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Country Reports - India

22 Oct 2015 IHS Economics and Country Risk

Our take
Prime Minister Narendra Modi's first year in power has yielded mixed results.
The government is set to pursue gradual land, tax, and labour reforms over the next year.
Having to import about 70% of its petroleum requirement, India is a strong net beneficiary of lower global oil prices.
While ahead of other emerging markets, India is still poised for a weaker rebound.

Country Risk Ratings (Strategic Risk) - India


Overall
2.5
HIGH
Political
2.3 Elevated
Economic
1.4 Moderate
Legal
2.5 High
Tax
2.7 High
Operational
3.2 Very High
Security
2.9 High
Note: 0.1 = minimum risk, 10.0 = maximum risk.

Sovereign Risk Ratings - India


Medium Term Overall Rating / 100
35
BBB 35 SUPPORTIVE CREDIT FUNDAMENTALS
Note: 0 = minimum risk, 100 = maximum risk. Ratings form part of enhanced Economic and Sovereign Risk services.
Prime Minister Narendra Modi's first year in power has yielded mixed results. His successes have included being able to energise the traditionally slow-moving Indian bureaucracy and
raising foreign investment caps in railway infrastructure, defence, and insurance. However, the Bharatiya Janata Party (BJP)-led government's broader legislative agenda has faced delays.
The Indian National Congress (INC), the main opposition party, has developed a "pro-business, anti-poor" critique of the BJP-led government. As a result, the INC has been able to negate the
BJP's overwhelming majority in parliament's lower house by blocking business-friendly legislation in the upper house, where an INC-led majority alliance is in control at least until 2016.
The government is set to pursue gradual land, tax, and labour reforms over the next year. Instead of major reform, Modi is likely to focus on making gradual changes to taxation, land
acquisition rules and labour laws, as well as continuing to improve red-tape and government efficiency. Most significantly, the government aims to implement a nationwide sales and goods tax
(GST) by April 2016, but this will most likely be delayed until 2017 due to calls for reviews in parliament. Labour and land acquisition reforms on the other hand face being diluted due to
opposition in the upper house. This will pose problems for Modi's "Make in India" campaign, which aims to establish India has an international manufacturing hub.
Having to import about 70% of its petroleum requirement, India is a strong net beneficiary of lower global oil prices. The three major path-through channels of a lower energy bill for
India are macroeconomic, external, and fiscal. On the macroeconomic front, falling energy costs and easing inflation for consumers and businesses boost domestic demand through higher real
incomes and greater room for business investment. India's external and fiscal accounts also benefit from reduced imports and subsidy spending bill.
While ahead of other emerging markets, India is still poised for a weaker rebound. A combination of apparent backtracking on reforms domestically, coupled with protracted weakness in
demand and rising anti-emerging market sentiment globally, point to a more shallow recovery in growth in the near term, despite a still respectable outlook in comparison to other emerging
markets. We have now trimmed the growth forecast to 7.4% in 2015 and 7.6% in 2016, from 7.6% and 7.9%, respectively.

Forecast summary
Indias economic recovery is still a work in progress, with growth in fiscal year 2015 likely to see only modest gains compared with the previous year. Indias near-term growth
prospects remain relatively bright in comparison with other emerging markets. With real growth projected by IHS to reach 7.4% in the fiscal year ending March 2016, India is now the
fastest-growing major economy, outpacing Chinas growth. The recent steep moderation of inflation, monetary easing by the Reserve Bank of India (RBI), and a mild pickup in investment
activity are driving a gradual economic recovery. The signs of improvement in investment activity are visible in stronger capital goods imports, machinery output, and machinery companies
sales performance. Some progress in investment projects, both in terms of new project announcements and existing project implementations, is another welcome sign. However, the economic
recovery appears to be shallower than initially anticipated, with growth during the AprilJune quarter having slipped to 7.0% year on year (y/y) from 7.5% y/y in the previous quarter. The
recovery in investment demand remains fragile and is at risk of losing momentum, particularly since the Bharatiya Janata Party (BJP) governments reform momentum is also slowing. The

2015IHS.

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general sales tax (GST) bill, scheduled to go into effect in 201617, has not been passed by parliament during the August session, likely pushing back its implementation. Changes to the land
acquisition billanother piece of legislation investors have been anticipatingalso seem to be unlikely in the near term. Meanwhile, the recovery in consumer demand remains muted, and
external demand is also weak, particularly in light of slowing growth in China.
At record lows, inflation is not a concern at the moment; however, the Reserve Bank of India (RBI) may choose to pause additional policy easing following a front-loaded cut in
September. Indias inflation retreated quite markedly in recent months, owning to weak global oil and other commodity prices, feeble domestic demand, and the governments timely food
supply management policies. Many observers have started to worry about deflation in India. Albeit certainly unlikely in retail priceswhich are set to rise gradually in coming months but remain
within the central banks 6% targetdeflation has been spreading across producer prices, with the wholesale price index (WPI) remaining in deflation for 11 months to September. Even as
falling prices have reduced input material costs for producers, output-price deflation is eroding corporate profits, putting a break on new business investment. In response to weak prices, the
RBI lowered its policy interest rate four times in 2015, with the latest front-loaded, 50-basis-point cut in September. Although the window for further easing remains open, the RBI will now likely
pause, allowing the previous cuts to work through the system and evaluating potential risks of an anticipated US Federal Reserve interest-rate hike on the Indian currency. We now do not
expect additional rate cuts before the end of 2015.
A reversal of foreign capital inflows and returning balance-of-payments pressures remain key risks for the rupee in the near term. The overwhelmingly positive market reaction to the
outcome of the May 2014 election has sparked fresh capital inflows into India, making the Indian rupee one of the most resilient emerging-market currencies in the past 15 months. However,
even the rupee appears to not be immune to the recent emerging-market currency selloff, and its near-term path will likely be a gradual depreciation. With Chinas ongoing slowdown, recent
currency devaluation, and stock-market crash steering the waters on one side, and with the US Federal Reserve preparing to raise interest rates on the other, global risk aversion is likely to
intensify in the coming months, potentially drawing more funds from India and elsewhere. More fundamentally, the trade and current-account dynamics are expected to become less positive:
on the imports bill, recovering domestic demand and easing restrictions on gold imports will partially offset gains from weak global oil and commodity prices, while exports performance will
remain poor on muted external demand in key export markets. That being said, the fundamentals now appear to be much stronger than in 2013, and a repeat of the Indian rupee crisis of the
recent past is not anticipated. On balance, we now expect the rupee to mildly depreciate in 2015 and 2016 and move sideways throughout 2017.

Changes since last forecast


October interim forecast versus September interim forecast
GDP

DOWN

Following a previous downgrade to our 2015 growth outlook (to 7.4%), we have now also downgraded the forecast for 2016 and 2017 to 7.5% and 7.9%,
respectively, on account of a weaker exports recovery and slower pickup in investment growth.

CPI

DOWN

inflation
Industrial

A moderate global oil price outlook and a better-than-expected monsoon season thus far are likely to mitigate the effects of the service-tax increase in June,
pulling the 2015 average CPI inflation down to 4.9% in 2015 from 5.1% expected earlier.

DOWN

production

With both the domestic and external demand outlooks looking less favorable, the forecast for industrial production has been further cut to 4.3% in 2015,
marginally down from 4.9% in September and 5.1% in August.

Political summary
Presidential elections

Next contest: 2017 July; Last contest: 19 July 2012.

Legislative elections

Next contest: 2019 May; Last contest: 7 April to 12 May 2014.

Head of State

Pranab Mukherjee (since 25 July 2012)

Vice President

Hamid Ansari (since 11 August 2007)

Prime Minister

Narendra Modi (since 20 May 2014)

Finance

Arun Jaitley (since 9 November 2014)

Foreign Affairs

Sushma Swaraj (since 26 May 2014)

Defence/Security

Manohar Parrikar (since 9 November 2014)

Justice/Attorney General

D. V. Sadananda Gowda (since 9 November 2014)

Interior/Home Affairs

Raj Nath Singh (since 26 May 2014)

Key Macro-Economic Indicators


2011
Real GDP (% change)
Nominal GDP (US$ bil.)
Nominal GDP Per Capita (US$)
Consumer Price Index (% change)
Exchange Rate (LCU/US$, end of period)

2012

2013

2014

2015

2016

2017

2018

2019

6.7

5.1

6.9

7.3

7.4

7.5

7.9

8.0

8.0

1,837.4

1,814.8

1,882.4

2,017.1

2,124.3

2,325.9

2,643.8

3,081.7

3,590.4

1,505

1,467

1,503

1,592

1,657

1,793

2,015

2,324

2,679

9.6

9.7

10.1

6.8

4.9

5.6

5.7

6.1

5.6

53.27

54.78

61.90

63.33

66.88

66.75

65.54

64.62

63.39

Source: Historical data from selected national and international data sources. All forecasts provided by IHS Global Insight. Table updated on the 15th of each month from monthly forecast
update bank (GIIF). Written analysis may include references to data made available after the release of the GIIF bank.

Business environment - strengths and weaknesses

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Strengths

Weaknesses

India represents one of the world's most promising emerging markets despite recent

There is often a wide gulf between the commitments made by governments and the

economic weakness and deteriorating investor sentiment; even as the near-term outlook

measures that the fractious legislature and bureaucracy can implement.

points to a shallow and protracted recovery, over the longer term the economy still has
tremendous potential to attract business and investor interest.
The Indian government generally adopts a welcoming attitude towards foreign direct

India's bureaucracy can be a major impediment to business and also fosters corruption.

investment (FDI) and is seeking to push a series of economic reform measures.


Ceilings on foreign investment in individual sectors are gradually being raised

Limits on foreign ownership tend to remain the rule rather than the exception.

The judiciary is independent and, in recent years, has been increasingly assertive in

Legislation is complex and often outmoded, while its implementation is frequently inefficient

checking perceived abuses of power by the executive.

and delayed.

Country risk - overall statement


India offers a mixed environment for investors. There is evidence of improvement, but both domestic and foreign investment have been stifled by intrusive market regulation, poor infrastructure
, inflexible labour-market practices, and recurring fiscal deficits. Politically, the country is more stable after the 2014 parliamentary election, which resulted in a Bharatiya Janata Party (BJP)
majority government free of coalition politics. Newly elected prime minister Narendra Modi has vowed to streamline bureaucratic procedures and focus on much-needed improvements in
infrastructure. He will continue to face some obstacles to reform because of India's powerful state governments, which oversee many policy areas independently, including indirect taxation.
Some state governments have proven highly effective and reformist, which has led to the creation of "hubs" attractive to foreign direct investment (FDI), especially Delhi, Gujarat, and
Maharashtra. Other states are lagging behind, beset with corrupt, fractured, or simply ineffective governments. This has already created a considerable divide in the country in terms of wealth
and development, and threatens social conflict over the longer term. Parts of the country face significant security threats, often related to leftist (Naxalite) or separatist campaigns in the east
and northeast, although violence in the disputed region of Kashmir has greatly diminished in recent years. The external threat of conflict, most notably with neighbouring Pakistan, constitutes a
significant long-term risk. Although a peace process has been under way since 2002, mutual mistrust remains a problem. Operational problems are an issue, particularly with regards to
infrastructure deficiencies and bureaucratic delays. The judiciary is regarded as strong and independent of politics, but extremely slow and inefficient, ranking among the bottom four in the
world for resolving corporate disputes, according to 2013 World Bank ratings. India's tax system is relatively mature, but an ever-expanding range of targeted incentives to encourage specific
sectors or investors has made it increasingly complicated. Plans to centralise and streamline taxation will be a key early test for the new government.

Political: Country risk statement


The Bharatiya Janata Party (BJP)-led government has a commanding majority in the Lok Sabha (lower house), having swept parliamentary elections in May 2014. However, the BJP's coalition
has a minority in the Rajya Sabha (upper house) where its key proposed legislation has been defeated. In its first year in power, the government made little progress on major reforms, opting
instead for gradual changes to improve infrastructure, clear stalled industrial projects, and rationalise taxation although its achievements have been mixed. Many of the government's
significant reforms were the subject of temporary ordinances, reflecting the difficulty of getting upper house approval.

Short-term outlook
India is a parliamentary democracy with a president as head of state and an executive prime minister. Since the 1990s, governments have usually been formed by coalition, as no single
political party has managed to win enough seats to form the government on its own. These coalition governments have tended to be fairly stable although the reality of coalition politics means
the party leading the coalition has often had to cater to the requirements of its smaller partners, which usually are regionally-based political parties.
However, in the May 2014 general elections, the Bharatiya Janata Party (BJP) secured enough seats (282 out of 545) in the Lok Sabha, or lower house of parliament, to gain a parliamentary
majority without having to rely on its coalition partners in its National Democratic Alliance (NDA) coalition. The NDA as a whole won 336 seats, delivering a severe defeat to the Congress Party
and its allies in the United Progressive Alliance (UPA) coalition.
The BJP has followed up its general election victory by winning a number of state elections since then, specifically in Haryana, Jharkhand, and Maharashtra, and it succeeded in winning joint
power in Jammu and Kashmir. The BJP is unlikely to win state elections in 2016 in West Bengal and Tamil Nadu because the regional political parties there are very well entrenched, but the
strong showing by the BJP in state polls to date goes towards building up its position as the premier national political party.
The opposition in turn has taken to making their political stand in criticising and trying to undermine Prime Minister Narendra Modis economic reform plans. The oppositions political
obstruction is highly unlikely to threaten the stability of the Modi government but risks undermining his reform agenda to the point where the BJPs chances in the next general elections in 2019
are sufficiently dented, so as to offer the Congress and its allies an opportunity for a political comeback. At this stage however, the scale of Congress's defeat at the 2014 polls and the fact that
Rahul Gandhi, who now leads the Congress, is a relatively inexperienced political leader compared with Modi, suggest the Congress-led UPA has considerable ground to make up against the
BJP.

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Political summary
Presidential elections

Next contest: 2017 July; Last contest: 19 July 2012.

Legislative elections

Next contest: 2019 May; Last contest: 7 April to 12 May 2014.

Head of State

Pranab Mukherjee (since 25 July 2012)

Vice President

Hamid Ansari (since 11 August 2007)

Prime Minister

Narendra Modi (since 20 May 2014)

Finance

Arun Jaitley (since 9 November 2014)

Foreign Affairs

Sushma Swaraj (since 26 May 2014)

Defence/Security

Manohar Parrikar (since 9 November 2014)

Justice/Attorney General

D. V. Sadananda Gowda (since 9 November 2014)

Interior/Home Affairs

Raj Nath Singh (since 26 May 2014)

Policy direction and predictability


The BJP-led government won a strong mandate in the 2014 general elections. On its own, the BJP won the majority of seats in the Lok Sabha (lower house of Parliament), the first time any
party has managed to do this since 1984. And with its coalition partners in the National Democratic Alliance (NDA), the government controls 360 Lok Sabha seats. With such a parliamentary
majority, the government would normally face little difficulty in getting its legislative agenda passed. This agenda reflects Prime Minister Modis economic reform plans, including a goods and
services tax (GST) bill and a land acquisition bill, the latter aimed at easing infrastructure development.
The governments overall policy direction and priorities are to reduce poverty and ensure a sustainable growth momentum. To this end, Modi is seeking to improve the business environment
by, for example, implementing the GST and reducing the governments footprint in the private sector. A key policy is also to attract more foreign investment, especially in manufacturing and
infrastructure. To this end, Modi has touted a new land acquisition law alongside his "Make in India" campaign.
To implement these policies, the government benefits from the stronghold its NDA coalition has on the Lok Sabha with 360 of 545 seats. Accordingly, the government has faced virtually no
difficulty in getting its legislative agenda passed in the Lok Sabha.
However, the governments position is critically weaker in the Rajya Sabha, or upper house of Parliament, where the BJP has only 64 of 254 seats. Consequently, the opposition has taken
advantage of its Rajya Sabha majority to prevent the governments bills becoming law. The planned land acquisition law was successfully blocked this way. In August 2015, after trying for
months to pass the law, the government made several concessions to the opposition such as dropping exemptions from current high threshold requirements for seeking landowners consent.
At the same time, the government is encouraging state governments it already controls to enact their own business-friendly land acquisition laws.
Other legislation blocked in a similar manner include the GST bill and various labour reform laws, although the opposition Congress Party, which is in principle supportive of the GST, will
probably be open to reaching a compromise at a later session. This likely means that the April 2016 deadline for implementing the GST will not be met, making April 2017 the earliest the
government could hope to do so.
This difficulty in passing legislation has undermined Modis claim to be a leader who can implement needed reforms and will likely remain a feature of parliamentary sessions throughout the
term of his government.

Opposition prospects and programme


Congress's unprecedented defeat in the 2014 parliamentary election signals the beginning of a rebuilding period for the party. The centre-left Congress party suffered its worst election defeat,
with only 44 seats. Although party president Sonia Gandhi and her son Rahul (the vice-president) both retained their seats, they did so by a diminished margin. Both offered resignations after
the election, but these were rejected by the party. The party's emphasis on the politics of welfare and patronage failed to strike a chord with voters who preferred the more positive and
aspirational rhetoric of the BJP. Should the BJP fail to provide tangible benefits, Congress has the potential to reverse its fortunes over the next five years, as it has done after past defeats.
However, the party is limited by its reliance on the diminishing returns of the Nehru-Gandhi dynasty. Rahul Gandhi is a considered a poorly qualified, reluctant leader and an extremely poor
communicator, but his mother has blocked more capable young party challengers from progressing within the party. His refusal to lead the party in opposition underlined the challenge the
party faces. The Congress party's centralised nature has also made it reluctant to encourage powerful state leaders who can return votes to the national party.
Regional parties will be another source of opposition, but the BJP's strong mandate means that their influence will be weak. The Tamil Nadu-based All India Anna Dravida Munnetra Kazhagam
(AIADMK) and the West Bengal-based All India Trinamool Congress (AITC) emerged as the third- and fourth-largest parties in the Lok Sabha in the 2014 election, with 37 and 34 seats,
respectively. Together, they have more seats than Congress's UPA coalition, but competing egos and a lack of ideological structure behind their leadership has made it difficult for regional
parties to establish an effective common ground. In any case, the overwhelming BJP mandate means that any regional parties, or the UPA, will have little influence over policy-making from
opposition, although the government will rely on their support to make progress on infrastructure and industrial projects.

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Parliament Summary
Party abbr.

Party name

Seats

C(I)

Congress (I)

68

Others

Others

60

BJP

Bharatiya Janata Party

47

SP

Socialist Party

15

JD(U)

Janata Dal (United)

12

AITC

All India Trinamool Congress

12

AIADMK

All India Anna Dravida Munnetra Kazagham

11

Nom

Nominated

10

BSP

Majority People's Party

10

Council of States (Upper chamber)

House of the People (Lower chamber)


NDA

National Democratic Alliance (Bharatiya Janata Party BJP and allies)

336

Others

Others

80

UPA

United Progressive Alliance (Congress (I) and allies)

58

AIADMK

All India Anna Dravida Munnetra Kazagham

37

AITC

All India Trinamool Congress

34

Data reflects seat distribution following last election


Source: IHS and CIRCA People in Power

Economic: Country risk statement


Lifted by the prospects of structural reforms and a favorable terms-of-trade shock, the Indian economy remains on a path of modest acceleration, with growth projected by IHS to outpace that
of China in 2015 and beyond. Aside from the cyclical lift from lower oil prices (which helped to reduce inflation, fiscal deficits, and external imbalances), the economy is benefitting from a
tentative recovery in investment and manufacturing growth. However, the stalled progress on some key reforms on the domestic front, and an extremely weak external demand and commodity
price environment threaten to derail this recovery. Despite some initial progress with government reforms, much remains to be done to tackle the problems of Indias intrusive market regulation
, poor infrastructure, inflexible labor-market practices, stiff land-acquisition rules, and numerous supply bottlenecks, as well as several macroeconomic imbalances leading to persistent inflation
and chronic fiscal deficits. The BJP governments strong mandate bodes well for the success of structural reforms but given the complexity of Indias political system, it will continue to face key
challenges to its reform agenda, from both the state governments ruled by opposition parties, and from the Indian parliaments upper house, where the BJP does not have a majority. More
imminently, while India is well placed to cope with growing external pressures, thanks to its much improved balance-of-payments position, external risks to the economy are on the rise.
Prolonged weakness in external demand and persistently weak exports are putting increasing pressure on growth and the current account. Meanwhile, heightened global financial-market
volatilitytriggered by the deepening slowdown in China and anticipated monetary policy tightening in the United Statescould lead to sudden capital outflows, making financing the current
account more difficult and putting additional pressure on the Indian currency. On the domestic front, the governments fiscal account and public finances remain areas of concern, although
ongoing reforms (namely, the planned introduction of a landmark unified general sales tax and the gradual reduction of wasteful subsidies) and the benefits of lower oil prices somewhat
reduce the pressure. Concurrently, the weakness in corporate balance sheets and worsening bank asset quality are worth watching.

Short-term outlook
Indias economic recovery is still a work in progress, with growth in fiscal year 2015 likely to see only modest gains compared with the previous year.
At record lows, inflation is not a concern at the moment; however, the Reserve Bank of India (RBI) may choose to pause additional policy easing following a front-loaded cut in
September.
A reversal of foreign capital inflows and returning balance-of-payments pressures remain key risks for the rupee in the near term.

Indias economic recovery is still a work in progress, with growth in fiscal year 2015 likely to see only modest gains compared with the previous year. Indias near-term growth
prospects remain relatively bright in comparison with other emerging markets. With real growth projected by IHS to reach 7.4% in the fiscal year ending March 2016, India is now the
fastest-growing major economy, outpacing Chinas growth. The recent steep moderation of inflation, monetary easing by the Reserve Bank of India (RBI), and a mild pickup in investment
activity are driving a gradual economic recovery. The signs of improvement in investment activity are visible in stronger capital goods imports, machinery output, and machinery companies
sales performance. Some progress in investment projects, both in terms of new project announcements and existing project implementations, is another welcome sign. However, the economic
recovery appears to be shallower than initially anticipated, with growth during the AprilJune quarter having slipped to 7.0% year on year (y/y) from 7.5% y/y in the previous quarter. The
recovery in investment demand remains fragile and is at risk of losing momentum, particularly since the Bharatiya Janata Party (BJP) governments reform momentum is also slowing. The
general sales tax (GST) bill, scheduled to go into effect in 201617, has not been passed by parliament during the August session, likely pushing back its implementation. Changes to the land
acquisition billanother piece of legislation investors have been anticipatingalso seem to be unlikely in the near term. Meanwhile, the recovery in consumer demand remains muted, and
external demand is also weak, particularly in light of slowing growth in China.
At record lows, inflation is not a concern at the moment; however, the Reserve Bank of India (RBI) may choose to pause additional policy easing following a front-loaded cut in
September. Indias inflation retreated quite markedly in recent months, owning to weak global oil and other commodity prices, feeble domestic demand, and the governments timely food
supply management policies. Many observers have started to worry about deflation in India. Albeit certainly unlikely in retail priceswhich are set to rise gradually in coming months but remain
within the central banks 6% targetdeflation has been spreading across producer prices, with the wholesale price index (WPI) remaining in deflation for 11 months to September. Even as
falling prices have reduced input material costs for producers, output-price deflation is eroding corporate profits, putting a break on new business investment. In response to weak prices, the
RBI lowered its policy interest rate four times in 2015, with the latest front-loaded, 50-basis-point cut in September. Although the window for further easing remains open, the RBI will now likely

2015IHS.

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pause, allowing the previous cuts to work through the system and evaluating potential risks of an anticipated US Federal Reserve interest-rate hike on the Indian currency. We now do not
expect additional rate cuts before the end of 2015.
A reversal of foreign capital inflows and returning balance-of-payments pressures remain key risks for the rupee in the near term. The overwhelmingly positive market reaction to the
outcome of the May 2014 election has sparked fresh capital inflows into India, making the Indian rupee one of the most resilient emerging-market currencies in the past 15 months. However,
even the rupee appears to not be immune to the recent emerging-market currency selloff, and its near-term path will likely be a gradual depreciation. With Chinas ongoing slowdown, recent
currency devaluation, and stock-market crash steering the waters on one side, and with the US Federal Reserve preparing to raise interest rates on the other, global risk aversion is likely to
intensify in the coming months, potentially drawing more funds from India and elsewhere. More fundamentally, the trade and current-account dynamics are expected to become less positive:
on the imports bill, recovering domestic demand and easing restrictions on gold imports will partially offset gains from weak global oil and commodity prices, while exports performance will
remain poor on muted external demand in key export markets. That being said, the fundamentals now appear to be much stronger than in 2013, and a repeat of the Indian rupee crisis of the
recent past is not anticipated. On balance, we now expect the rupee to mildly depreciate in 2015 and 2016 and move sideways throughout 2017.

Assumptions
Despite the governments growing difficulties in pushing through its ambitious reform agenda, a number of important measures focusing on privatization, deregulation, manufacturing
revival, and infrastructure spending will be implemented during the government current tenure, helping the growth recovery and improving business and consumer sentiment.
Nonetheless, delays with implementation of critical reforms, including the Generalized Sales Tax and the land acquisition bill will likely keep Indias growth below its potential.
The 2015 monsoon season is projected below the historical average, potentially inserting additional pressures on food inflation. With agriculture constituting one-fifth of the Indian
economy, weaker farm output will drag on the overall economic recovery.
Following a front-loaded interest-rate cut in September, the Reserve Bank of India is likely to pause, letting the previous cut work through the system and evaluating the impact of an
anticipated US Federal Reserve policy rate hike.
The global economic recovery over the medium term remains fragile, given that underlying global imbalances are still in place. The turbulent outlook for many emerging economies,
particularly China, weighs on the near-term outlook for global demand and commodity prices. Although Indias direct exposure to China is limited, its trade and investment links with the
Association of Southeast Asian Nations (ASEAN) and East Asian economies are strong, suggesting that a slowdown in these markets would affect India.
Despite increased volatility in the near term, foreign direct investment and other capital inflows will continue rising in the medium and longer term as India continues to pursue structural
reforms.

Changes since last forecast


October interim forecast versus September interim forecast
GDP

DOWN

Following a previous downgrade to our 2015 growth outlook (to 7.4%), we have now also downgraded the forecast for 2016 and 2017 to 7.5% and 7.9%,
respectively, on account of a weaker exports recovery and slower pickup in investment growth.

CPI

DOWN

inflation
Industrial
production

A moderate global oil price outlook and a better-than-expected monsoon season thus far are likely to mitigate the effects of the service-tax increase in June,
pulling the 2015 average CPI inflation down to 4.9% in 2015 from 5.1% expected earlier.

DOWN

With both the domestic and external demand outlooks looking less favorable, the forecast for industrial production has been further cut to 4.3% in 2015,
marginally down from 4.9% in September and 5.1% in August.

Alternative scenarios
Indias direct exposure to Chinas slowdown is relatively limited (its share of exports to China in total exports amounted to around 4% in 2014). However, further retrenchment in Chinas
growth would alter demand from many of Indias other trade partners, particularly in the Association of Southeast Asian Nations (ASEAN), and affect global commodity prices and
financial markets, threatening Indias export performance and financial stability.
The unexpected reversal of the currently favorable global oil price dynamicsas a result of supply disruptions from one or more major oil-exporting countries and other factorswould
affect India's inflation, economic growth, as well as its fiscal and external balances outlook.
Returning inflation pressures, coupled with worse-than-anticipated government finances (sharp deviation from the fiscal consolidation plans outlined in the fiscal year 2015/16 budget,
aiming at a fiscal deficit target of 3% of GDP by 2017/18) or a deterioration of balance of payments, could derail or even reverse the monetary policy easing initiated by the central bank
in January 2015. This scenario would result in slower growth recovery in the near term.
The opposition from state governments and the parliaments upper house, where the Bharatiya Janata Party (BJP) does not have a majority, will stall the reform momentum, which
would translate into weaker investment recovery, lower foreign capital inflows, higher inflation, and slower growth.
A worsening of the global economic and geopolitical backdrops or escalation of military confrontation with neighboring Pakistan would deter foreign investment inflows and affect
currency and equity markets.

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Key Macro-Economic Indicators


2011
Real GDP (% change)

2012

2013

2014

2015

2016

2017

2018

2019

6.7

5.1

6.9

7.3

7.4

7.5

7.9

8.0

8.0

1,837.4

1,814.8

1,882.4

2,017.1

2,124.3

2,325.9

2,643.8

3,081.7

3,590.4

1,505

1,467

1,503

1,592

1,657

1,793

2,015

2,324

2,679

9.6

9.7

10.1

6.8

4.9

5.6

5.7

6.1

5.6

Policy Interest Rate (%)

8.50

8.00

7.75

8.00

6.75

6.75

7.25

7.25

7.50

Fiscal Balance (% of GDP)

-8.1

-7.5

-7.2

-7.1

-7.2

-5.1

-4.6

-4.5

-5.0

1,221.16

1,236.69

1,252.14

1,267.40

1,282.39

1,297.19

1,311.76

1,326.06

1,340.13

8.7

8.8

8.9

8.8

8.6

8.1

7.7

7.2

7.1

-3.4

-5.0

-2.6

-1.5

-0.8

-2.3

-2.6

-3.4

-3.4

BOP Exports of Goods US$bn

307.9

298.3

319.3

329.8

311.8

325.6

345.9

390.5

484.6

BOP Imports of Goods US$bn

427.9

450.2

433.8

404.9

373.7

386.2

445.1

508.2

627.9

Exchange Rate (LCU/US$, end of period)

53.27

54.78

61.90

63.33

66.88

66.75

65.54

64.62

63.39

Nominal GDP (US$ bil.)


Nominal GDP Per Capita (US$)
Consumer Price Index (% change)

Population (mil.)
Unemployment Rate (%)
Current Account Balance (% of GDP)

Source: Historical data from selected national and international data sources. All forecasts provided by IHS Global Insight. Table updated on the 15th of each month from monthly forecast
update bank (GIIF). Written analysis may include references to data made available after the release of the GIIF bank.

Medium- and long-term outlook


The stable, reform-oriented government improves Indias medium- and long-term growth prospects, but much will depend on the implementation of reforms. Structural reforms in the
private sector will continue outpacing those in the public sector, boosting trend GDP growth and slowly reducing poverty levels.
India's underutilization of resources, implying the economy is not fully utilizing its growth potential, translates into economic advantage in the long term.
India's democratic political system is more stable and institutionalized than those of other developing countries.
The government's optimistic economic growth target of upwards of 10% a year, however, remains out of reach.

The stable, reform-oriented government improves Indias medium- and long-term growth prospects, but much will depend on the implementation of reforms. The countrys rapid
economic expansion over the late 1990s/early 2000s was made possible mainly by significant efficiency gains with little increase in investment rates, allowing the economy to expand at over
6% on average annually, substantially higher than the earlier average of about 3% per year in the prior two decades. In order to move the economy forward at comparable rates, India needs to
boost its capital and labor productivity. This would require massive investment, possible only through the acceleration of reforms. The landslide victory of the Bharatiya Janata Party (BJP) in
2014 general elections and a subsequent formation of a stable majority government with a strong reform mandate improve Indias chances to return to its previous rapid growth path.
Nevertheless, even as the BJP government is well positioned to jumpstart economic momentum and address the structural issues that circumscribe India's long-term growth potential, it will
require decisive and consistent policymaking and skillful collaboration of the centre with the local governments that overwhelmingly control the decision making on the ground. Given the
complexity and scope of the required reforms, a backtracking on some, if not many, of the intended initiatives is inevitable, while actual reform outcomes may be far from the current
governments intentions, particularly as the first reform setbacks are already apparent only a year into the governments tenure.
Structural reforms in the private sector will continue outpacing those in the public sector, boosting trend GDP growth and slowly reducing poverty levels. With public investment
being stalled by numerous bureaucratic hurdles, development is increasingly generated by the private sector, which is both saving and investing a larger share of GDP. The number of
industries barred from the private sector has been gradually reduced from 47 to a mere handful. Most consumer goods are now produced in highly competitive markets. Industrial liberalization,
along with a moderate cut in external trade barriers, has created more competitive Indian firms, especially in sectors such as pharmaceuticals, software, and other services. The greatest
success has been in information technology (IT). The industry has grown more than 60% annually, and IT exports are projected to touch USD100 billion in fiscal year (FY) 2015 (ending March
2016). Software exports comprise close to a fifth of India's total exports and account for 4% of the country's GDP. India's further transformation toward a progressively greater outward
orientation will raise the contribution to GDP from net exports, although the pace of change will be gradual.

