated if this rule is relaxed. Otherwise such transfers will

remain confined to screwdriver technology. How can an investor be

expected to pass on the fruits of years of R & D if he is not allowed

a majority stake in the enterprise ?

OIJE of the consequences of liberalisation is the growing

"internationolisation" of the economy. JEhe earlier focus in the

external sector, which was simplistically confined to boosting

* •

Contd P.5.


• • s • •

exports through a variety of fiscal incentives aid restricting

imports to essential items to conserve foreign exchange, is

slowly, even if in minute doses, giving way to a more complex

scenario which calls for a greater economic sophistication in

managing international capital flows. The Centre's emphasis on

technological upgradation has led to a variety of foreign colla-

borations and relaxation of import norms in a bid to accelerate economic growth. The consequent fcise in trade flows has been accom -panied by a corresponding growth in capital flows as well. The

country's commercial debt has today reached record levels, causing

apprehensions about the possibility of falling into a debt trap.

The domestic economy is no longer immune to international

economic influences as it once was. Like exporters, manufacturers

and financial institutions are having to learn the lessons of

survival in a competitive environment that is constantly subject

to the uncertainties posed by volatile interest and exchange rates.

The learning process has taken place in fits and starts and has not

been altogether painless. Manufacturers, particularly in the auto

industry, are still smarting from the appreciation of the yen in

recent years. Their low-cost yen loans are no more a bargain.

However, the picture is not all that dismal. In the

private sector, .neeveral firms have entered into swap deals to

manage their interest rate and foreign currency exposure. Their

timing, in most cases, were impeccable, thanks to their foreign

bankers. Interest rates, which were seen to have bottomed out,

suddenly Started inching upwards, prompting the government to

raise FCNR rates. Companies like Nalco had already entered:: into

Contci. o P.6,


:: 6 : :

currency sv/aps to diversify foreign currency obligations. Others

l ike ICICI have managed to gain entry, albeit indirect ly , into

the blue-chip Eurobond market. The external sector i s c lear ly i s

going a t r ans i t iona l phase as the country inches i t s v;ay tov/ards

a more open and mature tov/ards economy. Changes are always painful

3ut despite the mixed bo;: of successes enjoyed so far , i t i s def i -

n i te ly a change for the be t t e r .


ECONOMIC RELATIONS WITH OTHER SAARC NATIONS

SRI LANKA *

The I n d o - S r i Lankan accord on r e s o l v i n g the e t h n i c

problem h a s gene ra t ed a f a v o u r a b l e b u s i n e s s c l ima te

p r o v i d i n g o p p o r t u n i t i e s t o make a f r e s h beg inn ing for

s t r e n g t h e n i n g mutua l ly b e n e f i c i a l economic r e l a t i o n s .

I n d i a n h a s provided Rs. 50 Crore a s s i s t a n c e i n t h e

c u r r e n t y e a r t o p a r t - f i n a n c e t h e & 700 m i l l i o n t h r e e -

y e a r r e c o n s t r u c t i o n programme of S r i Lanka fo l lowing t h e

damage caused by the e t h n i c s t r i f e •

Both t h e Government have r e a c t l v i s e d t h e J o i n t

Economic Commission. The Rs. 50 Crore a s s i s t a n c e w i l l be

i n two p a r t s - Rs. 25 c r o r e of so f t c r e d i t and an equ iva l en t

amount of g r a n t and a g r e e i n g t o c o l l a b o r a t e i n o i l e x p l o -

r a t i o n .

I n d i a n o f f i c i a l s hope t h a t S r i Lanka may soon become

one of t h e main Asian consumers of I n d i a n eng inee r ing

g o o d s . The supply of I n d i a n b u s e s i s expec ted t o r i s e by

1 0 t imes du r ing t h e n e x t coup le of y e a r s a s a r e s u l t of

t h e a c c e p t a n c e of l i n e s of c r e d i t by some Pr imate t r a n s -

p o r t e r s i n Lanka .