2015IHS.

page 7 of 56

India's underutilization of resources, implying the economy is not fully utilizing its growth potential, translates into economic advantage in the long term. Plentiful, undeveloped
natural resources offer untapped potential. The highly skilled, educated labor force boosts prospects for both the private and public sectors. The dynamic, successful overseas Indian
community also sparks domestic entrepreneurial activity, both directly and indirectly. Rapid urbanization rates will also act as an important force of change in the long term.
India's democratic political system is more stable and institutionalized than those of other developing countries. With more linguistic and religious diversity than other nations, the
compulsions of governance force major parties to act pragmatically and to avoid sharp changes in policy. This ensures policy continuity and institutional stability even as governments change.
On the downside, the need to accommodate multiple interests often disables rapid and effective policy implementation, resulting in a factitious and ad-hoc approach to the national
policy-making.
The government's optimistic economic growth target of upwards of 10% a year, however, still remains out of reach. Such rapid growth would require a substantial increase in public
and private investment. The household saving rate, which stands at around 25% of GDP, is fairly high, compared with other developing economies at similar income levels, but the share of
financial savings available for corporate- and public-sector investment is less than 17% of GDP. To boost domestic savings, the government needs to make a greater effort to incentivize
household financial savings and mobilize public savings, while exploring the scope for expenditure control at all levels. In addition, it needs to make India a favored destination for foreign
investment, to fill the remaining resource gap from external resources. Prospects will depend critically on efforts made by the government to deregulate a broad swath of the economy and rid it
of burdensome regulations stemming from the "license raj." The ability to control the country's nettlesome fiscal deficit will be key in reducing the high cost of capital for the country's private
sector. Politically difficult decisions might be required to reduce expenditure, including serious downsizing of bureaucracies and cuts in subsidies. Privatization needs to stand atop the
government's reform agenda, while more efficient revenue collection is essential.

Growth
GDP
The turnaround in investment activity will drive Indias near-term growth recovery, but poor agricultural output and protracted export weakness will keep it uneven.
Manufacturing finally shows sustained signs of improvements, but risks to rural consumption and flagging external demand threaten the recovery.
The economy should regain momentum in the medium term, but the growth rates achieved in the last decade might still be out of reach.

The turnaround in investment activity will drive Indias near-term growth recovery, but poor agricultural output and protracted export weakness will keep it uneven. Recent official
data pegged Indias growth at 7.0% year on year (y/y) during the AprilJune quarterthe first quarter of financial year 2015. Albeit a slide from the previous quarters 7.5%, this is still a
commendable figure, particularly in the context of slowing momentum in other emerging-market economies, including China. If the government's estimates are to be believed (recent GDP
methodology revisions have lifted Indias growth by almost two percentage points and raised criticism over the apparent disconnect with much weaker high-frequency economic data), the
Indian economy continues to benefit from the ongoing reforms and weak global oil and commodity prices, with domestic demand providing a necessary (albeit not fully sufficient) fuel for growth
. The investment activity has picked up and is seen improving further, supported by the central banks monetary stimulus that should facilitate financing. Nevertheless, a combination of
apparent backtracking on reforms domestically, coupled with intense risk aversion and anti-emerging market sentiment globally, makes the outlook for investment less upbeat. Meanwhile,
consumer spending that so far has benefited from lower inflation and a relatively stable currency, is yet to return to buoyancy, particularly as rural demand remains muted, dragged down by
the unseasonal rains early in the year and a below-average summer monsoon. Rural consumption is also restricted by only a marginal hike in the minimum support prices and rural wage rates
this year (as part of government efforts to contain food inflation and subsidy spending). Protracted exports weakness is another drag on growth and could worsen, making for a less-sanguine
near-term outlook. As a result, after having downgraded our outlook for Indias fiscal year (FY) 2015 growth (ends March 2016) to 7.4%, we have now also trimmed the outlook for FY2016 and
2017.
Manufacturing finally shows sustained signs of improvements but risks to rural consumption and flagging external demand threaten the recovery. Albeit still volatile, industrial
output trends are becoming more positive, largely supported by the slow but steady recovery in the manufacturing sector. Manufacturing growth has now been positive for 10 consecutive
months following almost 2 years of contraction. Prime Minister Narendra Modis Make in India campaign is seeking to address numerous regulatory issues hampering the sectors productivity
and investment, and even though the progress with reforms is slow, it appears to bear some fruits. That being said, the sectors recovery is still fragile, given the likely impact of a poor
monsoon season on private demand, particularly in the automotive sector, and considering weak export demand. Access to finance also still remains an issue, although lower interest rates
should help ease financing pressures.
The economy should regain momentum in the medium term, but the growth rates achieved in the last decade might still be out of reach. The formation of a stable pro-reform
government following the general elections in AprilMay 2014 brings back the prospects of Indias economic revival, although the implementation of structural policy reforms remains a key to
the future growth. Even including three years of below-trend growth (using the 200405 base year methodology), the economy has the potential to keep advancing at rates above 7% over the
medium-to-long term, thanks to favorable demographics and abundant labor, strong exports potential, and greater contributions from the service and construction sectors. In order to bring the
economy back on track and fully realize this potential, though, India will have to speed up investment, liberalize its stiff labor market, eliminate wasteful subsidies, and diversify from IT-enabled
services into value-added manufacturing and financial services. Given the complexity and scope of the required reforms, the roadblocks ahead of the BJP government are unavoidable and
many of the issues that stalled the reform process in the past threaten to derail or dilute the new government's reformist agenda. It remains to be seen whether the BJPs election promises
translate into actual reform outcomes that would accelerate Indias long-term growth.

2015IHS.

page 8 of 56

Economic Growth Indicators


2012

2013

2014

2015

2016

2017

2018

2019

Real GDP (% change)

5.1

6.9

7.3

7.4

7.5

7.9

8.0

8.0

Real Consumer Spending (% change)

5.6

6.2

6.3

6.8

7.4

8.0

8.4

8.4

Real Government Consumption (% change)

1.8

8.0

6.6

5.1

4.5

7.0

6.7

8.0

-0.5

3.0

4.7

4.8

6.7

9.1

11.3

14.4

Real Exports of Goods and Services (% change)

6.9

7.2

-0.6

2.1

6.7

9.5

8.9

8.4

Real Imports of Goods and Services (% change)

5.9

-8.3

-2.2

1.2

7.1

9.4

9.1

9.6

1,814.8

1,882.4

2,017.1

2,124.3

2,325.9

2,643.8

3,081.7

3,590.4

1,467

1,503

1,592

1,657

1,793

2,015

2,324

2,679

Real Fixed Capital Formation (% change)

Nominal GDP (US$ bil.)


Nominal GDP Per Capita (US$)

Source: Historical data from selected national and international data sources. All forecasts provided by IHS Global Insight. Table updated on the 15th of each month from monthly forecast
update bank (GIIF). Written analysis may include references to data made available after the release of the GIIF bank.

Consumer demand
While under way, consumer spending recovery remains fragile.
The medium-term trends still look favorable, despite the immediate weakness.

While under way, consumer spending recovery remains fragile. Although household consumption growth eased from 7.9% y/y in the JanuaryMarch quarter to 7.4% y/y in AprilJune, on
average this remains above the performance of the past two years. With consumer price inflation at record lows, global commodity prices weak, and the exchange rate broadly stable (despite
recent depreciation), the real purchasing power of Indian households has improved. It will likely continue to do so in the next couple of quarters, driving spending and providing a much-needed
boost to GDP. On the downside, yet another season of poor rains may constrain the recovery in rural household spending, while also exerting higher inflation pressures on food. Rural
consumption will be also restricted by only a marginal hike in minimum support prices and rural wage rates (as part of government efforts to contain food inflation and subsidy spending). On
balance, IHS expects Indias consumer demand growth to be 6.8% in fiscal year (FY) 2015 and to recover to 7.4% in FY 2016.
The medium-term trends still look favorable, despite the immediate weakness. Rising rural incomes and improving access to credit will gradually revive consumer spending in the
medium term. A steadily rising number of middle and high-income households and rising urbanization will also support consumer demand. Much of India's consumption is driven by its middle
class of around 300 million citizens, who are mainly concentrated in urban areas that have grown rapidly during 20 years of liberalization. Meanwhile, vehicle sales are expected to finally start
growing again in FY 2015 and rebound even more in the coming years.

Capital investment
Government backtracking on major reforms and rising external risks could derail Indias investment recovery.
Over the medium term, investment sentiment needs to be improved if India's growth is to reaccelerate.

Government backtracking on major reforms and rising external risks could derail Indias investment recovery. Fixed investment spending quickened slightly in the latest reading (4.9%
y/y in the AprilJune quarter versus 4.1% y/y in the previous quarter), but it appears to improve more slowly than anticipated. A combination of apparent backtracking on reforms domestically,
coupled with weakening global demand, intense risk aversion, and anti-emerging market sentiment globally, raises the risk that foreign investors may take more of a wait and see approach
before committing to new projects in India. Domestic private investment may get some boost from the central banks monetary policy stimulus, but given the country's massive financing needs,
this may not be enough. Public infrastructure spending may offer some lift, although the extent of public project financing will be limited by the governments slow progress with privatization
and the need for fiscal consolidation. Steep exports contraction would also add to weak industrial output, slowing investment growth. All in all, we now expect Indias fixed investment growth to
recover only marginally to 4.8% in fiscal year 2015 (from 4.7% in the previous year) and improve to 6.7% in fiscal 2016.
Over the medium term, investment sentiment needs to be improved if India's growth is to reaccelerate. Despite the existing setbacks, the efficiency of investment in the economy will
continue to increase, as private investors have been allowed to invest in more sectors of the economy, and public investment projects have become more selective and better managed.
Nevertheless, lifting the rate of investment growth substantiallyand thus maintaining the upward trend in the overall GDP growth ratewill require a much stronger effort to accelerate policy
reforms and improve public spending budgeting, as the economy faces a few interrelated challenges in the next few years. In addition to increased capital, a structural transformation of the
economy, together with a less distorted investment environment, is essential to stimulate productivity increases by shifting resources from the less to the more efficient sectors.

Inflation
Even as inflation risks rise on the back of an anticipated dry monsoon, moderate global oil prices and more rigorous domestic policies should keep inflation in check in the near term.
Initiated reforms targeting structural supply- and demand-side imbalances should help sustainably reduce inflation over time.

Even as inflation risks rise on the back of an anticipated dry monsoon, moderate global oil prices and more rigorous domestic policies should keep inflation in check in the near
term. Consumer price index (CPI) inflation eased considerably since the beginning of 2015, pulled down by weak the international commodity prices and large base effects. In the meantime,
prices at the wholesale level have been caught up in a deflationary trap for the last 11 months to September, marking the longest spell of deflation in Indias history and likely pointing to a
combination of weak global commodity prices with muted domestic demand. On the other hand, prices of some agricultural commodities, namely onions, have climbed upwards in recent
months and are yet to show in headline inflation figures in coming months. In general, food inflation remains a closely watched item on the Reserve Bank of India (RBI)s agenda, as it has a
tendency to quickly spin Indias inflation out of control. On balance, however, inflation remains well within the RBIs expectations, with CPI inflation expected to remain below the RBIs January

2015IHS.

page 9 of 56

2015 target of 6%. With the upside (a potentially better-than-anticipated monsoon season) and downside (the recent services-tax hike) risks to inflation broadly balanced, the IHS baseline
outlook for CPI inflation is around 4.9% for 2015 and 5.6% in 2016.
Initiated reforms targeting structural supply- and demand-side imbalances should help sustainably reduce inflation over time. Food inflation remains elevated even as it is off its
peaks. Historically, food inflation has played a big role in Indias overall inflation, given the large weight of food prices in the overall consumer price basket (around 46% under the new
base-year 2012 index). Food prices are being driven by structural factors, such as demand for protein, not necessarily only by seasonal monsoon and farm output trends. The food supply is
mostly unorganized, leading to nontransparent pricing, an inefficient distribution chain, excessive wastage, opportunistic profiteering, and high overall costs. Addressing these factors requires
significant supply-side policy reforms directed at improving agricultural sector productivity and eliminating inefficiencies within distribution channels. If successful, the ongoing government
reform efforts would improve the supply efficiency over time, while the central banks commitment to bring inflation down could reinforce these gains.

Inflation Indicators
2012

2013

2014

2015

2016

2017

2018

2019

Consumer Price Index (% change)

9.7

10.1

6.8

4.9

5.6

5.7

6.1

5.6

Wholesale-Producer Price Index (% change)

7.5

6.3

3.8

-2.3

5.7

4.8

5.2

5.3

Source: Historical data from selected national and international data sources. All forecasts provided by IHS Global Insight. Table updated on the 15th of each month from monthly forecast
update bank (GIIF). Written analysis may include references to data made available after the release of the GIIF bank.

Exchange rates
A reversal of foreign capital inflows and returning balance-of-payments pressures remain key risks for the rupee in the near term.
Renewed investment prospects suggest a slightly stronger path for the rupee over the medium term.

A reversal of foreign capital inflows and returning balance-of-payments pressures remain key risks for the rupee in the near term. The overwhelmingly positive market reaction to the
outcome of the May 2014 election has sparked fresh capital inflows into India, making the Indian rupee one of the most resilient emerging-market currencies in the past 16 months. However,
even the rupee appears to not be immune to the recent emerging-market currency selloff, and is likely to remain volatile in the near term. With Chinas ongoing slowdown and rising
anti-emerging-markets sentiment on one side, and with the US Federal Reserve (Fed) preparing to raise interest rates on the other, global risk aversion is likely to intensify in coming months,
drawing more funds from India and elsewhere. Although the Feds anticipated rate hike is already largely priced in, the rising uncertainty over its timing will continue to cause financial market
jitters in coming months, placing downward pressure on emerging markets currencies. More fundamentally, the trade and current-account dynamics are expected to become less positive, as
still-contracting imports will fail to compensate for even steeper exports contraction. That being said, the fundamentals now appear to be much stronger than in 2013, and a repeat of the Indian
rupee crisis of the recent past is not anticipated. On balance, we now expect the rupee to mildly depreciate in 2015 and 2016 and move sideways throughout 2017.
Renewed investment prospects suggest a slightly stronger path for the rupee over the medium term. Albeit slower than many anticipated, the governments structural reforms are
moving forward, keeping investors more optimistic about Indias future growth prospects and business environment. Should the progress with reforms continue, foreign investment into India is
likely to accelerate, creating a stronger path for the rupee than previously expected. Nonetheless, much will depend on the actual reform outcomes and the speed of their implementation.
Meanwhile, with developed markets expected to continue gradually withdrawing monetary support, the global financial markets will remain volatile, weighing on the Indian rupee exchange rate.

2015IHS.

page 10 of 56

Exchange Rate Indicators


2012

2013

2014

2015

2016

2017

2018

2019

Exchange Rate (LCU/US$, end of period)

54.78

61.90

63.33

66.88

66.75

65.54

64.62

63.39

Exchange Rate (LCU/US$, period avg)

53.43

58.59

61.03

64.35

66.55

66.39

65.00

64.24

Exchange Rate (LCU/Euro, end of period)

72.28

85.36

76.89

71.56

75.42

81.93

85.29

84.82

Exchange Rate (LCU/Euro, period avg)

68.65

77.79

80.97

71.40

72.88

78.94

83.77

85.51

Source: Historical data from selected national and international data sources. All forecasts provided by IHS Global Insight. Table updated on the 15th of each month from monthly forecast
update bank (GIIF). Written analysis may include references to data made available after the release of the GIIF bank.

Exchange Rate and CPI Tables

Policy
Monetary policy
The Reserve Bank of India (RBI) may choose to pause additional policy easing following a front-loaded cut in September.
The effectiveness of the RBIs formal inflation targeting will ultimately depend on the governments supply management policies.

The Reserve Bank of India (RBI) may choose to pause additional policy easing following a front-loaded cut in September. Indias inflation retreated quite markedly in recent months,
owning to weak global oil and other commodity prices, weak domestic demand, and the governments timely food supply management policies. Many have now started to worry about deflation
in India. Albeit certainly unlikely in retail priceswhich are set to rise gradually in coming months but remain within the central banks 6% targetdeflation has been spreading across producer
prices, with the wholesale price index (WPI) remaining in deflation for 11 months to September. Even as falling prices have reduced input material costs for producers, output-price deflation is
eroding corporate profits, putting a break on new business investment. In response to weak prices, the RBI lowered its policy interest rate four times in 2015, with the latest front-loaded, 50basis-point cut in September. Although the window for further easing remains open, the RBI will now likely pause, allowing the previous cuts to work through the system and evaluating
potential risks of an anticipated US Federal Reserve interest-rate hike on the Indian currency. We now do not expect additional rate cuts before the end of 2015 and in early 2016.
The effectiveness of the RBIs formal inflation targeting will ultimately depend on the governments supply management policies. Under the newly adopted (February 2015) formal
inflation target, the RBI will seek to keep CPI inflation under 6% by January 2016 and bring it down to 4% by April 2018, keeping it within a band of 4% plus or minus 2% thereafter. With the
RBIs shift toward consumer prices as Indias main inflation barometer (which tends to run higher than wholesale price inflation), achieving a sustained moderate level of inflation may require
an acceleration of policy efforts to unclog the supply side of key inputs, including power and land. Even as the current inflation scenario has opened up some room for policy easing, a drastic
reduction in policy rates is unlikely in the medium term.

2015IHS.

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Monetary Policy Indicators


2012
Policy Interest Rate (%, end of period)

2013

2014

2015

2016

2017

2018

2019

8.00

7.75

8.00

6.75

6.75

7.25

7.25

7.50

Short-term Interest Rate (%, end of period)

10.21

10.03

10.12

9.83

8.33

8.55

8.76

9.03

Long-term Interest Rate (%, end of period)

8.29

8.14

8.56

7.80

7.95

8.07

8.03

8.07

348.4

349.0

369.1

398.4

448.8

527.9

632.1

743.9

M2 Money Supply (US$, end of period)

Source: Historical data from selected national and international data sources. All forecasts provided by IHS Global Insight. Table updated on the 15th of each month from monthly forecast
update bank (GIIF). Written analysis may include references to data made available after the release of the GIIF bank.

Fiscal policy
The fiscal year (FY) 2015/16 budget targets a deficit of 3.9% of GDP and outlines an array of reforms aimed at improving India's investment environment.
The unified goods and services tax (GST) is unlikely to be implemented by April 2016, as had been planned.

The fiscal year (FY) 2015/16 budget targets a deficit of 3.9% of GDP and outlines an array of reforms aimed at improving India's investment environment. The second budget of the
Bharatiya Janata Partyled government, delivered in February 2015, set the overall deficit target at 3.9% of GDP in the financial year ending March 2016 (down from a provisional estimate of
4.0% of GDP in FY 2014/15). Albeit raising the deficit target from the initial setting of 3.6% of GDP, the new plan outlined the governments intent to shift from spending on subsidies to
investing in infrastructure, and to better target and further reduce subsidies through direct transfers. The budget also confirmed the governments commitment to medium-term fiscal
consolidation, although the timeline to reach a fiscal deficit goal of 3% of GDP (from an average of 5% in 200913) was stretched by one year to FY 2017/18 in favor of quality spending on
infrastructure investment. In other words, the government committed to compensate for the delay in fiscal consolidation with the quality of adjustment, making the new target a more realistic
path to fiscal reform. In addition, the budget focused on streamlining and simplifying Indias complicated tax regime and offered dozens of proposals that should boost economic growth over
the medium and long term and make it easier to do business in India.
The unified goods and services tax (GST) is unlikely to be implemented by April 2016, as had been planned. Among the most important tax initiatives, the government reaffirmed its
commitment to replace myriad complicated indirect taxes with the harmonized GST by April 2016. A politically difficult propositionconsidering opposition from several states that would see
initial revenue lossesthe GST introduction could boost the country's GDP growth by an additional 2% by creating a common market, according to official projections. The government's
reaffirmed commitment to the bill is commendable, but parliaments repeated failure to pass the bill puts the implementation deadline at risk. IHS believes the GST deployment is unlikely until
late 2017 or early 2018.

External sector
Protracted exports weakness will likely reverse Indias recently improved current-account dynamics.
With government reforms losing momentum, capital inflows into India are unlikely to be shielded from heightened turbulence in global financial markets.

Protracted exports weakness will likely reverse Indias recently improved current-account dynamics. India's current-account deficit widened to USD6.2 billion (or 1.2% of GDP) during
the June 2015 quarter, up from USD1.3 billion (or 0.2% of GDP) during the preceding quarter, reflecting the worsening global economy as exports were sluggish while foreign investments fell.
Yet, the countrys external sector appears to remain on a solid footing; this is in spite of the governments removal of restrictions on gold imports from November 2014 onwarda measure that
was meant to lower the current-account deficit and stabilize the Indian currency, but was feared to reintroduce external pressures once removed. With India being a net importer of oil, softer
global oil prices are helping to offset rising demand for gold and the protracted weakness in exports. On the downside, while oil prices are almost solely responsible for the import contraction,
export weakness appears to be more broadly based, indicating imports may recover sooner than exports and clouding the outlook for India's trade balance in the coming months. With external
demand conditions unlikely to recover soon, the weakness in trade is bound to persist.

2015IHS.

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With government reforms losing momentum, capital inflows into India are unlikely to be shielded from heightened turbulence in global financial markets. Capital flows to India fell
drastically during the June 2015 quarter to USD545.9 million from USD13.7 billion in the previous quarter. A combination of apparent backtracking on reforms domestically, coupled with
intense risk aversion and anti-emerging-market sentiment globally have turned foreign investors into outright sellers in Indias equity markets, with record monthly amount of sales in August,
although they still remain net buyers of USD3.72 billion for the year. Foreign direct investment (FDI) inflows, however, continued to rise, up 31% y/y to USD9.5 billion on the back of higher
investment in computer software and hardware, trading, automobile, and power sectors. Yet, sustaining and further improving investors sentiment will require forceful action to advance stalled
macroeconomic reforms and improve the business climate, particularly at a time of increased global financial volatility. With Chinas ongoing slowdown, recent currency devaluation, and
stock-market crash steering the waters on one side, and with the US Federal Reserve preparing to raise interest rates on the other, global risk aversion is likely to intensify in the coming
months, likely drawing more funds from India and elsewhere.

Trade and External Accounts Indicators


2012

2013

2014

2015

2016

2017

2018

2019

Exports of Goods (US$ bil.)

298.3

319.3

329.8

311.8

325.6

345.9

390.5

484.6

Imports of Goods (US$ bil.)

450.2

433.8

404.9

373.7

386.2

445.1

508.2

627.9

-151.9

-114.5

-75.1

-61.9

-60.6

-99.3

-117.7

-143.3

-8.4

-6.1

-3.7

-2.9

-2.6

-3.8

-3.8

-4.0

-91.5

-49.0

-30.4

-16.0

-54.3

-69.3

-103.4

-123.6

-5.0

-2.6

-1.5

-0.8

-2.3

-2.6

-3.4

-3.4

Trade Balance (US$ bil.)


Trade Balance (% of GDP)
Current Account Balance (US$ bil.)
Current Account Balance (% of GDP)

Source: Historical data from selected national and international data sources. All forecasts provided by IHS Global Insight. Table updated on the 15th of each month from monthly forecast
update bank (GIIF). Written analysis may include references to data made available after the release of the GIIF bank.

Key indicators and forecasts


Detailed Macro-Economic Indicators
2011

2015IHS.

2012

2013

2014

2015

2016

2017

2018

2019

page 13 of 56

Real GDP (% change)

6.7

5.1

6.9

7.3

7.4

7.5

7.9

8.0

8.0

1,837.4

1,814.8

1,882.4

2,017.1

2,124.3

2,325.9

2,643.8

3,081.7

3,590.4

Nominal GDP Per Capita (US$)

1,505

1,467

1,503

1,592

1,657

1,793

2,015

2,324

2,679

Nominal GDP Per Capita (PPP$)

4,608

4,868

5,229

5,685

5,995

6,605

7,110

7,726

8,421

9.2

5.6

6.2

6.3

6.8

7.4

8.0

8.4

8.4

12.3

-0.5

3.0

4.7

4.8

6.7

9.1

11.3

14.4

7.0

1.8

8.0

6.6

5.1

4.5

7.0

6.7

8.0

Real Imports of Goods and Services (% change)

21.1

5.9

-8.3

-2.2

1.2

7.1

9.4

9.1

9.6

Real Exports of Goods and Services (% change)

15.9

6.9

7.2

-0.6

2.1

6.7

9.5

8.9

8.4

Industrial Production Index (% change)

4.8

0.7

0.5

1.8

4.3

5.5

6.6

8.3

8.3

Consumer Price Index (% change)

9.6

9.7

10.1

6.8

4.9

5.6

5.7

6.1

5.6

Wholesale-Producer Price Index (% change)

9.5

7.5

6.3

3.8

-2.3

5.7

4.8

5.2

5.3

Policy Interest Rate (%)

8.50

8.00

7.75

8.00

6.75

6.75

7.25

7.25

7.50

Short-term Interest Rate (%)

9.65

10.21

10.03

10.12

9.83

8.33

8.55

8.76

9.03

Long-term Interest Rate (%)

8.34

8.29

8.14

8.56

7.80

7.95

8.07

8.03

8.07

Fiscal Balance (% of GDP)

-8.1

-7.5

-7.2

-7.1

-7.2

-5.1

-4.6

-4.5

-5.0

1,221.16

1,236.69

1,252.14

1,267.40

1,282.39

1,297.19

1,311.76

1,326.06

1,340.13

Population (% change)

1.3

1.3

1.2

1.2

1.2

1.2

1.1

1.1

1.1

Unemployment Rate (%)

8.6

8.9

8.9

8.8

8.5

8.0

7.5

7.0

7.0

-62.6

-91.5

-49.0

-30.4

-16.0

-54.3

-69.3

-103.4

-123.6

-3.4

-5.0

-2.6

-1.5

-0.8

-2.3

-2.6

-3.4

-3.4

-120.0

-151.9

-114.5

-75.1

-61.9

-60.6

-99.3

-117.7

-143.3

-6.5

-8.4

-6.1

-3.7

-2.9

-2.6

-3.8

-3.8

-4.0

BOP Exports of Goods US$bn

307.9

298.3

319.3

329.8

311.8

325.6

345.9

390.5

484.6

BOP Imports of Goods US$bn

427.9

450.2

433.8

404.9

373.7

386.2

445.1

508.2

627.9

Exchange Rate (LCU/US$, end of period)

53.27

54.78

61.90

63.33

66.88

66.75

65.54

64.62

63.39

Exchange Rate (LCU/Yen, end of period)

0.69

0.63

0.59

0.52

0.54

0.53

0.51

0.52

0.51

Exchange Rate (LCU/Euro, end of period)

68.92

72.28

85.36

76.89

71.56

75.42

81.93

85.29

84.82

Nominal GDP (US$ bil.)

Real Consumer Spending (% change)


Real Fixed Capital Formation (% change)
Real Government Consumption (% change)

Population (mil.)

Current Account Balance (US$ bil.)


Current Account Balance (% of GDP)
Trade Balance (US$ bil.)
Trade Balance (% of GDP)

Source: Historical data from selected national and international data sources. All forecasts provided by IHS Global Insight. Table updated on the 15th of each month from monthly forecast
update bank (GIIF). Written analysis may include references to data made available after the release of the GIIF bank.

Debt Indicators
2010
Foreign Exchange Earnings (US$ bil.)

2011

2012

2013

2014

2015

2016

2017

2018

2019

433.1

510.4

513.6

536.9

554.0

564.1

614.3

717.1

851.4

1,000.8

28.3

16.6

26.7

4.8

41.0

42.5

43.6

51.2

58.8

68.0

1.7

0.9

1.5

0.3

2.0

1.9

1.8

1.8

1.8

1.8

11.8

22.1

19.8

21.6

30.8

31.3

37.7

45.7

53.9

64.6

0.7

1.2

1.1

1.2

1.5

1.4

1.5

1.6

1.7

1.7

282.5

268.7

268.5

285.0

332.4

363.0

412.4

462.6

564.3

662.9

7.3

5.6

5.6

6.3

7.3

8.2

8.8

8.5

8.7

8.6

291.7

336.8

395.1

439.8

453.4

474.1

509.7

559.8

632.7

755.6

Total External Debt (% of GDP)

17.4

18.3

21.5

23.4

22.1

21.5

20.9

19.9

19.4

20.0

Total External Debt (% of forex earnings)

67.3

66.0

76.9

81.9

81.8

84.1

83.0

78.1

74.3

75.5

Short Term External Debt (US$ bil.)

56.4

78.1

93.3

92.7

98.5

91.6

87.7

85.7

86.2

91.6

Short Term External Debt (% of total external debt)

19.4

23.2

23.6

21.1

21.7

19.3

17.2

15.3

13.6

12.1

Short Term External Debt (% of international reserves)

20.0

29.0

34.8

32.5

29.6

25.2

21.3

18.5

15.3

13.8

Portfolio Investment, Net (US$ bil.)


Portfolio Investment, Net (% of GDP)
Foreign Direct Investment, Net (US$ bil.)
Foreign Direct Investment, Net (% of GDP)
Foreign Exchange Reserves, Excl. Gold (US$ bil.)
Import Cover (Months)
Total External Debt (US$ bil.)

2015IHS.

page 14 of 56

Total External Debt Service (US$ bil.)


Interest Payment Arrears (US$ bil.)
External Liquidity Gap (% of forex earnings)

24.4

29.3

30.8

41.1

41.0

39.3

43.8

48.3

54.5

66.2

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

26.9

34.3

39.5

28.1

26.3

24.5

27.5

26.4

26.7

26.0

Source: Historical data from selected national and international data sources. All forecasts provided by IHS Global Insight. Table updated live from quarterly Sovereign Risk forecast bank (
SRS).

Detailed Macro-Economic Indicators


2007
Real GDP (% change)

2008

2009

2010

2011

2012

2013

2014

2015

9.8

4.1

8.3

10.3

6.7

5.1

6.9

7.3

7.4

1,141.2

1,257.7

1,238.7

1,593.8

1,837.4

1,814.8

1,882.4

2,017.1

2,124.3

985

1,071

1,041

1,322

1,505

1,467

1,503

1,592

1,657

3,431

3,683

3,789

4,221

4,608

4,868

5,229

5,685

5,995

9.3

7.2

7.3

8.6

9.2

5.6

6.2

6.3

6.8

16.3

3.8

7.3

11.1

12.3

-0.5

3.0

4.7

4.8

8.7

10.2

14.6

6.4

7.0

1.8

8.0

6.6

5.1

Real Imports of Goods and Services (% change)

10.2

22.4

-2.1

15.6

21.1

5.9

-8.3

-2.2

1.2

Real Exports of Goods and Services (% change)

5.9

14.7

-5.1

19.3

15.9

6.9

7.2

-0.6

2.1

15.7

7.7

0.3

9.7

4.8

0.7

0.5

1.8

4.3

Consumer Price Index (% change)

6.4

8.3

10.9

12.0

9.6

9.7

10.1

6.8

4.9

Wholesale-Producer Price Index (% change)

4.9

8.7

2.4

9.6

9.5

7.5

6.3

3.8

-2.3

7.75

6.50

4.75

6.25

8.50

8.00

7.75

8.00

6.75

Short-term Interest Rate (%)

12.74

13.00

11.70

9.98

9.65

10.21

10.03

10.12

9.83

Long-term Interest Rate (%)

7.95

7.86

7.02

7.83

8.34

8.29

8.14

8.56

7.80

Fiscal Balance (% of GDP)

-4.5

-10.2

-10.0

-8.6

-8.1

-7.5

-7.2

-7.1

-7.2

1,159.10

1,174.66

1,190.14

1,205.62

1,221.16

1,236.69

1,252.14

1,267.40

1,282.39

Population (% change)

1.4

1.3

1.3

1.3

1.3

1.3

1.2

1.2

1.2

Unemployment Rate (%)

9.7

9.6

9.8

9.2

8.7

8.8

8.9

8.8

8.6

Current Account Balance (US$ bil.)

-7.6

-31.5

-25.8

-53.9

-62.6

-91.5

-49.0

-30.4

-16.0

Current Account Balance (% of GDP)

-0.7

-2.5

-2.1

-3.4

-3.4

-5.0

-2.6

-1.5

-0.8

-54.5

-92.9

-79.3

-92.6

-120.0

-151.9

-114.5

-75.1

-61.9

-4.8

-7.4

-6.4

-5.8

-6.5

-8.4

-6.1

-3.7

-2.9

BOP Exports of Goods US$bn

154.0

198.5

168.6

231.7

307.9

298.3

319.3

329.8

311.8

BOP Imports of Goods US$bn

208.5

291.5

247.8

324.4

427.9

450.2

433.8

404.9

373.7

Exchange Rate (LCU/US$, end of period)

39.42

48.46

46.68

44.81

53.27

54.78

61.90

63.33

66.88

Exchange Rate (LCU/Yen, end of period)

0.35

0.53

0.51

0.55

0.69

0.63

0.59

0.52

0.54

Exchange Rate (LCU/Euro, end of period)

58.02

67.44

67.24

59.87

68.92

72.28

85.36

76.89

71.56

Nominal GDP (US$ bil.)


Nominal GDP Per Capita (US$)
Nominal GDP Per Capita (PPP$)
Real Consumer Spending (% change)
Real Fixed Capital Formation (% change)
Real Government Consumption (% change)

Industrial Production Index (% change)

Policy Interest Rate (%)

Population (mil.)

Trade Balance (US$ bil.)


Trade Balance (% of GDP)

Source: Historical data from selected national and international data sources. All forecasts provided by IHS Global Insight. Table updated on the 15th of each month from monthly forecast
update bank (GIIF). Written analysis may include references to data made available after the release of the GIIF bank.

Debt Indicators
2007
Foreign Exchange Earnings (US$ bil.)
Portfolio Investment, Net (US$ bil.)
Portfolio Investment, Net (% of GDP)

2015IHS.

2008

2009

2010

2011

2012

2013

2014

2015

292.8

344.0

326.6

433.1

510.4

513.6

536.9

554.0

564.1

27.5

-14.1

29.1

28.3

16.6

26.7

4.8

41.0

42.5

2.3

-1.2

2.2

1.7

0.9

1.5

0.3

2.0

1.9

page 15 of 56

Foreign Direct Investment, Net (US$ bil.)

15.9

19.9

18.0

11.8

22.1

19.8

21.6

30.8

31.3

1.3

1.7

1.3

0.7

1.2

1.1

1.2

1.5

1.4

299.7

242.3

261.4

282.5

268.7

268.5

285.0

332.4

363.0

11.7

8.1

8.7

7.3

5.6

5.6

6.3

7.3

8.2

204.1

227.1

256.3

291.7

336.8

395.1

439.8

453.4

474.1

Total External Debt (% of GDP)

16.8

18.8

19.1

17.4

18.3

21.5

23.4

22.1

21.5

Total External Debt (% of forex earnings)

69.7

66.0

78.5

67.3

66.0

76.9

81.9

81.8

84.1

Short Term External Debt (US$ bil.)

36.1

43.8

46.6

56.4

78.1

93.3

92.7

98.5

91.6

Short Term External Debt (% of total external debt)

17.7

19.3

18.2

19.4

23.2

23.6

21.1

21.7

19.3

Short Term External Debt (% of international reserves)

12.0

18.1

17.8

20.0

29.0

34.8

32.5

29.6

25.2

Total External Debt Service (US$ bil.)

39.4

31.0

16.5

24.4

29.3

30.8

41.1

41.0

39.3

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

25.6

25.1

26.3

26.9

34.3

39.5

28.1

26.3

24.5

Foreign Direct Investment, Net (% of GDP)


Foreign Exchange Reserves, Excl. Gold (US$ bil.)
Import Cover (Months)
Total External Debt (US$ bil.)

Interest Payment Arrears (US$ bil.)


External Liquidity Gap (% of forex earnings)

Source: Historical data from selected national and international data sources. All forecasts provided by IHS Global Insight.

Monthly Forecast Update Tables


Detailed Quarterly Forecast Tables

Business environment: Legal: Country risk statement


India's legal system is common law-based, and it has an independent judiciary. The Supreme Court heads the national judicial system while an independent High Court heads the judicial
system for each state or group of states. India's legal system is mature and comprehensive, but it is unevenly applied, slow, and overburdened. A shortage of judges is mainly responsible for a
backlog of around 32 million cases, and frequent adjournments can result in considerable delays before a case is resolved. Although legal procedures are similar across the country, efficiency
varies between states.

Contract enforcement
The Bharatiya Janata Party (BJP)-led government appears intent upon improving the clarity and consistency of regulations by introducing reforms of laws and regulations. This includes
reforms to legislation dealing with the organisation, management, and dissolution of business entities, labour laws, land acquisition, and direct and indirect taxation. It is also in the process of
setting up a fast-track judicial system in an attempt to remedy the large backlog of cases. The law, if enacted, would provide a legal framework for much quicker adjudication of commercial
disputes involving more than USD160,000.

Key indicators - regulation and contracts


Doing business indicators

2014

OECD avg.

Average time to clear customs* (days)

15.6

NA

Import

21.1

9.6

Export

17.1

10.5

1,420.0

539.5

46.0

31.5

Time required (days)

28.4

9.2

Number of procedures

11.9

4.8

47.0

9.6

7.0

4.7

4.3

1.7

Trade facilitation, lead time (days)

Enforce a contract
Time required (days)
Number of procedures
Start a business

Registration of property
Time required (days)
Number of procedures
Time to resolve insolvency (years)

2015IHS.

page 16 of 56

Taxation indicators
Highest marginal tax rate** (percent)
Corporate

34.0

NA

Individual

30.0

NA

243.0

175.4

33.0

11.8

Time to prepare and pay taxes (hours)


Tax payments, number
* Latest available: 2006
** Latest available: 2009
Source: World Bank

Tax: Country risk statement


India's tax system is complicated by various central and state taxes and by fiscal incentives to encourage specific sectors or investors. Low- and mid-level tax officials often delay processes to
extract bribes, undermining the system's fairness and effectiveness. The BJP government has pledged to make the tax system less adversarial and to cut corporate tax rates. The government
plans to implement a new goods and services tax to simplify the tax system. The April 2016 deadline for this measure, however, will likely be too politically difficult to achieve, meaning a delay
of a year or two is probable.

Taxation risks
The central government levies direct (income tax, wealth tax, corporate tax) and indirect taxes (excise, customs, sales), while state governments levy professional taxes, state sales taxes, and
local taxes such as octroi, the tax levied when goods enter a state. Tax rates, particularly for octroi and excise, vary significantly across states. The complex network of central and state
government taxes is problematic for investors, and successive governments have sought to reform the system with a single national sales tax. The political consensus required in the central
government and among the states has proved to be elusive, but the current Bharatiya Janata Party (BJP)-led government, which came to power with a strong win in May 2014, has the
necessary mandate to implement the new goods and services tax (GST). However, the government will likely not meet the April 2016 deadline for implementing GST due to opposition in the
upper house and remaining state government concerns, with 2017 appearing a more feasible timeline.
In March 2015, the government announced, as part of its fiscal year (FY) 2015/16 budget, a reduction in the corporate tax rate to 25% from 30% over the next five years. More importantly, the
government has pledged to make India's tax regime less adversarial for investors. This is primarily in relation to the May 2012 tax law amendment allowing the government to levy capital gains
tax on cross-border acquisitions retrospectively to April 1962. That amendment led to a series of high-profile tax disputes with multinationals such as Vodafone. In December 2014, the
government chose not to appeal the Mumbai High Court's decision in favour of Vodafone in the tax dispute. Furthermore, in the last budget, the government deferred the imposition of the
general anti-avoidance rules (GAAR) until April 2017 and clarified that it would only apply to investments made after that.
However, there remains a lack of clarity in government tax policy. Fresh retrospective tax demands have been made, with Cairn India receiving a USD3.2 billion tax notice in March 2015.
Moreover, in late 2014, the tax department began issuing retrospective minimum alternate tax (MAT) notices to foreign institutional investors (FIIs). The MAT had not been levied on foreign
investors until a 2012 tax judgement decided the contrary. In the FY 2016 budget, the government lifted the tax for investments made after April 2015; but in the same month, finance minister
Arun Jaitley also said that the government would raise USD6.4 billion through tax notices that had already been issued. In May 2015, Jaitley referred the issue to a high-level committee,
saying that tax issues were a legacy of the previous government.

Operational: Country risk statement


India is a federal state, and different states offer varying levels of competence, skill, and efficiency in dealing with foreign investment. Implementation of government policies in non-BJP
controlled states can risk being blocked or seriously delayed. The complexity of tax and administrative procedures means corruption is a problem. Restrictive labour laws make it difficult to
reduce staff numbers. The government is easing FDI restrictions, but many sectors remain off limits. Where direct foreign investment is permitted, it is often only in partnership with an Indian
company. Many Indian businesses have internal controls and standards that lag behind Western standards.

Attitudes to FDI
Government attitudes to foreign investment have improved markedly since the liberalisation process began in the early 1990s, but restrictions remain the norm in many sectors. Numerous
sectors have been opened to foreign investors, including power, hydro-carbon production and refining, telecommunications, pharmaceuticals, insurance, single-brand and multi-brand retail,
aviation, and banking. The Modi government raised the foreign investment caps in some of these sectors soon after taking office in 2014. Further easing of foreign investment limits will likely
be more gradual.
Public protests are causing changes to government and judicial positions over FDI projects. These include the Ministry of Environment, Forest and Climate Change, which has successfully
delayed the approval of several major investment projects, in particular in the mining sector. A plant operated by South Korean steelmaker POSCO received government approval after five
years of intensive wrangling in January 2011, but only after years of protests that led the government to force the manufacturer to agree to stringent conditions. Delays of environmental
clearances are also common in the infrastructure sector, including for the building of airports, sea ports, and roads. Furthermore, public opposition to investment projects can be fierce, and
courts are increasingly supportive of land owners in the case of land acquisitions. In 2008, Indian firm Tata Motors abandoned its intention to build a manufacturing plant in West Bengal
following violent protests by local villagers; similar protests led ArcelorMittal and Vedanta to scrap plans to build plants in the state of Odisha. Indian courts are also increasingly turning against
investors by ordering the return of acquired land to farmers. For example, in October 2011, the Allahabad High Court in the Indian state of Uttar Pradesh directed the state government to
return property to farmers in three villages that had protested against the acquisitions.

Expropriation risks
The only recent instance of expropriation in India occurred in June 2011 at the Tamil Nadu state level when former chief minister Jayalalithaa Jayaram, of the All India Anna Dravida Munnetra
Kazhagam (AIADMK) party, expropriated the cable television distribution network in the state. This was an explicitly political move as her key opponent, the Dravida Munnetra Kazhagam (DMK

2015IHS.

page 17 of 56

) party, held a virtual monopoly over the state's cable network. Notwithstanding this example, the central and state governments are unlikely to expropriate private assets, particularly in sectors
in which foreign direct investment is encouraged, such as infrastructure and manufacturing. More broadly, however, outright government expropriation remains unlikely in India. The two main
national parties the Indian National Congress and the BJP are both in favour of trade liberalisation and progressive deregulation. And under the BJP-led government since May 2014, there
has been increased momentum behind the privatisation programme, with finance minister Arun Jaitley increasing the divestment target for FY 2015/16 to USD10.9 billion in the latest budget
announced in February 2015.
The government is unlikely to nationalise major industries such as banks unless they are at imminent risk of collapse. None of the major banks came close to bankruptcy during the global
financial crisis of 200809. The last instance of outright nationalisation of a bank occurred in 2004 when the private Global Trust Bank collapsed due to malpractices in lending and deposits.
The government then merged it with the state-owned Oriental Bank of Commerce.

Labour relations risks


The Airports Authority of India (AAI) plans to privatise the international airports in Chennai, Kolkata, Ahmedabad, and Jaipur and run them with private investors through public-private
partnerships. The plan is opposed by unions, which increases the risk of protests and strikes at the airports. Initial protests are unlikely to affect airport operations although there is a risk that
employees will block major roads to airports during protests. Violence is unlikely and limited to scuffling with police with minimal risks to property, but a prolonged dispute will increase the risk
of a full strike by airport employees. In March 2015, the unions sought the help of political campaigner Anna Hazare in their efforts to stop the privatisation. If he agrees, his support would raise
the national profile of the issue and galvanise protesters.
The Bharatiya Janata Party (BJP)-led government's broader privatisation plan is also likely to trigger strikes in the one-year outlook. Government plans to divest shares in state-run Coal India
Limited (CIL) have been opposed by labour unions. A five-day strike in January 2015 led to a reduction of coal supply to about 40% of normal levels. That strike ended after negotiations with
the government. Plans to privatise India's major ports led to unions threatening a nationwide strike in March 2015, but the government subsequently agreed to delay the plans. However, port
infrastructure development remains vital, and the government could feasibly return to a part-privatisation policy in the future. If this occurs, port workers are likely to again call for industrial
action, disputing operations at all of India's 12 major ports. Violence is unlikely unless the strike continues for more than a few weeks. If there are prolonged strikes at ports where naval bases
are located, such as Goa, Kochi, Mumbai, and Visakhapatnam, the navy would probably be asked to maintain port operations.
States such as West Bengal, Haryana, and Uttar Pradesh are at high risk of violent industrial unrest. Although there has not been any major violent strike since 2013, there remains a risk. The
most recent high-profile violent strike was a riot by workers at the Maruti Suzuki plant in Manesar, Haryana, in July 2012, during which an Indian manager was killed. Another 100 people were
injured, including two Japanese nationals. The resultant fire damaged a production line, and the plant was closed for a month, incurring a loss of USD14.4 million per day. However, this is an
extreme case, and most industrial action, often related to wage concerns and work environments, poses an elevated risk of collateral death and injury to foreigners.

Corruption risks
Bribery is very common at all levels in India, and business dealings with Indian bureaucracy and politicians are generally exposed to multi-level bribes. The Central Vigilance Commission (CVC
) is tasked with investigating government corruption, but has itself come under scrutiny in the past. The provision for the Lokpal, anti-corruption ombudsman, enacted in 2013 is unlikely to
significantly mitigate the risk of bribery.
Bribery attempts are very likely in the defence, shipping, and surface transport ministries. In March 2012, corruption allegations in military procurement deals resulted in the defence ministry
blacklisting six firms including Singapore Technologies Kinetics, Israel Military Industries, and Russia-based Zashchita Corporation. In February 2013, the government ordered the Central
Bureau of Investigations to probe a VVIP helicopter deal with Italian consortium Finmeccanica. Contractors dealing with the National Highway Authority of India, which comes under the
Ministry of Surface Transport, face high risks of bribe demands. Other forms of bribery in these ministries include bid rigging and accepting bribes to narrow bid requirements.
Foreign companies are generally expected to have an Indian "fixer" to help them navigate through the system and prevent them being caught in the escalating costs and time delays of
government. In almost every state, it is virtually impossible to register land or vehicles without paying bribes to the state land registration and regional transport departments. Foreign,
especially Western, companies are often unable to obtain the support and prompt response of the police if periodic bribes are not paid, which is important in cases of worker unrest.
From mid-2011, the previous United Progressive Alliance (UPA) coalition government became embroiled in a series of corruption scandals, prompting an anti-corruption movement by civil
society activists including Anna Hazare and Arvind Kejriwal. This resonated with the public and media, sparking greater judicial activism in cases involving politicians. In November 2011,
former telecoms minister Andimuthu Raja went on trial for accepting bribes when awarding 2G mobile licences in 2008. The case, which is ongoing, has caused reputational damage to the
companies involved, including Etisalat and Tata Teleservices. In August 2012, a report from the Auditor General's office alleged that bidding procedures had been violated when coal blocks
were auctioned by the government in 2004. In August 2014, the Supreme Court ruled that the allocations were illegal.
In mid-2015 similar scandals were alleged against the BJP government of Prime Minister Modi in connection with a Madhya Pradesh examination board bribery case and with a senior BJP
politicians dealings with Lalit Modi, an Indian businessman and former commissioner of cricket's Indian Premier League (IPL).

Security: Country risk statement


India faces a number of security problems. There are numerous left-wing armed groups across the country, but they have broadly been in a period of decline, facing internal division, limited
support among the tribal communities where they have traditionally been focused, and effective operations against the leadership by security forces. Pakistan-based militant groups have
demonstrated their ability to launch attacks beyond Indian-administered Kashmir and into India's heartland the most notable being the December 2001 attack on the Indian parliament, and
the July 2006 and November 2008 attacks in Mumbai. Home-grown militant groups Hindu and Islamist have been implicated in a series of terrorist attacks targeting key Indian cities. The
security situation is poor in Kashmir and the northeast, particularly in Assam and Manipur, where myriad insurgent and criminal organisations operate. Organised crime is a problem in major
cities, although this does not usually pose a problem to foreign companies. There are occasional incidents of kidnap for ransom, but these are usually confined to the local population. India's
most immediate external security threat is Pakistan, particularly with regards to the long-standing dispute over Kashmir, but a full military confrontation beyond the disputed territory is unlikely.

War risks: Snapshot


While military conflict with Pakistan is unlikely, a major attack on an Indian city by Pakistan-based militants would probably lead India to initiate limited military action against Pakistan, primarily
in Pakistan-administered Kashmir.

Overview
India's most immediate external security threat is Pakistan, especially the dispute over Kashmir. A full military confrontation beyond Kashmir is unlikely even though cross-border skirmishes
may periodically increase. However, a major attack on an Indian city by Pakistan-based militants would likely trigger a limited Indian military action against Pakistan, primarily in

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Pakistan-administered Kashmir. This risk has increased post-2014 due to the probable relocation of militants from Afghanistan to Kashmir. India's relations with Bangladesh are good. In 2014,
the two peacefully resolved their maritime boundary dispute, and in June 2015 they agreed on the demarcation of their 4,000 km land border.

Interstate war
Indian security forces reported a significant increase in shelling and in the number of cross-border exchanges along the Line of Control (LoC) separating Indian- and Pakistani-held territory in
Kashmir in 2013 and 2014. Although any escalation of military activity remains restricted to the LoC, IHS assesses that the risk of full military conflict between Pakistan and India remains low in
the one-year outlook. However, any expansion of operations beyond the LoC, whether in the form of Indian shelling of Pakistani positions along the regular border or a major attack by
Pakistan-based militant groups, similar to the 2008 Mumbai attacks, in an Indian city such as Delhi or Mumbai, would increase the risk of a more widespread conflict. This risk has increased
post-2014 due to the probable relocation of militants from Afghanistan to Kashmir.
Under the Bharatiya Janata Party (BJP)-led government, which came to power in May 2014, the Indian response to Pakistani attacks has become notably more robust, in line with Prime
Minister Narendra Modi's pledge to adopt a more assertive stance on Pakistan. In October 2014, this more aggressive attitude led to an escalated skirmish that killed 17 civilians in Kashmir.
Nevertheless, while this approach is likely to continue under Modi, the BJP's majority and its dominance of India's right-wing discourse means that the new government is better placed to
pursue meaningful talks with Pakistan. In April 2015, Modi said that he was open to bilateral talks with Pakistan but reiterated that they would in an "environment free from terrorism".
Bangladesh's government enjoys good relations with India, having targeted Indian insurgents hiding in Bangladesh, a key Indian demand. In 2015, both countries agreed on their land border
demarcation, which will involve the exchange of enclaves where people from one country are living in the other. Security forces, especially on the Indian side, are likely to use lethal force to
prevent infiltration, as the border is a major smuggling route into India. The risk to overland cargo is low as these shootings are unlikely to take place near major routes.
In July 2014, both countries delineated their maritime border by international arbitration, with Bangladesh winning 19,467 sq km out of the disputed maritime area of 25,602 sq km. Both
countries have welcomed arbitral tribunals decision as a "win-win" outcome. The peaceful settlement of the maritime border dispute removes the low risk of maritime conflict between
Bangladesh and India (the dispute triggered a naval escalation on both sides in 2008).

Terrorism risks: Snapshot


Pakistan-based militant groups are likely to target symbolic locations in major cities like Mumbai, in IED attacks. Home-grown militants are more likely to target public areas in less secure cities
, such as Hyderabad and Pune.

Overview
The risk of attacks by Pakistan-based militants targeting Delhi, Mumbai, and Indian-administered Kashmir has increased in the two-year outlook as militants are likely to redirect efforts after the
2014 international troop drawdown in Afghanistan. Meanwhile, homegrown Islamist militant groups pose attack risks to mid-sized cities such as Ahmedabad, Bangalore, Hyderabad, and Pune
with the use of low-intensity IEDs planted in public spaces. The Naxalite insurgency affects five states Bihar, Chhattisgarh, Jharkhand, Odisha, and West Bengal where militants target the
security forces, mining, and transport infrastructure. Insurgent groups in Assam still pose risks to security forces and state-owned assets.

Hotspots and targets


Pakistan-based groups such as Army of the Pure (Lashkar-e-Tayyiba: LeT), Army of Mohammed (Jaish-e-Mohammed: JeM), and Movement of Islamic Jihad (Harakat-ul-Jihad-ul-Islami: HUJI)
have the ability and intent to carry out attacks in major cities. Mumbai was targeted in July 2011, when improvised explosive devices (IEDs) were detonated in the Opera House district, Dadar
area, and Zaveri bazaar, killing 26 people. These groups have also demonstrated the intent to target Western interests. For instance, HUJI claimed responsibility for the IED attack on a
German bakery popular with foreigners in Pune, Maharashtra, in February 2010. The risk of larger attacks, similar to the one in Mumbai in 2008 (in which 175 people were killed), will increase
in the two-year outlook, with major cities including Mumbai and New Delhi as probable targets. The trigger for this is the withdrawal of international troops from Afghanistan in 2014, as it
enables militants in Afghanistan to redirect their efforts towards India. In July 2015, suspected Pakistan-based militants crossed into India and attacked a police station in Gurdaspur, India,
killing seven people.
Homegrown militant networks, including the Students Islamic Movement of India (SIMI) and the Indian Mujahideen (IM), have used low-intensity IEDs planted in public spaces to maximise
casualties in mid-sized cities such as Hyderabad, Bangalore, Ahmedabad, and Pune. In February 2013, two IEDs detonated by IM in Dilsukhnagar, Hyderabad, killed 17 people. In December
2014, IM militants were suspected of carrying out a low-intensity IED attack outside a restaurant in Bangalore, killing one person.
Naxalite-related violence has declined from 763 attacks in 2010 to 357 in 2014. However, large tracts of land in five Naxalite-affected states remain under the control of the left-wing militants.
In April 2015, three separate attacks on security forces killed 13 people, all in the groups stronghold of Chhattisgarh, where more than 50% of attacks have taken place. Further attacks
primarily targeting the security forces but also extractive industries are likely in Chhattisgarh and the group's wider key areas of operation, particularly Odisha, West Bengal, Jharkhand, and
Bihar. Power plants and under-construction dams are also aspirational targets but are significantly less likely to be successfully attacked due to better security at these sites.

Social stability and unrest risks: Snapshot


There are risks of grassroots BJP activists stoking communal violence in Uttar Pradesh, Bihar, and Gujarat. The rivalry between the BJP and the AAP in New Delhi increases risks of disruptive
and violent protests there.

Overview
With the BJP in power there is increased risk of Hindu-Muslim communal violence. The threat comes from the BJP's grassroots and its Hindu Nationalist partner, the Maharashtra-based Shiv
Sena party. The risk is likely to be greatest around elections, especially in states with large Muslim populations such as Assam, Bihar, Maharashtra, and Uttar Pradesh. In Delhi, the rivalry
between the BJP and the Aam Aadmi Party (AAP) increases risks of protests around the chief minister's residence in Civil Lines, the Jantar Mantar heritage site, BJP offices on Ashoka Road
and Pandit Pant Marg, and the AAP office in Patel Nagar.

Protests and riots


The risk of widespread religious rioting will increase in the three-year outlook. It is unlikely that the senior leadership of the ruling BJP will seek to actively encourage communal unrest, given
they aspire for the party to be the premier national party. However, the party will pursue the religious aspects of its manifesto regardless. In 2015, BJP-run state governments in Haryana and

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Maharashtra strengthened laws prohibiting the slaughter of cows. Such policies will both embolden grassroots right-wing Hindu groups, while also adding to feelings of insecurity among
religious minorities. This will widen the scope of triggers that can lead to widespread rioting. The risk will be greatest in BJP-run states, as well as Assam, Bihar, and Uttar Pradesh, which has
a large Muslim minority and where state elections are due in 2017.
The rivalry between the BJP and the AAP, which heads the Delhi state government, will drive the risk of violent protests in New Delhi. In April 2015, hundreds of BJP supporters attempted to
break into Chief Minister Arvind Kejriwals home in the city's Civil Lines area. Further demonstrations will pose high risk of protesters breaking police cordons and causing moderate-to-elevated
traffic disruption. Any violence is likely to be contained by police use of force, including use of baton charges and water cannons. Bystanders will face collateral injury risks, but the risk to
non-government property will be low. Likely hotspots for violence include the chief minister's residence in Civil Lines, the Jantar Mantar heritage site, BJP offices on Ashoka Road and Pandit
Pant Marg, and the AAP office in Patel Nagar.
The December 2012 Delhi rape case triggered protests in New Delhi and several other cities, including Mumbai, Chennai, Kolkata, and Bangalore. Protests have attracted youth and civil
society groups, including the urban middle class. These groups are increasingly likely to protest on social grievances or perceived abuses of power by the government or the police, increasing
the likelihood of business disruption and collateral damage to foreign firms' offices in major cities and of injury to their employees.
Protests over land use and environmental issues are a source of pressure employed against particular projects. Recent examples of more organised protests include: rallies against the
Kudankulam nuclear power plant project in Tamil Nadu; anti-nuclear demonstrations over a planned nuclear reactor in Jaitapur in western Maharashtra; long-running activism against a second
international airport in Mumbai; and marches against plans to raise the Mullaperiyar dam in Kerala.

Overview
Militant attacks pose a significant risk of death and injury. High-profile tourist, commercial, government, and security force institutions in New Delhi and Mumbai are targets, as are public areas
in Ahmedabad, Bangalore, Hyderabad, and Pune. Women travelling alone are also at risk of being attacked. According to government crime statistics, Arunachal Pradesh, Assam, Kerala, and
Uttar Pradesh are the most violent states. While organised crime is a problem in major cities, foreign companies are rarely targets. Naxalite militants control parts of Bihar, Chhattisgarh,
Jharkhand, Orissa, and West Bengal, where there is increased risk foreigners will be kidnapped for prisoner exchanges.

Death and injury


According to government statistics, violent crime increased by 10.1% nationwide in 2014, and the states with the highest violent crime rates were Assam, Kerala, Arunachal Pradesh, and the
union territory of Delhi.
Islamist groups have carried out periodic bombings since 2006 in various cities including Bangalore, Mumbai, and New Delhi. Pakistan and Kashmir-based militant groups, such as LeT and
HUJI, are likely to choose strategic and symbolic targets. This includes high-profile tourist, commercial, government, and security force institutions in New Delhi (such as parliament and the
Connaught Place shopping district) and Mumbai (such as the Bombay Stock Exchange and the Gateway of India) as well as major international airports. The withdrawal of the bulk of
international forces from Afghanistan at the end of 2014 increases the risk of such an attack as it enables militants to redirect their efforts towards India.
Home-grown Islamist groups, such as the IM and the SIMI, favour targeting public spaces and entertainment venues in less secure cities such as Hyderabad, Bangalore, Ahmedabad, and
Pune owing to their lower capability. They are primarily concerned with inflicting mass casualties and are likely to use low-intensity IEDs in public spaces to achieve this. In December 2014, IM
militants were suspected of carrying out a low-intensity IED attack outside a restaurant in Bangalore, killing one person. Naxalite-related violence has declined from 763 attacks in 2010 to 357
in 2014. Nonetheless, large tracts of land in the five Naxalite-affected states of Orissa, Jharkhand, Bihar, Chhattisgarh, and West Bengal remain under the control of the left-wing militants.
Naxalites generally target government security forces and construction and mining cargo/equipment rather than civilians, but the risk of collateral death and injury is high.
It is unlikely that the senior leadership of the ruling BJP will seek to actively encourage communal unrest given they aspire for the party to be the premier national party. However, the party will
pursue the religious aspects of its manifesto regardless, such as cow protection. So far in 2015, BJP-run state governments in Haryana and Maharashtra have strengthened laws prohibiting
the slaughter of cows. Such policies will embolden grassroots right-wing Hindu groups while also adding to the perception of insecurity among religious minorities. This will widen the scope of
triggers that can lead to widespread rioting. The risk will be greatest in BJP-run states, as well as Assam, Bihar, and Uttar Pradesh, which has a large Muslim minority and where state
elections are due in 2017.

Kidnapping
The majority of kidnappings are related to marriage cases, and about 80% of victims in India are female according to government statistics released in 2014. However, gangs, some of which
enjoy the patronage of local politicians and police, also target local doctors and wealthy Indian businessmen for ransom. According to the government, such incidents appear to be increasing.
Kidnapping by organised criminal gangs is an elevated risk in the states of Uttar Pradesh, Bihar, Orissa, Uttar Pradesh, Jharkhand, and Chhattisgarh.
Islamist militant networks such as LeT and Party of Holy Warriors (Hizb-ul-Mujahideen: HM) possess the capability to carry out kidnappings in Jammu and Kashmir but have not abducted any
foreigners in the state since 2000. Within Jammu and Kashmir, the risk of kidnap is elevated in Anantnag, Srinagar, Pahalgam, and Kargil districts. The chief motivation for kidnappings is to
demand the release of detained militants, which Indian authorities are unlikely to agree to. Hostages face a high risk of being killed if militant demands are not met; five of the six Western
tourists kidnapped by the Harkat-ul-Mujahideen in 1995 were killed as the government refused to release militants. After the withdrawal of international troops from Afghanistan in 2014, some
militants there are likely to increasingly target India, including attempted kidnappings of foreigners.
Maoist militants, known as Naxalites, are likely to kidnap policemen; civil servants; employees; and executives of mining, railways, and telecoms companies and road construction contractors
in Orissa, Chhattisgarh, Jharkhand, and Bihar. In July 2013, three State Bank of India officials were abducted by suspected Naxalite militants in the Palamau, Jharkhand. Employees of private
companies are typically kidnapped for ransom or because their employers refused to pay extortion.
Naxalites have in the past used kidnapping to negotiate prisoner releases with the government. For example, in March 2012, a state parliamentarian was kidnapped in Orissa and exchanged
for 13 Naxalite militants. In the same month, two Italian tourists were kidnapped and swapped for prisoners in Chhattisgarh. This tactic is likely to be used increasingly after the Naxalite
general secretary in September 2013 admitted that the movement was facing a severe leadership crisis due to the arrest of several important commanders. Foreigners working for the United
Nations or non-governmental organisations (NGOs) also visit Orissa, Chhattisgarh, and Bihar states occasionally and are likely to be targets given an expectation that state governments would
be likely to negotiate prisoner releases if a high-profile executive or foreign NGO worker were to be kidnapped. The poor training, equipment, and morale of state police forces in Naxalite
states greatly reduces the probability of successful rescue operations.

Detention and discrimination


Security forces are unlikely to arbitrarily detain expatriates. Even if foreigners on non-tourist visas staying for more than 180 days do not register with the Foreigners Regional Registration
Office as required by law, summary deportations are rare. Following the attack on the German Bakery in Pune, Maharashtra, in February 2010, the Pune police deported 21 foreigners for
overstaying their visas. However, such initiatives are unlikely to be sustained and do not target foreigners who are in the country legally.

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Religious activities such as preaching and missionary work are strictly prohibited for tourist visa holders. Foreigners, especially American missionaries, arriving on tourist visas, have been
denied entry at Indian airports on several occasions. On rare occasions, foreigners face detention if they are suspected by security forces of being spies for Pakistan or China. In January 2011
, Indian border security forces in Uttar Pradesh arrested three Chinese citizens who were reportedly filming border security camps. In April 2012, the government deported a suspected Iranian
spy.
Pakistani citizens face an elevated risk of selective discrimination and are at higher risk of arrest and deportation. Foreign nationals of Pakistani decent are also likely to face increased scrutiny
when applying for visas and travel permission. African visitors, specifically Nigerians, routinely face harassment by local policemen and often face difficulty in finding local accommodation,
including at hotels. Foreigners are usually expected to carry a copy of their passport on their person, as policemen usually demand to see travel documents if a foreigner is stopped at a
checkpoint. Several foreigners have been arrested, particularly at religious sites such as Allahabad in Uttar Pradesh, for not carrying identification of nationality.
Westerners are likely to be harassed for bribes by policemen if stopped at security checkpoints, especially near tourist sites. The authorities usually allow consular access to citizens of all
nationalities, including Pakistani citizens and foreigners of Pakistani origin (who are subjected to additional background checks before being granted an Indian visa). However, given the delays
in the judicial process, pre-trial detention can often be prolonged, lasting over a year. Foreigners are usually deported at the end of their sentences. Detained foreigners are likely to be able to
gain access to consular staff easily.

Key facts and demographics


2

Area:

3,287,590 km

Language:

In total, approximately 1,650 languages/dialects are spoken in India. Hindi is the official language of government, although English is still widely used. There are 15 other
official languages, the most widely spoken of which are Bengali, Telugu, Marathi, Tamil, Urdu, Gujarati and Punjabi.