Good p r o s p e c t s fo r e x p o r t s of K a r u t i 800 and Premier

model c a r s have a l s o been n o t i c e d . I t i s expected tha t

t h e t o t a l Indo - S r i Lankan t r a d e w i l l i n c r e a s e s i g n i f i -

c a n t l y .

Ah agreement on e s t a b l i s h i n g Ind ian Smal l -Sca le

p r o j e c t s i n S r i Lanka h a s been s i g n e d , under viiich Ind i a

w i l l h e l p S r i Lanka se t up 50 such p r o j e c t s i n s e c t o r s

l i k e p l a s t i c s , automobile components, rubber and c a s t i n g s .

At t h e end of 1987 , t h e r e were 19 j o i n t ven tu re s

under i inp lementa t ion i n Sr i Lanka . The I n d i a n inves tment

i n t h e Eupee currency amounted t o Rs. 7 . 1 8 Crore and in

f o r e i g n exchange Rs. 5.34 c r o r e , and in f o r e i g n exchange

Rs. 5 .34 c r o r e , r e p r e s e n t i n g 47 pe rcen t of the t o t a l cos t

i n v o l v e d i n t h e s e p r o j e c t s .

KALADIYES :

Long b e f o r e the formal adopt ion of t h e concept of.

S a a r e , t h e r e were t r a d e c o n t a c t s between t h e two c o u n t r i e s .

The two c o u n t r i e s s igned a b i l a t e r a l t r a d e agreement in

1 9 8 1 , i d e n t i f y i n g t h e v a r i o u s merchandise fo r two-way

t r a d e .


development. The areas of Cooperation have steadily

expanded over the years .

. India and Nepal have set up a joint commission at

the min i s t e r i a l level to review existing cooperation,

ways to diversify i t and build i t according to the

plans and p r i o r i t i e s of the ftepalese Government.

The two countries have also agreed to promote the i r

economic and commercial t i e s through joint ventures and

p r o j e c t s .

Both sides have also agreed to explore the scope

for greater Indian part iclpat lcn In projects of Nepal

in various f i e l d s , including power s ta t ions , transmission

l i n e s and cement.

At present, there are II Indian jo int ventures

and two wholly - owned subsidiaries in Nepal. Of the

j o i n t ventures, 7 are In the manufacturing sector,

two in the field of exploration of minerals and one

each in hote ls and tourisms.


Before 1981, Maldives main imports from India vere

Sugar', Stone, Sand and gravels, metal manufactures,

machinery and transport equipment and medicinal products.

Ind ia ' s imports -were res t r i c ted largely to crude minerals .

After the conclusion of the trade protocol in 1981,

Maldives enlarged i t s imports from India to include r i c e ,

sugar, f l ou r , cement, sa l t and petro products. On the

Indian s ide , courie sheels and red coral were added t o the

l i s t of imports from Maldives.

The opening ~f d i rec t shipping service between India

and Maldives has given a boost to b i l a t e r i a l cooperation.

Previously, most of the trade was routed thorugh Singapore.

There i s scope for further strengthening of economic

t i e s between the two countr ies . India can lend i t s :

expert ise to Maldives in construction of hotels & promotion

of tour i s t s p o t s .

u E P A L i

At the beginning, a bulk of Indian and since the early

f i f t i e s went in to building necessary infrastructure for


The t rade turnover between India and Nepal in

1986-87 ro se t o Bs. 206.19 c ro re , an increase of 7.4

pe rcen t over the l e v e l of 1985-86. Vliile the balance

of t r a d e has been in favour of India cont inuously,

impor t s from Nepal have a l s o gone up subs t an t i a l l y • •

i n recent y e a r s . The main items of import are animal

feed, some chemicals and r e l a t ed products and t e x t i l e

f a b r i c s *

BANGLADESH 3

T i l l l a s t year , Bangladesh had a vhopping Taka

953 40 c r o r e t rade d e f i c i t with I n d i a . The Indo -

Bangladesh j o i n t economic commission i s t ry ing hard

f o r achieving a s t ab le and balanced growth of t rade

with an ob jec t ive t o o f f se t t ing the ex i s t ing tracie

imbalance, adversely af fec t ing Bangladesh.