Religion:

Hindu, Muslim, Christian, Sikh, Jain, Buddhist

Time Zone:

GMT +5.5

Population:

1.21 billion (2011 Census)

Neighbours

Bangladesh, Bhutan, China, Myanmar, Nepal, Pakistan, Sri Lanka

:
Capital City

New Delhi

:
Primary

Mumbai, Nhava Sheva (Jawaharlal Nehru port) Kolkata, Haldia, Chennai, Ennore, Tuticorin, Kochi, Visakhapatnam, Kandla, Mormugao, New Mangalore

Ports:
Primary

New Delhi, Mumbai, Kolkata, Chennai, Bangalore, Thiruvananthapuram, Hyderabad

Airports:
Currency:

Indian rupee (INR)

Political system and players


Parties and key figures
Major parties
India has a multi-party system. It was dominated by the Congress party in the decades after independence but its monopoly has been eroded over the past three decades. The overwhelming
parliamentary victory by the Bharatiya Janata Party (BJP) in the May 2014 election marks the first time since 1984 that a single party has won a majority in the lower house (Lok Sabha). The
fragmentation of the political scene, combined with India's first-past-the-post system, means that parties do not necessarily require a large share of the votes to dominate parliament. The BJP
took only 31% of the overall vote, the lowest ever tally for a party winning a parliamentary majority. Its success has resulted from its dominance in several key northern states, for instance
winning 71 of 80 seats in the largest state, Uttar Pradesh. Meanwhile, regional parties have largely failed to reach beyond their fiefdoms, so that the All India Anna Dravida Munnetra
Kazhagam (AIADMK) could win 37 of 39 seats in Tamil Nadu but had no presence elsewhere.

Major parties
Indian National Congress
Political stance: The centre-left Congress party is India's oldest and largest political party and led the coalition government from 2004 to 2014.
Support base: Congress has tried to appeal across multiple constituencies, leading to conflicting priorities. It has traditionally focused on a welfare-based agenda for the country's poor,
but in the past 20 years has tried to combine this with more liberal economics that would appeal to upper- and middle-class voters. It has also been seen as protective of India's Muslim
minority.
Recent history: The Indian National Congress party ruled India almost uninterrupted for the first four decades of the post-independence period, until 1989 when it became clear that
public opinion had firmly turned against it. After the turn of the century, the party regained much of its lost stature, securing the largest share of seats in the 2004 and 2009 elections on
the back of strong economic growth and expanded welfare programmes. But a series of corruption scandals, a sense of policy drift, opaque leadership and deteriorating economic
results saw the party plummet to its worst-ever election result, winning just 44 seats in May 2014.
Potential future leaders: The party remains dominated by the Nehru-Gandhi dynasty despite diminishing returns. Party president Sonia Gandhi is known to be ill and removing herself
from day-to-day management. She has refused to countenance anyone other than her son, Rahul Gandhi, leading the party, thus preventing the emergence of alternative young leaders
. Rahul has been a dramatic failure well-meaning but reluctant to lead and a weak communicator. He has refused to take on the leadership of the opposition in parliament, despite
calls from his party to do so. He has spearheaded two election campaigns the state election in Uttar Pradesh in 2012 and the 2014 general election both of which have proved
disastrous for the party, yet he is likely to remain the effective head of the party. A possible alternative is his sister, Priyanka Gandhi, who is seen as more charismatic, not least for the
resemblance to her grandmother, Indira Gandhi.

Bharatiya Janata Party (BJP)

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Political stance: Sections of the party are hard-line Hindu nationalists, but there is also a strong moderate element that is more business-minded and can be considered as right of
centre. This internal tension has troubled the party since its inception, and hobbled the development of a workable policy line while in opposition. The rise of Narendra Modi may help to
resolve this tension. He has sought to focus more on development and business, but his highly controversial past ensures he has the firm support of Hindu nationalists.
Support base: Although the BJP remains most dominant in the northern "Hindi belt", it did make significant inroads throughout the country in the 2014 election by appealing to a new
aspirational and optimistic India, who focused on Modi's reputation as a strong and effective manager during his tenure as chief minister in Gujarat.
Recent history: Following its creation, the BJP's popularity grew gradually, from just two seats in the Lok Sabha in 1984 to a high of 182 in 1999, although its standing fell to 138 seats
in 2004 and 116 seats in 2009 in the face of a strong showing from Congress and regional parties. Following its unexpected defeat in the 2004 general election, the BJP lost direction
and allowed its extremist Hindu nationalist wing a great deal of freedom. Tensions between the party's Hindu nationalists and its moderate elements continued to reverberate. It was not
until the emergence of Narendra Modi as the prime ministerial candidate in 2013 that the party was able to unite its pro-business and Hindutva factions. His selection came despite
fervent opposition within the party from those who opposed Modi's authoritarian style and his lack of respect for party hierarchy, as well as those who thought his alleged complicity in
anti-Muslim riots in his state in 2002 would undermine the party's chances.
Potential future leaders: Many see the 2014 election result as a victory for Modi personally, rather than for the BJP as a whole. His position is currently unassailable.

Communist Party of India (Marxist) (CPI-M)


Political stance: The CPI-M is a complex party, espousing traditional leftist policy doctrine while having implemented pro-market reforms in the states that it used to govern. There are
differing policy stances within the party, with some leaders such as West Bengal's former chief minister Buddhadab Bhattacharjee far more interested in reform and, accordingly,
keener to bend the party's ideology.
Support base: The country's poor are the CPI-M's main support base and it has established particular strongholds in West Bengal, which it ruled uninterrupted for 34 years up to 2011,
and Kerala. It retained wide support thanks largely to the memory of radical land reforms in the past, but its attempts to violently crush two farmer protest movements in West Bengal (at
Nandigram and Singur) between 2006 and 2008 severely damaged its reputation. It has struggled to recover, not least because its communist message has lost interest for many in an
increasingly aspirational India.
Recent history: The CPI-M was born out of a split in the Communist Party of India in 1964. The party led the four-party Left Front in support of the Congress party-led United
Progressive Alliance (UPA) government until July 2008, during which time it had a significant influence on the pace and process of India's economic reforms and foreign policy. However
, it withdrew support for the UPA over the nuclear agreement between the United States. Its obstructive approach did little to arrest the rapid decline in support. Its seats fell from 42 in
2004 to 16 in 2009 and just nine in 2014.
Potential future leaders: Prakash Karat has been the CPI-M's key leader since 2005. There is considerable pressure for a thorough change of the top leadership at state and federal
levels following the disastrous election result, but no clear challengers have emerged.

Aam Aadmi Party (AAP)


Political stance: The AAP was formed by activist Arvind Kejriwal out of the anti-corruption movement of 2011 that demanded the creation of a new corruption ombudsman. After
forming officially in November 2012, it outlined an ideology based on decentralisation and Gandhian self-sufficiency, while supporting expanded subsidies for the poor. It took radical
steps towards transparency, including publishing all donations on its website.
Support base: The AAP has consciously focused on the poor its name means "common man". It attracted support from many left-leaning intellectuals and has built a strong media
profile and presence in major urban cities.
Recent history: The party shocked many by coming a close second behind the BJP in the Delhi state assembly election in December 2013 and forming the government in alliance with
the Congress party it had helped to decimate. However, Kejriwal took a number of highly destabilising steps as leader, holding a street protest to demand that the police come under
state rather than federal control and then resigning after just 48 days when the Delhi Assembly refused to push through his anti-corruption bill, saying procedure had not been followed.
The resignation proved highly damaging, giving the impression the party was not serious about governing. Kejriwal's decision to run directly against Narendra Modi in Varanasi in the
May 2014 general election was also an error; he lost by tens of thousands of votes. The party won just four seats in the election, although it has had an outsized impact and is the first
new national party to emerge since the 1980s.
Potential future leaders: Arvind Kejriwal remains the figurehead of the party for some time to come.

Regional parties
All India Anna Dravida Munnetra Kazhagam (AIADMK): A regional party in Tamil Nadu, the AIADMK was formed in 1972 and is today led by J. Jayalalithaa. The party broke away
from the DMK over differences between then party leader Maruthar Gopalamenon Ramachandran and DMK leader Karunanidhi, and the two have been engaged in a fierce rivalry ever
since, frequently exchanging power. The AIADMK is currently on top, having won a landslide assembly victory in May 2011 after the DMK became embroiled in huge corruption
scandals at the federal level. It followed this with a huge victory in 2014, taking 37 of 39 Lok Sabha seats in the state, making it the third biggest party in the Lok Sabha. The party is
known for its lavish handouts to voters, including washing machines, goats, and bicycles at the 2011 election. It considered a formal alliance with the BJP ahead and after the 2014
election, but has chosen to stay independent.
All India Trinamool Congress: The All India Trinamool Congress (TMC) is a party in West Bengal founded by Mamata Banerjee in 1997 after she and a number of followers were
expelled from the Indian National Congress. In the May 2011 legislative assembly election, it ended over three decades of CPI-M rule, securing a sweeping 184 out of the 294 available
seats. Having secured 19 seats in the 2009 election, the TMC was part of the UPA government but proved to be a difficult ally and blocked several policy initiatives. The TMC left the
UPA in September 2012 over disagreements regarding a new policy allowing increased levels of foreign direct investment (FDI) in multi-brand retail. It performed even more strongly in
2014, winning 34 seats to become the fourth largest party in the Lok Sabha, although all of its seats came from West Bengal.
Shiv Sena: Part of the ruling NDA coalition, Shiv Sena is a Mumbai-based right-wing Hindu nationalist party that was founded by Bal Thackeray in 1966. The party legitimates its actions
through the concept of "Bhumiputra" (sons of the soil), which has led it to pursue divisive and often violent politics to cater to the economic and social needs of Maharashtrians. The
party has in the past discriminated against a variety of ethnic and religious groups, including against Tamils in the 1970s and Muslims since the early 1990s. The Shiv Sena was widely
blamed for instigating the 199293 Mumbai riots that led to the deaths of hundreds of Muslims. The Shiv Sena has suffered a number of defeats in recent years, including a split that
saw Thackeray's son Raj form a rival party, the Maharashtra Navnirman Sena (MNS), in 2006. But its alliance with the BJP enabled it to improve its standing in 2014 from 11 to 18 seats
.
Biju Janata Dal (BJD): The BJD was formed in 1997 and is a regional party in the Indian state of Odisha (formerly Orissa), and a member of the ruling NDA coalition. The party is led
by Chief Minister Naveen Patnaik, and currently has 20 seats in the Lok Sabha.
Samajwadi Party (SP): The SP is a democratic socialist party that emerged in 1992 when the Janata Dal (People's Party) split into several parties. The party is led by Mulayam Singh
Yadav and is primarily based in Uttar Pradesh, but has reached out to other states such as Madhya Pradesh and Andhra Pradesh, particularly during the 2009 general election. Its main
supporters are members of lower castes and Muslims. During the UPA government, the SP provided substantive outside support. Together with the Rashtriya Janata Dal (RJD), it
constituted the so-called Fourth Front. It faced a dramatic defeat at the hands of the BJP in the 2014 election, falling from 23 Lok Sabha seats to just five. However, it still runs the state
assembly in Uttar Pradesh, having won an outright majority in the February/March 2012 elections.
Bahujan Samaj Party (BSP): The BSP is a political party with national appeal, but in practice its stronghold is confined to Uttar Pradesh, where the party has also formed the state
government several times but is currently in opposition. The BSP, drawing heavily on the philosophy of B.R. Ambedkar, was formed by Kanshi Ram in 1984, mainly to represent and
improve the rights of low-caste members of Indian society. Led by Kumari Mayawati, the BSP won an outright majority with 206 out of the 403 available seats in the 2007 state assembly
election, but lost out to the SP in the February/March 2012 polls. It went on to win no seats in the 2014 general election.
Dravida Munnetra Kazhagam (DMK): A regional party in Tamil Nadu, the DMK was an important member of the UPA with 18 seats until it quit in March 2013 over the centre's foreign
policy on Sri Lanka. By then, it had become embroiled in major corruption scandals involving its running of the federal telecommunications ministry, which led the party to a defeat at the
state level in 2011 assembly elections and total decimation in the 2014 general election at which it won no seats.

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Nationalist Congress Party (NCP): The NCP was formed in 1999 by Sharad Pawar, P.A. Sangma, and Tariq Anwar, after they were expelled from the Indian National Congress Party.
The NCP is a regional party in Maharashtra and pursues a centrist and secular programme. The NCP won nine seats in the 2009 general election and was a member of the ruling UPA
coalition. Its seats fell to six in 2014. In Maharashtra, it won the second largest share of seats in the October 2009 legislative assembly elections (62 of the 288 available seats), and
went on to form the government together with its ally and most successful competitor of the polls, the Congress party.
Rashtriya Janata Dal (RJD): The RJD was founded in 1997 by Lalu Prasad Yadav, who was a powerful presence in Bihar during the 1990s and early 2000s but whose tenure became
associated with widespread corruption and lawlessness. It won only 22 of 206 seats in the October/November 2010 legislative assembly elections, and just four seats in both the 2009
and 2014 general election. It has been a close ally of the Congress party, although it left the ruling coalition in 2009 after disagreeing over seat allocations. It returned to the alliance
ahead of the 2014 election.
Janata Dal (Secular) (JD(S)): The JD(S), a regional party in Karnataka led by a former prime minister, H.D. Deve Gowda. A secular centre-left party and part of the Third Front
coalition, it won just two seats in 2014 election, down from four in 2009. It is also currently in opposition in Karnataka, having won 40 out of the 224 available seats in the 2013 state
assembly elections.
Janata Dal (United) (JD(U)): The JD(U) was a formidable political force under Nitish Kumar, who was credited with radically improving security in Bihar after becoming chief minister in
2005 and was touted as a possible prime minister during a period when the BJP was unsure who could lead the party. However, Kumar broke off his alliance with the BJP in 2013,
fearing that Narendra Modi's selection as prime ministerial candidate would alienate Bihar's large Muslim population and limit his ambitions. The move proved disastrous, with the JD(U)
winning just two seats in the 2014 election, down from 20 in 2009. Kumar resigned in response. The JD(U) currently leads the government in Bihar, having won 115 out of the 206
available seats in the November 2010 legislative assembly elections.

Leadership
Title

Name

Appointed

President

Pranab MUKHERJEE

25_Jul_2012

Vice President

Hamid ANSARI

11_Aug_2007

Prime Minister; Personnel, Public Grievances and Pensions; Atomic Energy; Space

Narendra MODI

20_May_2014

Minister of Finance; Corporate Affairs, Information and Broadcasting

Arun JAITLEY

09_Nov_2014

Minister of External Affairs; Overseas Indian Affairs

Sushma SWARAJ

26_May_2014

Minister of Defence

Manohar PARRIKAR

09_Nov_2014

Minister of Law and Justice

D. V. Sadananda GOWDA

09_Nov_2014

Minister of Home Affairs

Raj Nath SINGH

26_May_2014

Minister of Road Transport and Highways; Shipping

Nitin Jairam GADKARI

09_Nov_2014

Minister of Railways

Suresh PRABHU

09_Nov_2014

Minister of Health and Family Welfare

Jagat Prakash NADDA

09_Nov_2014

Minister of Mines; Steel

Narendra Singh TOMAR

09_Nov_2014

Minister of Chemicals and Fertilizers

Ananth KUMAR

26_May_2014

Minister of Agriculture

Radha Mohan SINGH

26_May_2014

Minister of Heavy Industries and Public Enterprises

Anant GEETE

26_May_2014

Minister of Civil Aviation

Ashok Gajapathi Raju PUSAPATI

26_May_2014

Minister of Science and Technology; Earth Sciences

Harsh VARDHAN

09_Nov_2014

Minister of Social Justice and Empowerment

Thaawar Chand GEHLOT

26_May_2014

Minister of Water Resources, River Development and Ganga Rejuvenation

Uma BHARATI

26_May_2014

Minister of Communications and Information Technology

Ravi Shankar PRASAD

09_Nov_2014

Key figures
Prime Minister Narendra Modi
Modi has exhibited a ruthless and single-minded pursuit of power, setting him apart from politicians driven by economic ideology or the desire for personal enrichment. He established perhaps
the most effective public relations campaign in Indian political history, convincing a vast proportion of the country and international observers that he had achieved spectacular economic
results in Gujarat, where he was chief minister from 2001 to 2014, even though its performance has been eclipsed by several other states. However, he was an effective manager of
bureaucrats and his reputation for creating an effective business environment was deserved. Although Hindu nationalism has been a dominant theme throughout his career and his
reputation has never fully recovered from the anti-Muslim riots in his state in 2002 it is not clear whether Modi is truly devoted to the philosophy of a Hindu state or whether he has been more
interested in the organisational potential of the movement. Modi presented himself as the antithesis of the Congress party non-corrupt, efficient, and forthright. His message delivered with
a deft and folksy charm that cuts across India's class divides has been one of Indian pride and imminent success, contrasted against the dour hand-wringing over poverty that has
characterised the Congress narrative.
Born 17 September 1950 in Vadnagar, Gujarat, Modi was the third of six children of a family of low Ghanchi caste. He helped his father run a tea stall and later worked in a canteen before
finding work in the state headquarters of the Hindu nationalist Rashtriya Swayamsevak Sangh (RSS) in Ahmedabad. By 1978, at the age of only 31, he had worked his way up to a role as the
chief liaison officer between the RSS and its district front organisations across Gujarat at a time when the RSS was a key part of the opposition to Indira Gandhi's Emergency Rule. By 1987,
he was the organisation secretary, overseeing the group's relationship with its political front, the BJP, at a time when the party was becoming a national force. He played key roles in organising
nationwide rallies, but his propensity for self-promotion and attempts to undermine competitors saw him relegated to a position in party headquarters in Delhi a blessing in disguise as it put
him in daily contact with the BJP leadership. He became organisation secretary for the entire nationwide movement in 1998 and persistent lobbying against his peers saw him eventually
selected as chief minister for Gujarat in 2001 the first full-time RSS pracharak to hold such a high position.

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Modi's critics accuse him of failing to halt the anti-Muslim riots that broke out in his state in early 2002 that killed around 1,000 people. Members of his administration have been found guilty of
directly orchestrating some of the attacks, but a special panel of the Supreme Court stated there was no evidence against Modi in 2010 and he was exonerated three more times between
2011 and 2013. He has refused to directly apologise for the violence or reach out to the Muslim community. Nor has he sought to stoke further communal tensions aware of the damage to
his reputation caused by the riots. Instead, he has focused on development. His landmark achievement was attracting Tata Motors to set up a factory for its low-cost Nano car in Gujarat in
October 2008 after it had been forced out of its proposed site in West Bengal. His ability to organise land acquisition and clear the bureaucratic hurdles were widely praised. He has burnished
his reputation with a series of "Vibrant Gujarat" summits in which he welcomes foreign and domestic investors and presents the state as the leading economic force in the country.
His elevation to become the prime ministerial candidate for the BJP finalised in September 2013 came amid fierce opposition from members of his own party and its coalition partners.
Some were concerned about his effect on Muslim voters, but many within the party remained deeply resentful over his perceived back-stabbing against rivals during his ascension. Ultimately,
however, the weight of behind-the-scenes pressure from the RSS and its nationwide network of volunteers helped achieve Modi's goal.

President Pranab Mukherjee


Pranab Mukherjee, a Congress stalwart for more than 30 years, has long been a close ally of the party's dominant Gandhi family. He is a highly experienced politician and was minister of
finance under then-prime minister Indira Gandhi between 1982 and 1984, at a time when former prime minister Manmohan Singh was the governor of the Reserve Bank of India.
In his international career Mukherjee has served on the board of governors of the International Monetary Fund, the Asian Development Bank, and the World Bank. He was also credited with
taking India into the World Trade Organization (WTO) in 1995. Following stints in the ministries of defence and external affairs, he took over the Ministry of Finance temporarily when Singh
underwent heart surgery in January 2009. Mukherjee assumed the position permanently after the general election the following May and his immediate priority was to outline a stimulus
package to bolster India's economy during the global downturn. He is widely credited with having helped India weather the downturn successfully, with the economy having shown strong signs
of recovery in late 2009. The start of his tenure was also strong as he unveiled bold initiatives, including one for a new direct tax code (DTC) in August 2009 that was aimed at overhauling
India's antiquated tax laws. However, with India's economy flagging again three years later, Mukherjee had to take some blame for this situation. Perhaps most significantly, Mukherjee failed to
foster good relations between the finance ministry and the Indian states, which viewed many of his initiatives, including GST, as an attempt by central government to dilute their powers.
Despite his troubled tenure as finance minister, Mukherjee remains a highly respected politician. Indeed, the fact that his popularity cuts across party lines arguably made him an ideal
presidential candidate. He resigned from his post as finance minister on 26 June 2012 to contest the presidential election, which he won on 19 July 2012 by a wide margin. Although the
presidency is a largely ceremonial role, Mukherjee's heavy political stature could entice him to take a more active role than has been the case with his predecessors.
External Affairs Minister Sushma Swaraj
Sushma Swaraj was leader of the opposition in parliament prior to the BJP's 2014 victory, having replaced Lal Krishna Advani in December 2009. She began her political career as a student
leader in the 1970s, protesting against the policies of the Indira Gandhi-led government. She was elected into the legislative assembly of Haryana state several times before entering national
politics. In Haryana, she was a cabinet-level minister of labour and employment from 1977 to 1979, and minister of food, education and civil supplies from 1987 to 1990. In her capacity as a
member of the Haryana assembly, she was repeatedly voted the best speaker. Swaraj entered national politics in 1990 when she was elected into the Rajya Sabha (upper house) in 1990, and
became minister of information and broadcasting in 1996. In 1998, she became the first female chief minister of Delhi.

Congress Party President Sonia Gandhi


Sonia Gandhi, the Italian-born widow of assassinated premier Rajiv Gandhi, has been leading the Gandhi dynasty since her husband's death. Although initially reluctant to become involved in
politics, Sonia Gandhi has proved herself to be an able politician, and is credited with uniting the party through a difficult period, following the end of its decades-long dominance of the political
sphere. In May 1999, she survived an attempt by members of her party to oust her as leader, based on her foreign origins. However, her personal popularity has traditionally remained lower
than that of the party itself. That said, the Congress victories in the 2004 and 2009 elections boosted her fortunes greatly, and she plays important public and behind-the-scenes roles in the
government. Although she chose to decline the premiership, her important position in the party is assisting the Gandhi dynasty more broadly, paving the way for her son Rahul and daughter
Priyanka to make their marks on the political scene. She was chosen as being one of the 100 most influential people in the world by The Times in 2007 and 2008. In August 2011, Sonia
Gandhi disappeared from public view for several weeks, reportedly being admitted to a cancer hospital in New York, although the details remain a closely guarded secret.

Vice-Chairman of Congress Party Rahul Gandhi


Rahul Gandhi (born 19 June 1970) appointed vice-chairman of the Congress party in January 2013 and will lead the party's re-election campaign in 2014. He formally entered politics in April
2004, leaving his job as a financial consultant in London and becoming a parliamentary candidate for the northern district of Amethi in Uttar Pradesh. In doing so, he became the fourth
generation of his family to enter politics, following his great-grandfather Jawaharlal Nehru, grandmother Indira Gandhi, and father Rajiv Gandhi. He was practically guaranteed to win a seat that
had been held by successive generations. He was routinely cited as the most likely Congress party candidate for prime minister in 2014, although a disastrous campaign in the Uttar Pradesh
state elections in 2012 did damage his standing. In July 2012, Congress party members announced their support for Gandhi and he said, "I will play a more proactive role in the party and the
government. The decision has been taken, the timing is up to my two bosses the Congress president and the prime minister," leaving him as the leading candidate for 2014. However, a rare
public speech delivered at the Confederation of Indian Industries in April 2013 was seen as rambling and incoherent at times. Although well-meaning in his critiques of modern India, he has
failed to grasp the aspirational attitudes of many young Indians, and has given little indication that he has clear economic policies to guide the country.

Prakash Karat, leader of Communist Party of India (Marxist)


Prakash Karat was elected to the post of party leader of the Communist Party of India (Marxist) in April 2005, although he had been heavily involved in party policymaking for several years.
Karat is staunchly Marxist in his rhetoric, repeatedly criticising the UPA for its reform programme and calling for more policies aimed at helping the position of the "common man". There are
some questions surrounding his policy stance in practice, and Karat conceded shortly before his appointment that his party had effectively become a watchdog on the actions of the
government, rather than enjoying a significant amount of influence over policymaking. However, subsequent actions have shown that the leftist parties have significantly more impact than this,
with major government policy initiatives, particularly those aiming at liberalisation of the Indian market, having been foiled by their opposition. British-educated, Karat has worked as a writer
and publisher, devoting much of his energy to the Marxist cause. His involvement in politics runs deep, and he was arrested twice during the 1970s for protesting against government policy.

Civil society
Overview
Protest movements and civil rights groups are an integral part of Indian political life. Poor levels of governance across large swathes of the country mean there are thousands of these groups,
engaged in issues related to the environment, education, women's rights, worker's rights, protection from police abuses and religious persecution, land entitlement, gay rights and much more.
A particular focus of civil rights activity in recent years has been opposing the rapid and poorly regulated emergence of industrial projects.

State institutions
Constitution
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Constitution
Constitution
Following Indian independence on 15 August 1947, the Constituent Assembly that was elected in 1946 began to deliberate the formation of an independent Indian constitution. With Pakistan
having been created and the Muslim League members no longer part of the assembly, the new Indian constitution was essentially created by members of the Indian National Congress led by
India's first prime minister, Jawaharlal Nehru. Although the American presidential democratic system was considered at length, the Constituent Assembly ultimately chose to continue with the
British parliamentary style of government.
There were two main reasons for this adoption. First, beginning with the Montague-Chelmsford Reforms of 1919 and the passage of the Government of India Act of 1935, India had already
experienced a prototype version of this form of government and much of the basis for a constitution had already been laid down. Second, the American presidential system of democracy was
considered too weak if the executive and legislative branches were controlled by opposing parties. This would prevent the executive branch from acting forcefully during severe crises. Given
Congress party dominance under Nehru and the other nationalist leaders, a Westminster-style parliamentary system, where there is a fusion of the executive and legislative branches of
government, was considered more effective in dealing with the kind of widespread violence that accompanied the partition of India and subsequent war with Pakistan.
The federal arrangements in the Indian constitution were taken from the Canadian model, the financial relationship between the federal and state governments was taken from Australia, the
fundamental rights from the American Bill of Rights, and the Directive Principles of State Policy adapted from the Irish. This new constitution was adopted on 26 January 1950 when India
moved from Dominion Status under the British Crown to an independent republic. Under Nehru's leadership, India chose to remain a member of the British Commonwealth, setting the
precedent for all other emerging independent states from the British Empire to do the same.

Emergency powers
One of the most controversial aspects of the Indian constitution pertains to the 'emergency' powers granted to the central government to deal with problems of both external and internal
security. Such powers are far more extensive than those found in Western democracies. Both domestic and international critics have alleged that these powers have been abused over the
years.
The constitution of India identifies three types of emergency. The first is a 'National Security Emergency' (Article 352), under which the president, acting on the advice of the prime minister,
may proclaim a state of emergency if the "security of India, or any part of its territory is threatened by war, external aggression or armed rebellion". When Article 352 is invoked, Articles 353
and 354 also take effect. They allow the central government to suspend the federal provisions of the constitution and thereby give it direct control over all states and all revenue, in effect
imposing a unitary system of government. The second is a 'Constitutional Emergency in the States' (Article 356) under which the president, acting on the advice of the governor of a state and
the prime minister, may proclaim a state of emergency in that state if he is satisfied that the normal process of government cannot be carried out in accordance with the constitution. The third
type is a 'Financial Emergency' (Article 360), which may be declared by the president, acting on the advice of the prime minister, if the financial or monetary stability or the credit of the country
is threatened.
All of the above proclamations must be approved by parliament. Article 352, on external threats to national security, was invoked by the Congress government of Indira Gandhi during the
year-long Bangladesh separatist movement in 1971, which culminated in the war with Pakistan in December of that year. The same article was invoked, in the name of threats to internal
security, by the Indira Gandhi government when it declared a state of national emergency throughout the country between June 1975 and March 1977. Article 360 has never been used,
although drastic economic measures, such as the banning of all industrial strikes, were adopted during the National Emergency between 1975 and 1977. The state of Jammu and Kashmir has
special autonomy under Article 370, which restricts property ownership by non-Kashmir residents, among other issues. Article 356 has been invoked on numerous occasions in various Indian
states, including Kerala, Assam, Punjab, Bihar, Uttar Pradesh, and Jammu and Kashmir. This article has frequently been invoked when the ruling government of a state was no longer able to
muster the required parliamentary majority in the state legislature. When Article 356 has been imposed, the state is known as being under 'President's Rule'. The state government is taken
over directly by the central government until new elections can be held and a new state government put in place. President's Rule has been imposed more than 100 times since 1950, with
recent examples occurring in Bihar in March 2005 following an inability to form a majority government, Karnataka in November 2007 for six months following political instability, and in
Indian-administered Kashmir in July 2008 when the coalition government lost its majority over the controversial transfer of land to a Hindu trust.
More controversial has been the resort to Article 356 in some Indian states where the state government is deemed unable to cope with a crisis, irrespective of whether it has a parliamentary
majority in the state assembly. This has been problematic in states such as Nagaland, Punjab and Indian-administered Kashmir where separatist movements have been active, or where acts
of terrorism have occurred. Widespread religious, linguistic or ethnic rioting in a state has also led to the suspension of the state government, as in Assam. However, the decision to suspend
the democratic process is not taken lightly, and is scrutinised by the media and opposition. The imposition of President's Rule is temporary and the democratic process is restored once the
crisis is over, or once new state elections have taken place. India's democracy is deep-rooted, and there is currently little probability that domestic political issues could prompt the declaration
of the kind of national emergency seen in 1975.

Executive
The president, as constitutional head of state, is elected for five years by a complex electoral college, comprising MPs from the lower house (Lok Sabha) and state governments, whose votes
are assigned different weightings. The president is largely a figurehead invested with ceremonial duties, including the appointment of the prime minister and, on the latter's recommendation,
other ministers. The president has the power to choose which party to invite to form the government a potentially influential right in times when the vote is divided between minor parties, as
has increasingly been the case. In addition, the president can use public statements to address the nation, and private conversations to advise the prime minister and the government. The
prime minister is the most influential single figure in India's political system. National governments have the right to dissolve state administrations and impose presidential rule.

Legislature
The Indian parliament consists of two houses: the Lok Sabha (House of the People), being the lower house, and the Rajya Sabha (Council of States), the upper house. Members of the Lok
Sabha are elected from constituencies that are roughly divided on the basis of population (about 1.8 million each). As such, the 28 states and seven Union territories are represented in the Lok
Sabha according to the size of their populations (currently it can have a maximum of 552 members, 530 elected members, 20 to represent the union territories and up to two members from the
Anglo-Indian community. The Rajya Sabha consists of 250 seats of which 238 are filled through elections from the states and the union territories. The rest are nominated by the president,
usually acting on the advice of the prime minister and his cabinet. Members of the Rajya Sabha are elected for six years, one third of whom face elections every two years. The Rajya Sabha is
not subject to dissolution and its functions and powers are analogous to the House of Lords in the UK. Members of parliament (MPs) are elected for five years.

Judiciary
At the apex of the judicial system is the Supreme Court, with an independent High Court for each state or group of states. Under the High Courts, there is also a hierarchy of subordinate courts
. Generally, local courts deal with small cases, and pass larger disputes to the higher courts. The Supreme Court has original, appellate, and advisory jurisdictions. The High Courts are at the
head of state judicial systems. Each High Court has powers of superintendence over all courts within its jurisdiction.

Regional and local


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Regional and local


India is a federal state, containing 28 self-governing states and seven union territories. The union government has exclusive powers to draft policy on 97 specified areas, including defence,
foreign affairs and certain areas of trade. Each state has an elected assembly, a chief minister and a governor. Policies that are determined at state level include issues relating to law and
order, education and agriculture. Each state has a governor (appointed by the president for five years), a legislative chamber (elected for five years) and a council of ministers.

External relations
Overview
India's foreign policy has evolved significantly, from one of isolationism to one in which it is increasingly reaching out to the outside world. However, despite India's tangibly growing economic
and diplomatic might, its global role is dwarfed by that of the United States or China. For now, India continues to be reactive, owing to its lack of a cohesive and explicit overarching foreign
policy. This serves to undermine the depth of the country's bilateral and multilateral relations.
The liberalisation of India's economy over the past two decades and its emergence as a major economic power have prompted a significant shift away from the non-alignment policy of the
Nehru era after independence. Until its demise in 1991, the Soviet Union constituted India's main trading partner, source of military supplies and security guarantees, as India sought to seal off
its domestic market from international trade. The end of the Cold War necessitated India to attempt to redefine its strategic autonomy and to diversify its foreign relations. In some areas, the
government continues to claim that its foreign policy continues to be guided by non-alignment principles. India has cited its non-alignment stance to justify its refusal to sign the
Non-Proliferation Treaty (NPT) or the Comprehensive Test Ban Treaty (CTBT). India also continues to stick to self reliance in sectors that it perceives to be critical to national security. However
, as international trade and Indian concerns over future competition for resources have come to the fore, so India's foreign policy has embraced pragmatism and a clearer desire to open up to
the outside world. As such, India has increasingly sought to push for the abolition of export control regimes targetted against the Indian market.
India's new, more open attitude was manifested in the signing of the US-India nuclear co-operation agreement in 2005, which has had far-reaching implications for India's foreign relations. The
resultant waiver from the Nuclear Suppliers Group (NSG) has allowed India to conclude major trade agreements with numerous countries. The bilateral deal formalised the process of
rapprochement with the US, which has been cemented by growing bilateral trade and military co-operation.
India has also become a vital player in multilateral institutions, making its voice heard on issues ranging from climate change, nuclear proliferation, anti-terrorism and anti-piracy efforts. An
active proponent for a reformed UN Security Council, India is seeking to expand membership together with Brazil, Germany and Japan. It wishes for the current 15 members to increase to 25,
including an additional six permanent seats, of which India would be one.
Although India clearly seeks to enhance its global role, it has also placed great emphasis on regional stability. This involves a strategy of seeking to prevent neighbouring countries from acting
as safe havens for insurgents, and to counterbalancing growing Chinese influence in the Indian Ocean. At the same time, India has promoted trade relations between South Asian states,
including with Pakistan. Increasing efforts are also being made to enhance the country's trade relationship with countries in its extended neighbourhood, in particular with Southeast Asia under
India's "Look East" policy, as well as Central Asia and the Gulf region. However, despite moves towards rapprochement with its neighbours in recent years, mutual suspicion of China and
tensions with Pakistan remain fundamentally unchanged aspects of India's foreign policy. The threat from Islamist terrorism, and its links to Pakistan, remains a major concern for the Indian
government.

Bilateral
United States
The collapse of the Soviet Union, followed by the liberalisation of the Indian economy in 1991, led the Indian government towards a re-evaluation of its foreign policy and a closer relationship
with the US and other Western countries. The desire of India and the US to balance China's growing power has also been a major factor. Significant improvements in the relationship reached
a peak in 2005 when India and the US announced a strategic partnership and 10-year defence accord during a visit by then president George W Bush to New Delhi. This also involved a
landmark civil nuclear deal in which the US agreed to supply nuclear technology despite India refusing to sign the Non-Proliferation Treaty. US lobbying secured a unique waiver for India from
the international Nuclear Suppliers Group in 2008.
There are regular high-profile visits between the two countries. India's status was underlined when former prime minister Manmohan Singh was chosen as the first head of state to visit the
White House under President Barack Obama for a formal state dinner. The US continues to view India as a market with tremendous growth potential, and hopes to increase bilateral trade from
its current level of around USD60 billion to USD500 billion per year. In addition, the US hopes to establish the same sort of multi-level co-operation that it has developed with China, with the
added advantage that it views India as a "natural ally" and long-term strategic partner, with shared interests in South Asia and the Asia-Pacific.
However, the relationship has soured recently, with the US business community frustrated by bureaucratic obstacles to investment and increasingly unsure about the strength of the Indian
economy, at least in the short term. Diplomatic differences have emerged over technical issues related to nuclear co-operation and broader conflicting priorities on international affairs. These
differences were thrown into stark relief by a spat over the arrest of an Indian diplomat in New York in late 2013 on charges that she lied on her visa application and underpaid her maid a row
that plunged relations to their lowest ebb in years. The row demonstrated the cultural barriers between the two countries, with the US struggling to understand why India remained so acutely
sensitive to perceived slights against its personnel even when they were accused of a crime.
The accession of Narendra Modi could lead to further difficulties. Modi has been banned from entering the US for years as a result of allegations that he was complicit in the anti-Muslim riots in
Gujarat in 2002. Modi has instead forged ties with Asian countries and he speaks for a branch of the BJP that feels the US should not be allowed undue influence over Indian affairs.

Pragmatic relationship
Prior to the end of the Cold War, India-US relations were mutually wary, with the US concerned about India's non-aligned posture and close partnership with the Soviet Union, and India fearing
excessive US influence in Asia. Over the past two decades, however, relations have improved markedly, prompted by US concerns over the rise of China, the increased strategic importance
of South Asia in relation to the 'war on terror', and the growing stature of India as an emerging economic and diplomatic power. This harmonisation began in earnest under former president
George W Bush, and President Barack Obama has sought to maintain these close ties. However, a series of conflicting priorities have seen some of the goodwill built up under Bush dissipate
under the Democratic administration, with the emergence of a number of bureaucratic obstacles to economic co-operation and differences over policies towards Iran and Afghanistan.
The improved relationship has manifested itself most clearly in trade and defence co-operation. A key moment came in June 2005 when the two countries agreed a 10-year defence accord.
The Bush administration's desire to forge closer ties led it to mute the traditional criticism of India's nuclear programme and stop attempting to interfere in the issue of Kashmir, and concentrate
instead on trade and strategic co-operation. The defence accord opened the door to technology transfers, weapons production and missile defence co-operation. Ultimately, it led to the
landmark decision by the US to lift all remaining sanctions on India's nuclear industry and recognise India as "a responsible state with advanced nuclear technology", providing de facto
recognition of the country as a nuclear weapons state.
The resulting civil nuclear agreement was first introduced as a joint statement between Bush and Singh in July 2005, overturning a 34-year ban on the sale of civilian nuclear technology and
fuel to India in exchange for the country opening 14 of its 22 reactors to international inspection, despite the fact that India is a nuclear weapons power and a non-signatory to the nuclear

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non-proliferation treaty (NPT). It took over three years for the deal to be finalised, with both governments facing strong domestic opposition (US critics opposed the implications for proliferation,
while Indian critics in the Left Bloc opposed close ties with the US and forced a vote of no-confidence which Singh only barely survived). US presidential approval was finally achieved in
October 2008, following the conclusion of a safeguards agreement with the International Atomic Energy Agency (IAEA), a waiver on conducting nuclear commerce from the Nuclear Suppliers
Group (NSG), and US congressional ratification. Ironically, while the NSG waiver has allowed India to sign bilateral agreements on civil nuclear co-operation with a number of countries, any
similar agreement with the US has been stalled by stringent US regulations. An agreement on the reprocessing of nuclear fuel was signed in March 2010, and the Indian Parliament passed the
civil nuclear liabilities bill in August. However, last-minute changes to the latter piece of legislation, which place considerable responsibility on nuclear suppliers, are seen as a potentially
overwhelming obstacle by US companies which regard it as a disadvantage compared to other nuclear supplier groups that are state-owned and therefore better placed to survive the financial
fallout of an accident.
Trade as a whole has also seen a marked improvement, with total bilateral trade growing rapidly from around USD18 billion in 2003 to around USD60 billion in 2013. Bureaucratic obstacles
remain, specifically with regard to a Bilateral Investment Treaty and attempts to liberalise controls on hi-tech imports, both of which have been held up by extensive policy assessments. This
stands in contrast to India's trading relationships elsewhere in the world, which include a large number of newly completed and imminent free-trade agreements.
Although India has greatly expanded its defence ties with the US, it has been keen to maintain a diversity of sources as shown by its surprise decision to remove the US Lockheed Martin F16 from its shortlist for the USD11-billion procurement of 126 new fighter aircraft in 2011. The decision may also have reflected frustration in the Indian Ministry of Defence at US demands to
maintain control of sensitive defence technology after its sale to India the two countries have yet to complete the necessary end-use monitoring agreement and communications and
information security memorandum of agreement. US ambassador Timothy Roemer announced his resignation on the same day as the rejection of the Lockheed/Boeing bids, although he
claimed this was for personal reasons. Nonetheless, despite this setback, in June 2011, India formalised a long-planned agreement to purchase 10 Boeing C-17 Globemaster III strategic
transport aircraft from the US for around USD4.1 billion.

China
India established diplomatic relations with China in 1950, but relations have been continually overshadowed by a range of issues, including India's provision of sanctuary to the Dalai Lama
following his flight from Tibet in 1959, and a border war in 1962 that resulted in a humiliating defeat for India. China's development of nuclear weapons in 1964 fuelled India's desire for the
bomb (along with the 1971 Indo-Pakistan war and its ambition for great power status) leading to the 'peaceful' testing of its own nuclear device in 1974. China's military and economic support
for Pakistan further soured relations with India.
Relations began to soften in the 1990s and early 2000s, with both sides keen to maximise the advantages of co-operation in trade. Trade relations have shown significant improvement as
China has emerged as India's second-largest trading partner, while India is China's tenth-largest trading partner. Nonetheless, mutual suspicions have deterred foreign investment, with Indian
authorities limiting Chinese investment in strategically important industries, such ports and telecommunications. Furthermore, India has voiced frustrations over its widening trade deficit with
China.
There have also been increasing numbers of military exchanges. The two countries held a day of joint naval training exercises in November 2003 and the following March, China's then
minister of defence Cao Gangchuan visited New Delhi and held talks with his counterpart, George Fernandes (who famously once stated that China was India's chief military threat). The talks
led to an agreement to formalise increased bilateral military co-operation and this sentiment continued under the Congress-led government, with the visit of India's then chief of the armed
forces, General Nirmal Chandra Vij to China in December 2004 marking the first such exchange in a decade. By May 2006, both sides formalised their defence relationship through a
memorandum of understanding. There have since been regular exchanges between defence officials and in December 2007, the two countries held their first joint army exercises in Kunming,
China, in December 2007, followed by the 'Hand-in-Hand 2008' joint army exercises in Belgaum, India, in December 2008.
However, the continued failure to resolve border disputes, the asylum given to the Dalai Lama and the growing competition for resources and influence in the region and beyond continue to
provide a framework of competition, which sporadically flares into acrimonious exchanges. A particular source of concern for India is China's close relationship with Pakistan. In April 2010,
China announced that it would build two nuclear reactors in Pakistan. In August 2010, news spread that a large contingent of the People's Liberation Army (PLA) reportedly between 3,000
and 5,000 strong was stationed in the disputed Gilgit-Baltistan region of Pakistan-controlled Kashmir in order to construct roads and railways to the port in Gwadar. This coincided with China
refusing to grant a visa to Lieutenant General B S Jaswal, head of India's Northern Command, ostensibly because he oversees Kashmir. He was therefore unable to visit China for defence
talks and, while India was quick to emphasise that this would not derail the programme of exchanges, these issues are seen as reflecting a general deterioration in relations and the adoption
of a more provocative stance by China.

Strategic encirclement
The Indian security establishment often refers to China's development of ports at Gwadar in Pakistan, Hambantota in Sri Lanka, Chittagong in Bangladesh and Sittwe in Myanmar as a form of
strategic encirclement. The term 'string of pearls' originated from a US Department of Defense report in 2004 and has gained a lot of currency among those suspicious of China's long-term
intentions. However, analysis of satellite imagery by IHS Jane's suggests these 'pearls' fall well short of permanent bases and are more likely to be used for refuelling and repairing
ocean-going vessels as China seeks to expand and protect its maritime trade routes. A key reason for China being selected to upgrade and construct ports in the region is the superiority of its
naval construction capabilities, coupled with its willingness to extend its soft power through financial incentives.
However, Sino-Indian naval rivalry remains fierce. The Indian Navy wants a presence in the eastern South China Sea to counter China's growing influence in the Indian Ocean, off the coast of
Myanmar and on Pakistan's western seaboard, where it has developed the Gwadar port, which provides access to The Gulf. The scope of India's maritime territorial jurisdiction, which extends
from the Lakshwadeep Islands in the Arabian Sea to the Andaman and Nicobar Islands in the Bay of Bengal, makes some degree of tension with China inevitable. China lodged its opposition
to the September 2007 naval exercised dubbed 'Malabar 07-02', the 13th iteration in the ongoing US-India 'Malabar' series of naval exercises. The exercise in September 2007 was significant
as it was extended to include warships from Australia, Japan and Singapore the US's closest allies in Asia. In July 2011, a Chinese warship reportedly warned an Indian naval vessel, the
INS Airavat , shortly after it left a Vietnamese port, that it was trespassing in Chinese waters. Two months later, the Chinese Ministry of Foreign Affairs described plans by Indian energy
companies to explore for hydrocarbons off the coast of Vietnam as "an infringement upon China's sovereignty and national interest". The tension was exacerbated by news that India and
Russia would jointly supply the BrahMos missile system to Vietnam, possibly providing a counter to China's increasing naval strength.
In recent years, China has gradually sought to make itself a third party in the dispute over Kashmir, having largely stayed away from the issue from the 1970s onwards. This approach has
manifested itself in subtle ways, such as China's decision in 2009 to issue stapled visas to Indian Kashmiris suggesting the region is not an integral part of India. In August 2010, China
refused a visa to Lieutenant General B S Jaswal, who was due to visit Beijing for defence talks, because he commands the northern region comprising Kashmir, leading to a suspension of
military ties that was not lifted until the following June, when an Indian defence delegation conducted a week-long visit to China. Reports emerged in September 2010 that China had stationed
several thousand troops in Gilgit-Baltistan, part of Pakistan-controlled Kashmir, to oversee the building of transport links from China to the port at Gwadar. India is also concerned by Chinese
plans to provide Pakistan with two nuclear reactors, a move which is seen as a test for the international community in the wake of the waiver granted to India for its own civil nuclear
development programme.
China's large-scale investment in transport links into and within Tibet, and between Xinjiang and Tibet and Yunnan and Tibet, up to the border with India, may be seen as a further effort on the
land frontier. Indian sources believe China has stationed at least 25 nuclear-tipped, medium-range ballistic missiles in Tibet. This has been accompanied by constant probing of the 'line of
actual control', via unscheduled border crossings by military units of the People's Liberation Army (PLA), in a manner designed to test Indian border intelligence and psychology. Some
observers have argued that frequent border incursions in remote areas may be designed to collect taxes and carry out land surveys in preparation for claims of ownership.

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For its part, China fears a US-India entente, with tacit Russian acceptance (via Russian ties to NATO and large-scale Russian arms sales to India, a longer-standing and more reliable
customer than China). This would exacerbate China's perception of being surrounded by US allies to its east in the form of Japan, South Korea and Taiwan to its east. China's avowed interest
in joining regional fora such as the South Asian Association for Regional Co-operation (SAARC) and the Mekong-Ganga (Ganges) Co-operation (MGC) group should be seen as the public
face of its hopes of extending influence regionally. The MGC is India's creation.
Indian diplomacy with ASEAN states such as Thailand, Malaysia, Vietnam, Cambodia and Myanmar, intended to outflank China, has so far proven relatively unsuccessful in comparison to
China's positive engagement with the region. However, India's progress in expanding co-operation with the US has been notable, especially since the attacks of 11 September 2001, with the
US keen to use New Delhi as a strategic counterweight to Beijing. This has included an expanded Indian blue-water naval presence in the areas in which China is seeking to expand its reach
in the near term. Joint US-Indian naval patrols up to the Strait of Malacca (the world's busiest shipping lane, through which the amount of crude oil transported each day is equivalent to the
daily US import demand) have increased to over 150 annually, compared with 25 in 1998 as a whole. China is also conscious of the growth in Indo-US trade in civil nuclear technology,
defence hardware and hi-tech equipment. The revelation in January 2009 that Washington had been in preliminary talks with New Delhi for two years about the possibility of providing ballistic
missile defence facilities left China worried at the US military's strengthening relations with its regional proxy.

Trade rivalry
China and India's strong economic growth may itself lead to rivalry. There is a very real prospect that two of the fastest growing economies in the world that account for over a third of the
global population will become true economic rivals by 2020. Over the shorter term this may be beneficial. Although Indian economic growth focuses on computers and information technology,
the Chinese economy emphasises manufacturing. India could grow into a major market for Chinese consumer goods, while Chinese resource shortages, especially food, could be filled by
Indian exports. Over the longer term, though, competition may intensify and become detrimental for either country. Already, since the end of Multi-fibre Agreement quotas at the beginning of
2005, Indian textile exports have been unable to compete with equivalent Chinese products.
Another concern for India has been the growing trade deficit with China, which stood at USD16 billion in 2009. Moreover, a large proportion of bilateral trade consists of raw materials going to
China and returning as finished products, which India fears is undercutting its small and medium-sized businesses. The two countries held trade talks in January 2010, during which Chinese
Premier Wen Jiabao pledged to work towards a more equitable trading relationship. China vowed to reduce restrictions on food, information technology and Bollywood films. However, these
promising signs were somewhat undermined in May 2010 when India banned the import of Chinese telecommunication network equipment over fears that it may compromise security.
An area of increasing competition is energy. Although a framework for joint energy bidding, exploration and development was signed in January 2006, it is possible that over the longer term
the energy needs of the two powers may grow to the point where the international market becomes very short. The two countries rely in part on the same fuel suppliers, particularly African,
Iranian, Russian and Central Asia sources. India and China could therefore find themselves competing intensely to secure overseas energy sources in order to ensure continued dynamic
economic growth. It is also likely that they will be more likely than other countries to acquire energy resources from international pariah states, thus contravening attempts at sanctions and
multilateral engagement from organisations such as the UN or ASEAN.

Border disputes
Beyond the long-running Indo-Pakistan disagreements, India is also currently in dispute with China over several areas along their respective boundaries. The two countries fought a bitter
border war in 1962 and, although direct military confrontation is now unlikely due to years of gradual rapprochement, frequent incursions across the line of actual control (LAC) and sporadic
minor clashes will continue.
The Sino-Indian border dispute was de facto resolved by the 1994 Sino-Indian Peace and Tranquillity Agreement, whereby both sides accepted the LAC that prevailed following the termination
of hostilities in December 1962. This agreement was somewhat contradicted by the fact that China has refused to accept Arunachal Pradesh (formerly the North East Frontier Agency or NEFA
) as part of India. India has also yet to recognise Chinese sovereignty over the Aksai Chin plateau, which China occupies.
There have been signs of rapprochement in recent years, such as the joint agreement in June 2003 whereby India recognised Chinese sovereignty over the Tibet Autonomous Region, and
China recognised that of India over Sikkim. This was followed in April 2005 with a joint declaration by Singh and Chinese Premier Wen Jiabao to resolve all border disputes. However, an
increasingly hostile attitude from China over Kashmir and its close relationship with Pakistan have forced India to take a more defiant stance. Wen Jiabao received a significantly frostier
reception during his next visit to New Delhi, in December 2010, with India declining to include its explicit recognition of Chinese sovereignty over Tibet, and there were claims from Indian army
officials that China had stationed troops along the Pakistani side of the line of control (LoC), although these claims were vigorously denied by Beijing.
Fifteen rounds of border talks have failed to yield any concrete signs of progress, with the two countries yet to even exchange maps. Frequent diplomatic disputes have frustrated progress.
The 15th round of border talks was postponed in November 2011 after China objected to an appearance by the Dalai Lama in New Delhi. India accuses China of frequent border incursions
and of spreading its influence and Chinese passports in remote parts of the contested territory.
Heavy militarisation is occurring on both sides of the border. A report by the US Pentagon in August 2010 stated that China had escalated its deterrent along the border, replacing "older
liquid-fuelled, nuclear capable CSS-3 intermediate-range ballistic missiles with more advanced and survivable solid-fuelled CSS-5 MRBMs [medium-range ballistic missiles] and may be
developing contingency plans to move airborne troops into the region". In late 2011, India announced the induction of 90,000 new soldiers into the army over the next five years the largest
one-time expansion in the country's history from which four new divisions will be stationed along the Chinese border. The USD13-billion military modernisation programme will include an
overhaul and upgrade of the army's fire-power, logistical capabilities and other aspects of the border deployment. A regiment of Brahmos cruise missiles the range of which is 290 km will
be deployed along the border in Arunachal Pradesh, giving India reach into the Tibet Autonomous Region.
India and Pakistan agreed on a border mechanism during the 15th round of border talks in January 2012. According to the agreement, the mechanism seeks to deal with situations "that arise
in the border areas that affect the maintenance of peace and tranquillity and will work actively towards maintaining the friendly atmosphere between the two countries". Although doing little to
facilitate a settlement of the disputes, the agreement is a positive development that should provide a further degree of stability for the two countries' trade relationship, which has continued to
grow over the past few years.
Indeed, the border issue is of less importance than other aspects of the relationship, and is only used as a way to exercise influence in relation to more pressing concerns.

Asia-Pacific
Relations with Afghanistan
Broadly, India has two principal foreign policy objectives when dealing with Afghanistan to counter any Pakistani expansion into West Asia, and to use Afghanistan as an access route to
Central Asia where it sees opportunity for political, economic and military growth. India has sought to establish a comprehensive diplomatic presence in Afghanistan. It now has an embassy in
the Afghan capital of Kabul (opened in December 2002), consulates in Jalalabad and Kandahar and representative offices in Mazar-e-Sharif and Herat.
Since the downfall of the Taliban regime in late 2001, India has positioned itself as a major patron of Afghanistan in its reconstruction efforts. India is the sixth-largest bilateral aid donor to
Afghanistan, having allocated an estimated USD1.3 billion for projects covering hydroelectricity, power transmission, road construction, agriculture, industry, telecommunications, education,
and health. Notable examples include the construction of the USD50-million parliament building in Kabul, and the USD80-million Salma Dam in the western province of Herat. In May 2009,
Indian-made transmission cables and a sub-station brought 24-hour electricity to Kabul for the first time in 17 years.

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However, Indians working in Afghanistan have increasingly become the target of militant attacks. An Indian national was abducted and killed in December 2005 while working on a road
between Kandahar and the Iranian border, three Indians were injured in a shooting in Helmand province in February 2006 when working on a Lashkar Gah-Herat road, and, in April 2008, two
Indian engineers were killed and five others injured while working on a project in Khasrod district (southwest Afghanistan). The most deadly attack on Indian interests occurred in July 2008
when a suicide bomber struck the Indian embassy in Kabul, killing over 40 people and injuring another 140. In October 2009, the embassy was attacked again. The bombers failed to penetrate
the external wall, but killed 17 police officers. Suicide attacks on hotels in Kabul in February 2010 were also seen as targetting Indian nationals, and forced a temporary suspension of Indian
medical programmes in the city.
Although India vowed to continue to provide support following each of these incidents, it finds its position increasingly under threat from the broader narrative of the war. An international
summit on the future of Afghanistan held in London in January 2010 saw India effectively sidelined as the US and its allies began preparing the political ground for negotiations with the Taliban
, a strategy India vehemently opposed. With the US increasingly desperate to outline an exit strategy, Washington has been overtly courting Pakistan's military establishment in order to secure
its co-operation. The price of that co-operation is widely understood to hinge on a curtailing of Indian influence in Afghanistan. At the same time, India strongly suspects the involvement of
Pakistan's military establishment in the attacks on its citizens in Kabul and the rest of the country.
India's decade of support for the Afghan government has culminated in a strategic pact between the countries, which was signed during a visit of Afghan president Hamid Karzai to New Delhi
on 4 October 2011. The pact, which established a security dialogue between the two countries' national security advisers, was viewed by Pakistan's military strategists as a provocation
orchestrated by two unfriendly states, as both India and Afghanistan accuse Pakistan of conspiring with insurgent groups. It has also led to reports that India will train up 30,000 Afghan
National Army troops at training centres across India over the coming years, which is likely to lead to further objections from Pakistan.

Relations with Bangladesh


Bangladesh has had close but often fractious relations with its neighbour to the west, and often India has been seen as the main external security threat. The current Awami League (AL)
government has sought to rebuild ties with India, which had deteriorated under the last elected government of the Bangladesh National Party (BNP, 2001-06). There are ongoing disputes over
boundaries, water and energy resources and cross-border terrorism, but significant progress has been made recently towards resolving these issues. A visit by Prime Minister Sheikh Hasina
Wajed to New Delhi in January 2010 was considered a landmark restoration of ties, with five agreements signed on security co-operation, transnational crime, power, transit and financial
assistance. India formalised a low-interest loan of USD1 billion in August 2010, which is the largest loan it has given to any country and the largest received by Bangladesh. From opposition,
the BNP has continued to foster an anti-India sentiment, and has called the USD1 billion loan "a symbol of slavery". During former Indian prime minister Manmohan Singh's visit to Bangladesh
on 6-7 September 2011 the two sides signed a historic agreement that settled a long-standing border dispute.

Border dispute
A landmark border agreement signed in September 2011 promises to end the bitter dispute over the poorly demarcated, 4,000 km border, which has been a source of ongoing low-level
tensions since Bangladesh achieved independence in 1971. Around 6.5 km of the border was never agreed upon, leaving 111 enclaves of Indian territory in Bangladesh, and 51 enclaves of
Bangladeshi territory in India. In all, these areas contain around 200,000 people, and have often been the scenes of violence, such as the killing and mutilation of 15 Indian Border Security
Force personnel in 2001. It was agreed that these areas would be exchanged and a final border settled, based on a census carried out earlier in the year.

Water disputes
Water has been a major source of contention between the two countries. Bangladesh is highly reliant on more than 200 rivers, 54 of which flow from India. The Brahmaputra and the Ganges
alone provide 85% of the country's freshwater flow in the dry period. As such, Indian plans to re-route river systems upstream were of serious concern to Bangladesh. These date back to
India's decision in the 1960s to build the Farrakha Barrage on the Ganges to control flooding affecting the port of Kolkata on the Hooghly river. The problem of drought in India, particularly
affecting its all-important agricultural states, has renewed the debate. After a particularly serious drought in 2002, a large-scale water diversion plan was formulated that would see a number of
rivers, including the Ganges and Brahmaputra, diverted to aid stricken states, despite repeated protests from Bangladesh about the potential effect on its own citizens.
There are signs of progress as part of the wider rapprochement between the two countries. Both sides are keen to iron out details of a water-sharing treaty for the Tista river, which was first
agreed in September 2004. The Tista river enters Bangladesh in the north from India, and Dhaka wants an equal share of its waters. India wants the sharing to be based proportionately on the
areas under Indian and Bangladeshi Tista barrages, a view Bangladesh has rejected. There are also plans to carry out hydrographic surveys of all shared rivers in the hope that the Tista treaty
will act as a model for future negotiations. Draft versions of the accord were exchanged during a meeting of the Joint River Commission in March 2010, which both sides agreed to sign within a
year. However, the two sides failed to sign a water sharing agreement during Singh's visit in September 2011, thanks in part to objections from West Bengal Chief Minister Mamata Banerjee,
who said her state would suffer as a result of the proposed deal.

Natural gas dispute


A separate resource issue is that of natural gas, with India needing to meet its rapidly growing energy demands looking toward Bangladeshi reserves. Although international donors have
repeatedly called on Bangladesh to sell some of its supplies as a ready means of funding the budget, nationalistic sentiment has undermined this argument, with any government that has
contemplated the matter being criticised for acquiescing to India's demands. The bilateral situation showed some measure of progress in 2004, when India actively began to seek other
suppliers. Fearing that Bangladesh could lose a potentially vital source of revenue, the government altered its policy and in February 2005 India conducted joint talks with Bangladesh and
Myanmar leading to a nominal agreement to pursue a pipeline project, prompting a feasibility study. A setback came in September 2005 when talks between Bangladesh and India failed to
result in an agreement on the tri-nation pipeline, while a Sino-Myanmar agreement in December 2005 for the sale of natural gas from the same offshore block, intended for exploitation by India
, was effectively postponed and increased the cost of the pipeline project. Since May 2006, India appears to have shelved the project with reports emerging that it had found a route that would
bypass Bangladesh, arguing the transport costs proposed by the country were too high.
Ongoing disputes remain over the demarcation of maritime borders, which are significant because the lack of resolution is preventing exploration of the area for oil and gas. Tensions were
raised in November 2008 when Bangladesh apportioned the disputed zone into 28 blocks for auctioning and then awarded three of the blocks to US-based ConocoPhillips and Ireland's Tullow
Oil for natural gas exploration. Both India and Myanmar claimed that the blocks awarded crossed into their zones. In October 2009, Prime Minister Sheikh Hasina Wajed applied to the UN
Convention on the Law of the Sea to arbitrate but remained committed to negotiations.

Illegal migration
The large-scale illegal migration of Bangladeshis across porous borders with India into Assam and West Bengal provides the state with an apparently intractable security problem. These
population shifts, which the Indian government estimates at 100,000 people per month, largely arise from conditions of poverty and unemployment in Bangladesh. The immigration issue
assumes strong political overtones, both in the directly affected northeastern states, and on a national level. The marked change in Assam and West Bengal's demography in favour of Bengali
immigrants has helped to embolden ultra-Hindu organisations in their anti-minority campaigns across India. According to the 2001 census data, the six districts of Assam where migrants have
traditionally settled are now populated by Muslim majorities. These are Dhubri (74.3% Muslim), Goalpara (53.7%), Barpeta (59.4%), Nagaon (50.1%), Karimganj (52.3%) and Hailakandi (
57.6%). Such major demographic change has, over the years, bred significant resentment and fear among indigenous Assamese. New Delhi has become increasingly concerned about the
possible Islamisation of the state.
In January 2003, the magnitude of the immigrant problem was brought to the attention of the Indian public when the government threatened that it would deport some 20 million Bangladeshis
thought to be illegally residing within Indian borders. In the event, little action took place that year. Instead, the government appeared to change tack, announcing moves to introduce an identity
card scheme in affected areas. A number of states agreed to the measures, including Assam and West Bengal, but at the federal level, the issue has subsided since Congress came to power

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in 2004. That said, however, the government appears content to continue with a programme to fence much of the 4,095 km border with Bangladesh in an attempt to cut illegal immigration. The
construction of the fence has created greater tension with Dhaka and occasional cross-border exchanges of fire. At the same time, in April 2008, the passenger train service between the
Bangladeshi capital, Dhaka, and India's eastern city of Kolkata (West Bengal) was restarted after a 40-year hiatus. The service came to a halt in 1965 when India and Pakistan went to war.
Bangladesh has denied the presence of such substantial numbers of illegal nationals in India. Its foreign minister stated that all of the 10 million Bangladeshis who had taken refuge in India
during the 1971-1972 war of independence had returned to their homeland and there have been no subsequent migrations to India. The identification of Bangladeshis as distinct from Indians
will be particularly difficult in West Bengal, where common linguistic, cultural and social standards exist.

Relations with Bhutan


India is Bhutan's most important ally, exerting considerable influence over all aspects of policy. These strong relations have their grounding in the 1949 Treaty of Friendship, which placed the
onus on Bhutan to consult India before making any major policy decisions. This was amended in February 2007 to update the document, setting relations on a new, but still strong, footing.
Bhutan's transition from an absolute to a constitutional monarchy during 2008 has not significantly altered the country's relations with India although this has sparked concerns in India that
Bhutan could follow in the footsteps of neighbouring Nepal, where the democratic process has fuelled the Nepali government's growing engagement with China.
The one factor that for years blighted otherwise harmonious relations was the high number of Indian rebels operating out of bases in Bhutan. Pressure finally came to bear however, with
Bhutan launching a military offensive against the rebels in December 2003 and January 2004. This was widely held to have eradicated the local problem, with the rebels switching to site their
camps in Bangladesh and Myanmar although in 2006, and again in 2009, reports emerged that separatists had moved back into the border areas, prompting fresh pledges from Bhutan to
address the issue. In late June 2009, Bhutan reassured visiting Foreign Minister of India, S M Krishna, that separatists of the United Liberation Front of Assam (ULFA) were no longer active in
Bhutan.

Relations with Myanmar


After years of supporting Myanmar's pro-democracy forces in the early 1990s, India altered track and began offering both diplomatic support and weapons to the military regime from the
middle of the decade. India's primary concern was the increasing influence of China in the country, particularly in relation to Myanmar's lucrative energy resources. India also hoped that a
closer relationship would lead to some support from Myanmar in tackling insurgents in its northeast, many of whom have found sanctuary in the border regions. However, India has received
very little support from Myanmar on counter-insurgency (see below). Nor have warming relations led to India gaining an advantage over China in terms of energy contracts. In 2007, Myanmar
cancelled the Gas Authority of India (GAIL)'s contract for two major gas blocks off the Rakine coast and gave them to PetroChina. India's annual trade at USD1.37 billion in 2011-12 is a
fraction of the Myanmar's USD4.4 billion worth of trade with China. In 2011, India was only the thirteenth biggest investor in Myanmar, with USD189 million pledged.
Despite this, India has continued to opt for a soft approach to Myanmar, refusing to support UN sanctions against the regime in 2007 after it cracked down brutally on pro-democracy protests
in August-September 2007. Instead, India has been keen to cultivate Myanmar as a natural route into Association of Southeast Asian Nations (ASEAN) markets under its "Look East" policy,
investing in infrastructure in the border areas, especially rail and ports.
India feels that the partial liberalisation of Myanmar's politics in the wake of elections in October 2010 and the accession of a nominally civilian government under former general Thein Sein are
a vindication of its policies in preceding years. Sein was welcomed to New Delhi in October 2011, with the offer of a USD500 million for credit line for infrastructure projects, and a number of
agreements on trade, the construction of natural gas pipelines and hydrocarbon exploration. A further 12 agreements were signed during a visit to Naypyidaw by former Indian prime minister
Manmohan Singh in May 2012, covering an array of issues including security, development of border areas, a trade and investment pact and transport links.