Both the coun t r i e s have a long . term arrangement

f o r c e r t a in commodities l i k e newsprint and r e f r a c t o r i e s

for which Ind ia has allowed concession for f a c i l i t a t i n g

imports of Jamdani Sarees and j u t e ca rpe t s from

Bangladesh.


I n d i a a l s o g ive s a t t r a c t i v e c r e d i t l i n e s t o

•Bangladesh f o r suppor t ing development a c t i v i t i e s i n

• that c o u n t r y , Bangladesh h a s a l s o gained from Ind ian

e x p e r i e n c e i n domes t i c r e s o u r c e s m o b i l i s a t i o n , mana-

gement of a g r i c u l t u r a l c r e d i t and c r e d i t ope ra t i on in

Small i n d u s t r i e s .

However, the economic coope ra t ion between the

t v o c o u n t r i e s h a s been below e x p e c t a t i o n s . There i s

an u r g e n t need f o r speed and a c l e a r - c u t r e s u l t o r i e n t e d

p o l i c e so t h a t t h e advan tages t o be gained from c o o p e r a t i o n

a r e u t i l i s e d p r o p e r l y .

At t h e end of 1987 , t h e r e was only one p r o j e c t

under i m p l e m e n t a t i o n i n t h a t c o u n t r y . The Ind i an I n v e s t -

ment i n rupee and f o r e i g n exchange amounted r e s p e c t i v e l y

t o Rs.2.43 c r o r e and Hs. 0 .19 c r o r e , which accounted fo r

a l i t t l e l e s s than one t h i r d of the p r o j e c t c o s t .

dllU TAN i

I n d i a h a s a w ide - r ang ing development a s s i t a n c e

pr .gramme t o B h u t a n . The Indo-Bhutan Chuldia t r a n s m i s s i o n


l i n k could mark the beginning of a Soarc power g r i d .

The Chukkha hydro - e l e c t r i c p ro j ec t , set up

with g ran t s and soft loans from India and with the

involvement of Indian engineers , i s a mi i fs tone in

Indo-Bhutan f r i e n d s h i p . India wi l l buy a l l the surplus

power from the project at mutually agreed r a t e s .

Ind ia has a l so responded pos i t ive ly to Bhutan's

suggestion t h a t the in t ake of Bhutanese s tudents for

t e c h n i c a l t r a i n i n g in Indian col leges should be i nc r ea sed .

I n d i a cont r ibu tes a subs tan t i a l par t f the Plan

a l l o c a t i o n and several Indian agencies a s s i s t 3hutan

o u t s i d e the scope of the p l a n . There i s goodscope for

Indian en t repreneurs to set up j o i n t ventures in Bhutan

and e f f o r t s a re underway towards th i s goa l . !

PAKISTAN i

P o l i t i c a l d i f fe rences and an atmosphere of severe

d i s t r u s t has impeded the growth of economic cooperation

between the two count r ies Indian newspapers a re even now

as much a taboo in Pakis tan as Indian c o a l .


The i n i t i a l keevness shown by Pakistan for b i l a t e r a l

t r a d e seems to have died down af ter strong p r o t e s t s by

indus t ry c i r c l e s and some p o l i t i c i a n s in Pakistan that

such an exchange of items would adversely affect the

Pak i s t an i i n d u s t r y .

The two-way t rade between the two coun t r i e s i s a

mere fc. 50 crore with Pakistan running up a s ign i f i can t

s u r p l u s . Trade contacts between are mainly confined t o

Publ ic sec to r agencies while p r iva t e trade has been

allowed in a l imi ted way.

However| e f fo r t s are being made to improve t i e s

and P a k i s t a n ' s expected re turn to democracy has ra i sed

h o p e s . Another redeeming fea ture has been that Palcistan

has agreed to give India the most favoured nat ion treatment

wi thin the framework of Ga t t .

•«


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