Military co-operation
India's hopes of increased co-operation against insurgent groups from its northeast have met with limited success. An attempted joint military operation, nicknamed Golden Bird, in 1995
against a mixed group of 200 northeast insurgents collapsed when Myanmar's military pulled out of the operation at the last minute. In November 2001, the Myanman military, the Tatmadaw,
raided four Manipuri insurgent bases in its territory, leading to the arrest of 192 rebels, including UNLF chief Rajkumar Meghen. However, all the insurgents were subsequently released, for
reasons that were never fully explained. In January 2004, Myanmar's troops began operations against the Khaplang faction in an attempt to expel them from the area. Several months later in
October, the Indian government again pressed for action to be taken following a series of rebel attacks in Assam and Nagaland, and Myanmar launched another winter offensive in December
against the insurgents. Military operations by India in June 2005 led to military claims that almost 200 Myanmar militants had been expelled from bases in the northeast of Mizoram, forcing
them back across the border, while yet another annual offensive by Myanmar in December 2005 reportedly led to the deaths of between 20 and 50 Naga separatists, although conflicting
reports between Indian security and defence sources belied the veracity of these claims. In early 2007, military operations against Indian separatists operating out of the border area with
Myanmar resumed and in February 2007, the Tatmadaw claimed a key victory, revealing that a key NSCN-K (National Socialist Council of Nagaland Khaplang) rebel base had been taken in
Chuiyang Noknu (Sagaing Division). Further military offensives against the group were undertaken in November 2009. Paresh Baruah, commander in chief of the United Liberation Front of
Assam (ULFA), is also believed to be in hiding in Myanmar.
These limited successes came despite considerable efforts to establish close military-to-military relations by India. India's then-chief of air staff Air Chief Marshal S Krishnaswamy visited
Yangon in November 2004 and agreed to an upgrade programme of Myanmar's 10 MiG29-B/UB fighter aircraft. In January 2006 India's Chief of Naval Staff Admiral Arun Prakash finalised an
agreement for the transfer of an unspecified number of outdated Indian BN-2 'Defender' maritime surveillance aircraft and deck-based air defence guns in the first significant arms deal
between the two countries. Earlier in the month, Myanmar deployed a missile corvette to multilateral naval exercises ('Milan 2006') hosted by India in Port Blair in the Andaman Islands, the first
Myanmar deployment to multilateral exercises in four decades. Following border talks in September 2006, reports emerged the following month suggesting that the Indian authorities had
begun transferring significant quantities of military hardware to Myanmar. Reports suggested that this included two BN-2 Defender Islander maritime surveillance aircraft with air defence guns,
105mm Indian field guns, T-55 tanks, surveillance equipment, armoured personnel carriers, light helicopters and mortars. In July 2007, India was accused of undermining EU sanctions against
Myanmar when it agreed to sell its Advanced Light Helicopter (ALH) to Myanmar as part of a military deal.
Then Indian Army Chief V K Singh carried out a five-day visit to Myanmar in January 2012 aimed at boosting neighbourly military ties and to try and dilute China's considerable influence.
During his trip General Singh met senior military and political leaders, visited the National Defence and Command, General Staff College and the North Western Command headquarters and
offered to increase opportunities for Myanman military cadets at India's tri-service National Defence Academy in Khadakvasla. Indian officials said Myanmar had not yet responded to General
Singh's offer but were keen to have army personnel attend the Counter Insurgency Jungle Warfare School in Mizoram province, which borders Myanmar.

Relations with Nepal


Cross-border crime, including smuggling of fake Indian currency, human trafficking, and arms smuggling have been major sources of contention between India and Nepal, compounded by a
lack of sufficient security arrangements along the porous 1,700-kilometre border shared by the two countries. Generally, India has long wielded a strong influence over Nepal, but
notwithstanding the 1950 Indo-Nepal Peace and Friendship Treaty, Nepal has traditionally shown some resistance to India's dominance, despite the fact that it remains heavily dependent on
its giant neighbour, especially on trade. Although Nepal's previous Maoist administration sought to reduce India's influence in domestic Nepalese affairs, the following coalition government
again advocated stronger relations with India. Strengthening bilateral relations were showcased when, in July 2009, India announced the resumption of weapons sales, which were stopped
following former King Gyanendra's ascension to power in 2005. Furthermore, a new version of the India-Nepal Treaty of Trade and Agreement on Co-operation to Control Unauthorised Trade,
which entails a number of favourable conditions for Nepal, was signed in October 2009. In October 2011, the two signed the Bilateral Investment Promotion and Protection Agreement. With a
new government currently mired in a prolonged formation process, it is uncertain how bilateral relations will develop in the short term.

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Regardless of the political situation, financial ties ensure that Nepal will remain heavily dependent upon India for the foreseeable future. More than 60% of Nepal's trade is with India, and the
trade deficit has steadily increased in recent years up 58.6% year-on-year between 2009 and 2010 and 28.4% the following year. The announcement of a USD1.7 million health aid package
in December 2010 was the latest in a series of financial assistance packages.

Historical relations: the monarchical coup


A rapid change in relations occurred in February 2005 following King Gyanendra's takeover of power, during which he assumed direct executive power and dismissed his appointed
government. As Nepal's most influential neighbour, the international community has pressed India to take appropriate action to censure the king. New Delhi quickly signalled its displeasure
with the situation, as former prime minister Singh announced shortly after the takeover that he was not attending the SAARC summit because of 'regional instability'. Gyanendra had evidently
hoped that his attendance at the meeting would have guaranteed him immediate international acceptance, but this move was swiftly thwarted. This stood in contrast to India's muted response
in October 2002 when King Gyanendra dismissed the caretaker government and appointed his own administration.
India subsequently announced a withdrawal of all military assistance, which alarmed Kathmandu owing to its heavy reliance on overseas support, particularly its main supplier India, to
maintain the Royal Nepalese Army. Gyanendra responded with a threat to turn to China and Pakistan for the country's military hardware needs, and warned that any moves by the international
community to cut back aid would give the Maoists an advantage in the insurgency. This was followed in March 2005 with a visit by China's foreign minister to Nepal. The Indian government
was reportedly concerned at the downturn in relations with Nepal, prompting Singh to conduct talks with Gyanendra along the sidelines of the Asia-Africa Summit, which was held in Indonesia
at the end of April. Although the Indian government expressed concerns about continued political detentions and reported abuses, Gyanendra looked to have done enough to satisfy the
international community that he had a reform strategy. As such, India resumed its supply of non-lethal military equipment in July, after prompting from Kathmandu. As a mark of changing
circumstances, in December 2007, the Indian Army re-established its relations with its Nepalese counterpart. The Indian president bestowed the title of Honorary Chief of Army Staff on the
NA's Chief-General Rookmangud Katuwal, possibly highlighting a return to the historically good relations between the two forces.
Ultimately India was instrumental in pressing Gyanendra to relinquish his hold on power in April 2006. New Delhi's criticism, and notably its move away from the 'twin pillars of democracy'
concept that had shaped its attitude towards Nepal's monarchy and political sphere, sent a strong message of disapproval of Gyanendra's actions. Following the change in government, India
played a significant but low-key role in supporting the peace process and shaping the political reform agenda. Alongside this, India has been concerned about the outbreak of ethnic unrest in
Nepal's southern Terai region bordering India. To this end, it has pressed Nepal to better handle the problem, and also attempted to address the criminality that has increased as a result of the
unrest.

Relations with Pakistan


Decolonisation of Britain's 'jewel in the crown' was a process plagued with contentious difficulties and set the stage for India's future external conflicts and relations. The partition of the
subcontinent into two political entities in 1947, one with a Muslim majority and one with a Hindu majority, comprised three geographical areas, with Pakistan in two halves separated by the
much larger India. What followed was one of the largest migrations in modern history, with millions of Muslims moving across the new border into West and East Pakistan, and concurrently,
millions of their Hindu and Sikh counterparts flooding into India. It was not a harmonious interchange, with estimates of the numbers killed in the resultant communal violence ranging from
250,000 to five million. Out of the trauma of partition emerged two extremely divergent neighbours a constitutionally secular India and an Islamic republic of Pakistan. The division also
resulted in public disaffection, governmental mistrust, and national antagonism.
The nature of India's and Pakistan's creation as independent states has had a tremendous impact on their subsequent attitudes and behaviour towards each other. The two countries have
fought three full-scale wars (1947, 1965 and 1971) and one limited conflict (Kargil in 1999). There have been two periods when a conflict appeared imminent (in 1987 following the ill-planned
Indian Operation 'Brasstacks', and in 2002 following an attack by terrorists on India's parliament). Historically, the issue at the heart of the antagonism is the status of the disputed territory of
Kashmir, but cross-border terrorism, disputes over resources and the weight of a traumatic shared history are also crucial to understanding the complex relationship.
Armed conflict remains a distant possibility at the moment. Both India and Pakistan are well aware that war would not advance the agenda of either government, although it might bring
short-term populist rewards. Any "surgical" strike by India would almost certainly prompt Pakistan to retaliate with its own offensive. Any conflict would have the potential to escalate quickly,
especially if Pakistan felt itself to be cornered, and there is no guarantee that nuclear weapons would not be used, even though both countries espouse the policy of 'no first use'. Beyond this,
it is feared that in the light of continuing tensions, the two sides will enter into an arms race. India has traditionally been and remains the dominant of the two countries, in terms of size,
military capability and economic might. Pakistan has sought to redress the balance with high levels of defence spending, and by improving ties with India's other strategic rivals, such as China.

Kashmir
The main issue in Indo-Pakistan relations is the ongoing dispute over the Muslim-majority former princely state of Kashmir. In the 19471948 war immediately following partition, India retained
the eastern two-thirds of the state (including the prized Kashmir Valley), while Pakistan seized the western third. Despite three wars in 1947, 1965 and 1971, and limited conflict in 1999, the
territorial status of Kashmir remains unchanged.
Kashmir itself is prone to regional differences as the state is essentially three separate areas, all with their own distinctive cultural identities. This tends to be forgotten in light of the fact that the
primary military and diplomatic dispute focuses on the Kashmir Valley (which is 92% Muslim). A majority of citizens in Pakistan-administered Kashmir want full independence (87%, according
to a survey in 2007), but a sizeable number would prefer to become integrated within Pakistan. In the Hindu-dominated area of Jammu, 95% of those polled supported rule by India. In addition
, more Indians than Pakistanis felt that their respective nation should have control of the disputed region (67% as opposed to 48%). However, a large proportion from both countries supported
the idea of self-determination.
Former prime minister Manmohan Singh had stated that any progress on the Kashmir issue will not include any redrawing of India's borders, but the Indian government has dropped its initial
demands to use the 1972 Simla Agreement (which effectively called for the LoC to be made the international boundary), to which the Pakistanis had outright rejected, as a basis for dialogue.
Sporadic exchanges across the line of control (LoC), which the Indian Army claims are attempts to cover the infiltration of Pakistani militants into India, have been a continuous feature that
mars the ability of either side to make real gains in the peace process. According to Indian reports cross border incidents have increased significantly over last half decade, reaching a high in
2012. This has recently become a major issue with the the deaths of five soldiers, two Indians and in retaliation three Pakistani, along the LoC in January 2013. The centre of the
controversy has centred around the beheading of one Indian soldier that has caused uproar in the Indian media and political scene. Both sides deny official responsibility and Pakistan has
raised previous incidents where Indian soldiers reputedly beheaded Pakistani soldiers. Although Pakistani officials have been reconciliatory and offered talks, tensions remain high. Despite
being unlikely to further escalate, the rhetoric from Indian sources has been a step above its usual level, with the head of the army General Bikram Singh saying "we will retaliate at the time
and place of our choosing".

Peace process
Regular attempts have been made to reach an agreement, both on Kashmir and other issues, but they have been thwarted by either unwillingness to compromise, changes of political parties
in power, or the intervention of domestic groups (both peaceful and violent) to undermine any confidence-building measures. Despite the longevity of hostility between India and Pakistan, the
general public of both countries quickly build up expectations when relations thaw, often leading to disappointment and bitterness when they fail.
The 1972 Simla (now Shimla) Accord, signed between Prime Ministers Zulfiqar Ali Bhutto and Indira Gandhi, reduced regional tensions by noting the existence of the Kashmir dispute and
stipulating that the two sides would respect the LoC. Both sides also committed themselves to solving the dispute 'by peaceful means through bilateral negotiations'.

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In 1999 further attempts were made to resolve differences, when the then-Indian prime minister Atal Bihari Vajpayee accepted an invitation from his Pakistani counterpart Nawaz Sharif to
attend a peace summit in Lahore in the February. The visits were an unprecedented public relations success, with an eight-point resolution reached at the end of the meeting (the Lahore
Declaration). The agreement included a pledge to 'refrain from intervention in each other's internal affairs'.
Following Musharraf's assumption of power, both sides frequently outlined a desire to hold talks aimed at ceasing violence along the LoC. However, the first serious attempt to accomplish
bilateral talks, the July 2001 Agra Summit, was largely regarded as a failure.

Rapprochement 20032007
The dtente with Pakistan began in April 2003 following conciliatory rhetoric from then Indian prime minister Atal Behari Vajpayee and accelerated in November 2003 when Pakistan offered
India a unilateral ceasefire along the line of control (LoC). A preliminary bilateral dialogue on Kashmir occurred in early 2004, marking a significant departure from India's earlier contention that
it would not hold direct talks until cross-border terrorism from Pakistan-administered Kashmir had ended. Regular confidence-building talks took place after that, with the two sides discussing a
range of contentious issues, including the Tulbar navigation project/Wullar barrage, attempts to demilitarise the Siachen glacier, a maritime dispute regarding Sir Creek (a stretch of marshland
between the Indian state of Gujarat and Pakistan's Sindh province) and the Baglihar dam dispute. A hugely symbolic bus link was opened in April 2005 between Srinagar (Indian-administered
Kashmir's summer capital) and Muzaffarabad in Pakistan-administered Kashmir, prompting further services to open the following year.
The peace process stalled temporarily following the multiple bombings of Mumbai's rail network in July 2006, for which the Indian's blamed Pakistani-based militant group, Lashkar-e-Tayyiba (
LeT), but was rekindled during a meeting in September between then prime minister Manmohan Singh and Pakistan's former president Pervez Musharraf on the sidelines of the 14th
Non-Aligned Movement Summit in Havana, which included plans for a joint anti-terrorism mechanism. In December Musharraf outlined his four-point plan, under which he said Pakistan would
give up its claim on Kashmir and call instead for regional self-government and a joint supervision mechanism involving India and Pakistan, combined with staggered demilitarisation.
Both sides were keen to insulate the peace process from militant violence, such as the February 2007 bombing of the Attari Special Express, which killed more than 60 people, mainly
Pakistani nationals (Khurshid M Kasuri, then Pakistan's minister for foreign affairs, went through with his scheduled visit to India two days later). Ongoing, high-level talks and the introduction
of further confidence-building measures (such as co-operation on cross-border crime and trafficking, and the opening of the Wagha border to trucks) continued. There was a setback on the
Siachen dispute in September 2007 when India decided to allow tourism in the area, but this did not curtail the enthusiasm for a solution to be found. In fact, special envoys from both countries
were engaged in a series of back channel negotiations aimed at finding a final resolution of the Kashmir conflict, and by late 2007 observers were claiming that both sides were on the brink of
a deal.

The rapprochement falters 20072010


The momentum of the negotiations was scuppered by Pakistan's tumultuous internal political developments from 2007 onwards which diverted attention away from the peace process. Without
tangible progress on Kashmir and other issues, the default position of mutual suspicion quickly re-asserted itself, exacerbated by periodic bouts of militant violence.
India was rocked by a slew of terrorist attacks in 2007 and 2008, a number of which were carried out by the previously unknown Indian Mujahideen: Hyderabad in August 2007, Uttar Pradesh
court complexes in November 2007, Jaipur in May 2008, Gujarat in August 2008 and Delhi in September 2008. These were carried out by Indian Islamist cells based in a number of Indian
cities, most notably Pune and Bangalore. However, there is evidence they had a close association with militant groups based in Pakistan and elsewhere. To some extent, the attacks forced
India to concede the difficulty of disrupting domestic militant networks, but each attack delayed progress on negotiations with Pakistan, and re-ignited passions related to the core issues of
dispute, particularly Kashmir.
The Mumbai attacks of November 2008 were the most lethal terrorist violence to hit India to date and could more definitely be traced back to Pakistan. The peace process has struggled to
recover from the attack. Pakistan admitted the attacks had been partly planned on its soil in February 2009 and in July 2009 President Asif Ali Zardari made the first admission by a Pakistani
head of state that former military leaders in his country had "deliberately created and nurtured" militants and extremists in the past "to achieve short-term tactical objectives" related to Kashmir.
He acknowledged that these policies now threatened Pakistan as much as India, reflecting the threat posed to both countries by the rise of Islamist extremism in the region. Nonetheless, India
has remained unimpressed with Pakistani efforts to bring to justice those it accuses of involvement in the attacks. The indictment of seven LeT members in November 2009 did not include
Hafiz Mohammed Saeed, the group's founding leader, whom India believes to have masterminded the attacks. Saeed was placed under house arrest in September 2009 in Lahore for his part
in alleged illegal public gatherings and fund raising. However he was subsequently cleared by the courts in October 2009 and the case was dropped due to lack of evidence. India expressed
dismay when the courts decision was upheld by the Pakistan Supreme Court in May 2010.

Resumption of peace talks


Despite the continued ill-feeling, in July 2009 former prime minister Manmohan Singh took a gamble by holding talks with his Pakistani counterpart, Yousuf Raza Gilani, on the sidelines of a
Non-Aligned Movement summit in Sharm-el-Sheikh, Egypt. The meeting resulted in a joint declaration that the peace process would be resumed. This was regarded as an embarrassing
capitulation by many in India and it was not until February 2010 that direct talks were actually restarted. The meeting of foreign secretaries Nirupama Rao and Salman Bashir saw little
substantive progress, with India resolutely refusing to discuss matters beyond the issue of terrorism and Bashir dismissing a dossier of evidence showing Pakistani involvement in the Mumbai
attacks as "fiction".
However, the talks did pave the way for further discussions. Singh met Gilani again on the sidelines of the SAARC summit in May 2010, and further foreign secretary-level talks were organised
for July. The exchanges have led to little tangible progress on substantive issues, with India resolutely focused on the issue of cross-border terrorism, but in February 2011, the two countries
announced that the composite dialogue had formally restarted and a delegation of senior Pakistani ministers visited New Delhi the following month, which included a show of friendship in
which Singh hosted Gilani for the cricket world cup. Several high-level exchanges have since taken place on a wide range of issues. Notable successes since then include the agreement,
struck following talks between the two countries' most senior trade officials on 13-14 November 2011, to normalise bilateral trade by February 2012. However, as expected, there have been no
advances due to Kashmir. In the wake of the most recent skirmishes along the LoC, the possibility of advancing the third round of bilateral talks is very remote. Although the Pakistani
government has offered talks and reconcilement, the prevailing political mood in India is preventing dialogue and talks at all levels are suspended. It also cannot be ruled out that the revived
peace talks will entice Islamist or Hindu extremist groups to step up their efforts to disrupt the peace process, and this increases the risk of terrorist attacks throughout India.

Water disputes
Although only one of many contentious issues blighting bilateral relations between India and Pakistan, water scarcity is set to take a more prominent role in the near future as river flows
crossing the two countries' borders will decline sharply. Most of Pakistan's water supply to its Western Punjab and Sindh provinces is sourced from rivers originating in or flowing through India.
Despite the existence of a rather successful treaty intended to regulate the use of water of the Indus River, in recent years it has become increasingly evident that both sides employ different
interpretations as to its content. The UN-brokered Indus Water Treaty of 1960 specified that India was to exercise sole ownership over the eastern Sutlej, Beas and Ravi tributary rivers, while
Pakistan was awarded sole ownership over the Jhelum, Chelab and the Indus itself. However, additional provisions specify that both countries are allowed to make use of all water resources
under certain conditions. With all rivers flowing through India before reaching Pakistan, this proved of little use for the latter which is wholly dependent on water flows from India.
Current mechanisms to resolve disputes relating to the treaty generally involve the World Bank's Permanent Indus Commission and a World Bank-appointed neutral arbiter. The International
Court of Justice (ICJ) has also acted as a point of reference. However, with water stress increasing, these mechanisms are unlikely to prove sufficient in the future. Already, India has outlined
plans to construct dams and/or divert water from the three rivers legally entitled for sole use of Pakistan, an issue that is stirring up significant tensions with Pakistan, and this is only
exacerbated by the fact that all three rivers flow through the disputed region of Jammu and Kashmir. Domestic pressures will push India to take more such actions in the future, while Pakistan
is set to gear up its protests as it will find itself unable to satisfy its water needs from other sources.

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Pakistan opposes at least 11 Indian projects at the Jhelum and Chelab rivers. The Baglihar Dam, the Wullar Barrage, and the Kishenganga Dam projects are the most contentious. The
completion of the Baglihar hydroelectric dam on the Chenab in 2009, 144.5 metres in height and with the capacity to produce 450 megawatts of electricity, in particular, cast a renewed
spotlight on the potential for an escalation of conflict. Not surprisingly, Pakistan protested against the project ever since its inception in 2000, and has sought arbitration on the issue by a
neutral arbiter appointed by the World Bank. Although the final ruling, which called for an arguably modest reduction of the overall size of the project was accepted by both countries, it has
once more highlighted serious differences in the way in which the treaty is interpreted: Pakistan appears set to challenge all projects with the potential to divert or reduce the flow of water,
while India is more focused on continuing the construction of dams, albeit in a more efficient manner to comply with the requirements set out in the Indus Water Treaty.
Completely unresolved remains the dispute over the Wullar Barrage on the Jhelum River, which is aimed to improve and enable water navigability of the river along a total of 20 kilometres.
Similar to the Baglihar dam, Pakistan has opposed the project since its inception in 1981, leading India to temporarily freeze the project in 1987. Due to increasing water scarcity in India, the
Indian government is now undertaking efforts to revive the project, setting the course for fierce opposition on the part of Pakistan. The Kishenganga dam project, also on the Jhelum river, is
opposed by Pakistan for similar reasons.
Due to the spike in tensions resulting from incidents in Kashmir, two talks regarding the Wullar Barrage scheduled for January 2013 were postponed and further dates have not been
announced.

Siachen glacier
Siachen is a remote plateau near the border with China. It lies at the extreme northwest of India's Karakoram region, but the border with Pakistan is disputed. When the line of control (LoC)
was agreed, the boundary fell short of demarcating this area of territory and as such, it has become a battleground for the two armies. It remained literally off the map for some years, and it
was not until 1984 that forces were moved into the area.
India has control of the glacier itself, but has long been paranoid that if it withdraws its troops, Pakistan will move into the region. As such, the two sides maintain a troop deployment to what is
billed the world's highest battlefield standing at 6,300 metres. Strategically, it is worth little, but remains psychologically important. The human and material cost of the deployment is huge,
with India believed to be spending USD1 million a day to maintain its forces in the region. A January 2006 joint project between two Indian and Pakistani retired brigadiers suggesting a
demilitarisation received little attention in either Islamabad or New Delhi. The November 2008 Mumbai attacks led to the suspension of talks on the issue, although dialogue was resumed in
May 2011.

Sir Creek
The dispute over the marshy area between India's western state of Gujarat and Pakistan's Sindh province began in 1875 as a boundary disagreement between the then-princely states of
Sindh and Kutch. The British attempted to address the situation in 19071908 when they brokered an agreement. This was formalised in map-form in 1914, but following partition, Pakistan
called for the issue to be readdressed. The disagreement simmered until 1965 prompting heavy fighting, which in turn resulted in arbitration and the delineation of a new boundary. India and
Pakistan committed to physically demarcating the boundary, but in the event, this was not completed.
Given the inhospitable nature of the territory, it has traditionally been of little strategic significance, although following the 1965 clashes, forces from both sides patrol the border. The situation
remained relatively stable until August 1999, when Indian fighter planes shot down a Pakistani naval reconnaissance aircraft in the airspace over what it argued was its part of the border. All
16 crew were killed and the wreckage landed on the Pakistani side of the border. This prompted retaliation, with Pakistan firing on Indian helicopters bringing journalists to the site.
In December 2003, the then-defence minister George Fernandes announced to parliament that Pakistani submarines had been detected near Gujarat's coast and that the Pakistani army had
increased its presence in the region. Pakistan denied these claims and described India's accusations as baseless. Beyond this, it has been fishermen who have created the most problems,
with both sides making regular arrests when fishing boats have strayed across the maritime border. Talks have been held to try to resolve the dispute since 1989. Some progress has been
produced, with the two sides agreeing to conduct a joint survey of the border in October 2005, which was conducted in early 2007. However, talks were suspended again together with the
wider peace process in November 2008 following the Mumbai attacks. Talks on the issue resumed in May 2011.

Relations with Sri Lanka


India's large ethnic Tamil population in Tamil Nadu, the southern state facing Sri Lanka, has historically complicated India's ability to deal with the Sri Lankan government. In the early 1980s,
Indian intelligence services actively supported a number of pro-Tamil militant groups, which allowed a significant expansion of the conflict. In 1987, India pressured Sri Lanka into accepting a
political resolution of the conflict, including plans to devolve power to Tamil areas. Under the Indo-Sri Lanka accord, it agreed in exchange to accept the unity of Sri Lanka and sent in a
peace-keeping force to disarm militant groups in northern Sri Lanka and administer the accord. This proved disastrous for India, dragging its forces into a three-year protracted conflict with the
Liberation Tigers of Tamil Eelam (LTTE) and other groups, and ultimately leading to the assassination of then-prime minister Rajiv Gandhi by an LTTE suicide bomber in May 1991. Following
the assassination, India distanced itself from the conflict, and maintained a cautious stance until the end of Sri Lanka's 26-year civil war in May 2009. Since then, India has sought to boost
bilateral relations, not least because it wants to counter-balance and contain the Sri Lankan government's growing engagement with India's arch-rivals China and Pakistan. New Delhi offered a
USD115 million grant and provided assistance in dealing with the resulting humanitarian crisis and resettlement of hundreds of thousands of internally displaced persons. However, it has come
under repeated pressure from Tamil Nadu parties to criticise Sri Lanka's war record, and was pressured into backing a US-drafted resolution censuring Sri Lanka for human rights abuses in
early 2013.
Although it has not been able to compete with China's economic offers, strong cultural ties mean that India and Sri Lanka have remained close partners, as underlined by a number of
high-profile visits, including a four-day visit to New Delhi by Sri Lankan president Mahinda Rajapakse in June 2010 during which seven bilateral agreements were signed. India has continued
to exert pressure for a resolution of Tamil grievances. During a visit to Sri Lanka in January 2012, Indian External Affairs Minister S M Krishna visited Jaffna and Kilinochchi, the former
headquarters of the LTTE, where he unveiled a number of development projects funded by India and called for a "meaningful devolution package" that "would create the necessary conditions
for a lasting political settlement". India's engagement with Sri Lanka has also been fuelled by its pursuit of a Comprehensive Economic Partnership Agreement (CEPA) with the country.

India and the LTTE insurgency in Sri Lanka


Approximately 13% of Sri Lanka's Tamils originally came from India 2,500 years ago, while five% were brought over during the British colonial period to work on the tea plantations. Following
India's independence, political friction developed over the status of the 'Indian' Tamils (more recently settled) following the departure of the British. The Sinhalese-dominated government in
Colombo wanted the Indian Tamils (then nearly one million strong) to be repatriated back to the Indian state of Tamil Nadu. A compromise was reached in 1964, between prime ministers Lal
Bahadur Shastri of India and Sirimavo Bandaranaike of Sri Lanka, whereby India would repatriate approximately 500,000 Tamils and Sri Lankan citizenship would be given to about 300,000.
The status of the remaining 150,000 to 200,000 remained undetermined until a further agreement in 1974.
The Tamil separatist movement was established by the long-settled Tamil community, headed by the LTTE. The origins of the Tamil insurgency effectively stemmed from Sinhalese dominance
and discrimination against Tamils. The catalyst for the fully fledged insurgency came in July 1983 when anti-Tamil riots took place in Colombo. The LTTE fought a guerrilla campaign against
the armed forces in the north and northeast Tamil-majority areas, and organised terrorist attacks in southern urban centres. The LTTE were particularly well known for their use of suicide
bombers. At this time, India provided considerable funding and support to the LTTE and a number of other groups based in Tamil Nadu as a way of maintaining leverage over Sri Lanka and
appeasing Tamil sentiment among its own citizens.
By 1987, a Sri Lankan government offensive appeared on the verge of retaking Jaffna from the rebels. With civilian casualties mounting and refugees pouring into Tamil Nadu, India felt the
need to intervene. Supplies were airlifted to Tamil areas in June 1987, and the government threatened a full military intervention if Sri Lanka attempted to obstruct their delivery. This brought
Sri Lanka to the negotiating table and led to the Indo-Sri Lankan accord, which authorised the deployment of a 50,000-strong Indian Peace-Keeping Force (IPKF) to Sri Lanka with a mandate
to protect the Tamil community, to separate the warring sides, and to end the fighting. The IPKF operation was a disaster, and continues to haunt the armed forces. Their presence produced

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no political solution and no peace. Instead, the IPKF ended up fighting the LTTE, who had refused to accept the Indo-Sri Lankan Peace Accord. The IPKF was simultaneously perceived by the
Sinhalese, especially the left-wing nationalist People's Liberation Front (Janata Vimukti Peramuna: JVP), as violating Sri Lanka's territorial sovereignty. The IPKF withdrew in 1990 after a
mainly fruitless and costly campaign.
Rajiv Gandhi's role in deploying the IPKF led to his assassination by an LTTE suicide bomber while he was campaigning in Tamil Nadu in 1991. This act drastically changed attitudes in India
towards the LTTE, and in particular in Tamil Nadu where training camps and sanctuaries had been tolerated.
India was again asked for military assistance in May 2000, after the LTTE succeeded in cutting off the vital Elephant Pass, and were on the brink of retaking the Jaffna peninsula. However, the
memory of India's disastrous intervention in Sri Lanka during the 1980s ensured New Delhi steadfastly refused to be drawn back into the Sri Lankan conflict at any level prior to its conclusion
in May 2009. Since the early 1990s, India's involvement remained deliberately understated and restrained, and revolved largely around three elements. The first of these has been the
provision of humanitarian relief, often with a view to the politics of the Indian state of Tamil Nadu where there has traditionally been deep support and sympathy for the plight of their Tamil
cousins. For example, the timing of the Sri Lankan army's final offensive against the Tamil Tigers came after the last phase of India's general election, in which Tamil Nadu was one of the last
states to go to the poll. It is likely that the Indian government exerted pressure on Rajapakse's administration to ease the tempo of military operations until after Tamil Nadu voted, fearing that it
could potentially have had serious repercussions on the outcome of the Tamil Nadu vote. Second, India persistently lobbied Sri Lanka to implement an amicable political package of devolution
along the lines of Indian federalism to resolve the conflict. Finally, India remained diplomatically and militarily engaged with Sri Lanka in countering the LTTE. The LTTE remains a banned
organisation in India, and its leaders are still wanted for their connection to Rajiv's assassination.
India was frustrated by Sri Lanka's failure to balance military strategy with political reform measures. For his part, Rajapakse was deeply frustrated at India's refusal to engage more directly
with the conflict and courted Pakistan in the hope this would gain more attention from India. New Delhi struggled to prevent Rajapakse's headlong embrace of war in 2006 and has faced
constant pressure from Tamil Nadu to sever ties with his administration. Rajapakse's visit to New Delhi in June 2010 was marred by protests outside the Sri Lankan Deputy High Commission
in Southern India in Chennai.

Europe and CIS


Relations with Russia
India's relations with Russia are good, despite several major policy disagreements, and are marked by a high degree of trade in areas such as armaments. Past relations have been
strategically motivated, with Russia using India to offset US supremacy and India finding Russia to be a prime source of supply for its military and defence needs. Growing relations are partly
an attempt by both sides to counterbalance China's growing power, but the countries have also pursued co-operation in areas ranging from space technology to trade, and even metallurgy.
Nonetheless, India's rapprochement with the US, desire to diversify its source of arms imports, and frustration with Russia over the pricing and delayed delivery of various military platforms
have soured the Indian-Russian relationship. India sought a neutral stance in the crisis over Ukraine in early 2014, calling only for open dialogue.

India and the Soviet Union's collapse


India's close political and military relationship with the Soviet Union, formed in the aftermath of the Sino-Soviet war, meant that India had to adjust rapidly to the circumstances created by the
collapse of the USSR in 1991. It initially appeared that the basic premise of the 'special relationship' would not apply to the Russian Federation, which was struggling to survive and appeared
to have no overt short-term special interests in India. The fall of the USSR coincided with an economic crisis in India, prompting the change in its economic policy from state control to
economic liberalisation. This change necessitated closer relations with the West, which became the supplier of the majority of foreign direct investment (FDI).
However, the Indian defence sector was unable to change its suppliers and structure in quite such a radical fashion, and the Soviet-oriented arms and aircraft manufacture and procurement
programme continued, albeit on less generous Russian terms. Military industrial co-operation and trade has continued at a substantial level, with India remaining one of Russia's most
significant customers for arms exports and services (currently an estimated 70% of India's arms imports come from Russia).

Defence trade
Bilateral trade has increased rapidly in recent years, and stood at around USD8 billion per year in 200910, which the two countries plan to expand to USD20 billion per year by 2015. Military
hardware remains a key part of this equation. In March 2010, during a visit to New Delhi by Vladimir Putin (then Russian Prime Minister), India agreed USD4 billion in acquisitions, including 29
MiG-29K naval fighter jets to add to the 16 purchased in 2004, 40 Su-30MKI multirole fighters and a 10-year lease on a Akula-II nuclear-class submarine. The agreements also included
confirmation of the controversial refurbishment of the Admiral Gorshkov aircraft carrier for the Indian Navy, which has nearly tripled in price to USD2.34 billion since the purchase was agreed
in 2004 and is now three years behind schedule, due for launch in 2013. During a visit by President Dmitry Medvedev in December 2010, the two countries formalised their agreement to jointly
develop a fifth-generation stealth fighter and a multirole military transport aircraft in a deal worth an estimated USD30 billion. The development of the stealth fighter will be based on the
Russian T-50 PAK-FA, which made its maiden flight in January 2010. The aircraft is due to enter service by 2017.
The earlier agreement, which was signed in December 2000 but was only made public in January 2003, included the licensed production in India of 140 Sukhoi SU-30MKI fighters and the
purchase of 310 T-90 battle tanks as well as the nuclear submarine lease and Admiral Gorshkov agreements. The deal was a vital step towards ensuring India's military superiority over
Pakistan and providing a nuclear deterrent to China.
The Brahmos cruise missile, manufactured by a USD250 million joint venture between India's Defence Research and Development Organisation (DRDO) and Russia's NPO
Mashinostroyeniya, will be the principal weapons system for the Akula-class submarine and the TU-22M3 strategic bomber. Brahmos, based on the Russian Yakhout, is a 292 km-range
anti-ship missile, expected to be developed by India as a long-range nuclear weapon delivery system.
However, there have been signs of cooling relations. Although these deals show the continuing strength of ties between the two countries, India's desire to diversify its suppliers has placed
limitations on a return to the type of Indo-Soviet strategic co-operation that characterised the latter half of the Cold War. A major example of this was the Indian Ministry of Defence's decision to
remove the Russian Aircraft Company's MiG-35 (as well as the US' F-16) from its shortlist for the procurement of 126 new fighter aircraft in early 2011. It is possible that this decision may have
played a part in Russia's last-minute move to cancel two sets of military exercises in May and June 2011, for which no explanation was given.

Middle East and North Africa


Relations with Iran
Relations between India and Iran have historically benefited from a number of strategic common interests, not
least their mutual suspicion of Pakistan and support for the Northern Alliance in Afghanistan during the rule of
the Taliban. More recently, India's need for energy sources (it only produces half of its required natural gas,
and imports 70% of its oil) has been the major impetus behind good relations. India received around 12% of its
oil imports from Iran prior to US-enforced international sanctions that saw imports fall by around 20% in 2013/
14.
The two countries had been in talks to build a pipeline through Pakistan, but security concerns and diplomatic
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The two countries had been in talks to build a pipeline through Pakistan, but security concerns and diplomatic
disagreements between Iran and Pakistan put the plan on hold. Instead, in March 2014, formal talks began on
the construction of a USD5-billion deep-sea gas pipeline linking India, Iran and Oman. India is already involved
in developing the Chabahar port in southeastern Iran, and signed a USD40-billion dollar gas deal with Iran in
January 2005 that would guarantee India 7.5 million tonnes of liquefied natural gas over a 25-year period as
well as allowing India to develop two Iranian oil fields and a gas field. Indian firm Tata Steel in the same month
agreed to invest USD1.1 billion in building three steel plants in Iran.
These earlier projects faced obstacles as a result of pressure from India's burgeoning strategic relationship
with the US and the deepening international isolation of Iran. In September 2005, and again in February 2006,
India agreed to have Iran put before the United Nations Security Council for non-compliance of its International
Atomic Energy Agency (IAEA) obligations. India voted in November 2009 in favour of censuring Iran for not
informing the IAEA in a timely manner about its Qom nuclear facility. The Indian administration announced in
February 2007 that it was ending nuclear exports to Iran. In December 2010, the Reserve Bank of India (RBI)
announced that it would no longer allow the use of the Asian Clearing Union (ACU) to pay for Iranian crude, a
mechanism used to manage trade payments across the region. The decision was notable for being taken
shortly after President Barack Obama's visit to New Delhi the previous month. Further payment mechanisms
through the European-Iranian Trade Bank in Germany and through a state-owned bank in Turkey were also
cancelled, as a result of tightening Western sanctions against Iran.
India is therefore keen for successful talks between Iran and Western powers. It has managed to maintain good
relations with Iran despite the difficult international conditions by refusing to fully co-operate with the Western
isolation of Iran, for instance saying it will only support sanctions brought by the UN, rather than the unilateral
sanctions of the US and EU. India feels little threat from Iran and is sceptical of Western claims that Tehran is
close to acquiring weapons capability. It also has its own memories of trying to acquire a nuclear weapon in
the face of international opposition, a period that India termed "nuclear apartheid". India also has economic
reasons for maintaining trade relations, based on the price of Iranian oil and its dependence on specific crude
types at some of its ageing refineries. India also considers Iran a crucial ally in regard to the stabilisation of
Afghanistan.
In February 2012, just as US and EU sanctions were being detailed, India announced it was sending a trade
delegation to Iran. In May 2012, New Delhi hosted an Iranian trade delegation in the same week as a visit US
secretary of state Hillary Clinton. India managed a compromise by marginally reducing Iranian oil imports and
thereby receiving a waiver on US sanctions. A new payment method, using a rupee account through which Iran
can purchase agricultural goods from India, was established to bypass the sanctions regime.
Relations with Israel
Despite the fact that India did not recognize Israel until 1992, the two countries have a history of security co-operation. Before 1992, much of their mutual relationship was covert. Security
equipment was quietly shipped between the two states while paramilitary commandos from India secretly received training in Israel. Both countries see themselves at risk from Pakistan's
nuclear programme, India directly and Israel through the transfer of Pakistan's nuclear technology and assistance to other regimes and groups in the region. Formal recognition of Israel only
followed a similar move on China's part and, more pragmatically, was a means to source military equipment following the fall of India's traditional supplier, the Soviet Union. Largely as a result
of previous security co-operation, the relationship has proved successful as Israel has also taken on responsibility for upgrading a significant amount of outdated Soviet-era military equipment.
Bilateral relations improved particularly under the Bharatiya Janata Party (BJP)-led government between 1998 and 2004, which considered Israel to be a "natural ally" that is, like India, a
country under siege, surrounded by hostile neighbours. The subsequent Congress-led United Progressive Alliance (UPA) government initially reverted back to its previous support for the Arab
world, in particular with regard to a Palestinian state, leading to a temporary cooling of bilateral relations, although this did not affect military and economic exchanges.
The two countries' friendly relations were underscored when Indian foreign minister S M Krishna visited Israel in January 2012, the first visit by an Indian minister for a decade. A possible free
trade agreement was discussed, as well as co-operation on counter-terrorism. Although both sides want to strengthen ties, they are keen to do so quietly, with India particularly concerned not
to jeopardise its good relations with numerous Arab countries or antagonise its large Muslim population. Meanwhile, Israel has previously stated that it has no interest in antagonising India's
enemies, primarily Pakistan, the only nuclear-armed Muslim nation, and one that stands out for its lack of hostility to the Jewish state.

Multilateral
Global organisations
Non-Aligned Movement (NAM)
The Non-Aligned Movement (NAM), which enjoyed its beginnings in 1955 but only became a cohesive entity in 1961, was founded by India, Burma (now Myanmar), Indonesia, Pakistan and
Sri Lanka. All were unified in their desire to maintain their independence while avoiding Western domination. The NAM was mildly successful in its early days, gaining currency among less
developed countries eager to express themselves more vocally, while allowing India to chart a careful course through the Cold War. However, as with other nations unable to exist
independently in the Cold War atmosphere, New Delhi inevitably struck alliances, with India electing to join the Commonwealth and in doing so, maintaining its colonial ties to some degree. It
also pursued stronger ties with the Soviet Union a move that would later provide it with a ready supply of defence equipment partly as a result of its unsteady relations with China and partly
to counter US support for Pakistan. As such, the NAM has proven of little utility to India. The NAM has been surpassed by more specific developing nations organisations, such as the Group of
77 (G77) and the first India-Africa Summit, which was held in April 2008.

United Nations (UN)

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India is one of the founding members of the UN and views the organisation as a useful forum for publicising its views as a leading non-aligned country. Within the UN, India has been
particularly vocal on issues such as decolonisation and global disarmament, and would prefer to see a strengthening of the UN's mandate.
India has argued that, as the world's largest democracy, it should have a permanent seat on the UN Security Council. As such it arranged for the reciprocal support of Brazil and South Africa in
their own claims, and gained the support of Germany and Japan in July 2004 towards this end. These countries, with the exception of South Africa, pressed their cases at the UN General
Assembly in September 2004, earning the collective tag of G4. In most subsequent summits and major bilateral meetings India has sought to bring the issue onto the agenda, working hard to
build a support base for its application.
India's emergence as a major economic power, its growing ties with the US and its pivotal role in negotiations related to the global economic crisis and climate change, have increased the
possibility of India gaining a permanent seat. The most positive sign to date came in June 2010, when US Secretary of State Hillary Clinton stated that the US is "definitely committed to the
consideration of India" on the Security Council following a meeting with Indian Minister of External Affairs S M Krishna. However, there are clearly substantial procedural obstacles to progress
on this front. Moreover, India is unlikely to attain a permanent seat until the dispute with Pakistan over Kashmir is resolved and while it continues to foster close ties with Iran against US wishes
. India was voted onto a two-year non-permanent seat on the Security Council in October 2010, a period which is likely to play an important part in future considerations.
India's commitment to the UN is underlined by its involvement in multiple peacekeeping operations. It has been involved in operations in four different continents, but with particular emphasis
on Africa and Asia. Currently, India has more than 6,000 personnel involved in such operations, and alongside Bangladesh and Pakistan, provides one-third of the UN's total troop commitment
. Notably in June 2006, India signed the UN's International Convention for the Suppression of Acts of Nuclear Terrorism, supporting the transnational co-operation on nuclear terrorist issues.
The move came during the US' deliberations over its nuclear deal with India and was clearly designed to portray India as a responsible nuclear player.

Regional organisations
Association of Southeast Asian Nations (ASEAN)
India is moving towards greater co-operation with ASEAN. Establishing relations with the 10-member bloc in 1992, the Treaty of Amity and Co-operation was signed in September 2003,
paving the way for even stronger relations. The treaty includes broad provisions such as respect for sovereignty and territorial integrity, as well as pledges of non-interference in internal affairs.
In essence, the treaty institutionalised India's growing interest in cultivating South-East Asian export markets and accelerating budding trade ties as part of its "Look East" policy. The policy
was initiated in 1991 with the aim of exploiting trading opportunities and ensuring protection of trade routes. Politically, the move can also be seen as a measure to tacitly challenge China's
dominance of the region. In November 2004, India and ASEAN signed the Partnership for Peace, Progress and Shared Prosperity, designed to engender co-operation in a number of areas
including investment and counter-terrorism (a new action plan to implement the same by 2015 was agreed in October 2010).
Underlining its growing interest in Southeast Asia, December 2005 saw India attend the inaugural East Asia Summit. For its part, ASEAN has become increasingly interested in India. Since
agreeing in 2003 to implement a free trade agreement (FTA) with the country, the bloc's member states have been actively pursuing local trading opportunities. Moves to try to implement the
FTA have been frustrated, but India and ASEAN finally signed the long-awaited agreement in August 2009. Upon coming into force on 1 January 2010, the FTA reduces tariffs on about 80% of
traded goods. Besides efforts to sign a regional FTA, India has forged numerous bilateral free-trade agreements with individual South-East Asian economies. These include Comprehensive
Economic Co-operation Agreements with Singapore (June 2005) and Malaysia (February 2011). India also signed an Early Harvest Scheme with Thailand (2004), while discussions for a
full-fledged FTA are ongoing and are expected to be finalised in March 2012.

European Union
India enjoys strong relations with the European Union. India was one of the first countries to set up diplomatic relations with the EU's smaller predecessor, the European Economic Community
(EEC), in the 1960s. At India's fifth annual meeting with EU leaders at The Hague in November 2004, the two sides agreed a framework for a strategic partnership, designed to give shape to
relations regarding a spectrum of issues from trade to defence and health. The partnership was finalised at the September 2005 EU-India summit. The summit also saw the Joint Action Plan
and Political Declaration signed, covering a wide range of issues including counter-terrorism, trade, and the Galileo satellite navigation programme (although India in 2007 backtracked on the
latter, citing security reasons), putting the relationship on a far stronger footing.
The EU has been a key aid donor to India, although development assistance has changed significantly in recent years to what the EU terms a "partnership with opportunities for mutual benefit"
. The EU-India Strategy Paper (20072013) allocates around EUR470 million for development assistance, mainly in the areas of health (40% of funding) and education (22%).
EU-India relations are not always harmonious, however. In December 2003, the EU threatened to take India's use of anti-dumping measures before the World Trade Organisation (WTO),
arguing that the country is the heaviest user of such measures and as such is failing to operate within WTO rules. The EU claimed that India had used 241 anti-dumping measures since 1995.
Subsequently, the EU announced in June 2005 that it had begun investigations into possible dumping by India and China of work footwear on its market. Given the rapidly growing threat that
both nations pose to the clothing and textile sectors of the EU and North America, further such arguments can be expected.
India's high tariff regime and its repeated use of anti-dumping measures remain contentious issues and will continue to prompt criticism. In an attempt to head off these sorts of problems,
officials from India and the EU in October 2006 agreed to pursue a free-trade agreement (FTA). The EU remains keen to strike FTAs with emerging economies, although there have been a
number of important stumbling blocks that have thwarted progress on the EU-India FTA negotiations. Although both sides would benefit tremendously under such a deal it is hoped to boost
bilateral trade to USD237 billion by 2015, up from the current figure of around USD92 billion there remain key stumbling blocks that both sides are yet to overcome. The most contentious
issues concern data exclusivity, patent protection and anti-counterfeiting laws, in particular in relation to India's vital pharmaceutical industry. There are also frictions over issues such as
provisions on child labour and environmental concerns, in particular on carbon-dioxide emissions. India continues to argue that these issues are unrelated to trade. Given the wide range of
issues on which both sides have so far failed to make significant progress, further delays are likely to occur.

Shanghai Co-operation Organisation (SCO)


The Shanghai Co-operation Organisation (SCO), a six-nation security grouping comprising China, Kazakhstan, Kyrgyzstan, Russia, Tajikistan and Uzbekistan, has become an increasingly
cohesive regional bloc over the past decade, adding an economic dimension to its original counter-terrorism and military remit. In July 2005 the SCO agreed to grant observer status to India (a
status also enjoyed by Iran, Pakistan and Mongolia).
Over the past decade a consensus has been building within India towards joining the SCO as a full member, primarily so that it can benefit from increased trade with Central Asia. The SCO
could also function as a forum in which to improve relations with China and to contribute to negotiations over the future of Afghanistan. India is also keen to benefit from the SCO's Regional
Counter-Terrorism Centre in Tashkent, which would allow it improved access to information on militant activities in the Fergana Valley and beyond. India submitted its formal request for full
membership in May 2011. In a summit in November 2011 the SCO confirmed its willingness to grant full membership to India and Pakistan (and observer status to Turkey and Afghanistan).
Although a full-member status of India would deepen the country's economic and security ties with Central Asia, New Delhi remains conscious that, at least in the medium term, the forum will
remain dominated by Chinese attempts to consolidate, strengthen and expand its influence in the region. India is also mindful of US perceptions of the SCO as an anti-US or anti-NATO
organisation.

South Asian Association for Regional Co-operation (SAARC)


India is a founding member of the South Asian Association for Regional Co-operation (SAARC). Launched in 1985, SAARC was modelled along the same lines as the Association of Southeast
Asian Nations (ASEAN), and was intended to encourage the growth of economic and social co-operation between the South Asian states of Bangladesh, Bhutan, India, Maldives, Nepal,

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Pakistan, and Sri Lanka. SAARC was designed to provide an institutionalised forum to address the problems of regional security and economic development. In reality the lack of co-operation
between India and Pakistan has meant that SAARC has failed to become anywhere as important as ASEAN.
The general inability of SAARC to help resolve contentious security and political issues within the region is symptomatic of its weakness and impotence. In order to bypass Indo-Pakistani
diplomatic confrontations, faster 'sub-regional' co-operation is under way in the northeast between India, Bangladesh, Nepal and Bhutan.
Some progress has been achieved on the economic front with regard to the South Asian Preferential Trading Arrangement (SAPTA). Set up in 1991, SAPTA came into operation in 1995, after
which negotiations were held in an unsuccessful attempt to reduce preferential tariffs. Fearing that a continuation of the policy would effectively make little difference to regional trading
arrangements, the more radical option of a free-trade agreement (FTA), to be known as the South Asian Free Trade Agreement (SAFTA), was proposed. The framework for this was agreed
during the 12th SAARC summit in January 2004, with implementation beginning in phases from 1 January 2006. It is envisaged that the free-trade area will be fully operational by 2016,
although progress remains a challenge, not least because of traditional tensions and fears regarding the different levels of development within the group. This has already resulted in the
creation of a two-tier system, with the more and less developed nations reducing tariffs within five and eight years respectively.
The recent rapprochement between India and Pakistan following the February 2011 resumption of peace talks led to an uncharacteristically positive environment for the latest summit in the
Maldives on 7 November 2011. Should the new rapport prove sustainable, SAARC's significance is set to increase in the short to medium term. SAARC has also become more important since
Afghanistan's entry into the bloc. India's influence over the Afghan government is something that Pakistan views with suspicion, and the forum offers India and Pakistan an opportunity to
discuss co-operation over Afghanistan, rather than escalating their rivalry. SAARC could also become a component of the current drive by the US to stabilise Afghanistan through a process of
regional economic integration. This drive, labelled the "New Silk Road" initiative, seeks to connect major markets such as India and China to energy-rich Central Asia via Afghanistan and
Pakistan. The next SAARC conference is scheduled for 2013 and will be based in Nepal.

External trade
Overview
Exports
Throughout the 1990s, India's merchandise exports expanded rapidly in line with the country's economic liberalization. The impressive growth continued in 200211 (with the exception of 2009
), reflecting rising demand from its traditional and new markets even in an environment of slowing global demand, and likely reflecting India's relative competitiveness vis--vis other emerging
markets. India's exports are also well diversified, comprising textiles and garments, automobile parts, and chemicals and pharmaceuticals. Nevertheless, the lackluster global growth and India
s economic problems have tamed Indian export growth from 2012 onward. A sustained recovery in exports has yet to materialize.
Imports
As with the country's outflow of commodities, India's imports expanded over the 1990s as demand rose for raw materials and consumer goods in the burgeoning economy. India's domestic
demand remains far stronger than external demand, resulting in sharply higher imports and widening trade and current-account deficits. India's large trade deficit is primarily attributable to a
rise in non-oil imports and investment goods in particular.

Trading partners
India is a member of the South Asian Association for Regional Cooperation (SAARC), and a regional trade block among these members was formed when the SAARC Preferential Trading
Arrangement was signed in 1943 giving preferential market access to the exports of the member countriesin a limited way. The Agreement on South Asia Free Trade Area, which provides
free trade in goods among SAARC member countries, was implemented in 2004.
India has been a member of the World Trade Organisation since its inception in 1995. Since international trade has become increasingly more important for the economy, India has been more
aggressively pursuing bilateral agreements. It has established comprehensive economic partnerships with Singapore, the European Union, Japan, China, South Korea, Thailand, Malaysia,
Chile, South Africa, and the Gulf Cooperation Council.
India has a well-diversified export profile. The leading export category is textiles and garments, complemented by gems and jewelry, and the export of machinery and chemicals. Even further
diversification exists in India's total foreign-exchange earnings profile when service exports are included. India's dynamic service exports feature information technology and related services,
as well as financial, medical, and legal services.

Key trade agreements


SAARC
In 1991, the South Asian Association for Regional Cooperation (SAARC) set up the South Asian Preferential Trading Arrangement (SAPTA), the ultimate goal of which was to achieve a
regional free-trade area. SAPTA came into operation in 1995, after which negotiations were held in an unsuccessful attempt to reduce preferential tariffs. Fearing that a continuation of the
policy would effectively make little difference to regional trading arrangements, the more radical option of a free-trade agreement (FTA), to be known as the South Asian Free Trade Agreement
(SAFTA), was proposed. The framework for this was agreed during the 12th SAARC summit in January 2004, with implementation beginning in phases from 1 January 2006. It is envisaged
that the free-trade area will be fully operational by 2016, although progress remains a challenge, not least because of traditional tensions and fears regarding the different levels of
development within the group. This has already resulted in the creation of a two-tier system, with the more and less developed nations reducing tariffs within five and eight years respectively.
ASEAN
Since the ASEAN (Association of Southeast Asian Nations) agreed in 2003 to implement a free-trade agreement (FTA) with India, the bloc's member states have been actively pursuing local
trading opportunities. Moves to try to implement the FTA have been frustrated, but India and the ASEAN finally signed the long-awaited agreement in August 2009. Since coming into force on
1 January 2010, the FTA reduced tariffs on about 80% of traded goods. Besides signing the FTA, India has forged numerous bilateral FTAs with Southeast Asian economies, including
Comprehensive Economic Co-operation Agreements with Singapore (June 2005) and Malaysia (February 2011). India also signed an Early Harvest Scheme with Thailand (2004), while
discussions on a fully-fledged FTA are ongoing and expected to be finalized in 2012.
European Union
Officials from India and the European Union (EU) in October 2006 agreed to pursue an FTA. The EU remains keen to strike FTAs with emerging economies, although there have been a
number of significant stumbling blocks that have thwarted progress on the EU-India FTA negotiations. While both sides would benefit tremendously under such a deal, there remain key
stumbling blocks, which both sides are yet to overcome. The most contentious issues concern data exclusivity, patent protection and anti-counterfeiting laws, in particular in relation to India's
vital pharma industry. There is also friction regarding issues such as provisions on child labor and environmental concerns, in particular on carbon-dioxide emissions; India continues to argue
that these issues are unrelated to trade. Given the wide range of issues on which both sides have so far failed to make significant progress, further delays are likely to occur.

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Data
India: Major Trading Partners, 2014
EXPORTS
Country

IMPORTS
Billions of USD

Percent Share

United States

42.5

13.4

United Arab Emirates

33.2

10.4

Hong Kong

13.5

China
Saudi Arabia

Country

Billions of USD

Percent Share

China

58.3

12.7

Saudi Arabia

32.6

7.1

4.3

United Arab Emirates

27.2

5.9

13.3

4.2

United States

21.2

4.6

12.8

4.0

Switzerland

21.2

4.6

United Kingdom

9.7

3.0

Qatar

16.5

3.6

Singapore

9.6

3.0

Iraq

16.1

3.5

Germany

7.7

2.4

Nigeria

15.7

3.4

Brazil

7.0

2.2

Indonesia

15.3

3.3

Netherlands

6.7

2.1

Kuwait

15.1

3.3

Source: IMF, Direction of Trade

India: Major Trading Partners, 2000


EXPORTS
Country

IMPORTS
Billions of USD

Percent Share

United States

9.1

21.3

Hong Kong

2.6

United Arab Emirates

Country

Billions of USD

Percent Share

United States

3.2

6.3

6.1

Belgium

3.1

6.1

2.5

5.8

United Kingdom

3.1

6.1

United Kingdom

2.2

5.2

Switzerland

3.0

6.0

Germany

1.9

4.4

Japan

2.0

4.0

Japan

1.8

4.1

Germany

1.8

3.5

Belgium

1.4

3.4

Singapore

1.5

2.9

Italy

1.3

3.0

China

1.4

2.9

France

1.0

2.3

Malaysia

1.4

2.8

Russia

0.9

2.1

South Africa

1.3

2.5

Source: IMF, Direction of Trade

Economic development
Overview
India represents one of the world's most promising emerging markets despite recent economic weakness and deteriorated investor sentiment. Over the longer term, the economy still has
tremendous potential, attracting business and investor interest. Despite the recent slowdown in economic momentum, the structural reforms initiated by the Bharatiya Janata Party government,
elected in May 2014, should reactivate economic growth, boosting it to rates above 7.0% over the medium term. The development of India's world-class information technology industry has
coincided with the start of a second wave of economic reform. India's economic development has been fairly unusual for a rapidly developing emerging market, with growth in the services
sector outpacing that of the rest of the economy. As a result, share of manufacturing in GDPwhich is responsible for generating mass employment in most rapidly developing
economieshas remained largely unchanged. Although India's manufacturing sector has reignited in recent years, thanks in part to the emergence of its export-oriented sub-sector, services
will continue to be India's leading growth sector. In any case, India's growth fundamentals are now on a relatively solid footing and can support strong sustainable expansion for the
foreseeable future. Nevertheless, inflows of foreign direct investment, crucial to spurring the development of manufacturing, remain relatively low, particularly vis--vis neighboring powerhouse
China. Investment, both domestic and foreign, has been stifled by intrusive market regulation, poor infrastructure, inflexible labor-market practices, and recurring fiscal deficits, which have
crowded out private investment, although these trends are improving. Therefore, reform remains essential to unlocking the economy's full potential and propagating growth across the whole
country, which forms the central platform of the current Singh administration. Although constraints and risks to growth certainly abound, they are likely to be gradually mitigated as policy
reformssuch as the ones introduced in late 2012continue in response to the needs of expanding domestic employment and creating a globally competitive economy. With the tentative
restart to the reform process, the prognosis for the future of reform, privatization, deregulation, and infrastructure spending over the medium term remains largely positive.

Development strategy

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India is in the midst of restructuring its economy to unleash it from the constraints that held the economy back for many decades. In the years immediately following independence in
1947, the economy was an amalgam of state and market forces. At independence, India possessed a vibrant private sector, strong legal institutions, and a relatively well-established financial
sector compared with those of other developing countries. The political leadership, however, coalesced around Jawaharlal Nehru, who was inspired by Fabian socialist theory or swadeshi and
the principle that a developing economy had to be managed or guided by an activist state in order to achieve an equitable distribution of wealth.
India's growth potential was not fully realized during 195080, as significant inefficiencies constrained investment and undermined growth. Private savings rose from an average
ratio to GDP of 6% in 1950 to 20% in the 1980s, but GDP growth averaged just 3.5% over the period. The failure of capital accumulation to translate into higher growth rates reflected an
inefficient allocation of resources. Intrusive regulation prevented economies of scale in the corporate sector. Trade barriers hindered the transfer of technologies, while caps on foreign
participation deterred capital inflows. Import tariffs insulated domestic industries from competition discouraging innovation. Production costs remained high while technological development
remained low. Amid significant moral hazard, the inefficient public sector drained resources and prevented the economical supply of inputs and infrastructure to support the private sector.
Vested interest also proliferated. Private oligarchs exploited the licensing system to build up protected domestic monopolies while official corruption burgeoned.
Piecemeal reforms implemented from the late 1970s and throughout the 1980s were systemized following a balance-of-payments crisis in 1991. Initial reforms focused on limited
trade liberalization and modest deregulation through the de-licensing of selected sectors contributed to an acceleration of growth in the 1980s. Following the 1991 crisis, an integrated model
was adopted targeting reforms in four main areas: deregulation; trade liberalization; market liberalization; and macroeconomic consolidation. Trade tariffs have been progressively lowered,
licensing restricted to just five sectors, and public-sector monopolies wound down. External balances have been consolidated resulting in a sharp improvement in liquidity and solvency ratios,
although progress in reducing the fiscal deficit has been patchier. Caps on foreign direct investment (FDI) have also been progressively raised. Policy implementation has been gradual,
reflecting constraints imposed by Indias federal and coalition government system and the cushioning effect of stable if unspectacular growth.
The incomplete state of reform was recognized by the National Democratic Alliance (NDA) administration that came to power in 1999. The Bharatiya Janata Party (BJP)-dominated
government, led by Prime Minister Atal Behari Vajpayee, implemented a policy agenda aimed at reducing these structural weaknesses. Measures ranged from additional de-reservation of
products, to further reduction in trade tariffs. Fresh commitment was made to privatization while ceilings on FDI were raised. In fiscal 2003, the economy bounded to growth of 8.5%, its
strongest rate since 1999. Since then, growth has consistently ranged in the plus-7.0% range, supported latterly by accelerating manufacturing sector growth, which was spurred by
accelerating exports and capital accumulation. The new wave of reforms implemented by the NDA administration and upheld by the United Progressive Alliance government sought to develop
a labor-intensive manufacturing base geared to export and financed through non-debt-creating FDI flows.
The economy ascended to a higher growth trajectory with reforms in the 2000s. Annual economic growth averaged 6.8% in 200105, a full percentage point more than the rate for the
preceding five years. It would be skewed, however, to view the acceleration in growth in direct relationship with the policy program implemented by the NDA administration. Rather, such high
growth rates were a product of the cumulative effect of reforms implemented from the late 1970s onwards that were supporting the gradual decoupling of growth from its previous close
synchronicity with agrarian cycles. The restructuring of India's post-independence economic model continued and significant challenges remained.
Lack of further structural reforms and the Congress-led coalitions policy paralysis led to a slowdown in growth and investment from 2011 onward. The Indian economy has been
on a downward spiral since 2011; real GDP growth declined from near double-digit rates through most of the previous decade to 5% in 2012. Imprudent domestic macroeconomic policies and
the lack of supply-side reforms have fueled inflation and a fiscal deficit, while external imbalances have widened, with foreign investors increasingly shying away from India. The need for
prolonged fiscal and monetary consolidation, coupled with a weaker external environment, led to a sharp decline in domestic demand, with disappearing investment hitting Indias business
cycle particularly hard. The decisive BJP win in the May 2014 general elections is seen as a catalyst for growth revival, but it remains to be seen whether the Prime Minister Narendra Modi is
able to deliver on his ambitious reform promises.

Labor markets
With the world's second-largest population of 1.3 billion, India already has tremendous potential in terms of labor resources. In recent years, India's total population has been growing
at approximately 1.3% per year, and growth is expected to moderate only slightly, to 1.0% by 2020. About 33% of its population is currently below the age of 15 and only 5% over the
retirement age of 65. This trend implies that over the next 10 to 20 years, the already large portion of the population within the working-age cohort (62% in 2005), will continue to expand further
, implying a significant increase in the supply of labor. India will likely add close to 250 million workers to the labor pool between 2005 and 2025. This trend stands in sharp contrast with the
working-age populations of the rest of Asia, especially China, where the number of workers in this cohort has already started dropping. Furthermore, India's advantage with plentiful
working-age labor is likely to persist for a long period since the dependency ratio (proportion of non-working population to working population) will decline steadily in the coming years and is
expected to drop from 59% in 2005 to 47% in 2020 to 44% in 2025.
India has a significant advantage among emerging markets because it has a vast pool of highly skilled English-speaking workers. Moreover, the weaknesses of its public education
system are partially offset by a fast-growing technical education capacity in the private sector, along with "on-the-job learning" offered to employees by the large domestic private companies
and foreign multinationals. India has the world's third largest pool of scientific and technical personnel with wages a fraction of counterparts in advanced economies. More than two thirds of the
workforce, however, remains engaged in primary agriculture, with services and manufacturing accounting for around 17% and 16% of employment, respectively.
India has one of the most regulated labor markets in the world and employment regulations are regarded as being one of the greatest obstacles to an improvement in productivity
. The market is heavily regulated, a legacy of government intervention to protect employees and direct wage outcomes. Although some work has been carried out on the labor laws, more is
needed, not least because over-regulation and problems such as industrial action deter potential investors and place obstacles in the path of those already involved in the Indian market. As
with previous administrations, Prime Minister Manmohan Singh has committed the United Progressive Alliance (UPA) to addressing the labor reform issue, but no specific policy prescriptions
have been proposed. The political environment clouds prospects for wholesale labor reform especially for the UPA government, given the influence of leftist parties in its coalition. The state is
both a dominant employer and enforcer of protective labor legislation, a situation incompatible with the needs of an open market economy. The pro-labor legislation has given undue influence
to the fragmented trade union movement.

Monetary system
The central monetary authority is the Reserve Bank of India (RBI), and the rupee exchange rate is determined in the interbank market. The RBI, which intervenes periodically in the interbank
market, and less and less in recent years, purchases and sells spot and forward dollars from and to authorized dealers at the market exchange rate. The twin objectives of monetary policy are
maintaining price stabilityalthough this is not supported by explicit legislationand ensuring an adequate flow of resources to the productive sectors of the economy. Price stability has
become an increasingly important objective in the wake of the opening up of the economy, while the unofficial inflation target of 6.0% by January 2016 was established in early 2014.
Following financial market reform in 1991, the focus of monetary policy has shifted away from the use of direct monetary controls to indirect measures such as open market operations and
market-driven interest rates made possible by the deepening of government debt and capital markets. Liquidity management is carried out through open market operations via outright
purchases/sales of government securities and repo/reverse repo operations.
India adopted a market-driven exchange rate in 1993 and full current-account convertibility in 1994. Extensive controls remain on the capital account, however. The RBI's official approach is
eventual dismantlement of remaining controls, but wholesale abandonment remains inhibited by financial imbalances in the domestic economy. Fiscal laxity continues to impinge on effective
monetary management, undermining its aim of using interest rates as the central monetary transmission mechanism. Fiscal consolidation remains essential to maximizing the effectiveness of
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Financial system
The health of the banking system has improved dramatically in recent years, mostly through a drastic reduction in the amounts of nonperforming loans, but some risks persist. The financial
sector in Indiabanking, capital markets, insurance, mutual funds, and the money markethas improved considerably since the reforms of the early 1990s and is continuing to change.
Although levels of nonperforming loans are relatively low and capital-adequacy ratios remain fairly comfortable, banks fail to act as major providers of capital for efficient investment, directing a
majority of their credit action instead toward state-designated priority sectors and initiatives. Private credit at less than 40% of GDP remains very low, compared with over 100% for countries
such as Korea and Malaysia. The structure of the banking system is based on three tiers: scheduled commercial banks, regional rural banks, and rural cooperatives. The system is dominated
by public-sector banks, namely the State Bank of India, and nationalized banks. Up to 70% of all banking assets are in state hands. Whereas a large branch network ensures an overall level of
access to banking services comparable with other Asian countries, large segments of the population lack any access. Indian banks have also one of the largest exposures to government
securities in the world.
Since 1991, the financial system has been progressively liberalized. Deposit and lending rates have been mostly deregulated, reserve requirements have been reduced, and entry
requirements and ownership restrictions have been relaxed. Prior to reform, entry of foreign banks was highly restricted, while no new domestic banks had entered the market since the early
1970s. A legacy of the role of public banks as a quasi-instrument of state fiscal policy has been the accrual of relatively high levels of nonperforming loans while few public banks are
consistently profitable. The fragmentation of the banking system leaves many institutions financially unviable, in particular the cooperatives and development banks. Ongoing restructuring to
rationalize the sector and redress structural weakness should result in the greater participation of private and foreign interests fostering more competition and higher profitability.
India's securities markets have boomed since the introduction of liberalization after 1991 and are regarded as a model for stock-exchange development by many in the region. The two leading
indexes are the Bombay Stock Exchange and the National Stock Exchange established in 1996. Corporate bond markets are relatively underdeveloped, reflecting still high levels of state
ownership among large entities and a relative lack of institutional investors. Market activity is regulated by the Securities and Exchange Board of India.

Natural resources
India's mineral resources include high-grade iron ore, ferroalloys including chromite and manganese, and titanium, copper, bauxite, zinc, lead, gold, and silver. Nonmetallic minerals include
limestone, dolomite, rock phosphate, mica, gypsum, fluorspar, graphite, magnesite, and diamonds. The country is also endowed with fossil fuel resources, including abundant coal
reservesfourth-largest in the worldcentered in the Chota Nagpur Plateau, and some petroleum and natural gas reserves that are insufficient to meet the economy's energy demands.
Principal oil fields are located offshore in the Arabian Sea and onshore in eastern Assam and Gujarat states. India has a competitive advantage in agriculture, with plenty of arable land, sun,
and water.
Oil
Production
India's crude oil production rose barely 1% in 201112 from the previous year to 763,000 barrels per day (bpd). This comes at a time of soaring domestic demand, however, which is expected
to reach around 4 million bpd by 2014. The oil import bill in 201112 was USD475 billion, which accounted for 85% of the country's USD175-billion trade deficit.
There are currently 26 sedimentary basins, with reserves standing at 5.44 billion barrels as of 2008.
According to IHS Global Insight, the primary producing region is in the western offshore region, focused on the Mumbai High oilfield, which is operated by the state-owned Oil and Natural Gas
Corporation Limited (ONGC). In its heyday in the 1980s, it produced 450,000 bpd, but this had dropped to 131,400 bpd by 2001. Despite this it remains the country's highest producer,
providing 42% of the country's oil in 201112. The first phase of a USD1.46-billion redevelopment plan was completed in 2006, with 73 new wells coming onstream, bringing production up to
173,000 bpd. A second phase, adding a further 73 wells, was due for completion in 2012. A third phase, authorized in April 2012, is expected to boost production through March 2030 by 1.031
million tons of oil and 213.817 million cubic meters of natural gas by installing a 12-slot, 4-leg, unmanned platform, the drilling of 10 wells, and associated modifications to accommodate well
fluids, gas lift, and water injection. It is due for completion in December 2014.
Other western offshore fields are the Panna, Mukta and Tapti, which are jointly operated by ONGC, Reliance Industries and British Gas Exploration and Production (BG E & P) India. They are
currently undergoing a USD510-million redevelopment to boost production levels from the current 43,000 bpd.
The most significant recent discovery is the Krishna-Godavari basin off the coast of Andhra Pradesh, which is expected to be one of the major sources of future supply. Although mainly a
natural gas site, Reliance Industries is producing 40,000 bpd from its two wells in D6 block.
As well as a number of sites in Rajasthan, there is also a major onshore site in Assam, currently producing 5 million tons of oil per year (about 37 million barrels of oil equivalent), mostly
operated by state-owned Oil India (OIL). Smaller sites are located in Gujarat and Tamil Nadu, although reserves are running low in Tamil Nadu and reductions in reservoir pressure are causing
increased water content in Gujarat.
Exploration
In 1999, the government introduced the New Exploration & Licensing Policy (NELP), which leveled the playing field for investors with transparent bidding mechanisms for gaining licenses.
Successful bidders sign petroleum exploration licenses (PEL) which are overseen by the Directorate General of Hydrocarbons (DGH).
There have been 9 licensing rounds between 1999 and 2009 (NELP I-VIII), resulting in 268 exploration permits being issued, and an increase in exploration coverage from 11% to about 60%.
NELP VIII, which took place in October 2009, saw less interest from investors as a result of the economic slowdown and a rivalry between two halves of the Reliance Group, with only 36 of the
70 blocks on offer receiving bids (of which 33 were awarded). It was still the largest licensing round yet, attracting USD1.34 billion in investment commitments. There was also a muted
response to NELP IX between November 2010 and March 2011, particularly from foreign investors. Only two foreign companies took part in the auction, reflecting growing concerns over
confusing and restrictive government regulations and general inefficiency in the Indian public sector.
In terms of oil, the key site of exploration is currently Rajasthan state, where UK-based Cairn Energy owns acreage with a potential 3.7 billion barrels. Production hit an output of 175,000 bpd
in April 2012. Further exploration in the area is planned, as well as enhancing the existing sites at the Mangala and Bhagyam fields that could lead to an additional 300 million barrels. After
long delays, Cairn was given government approval to sell its Indian assets to Vedanta Resources for USD8 billion in July 2011. The deal had been held up by a dispute over royalty payments
by ONGC, which owns 30% of the Rajasthan fields. There were widespread concerns that the confusion and mismanagement over the issue would deter foreign investors.
India has been keen to expand its overseas assets. In February 2010, OIL announced that it had a budget of USD2.47 billion for the acquisition of fields in Africa, Latin America and Australia
in order to supplement falling domestic supplies. In the same month, the ONGC secured a joint exploration deal with Sonangol EP of Angola along with an estimated USD359-million worth of
investments in Nigeria. In May 2010, India signed an exploration deal with Venezuela aimed at jointly developing a USD20 billion oil field in that country. ONGC Videsh, the company's
overseas investment arm, signed a three-year deal with PetroVietnam for developing offshore oil sites in Vietnam in a long-term co-operation effort. ONGC Videsh, along with TNK-BP and
PetroVietnam, has a stake in a gas field in the Nam Con Son basin, off Vietnam's south coast. In 2006, Vietnam had awarded two exploration blocks, 127 and 128, in Phu Kanh basin to
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A damning report by the Comptroller and Auditor General released in early 2011 stated that ONGC lacked transparency, failed to meet commitments and had lost USD52 billion in unfruitful
exploration deals. It was particularly critical of the company's takeover of Russia's Imperial Oil in 2008, from which it has produced less than 16,000 bpd, causing a loss to the company of
USD265 million between January 2009 and March 2010. Out of 36 acquisitions, the auditor found that only five were successful and argued that ONGC had made a habit of expressing
intentions of buying foreign assetsin Vietnam, Australia, Africabut never following through.
Refining
In 2012, refining capacity totaled 2.84 million bpd. The largest refining company is Reliance Industries (RIL), whose Jamnagar-1 refinery has a capacity of around 1.24 million bpd.
The government has been attempting to deregulate the downstream sector for many years. The Administered Pricing Mechanism (APM) on oil products was phased out between 1998 and
2002 and replaced by the Market Determined Pricing Mechanism (MDPM), where prices are benchmarked and adjusted to international prices on a monthly basis. However, when oil prices
started to rise in 2002, the government baulked at the prospect of these rises being passed on to customers and kept fuel prices fixed by the state. These subsidies have become a major drain
on government finances.
In February 2010, the minister of oil put forward fresh proposals to deregulate fuel prices and these were finally passed by parliament in June. There was an immediate rise in petrol prices of
7.3%. Petrol prices rose by over 40% between February 2010 and May 2011, but this still fell short of offsetting rising global oil prices, and the government's subsidy bill was four times the
original USD5.5 billion budget for 2011-12. That played a major part in pushing the fiscal deficit to 5.9% of GDP, far above the target of 4.6%. State-run fuel retailers claimed their revenue loss
due to selling diesel and cooking fuels at government-set prices increased by 77% to USD24.5 billion for the year. The principal reasons behind this loss were rising global prices and a sharp
depreciation in the rupee. The government increased its subsidy payments to close to USD15 billion. The government, which vowed to cut subsidies to two% of GDP in 2012-13 from 2.4% last
year, announced an 11% increase in petrol prices to the public in May 2012, the largest single increase in a decade. There were nationwide protests, with many criticizing the government for
sharing the burden equally across the entire population, rather than just the rich (India has one of the highest ratios of petrol prices compared to GDP per capita in the world). The government
has so far baulked at the idea of deregulating diesel and cooking gas, which are more widely used by the poor than petrol, and would likely lead to even greater protests.
Consumption
According to IHS figures, India consumed 3.3 million barrels of oil per day in 2011. The previous year, the country consumed about 3.1 million barrels of oil per day.
Pipelines
India's pipeline network is concentrated on bringing oil from the northwest to the major urban centers in northern India. There are also pipelines between Arunachal Pradesh in the east and
Bihar and Uttar Pradesh in central India, with a few shorter oil product pipelines in Andhra Pradesh and southern India.
The largest operator, Indian Oil Corporation (IOC), has a network of 10,651 km with a capacity of 76.3 million tons per year. IOC operates the 1,870 km Salaya-Mathura-Panipat crude oil
pipeline, which delivers from the Jamnagar district on the coast to the major refineries at Koyali in Gujarat, Mathura in Uttar Pradesh and Panipat in Haryana.
Other major pipelines include the 1,054-km Mundra-Delhi oil product pipeline, which connects the supply centers in Gujarat with consumer areas in various states and has a capacity of 5
million tons per year (37 million barrels of oil equivalent). It is the first pipeline to incorporate the common carrier principle, by which 25% of capacity can be used by others.
Trade
Despite its positive oil reserves and high production rates, India's rapid economic growth means that it relies on crude oil imports to meet 80% of its domestic demand. This is expected to fall
to 75% if the new oilfields prospected by Cairn and ONGC deliver on their promise by 2014. Saudi Arabia is the largest supplier, providing almost a quarter - or 25.5 million tons per year - of
India's oil imports, and aims to double this amount in the coming years. Iran is the second biggest supplier - providing around 17% of imports - but India is under considerable pressure from
the US to reduce its imports from Iran in line with proposed sanctions on the Iranian government over its nuclear programme. India has generally opposed sanctions on Iran, partly since it
does not consider Iran a priority threat, but also because some of its ageing refineries are designed specifically for Iranian crude types and rely on cheap prices from Iran. Nonetheless,
following a visit by US Secretary of State Hillary Clinton in May 2012, India agreed to cut Iran oil imports by 11% over the coming year. Simultaneously with her visit, however, New Delhi also
welcomed a trade delegation from Iran, who signed a number of agreements on imports designed to facilitate payments for Iranian crude. India has struggled to find methods of payment after
pressure from the US led the Reserve Bank of India (RBI) in December 2010 to disallow the use of the Asian Clearing Union, a mechanism used to manage trade payments across the region.
Further pressure led to India stopping payments through the European-Iranian Trade Bank in Germany. India eventually resorted to using multiple currencies, including rupees and the euro.
Other important sources of imports are Nigeria, Kuwait, Iraq and the United Arab Emirates (UAE).
India exports only a small amount of oil. This goes to its neighbors in Nepal, Bhutan and Sri Lanka, largely for political reasons. The recent thawing of relations with Pakistan has opened the
possibility of sales across their border. Mittal Energy Investments and Hindustan Petroleum opened a USD4 billion refinery on the border at Bathinda, Punjab in 2012, and India offered in May
2012 to build a pipeline to the Wagah border for export of oil.
Natural gas
Production
With demand for gas increasing quickly, India needs to greatly expand its current production levels, which stood at just 1,848.4 billion cubic feet per day in 2010. The main producers of India's
gas are the state-owned ONGC and OIL, along with privates companies such as BG Group and Reliance Industries.
3
Currently, the largest producing field is the offshore Mumbai High at approximately 12.8 million m of gas per day, but its output is declining by around two% per year, according to IHS Global
3
Insight. ONGC's redevelopment plan is set to add an extra 2.987 billion m of gas by March 2030.
Major gas reserves have been discovered in five areas across India: the Mumbai High offshore complex; Gujarat state (on- and offshore); the Brahmaputra Valley in the northeast; Andhra
Pradesh state; and the Krishna Godavari Basin (offshore east coast). Joint venture partners are planning to spend over USD500 million to expand sites in the area and add 0.6 billion cubic
meters by 2020.
3
The recent discovery of the Krishna-Godavari basin off the coast of Andhra Pradesh has an estimated 325 billion m of gas reserves, according to IHS Global Insight. Production began in April
3
2009 at 2.5 million m per day.
3
Four nearby blocks are estimated to hold an additional 58.8 billion m with Petrobras and Norway's Norsk Hydro Oil and Energy brought in to aid exploitation, according to IHS Global Insight.
These new sites should wipe out gas shortages at nearby power generation facilities. Another deep-water block is being operated by Gujarat State Petroleum Corporation (GSPC) which has a
3
certified minimum discovery of 35.6 billion m .
Andhra Pradesh, Assam and Gujarat hold the main onshore gas sites. Decline in production since they were discovered in the 1960s means that ONGC is planning to invest an estimated
USD650 million to upgrade its sites. Smaller quantities of gas come from Tripura, Rajasthan and a scattering of fields in Tamil Nadu.

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Exploration
ONGC is currently exploring for new gas reserves in Assam as well as investing in upgrading infrastructure and facilities.
Under NELP VIII round, the government offered a number of blocks with high gas potential, including two deep-water sites known as D8 and D9 alongside the Andaman and Nicobar Islands.
ONGC successfully bid for almost a third of the 70 available blocks, the most promising being in the Krishna Godavari. The following round, starting in October 2010, saw 34 blocks offered for
auction.
In June 2010, Reliance Industries and Atlas Energy signed a USD1.7 billion deal that will give Reliance access to the Marcellus Shale gas field in the eastern US.
In February 2011, BP signed a USD7.2 billion deal with the Reliance Industries conglomerate to help boost India's offshore natural gas production and find new reserves. BP's investment, to
be paid over the next financial year, will give it a 30% stake in 23 oil and gas blocks owned by Reliance situated off the coast of east and southern India, of which only one is currently in
production. BP believes the blocks could hold up to 15 trillion cubic feet of gas. BP will pay a further USD1.8 billion if its exploration is successful - taking the overall investment from both
countries to USD20 billion.
The government announced a shale gas strategy in 2012, with exploration bids expected in six Indian regions (Cambay, Assam-Arakan, Gondawana, KG onshore, Cauvery onshore and the
Indo-Gangetic basins) by the end of 2013. India has huge potential shale resources in northeastern and central parts of the country, estimated at a total of 63 trillion cubic feet by the US
Energy Information Administration.
Consumption
Domestic consumption of gas has risen steadily to 2,277.5 billion cubic feet per day in 2010. Gas demand is estimated to continue rising by 4.8% per year until 2030.
Fertilizer and power sectors consume around 70% of total gas output and lack of gas frequently causes them to run below full capacity.
Pipelines
The dominant company in India's national gas pipeline network is the state-owned Gas Authority of India (GAIL) with around 78% of the market. GAIL buys most of its gas from ONGC. It
announced that it plans to spend USD1.3 billion in 2012-13 on expanding its pipeline network, adding 5,500 km to its existing 9,000 km network. Much of the rest of the pipeline network is
owned and operated by Gujarat State Petronet Corp. (GSPC) and Assam Gas Company.
As with oil the majority of the infrastructure is located onshore in the northwest, running from the largest refineries to urban centers. India lacks a comprehensive national grid, although the
government is planning a major investment in infrastructure over the coming decade.
Major pipelines include the 2,800-km Hazira-Vijaipur-Jagadishpur (HVJ) pipeline, and the 610-km Dahej-Vijaipur pipeline. According to IHS Global Insight, GAIL has submitted proposals to
construct a 1,400-1,500 km gas pipeline between Vijaywada in Andhra Pradesh and Bijapur through Nagpur, simplifying the route from eastern to northern India.
Reliance Industries is attempting to enter the market, with a 1,100 km pipeline from Kakinada in Andhra Pradesh to Howrah in West Bengal and has developed an east-west pipeline
connecting the Krishna Godavari Basin with Bharuch in Gujarat, with further extensions to surrounding areas planned. However, it also states that GAIL plans to add another 6,000 km of gas
pipelines to the 6,700 km already in existence over the next five years and is now moving to consolidate gas supply contracts with city networks that will help maintain its dominant position
over the coming years.
Long-standing plans to construct an international pipeline from Iran to India through Pakistan (IPI) have been repeatedly delayed as a result of numerous difficulties, and in February 2011 a
note on the website of the Iran Gas Engineering and Development Company said that construction of the pipeline had been suspended for one year, without giving any explanation. India has
worked hard to keep the USD7.6 billion "peace pipeline" project on track. In April 2008, India's then minister of petroleum and natural gas, Murli Deora, visited the country for talks. Indian
Petroleum Secretary MS Srinivasan and his Pakistani counterpart, Ahmad Waqar, agreed in June that New Delhi would pay Islamabad a transportation tariff of USD0.70 to 0.75 per million
British thermal unit (mBtu), higher than the USD0.55 per mBtu initially proposed by India for the amount of gas passing through Pakistan's 1,050 km section of the pipeline. Moreover, India and
Pakistan agreed to pay Iran USD4.93 per mBtu, although both countries opposed Iran's demand that this pricing formula be revised every three years based on global energy prices. New
Delhi and Islamabad preferred the price to remain constant for the 25-year period of the natural gas supply contract. Another sticking point was that Pakistan has demanded a transit fee of
USD0.493 per mBtu while India was only prepared to pay USD0.20 per mBtu. Although Pakistan's minister of oil and natural resources stated in October 2011 that the Iran-Pakistan section of
the pipeline will be finished before the end of 2013, one year ahead of the original schedule, progress on the Indian sections and agreements on pricing remain sticking points.
The alternative project, being encouraged by the US because it does not involve Iran, is the Turkmenistan-Afghanistan-Pakistan-India (TAPI) pipeline, which has funding from the Asian
Development Bank (ADB) and would carry Caspian Sea natural gas to India. The proposed USD7.6 billion, 1,680 km pipeline has been mooted for 20 years but faces problems of security as it
passes not only through Quetta and Multan in Pakistan, but also from Herat to Kandahar in Afghanistan. Nonetheless, there has been progress in negotiations, with India signing the Gas
Pipeline Framework Agreement in September 2010 and the Pakistan government giving formal approval to the project the following month. In April 2012, a deal was finalized for Afghanistan to
receive USD400 million annually in transit fees. It may also purchase some gas from Turkmenistan, although this has yet to be agreed. The following month, India and Pakistan signed an
agreement with Turkmenistan to purchase 90 million cubic meters of natural gas a day through the proposed pipeline.
A new proposal being discussed in early 2010 is for the South Asia Gas Enterprise (SAGE) pipeline, an undersea pipeline from Iran to India that would make both the IPI and TAPI projects
irrelevant. Gas from Turkmenistan could then be sold to India via Iran. The concept had been discussed in the 1990s, but has been revived as a result of improved technology.
Trade
India's gas imports stood at around 7 million tons in 2008 and, after a dip caused by the global downturn, are set to rise to record levels in coming years.
There are two LNG re-gasification terminals at Dahej and Hazira in Gujarat. India's capacity for re-gasification is expected to grow from 13.5 million tons per year in 201112 to 47.5 tons in
201516 and 62.5 mtpa by the end of the decade. As well as expanding the existing terminals, two refineries - at Kochi and Dabhol - are due to start operations by 2013. A further four
terminals are undergoing feasibility studies, including plans by Petronet LNG for a USD1-billion terminal on India's east coast, which the company says could have a regasification capacity of
25 mtpa by 2016.
The LNG supply into India in 201112 was around 9 mtpa. To make up the shortfall, Petronet LNG has reportedly been in talks to purchase stakes in LNG liquefaction plants in Australia and
the United States. It already has a 20-year, USD25 billion with Australia's ExxonMobil to supply 1.5 mtpa gas from its Gorgon project. GAIL announced in 2011 that it had acquired its first
shale gas assets in the US under a three-year, USD300 million deal for a 20% stake in Carrizo Oil & Gas Inc's Eagle Ford Shale acreage. Reliance Industries has already spent USD3.4 billion
to acquire and develop reserves in Pennsylvania and Texas.
Indian companies are looking all over the globe for LNG supplies, seeking deals in Southeast Asia, South America and Africa.
Mineral deposits
Extraction

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Mining and hydrocarbons contributed an estimated 2.3% of gross domestic product (GDP) in 2010-11. Mineral production came from a reported 2,628 mines, of which 574 were involved in the
extraction of coal and lignite, 608 in metallic minerals and 1,446 in non-metallic minerals. India produces 89 minerals, four fuel minerals, 11 metallic, 52 non-metallic (including 11 atomic
minerals) and 22 minor minerals. In addition India has reserves of good quality bauxite and chromite, lignite, limestone, dolomite, china clay, fire clay, copper, kyanite, lead, zinc, manganese,
nickel and phosphorite.
India possesses some of the largest reserves of iron ore in the world with estimated reserves of some 22 million tonnes. Reserves are primarily found in the states of Bihar, Odisha, West
Bengal, Goa and Karnataka. India is also considered one of the major sources of bauxite.
However, the mining of these minerals has become a major source of instability across India's poorest regions. The perception that the central government has sold off access to these
resources at the expense of the rights of tribal villagers has been a major driver behind the Maoist insurgency. Many of the complaints relate to the improper acquisition of land by state
governments and the failure to recognize ownership rights in tribal and village areas. The Land Acquisition Act has not been undated since 1896. Both anti-mining activists and mining industry
lobbyists have been calling for a revised bill to clarify regulations, but it has been stalled in the parliamentary quagmire for many years.
Difficulties over land acquisition and environmental clearances, combined with the fallout from widespread allegations of corruption in the allocation of resources (facilitated by opaque
regulatory processes), have led to increasing difficulties for the mining industry. The sector declined by 2% in 2011-12 after steady increases over the last three years, and leading to many
companies reporting difficulties in meeting demand. Coal India, for example, which supplies coal to 80% of India's power plants, had a shortage of 142 million tonnes in 2011-12.
A particularly controversial bauxite mining project planned by Vedanta Resources in Odisha brought international condemnation because the area of the Niyamgiri Hills that the company
proposed to exploit is considered a deity by local villagers. The protests that resulted when the Supreme Court awarded the contract led to a number of Vedanta shareholders selling their
shares, including the Church of England, and villagers have refused to move. After a number of appeals, the Ministry of Environment and Forests finally refused permission for the project in
August 2010, although this is being challenged in court. The ministry later blocked Vedanta's plans to increase the size of its aluminium refinery in nearby Lanjigarh. Increasing interventions by
the environment lobby threaten to undermine the collusion between state governments and resource extraction companies that have existed in the past.
Coal
India is the world's third largest coal producer after China and the US, and has proven reserves of 75 billion tonnes (and estimated reserves of approximately 200 billion tonnes) of poor and
medium coals. The majority of India's coal is mined in Bihar, Madhya Pradesh and West Bengal, and two-thirds of all coal is used in power production. A full 90% of India's 390 coal mines are
run by the state-owned Coal India Ltd and current policy only allows private firms to operate mines if they are directly attached to a power plant or factory. Further liberalization has been
strongly opposed by labor unions. The state began the process of divesting 10% of Coal India's shares in October 2010, in a record initial public offering worth an estimated USD3.5 billion.
Coal provides around 55% of India's energy demand. Indian coal has a high ash content and low calorific value, so most coking coal must be imported.
A list of no-go areas for mining released by the Ministry of Environment and Forests in early 2010 covered around 50% of known coal reserves and could restrict mining worth over 50,000 MW
, according to the central electricity authority. The list is currently being challenged by the Ministry of Coal.
Power generation
Current capacity/production
India has an electricity shortfall of around 13% and the authorities are seeking to add approximately 100 GW of new installed electricity generating capacity in the decade to 2017. It is
expected to miss this target under the current five-year plan, with an initial target of adding 78 GW, between 2007 and 2012, revised down to 62.37 GW due to delays in building several power
projects as a result of issues relating to coal supply, environment clearances and land acquisitions. Adverse weather has also affected hydroelectric projects and contributed to the shortfall.
The sector is in urgent need of reform and investment. Supply is dominated by effectively bankrupt State Electricity Boards (SEBs) which purchase, generate and distribute electricity in a
haphazard manner with the result that some consumers pay next to nothing for their electricity. Approximately one-quarter of users simply steal their supply, while a significant proportion is lost
in transmission and distribution. Costs to the consumer are also heavily subsidized, and as a result, the sector's infrastructure has been largely ignored for many years. The government has
sought to address the situation, most notably with the introduction of the Electricity Bill in May 2003. This gives state electricity boards greater powers to crackdown on problems such as power
theft and protects their accounts from state interference. Unfortunately, the pace of change varies considerably with reform being conducted on a state-by-state basis.
This disorganized approach has resulted in several foreign power companies withdrawing from major agreements to invest in the power sector and the continued poor state of affairs only
serves to deter foreign direct investment (FDI), despite the presence of many investment incentives. The most controversial failed power project was the Dabhol power station (Maharasthtra),
in which Enron (US) was the lead contractor. Political interference first delayed the construction of the plant, but it was the subsequent wrangling over the price of the power produced that
resulted in the SEB refusing to pay. It was during this stalemate that Enron collapsed. Other notable failures in the power sector have been Cogentrix (US), Daewoo (South Korea) and
Electricit de France, whose reluctance to invest forced the government into formulating plans to split SEBs into transmission, generation and distribution companies.
Nuclear power
Although India already has 20 nuclear reactors, it was effectively barred from purchasing power plant components and nuclear fuel for many years following its test of a nuclear bomb in 1974
and its refusal to sign the Nuclear Non-Proliferation Treaty.
This changed in 2005 when the US agreed to supply India with technology and materials for its civil nuclear programme on the condition that India separated it from the military programme
and agreed to inspections by the International Atomic Energy Administration. This required a special exemption from the NPT, which was agreed by the Nuclear Suppliers Group in September
2008.
Since then, eight countries have signed agreements on civil nuclear co-operation with India, most notably the United States, United Kingdom, France, and Russia. It is estimated that the
nuclear market in India may be worth USD175 billion over the next 40 years under plans to purchase 21 foreign reactors to reach a nuclear power capacity of 63,000 MW by 2032, from its
current level of 4,560 MW. Russia has already agreed to build as many as 12 reactors in India. Private US nuclear companies are concerned about the extent of the liability they may face in
the event of an accident under India's Nuclear Liability Act passed in August 2010, which argues that state-owned nuclear companies in other countries have an unfair advantage. India signed
the Convention on Supplementary Compensation for Nuclear Damage (CSC), which places the onus of liability on the 'installation state' in the event of an accident with international
ramifications, but it is not clear whether this will be enough to assuage concerns in the United States.
The speed at which India is seeking to embrace nuclear technology has led to fears that it will compromise on safety, and these concerns were thrown into sharp relief with the Fukushima
crisis in Japan in early 2011. Already, a UN report in 1993 found that occupational hazard in nuclear plants in India was six to eight times the world average. A public interest petition
demanding the disclosure of an Atomic Energy Regulatory Board's (AERB) report on the safety of nuclear power plants was rejected by the Supreme Court in 2004. In the wake of Fukushima,
the former head of the AERB, A Gopalakrishnan, heavily criticized the government in the media by stating that: "The AERB's disaster preparedness oversight is mostly on paper and the drills
they once in a while conduct are half-hearted efforts which amount more to a sham." The 9900 MW nuclear park at Jaitapur in Maharashtra, which was approved in January 2011 and is
expected to be the biggest nuclear park in the world, has come in for particular criticism and is strongly opposed by local residents. There have also been protests at the Russia-built
Kudankulam Nuclear Power Project in the wake of Fukushima.
In response to these concerns, the government announced that it will set up a new independent nuclear watchdog, the Nuclear Regulatory Authority of India, to take over from the AERB. The
AERB was widely criticized for being subordinate to the atomic energy establishment that it was meant to regulate. The government stated that the Operational Safety Review Team of the
International Atomic Energy Authority (IAEA) will also assist in safety reviews and audits.

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Energy mix and diversification


Conventional thermal generated power accounts for the majority of installed generating capacity in India. During 2008-2009 thermal generating capacity grew by 5.57% year-on-year (y/y) to
reach 93,392.64 MW, or approximately 62% of total generating capacity. The majority of India's generating capacity is coal-fired.
Hydroelectric power comes second, accounting for around a quarter of India's total installed capacity. In 2008 India's installed hydropower generating capacity was 36,647 MW. Hydropower
capacity also rose by 8.38% between 200708 and 200809, according to the Ministry of Power; a faster growth rate than in the thermal generation sector. The government is keen to promote
hydropower because it is a renewable energy resource that promises to diversify India's generation sources. India's hydropower plants are generally located in the more mountainous regions
such as Himachal Pradesh and Uttarakhand, although delays in securing funding and environmental approvals for new hydropower projects have made the government's 30,000 MW capacity
addition during the Twelfth Five Year Plan (201217) look ambitious, according to IHS Global Insight.
Nuclear power plants provide around 4.2% of power generation and the plan is to increase this to 9.0% by 2022.

Energy
2008

2009

2010

2011

2012

798

786

863

663

948

3,404

4,032

4,181

4,102

4,195

Production

1,086

1,589

1,752

1,892

1,892

Consumption

1,470

2,020

2,202

2,212

2,257

Production

375,151

406,962

411,567

435,669

431,409

Consumption

430,035

475,607

482,737

517,071

540,919

Production

843,491

899,551

959,243

1,027,871

1,075,699

Consumption

616,203

702,270

759,230

825,204

865,215

Oil (Thousand b/d)


Production
Consumption
Natural gas (Billion cubic feet)

Coal (Thousand short tonnes)

Electricity (Thousand megawatt hours)

Source: IHS

Key sectors
IT (information technology) and related services (ITES): This industry has achieved remarkable double-digit growth since the mid-1990s. Prospects remain good both in the export market
and the expanding domestic market. The importance of the sector ensures favorable treatment by the government, witnessed in the speed with which internet and IT laws were passed in 2000
when the industry pressed for them. While software exports constitute only a small share of GDP, the IT and related services not only include software exports, but also business-process
outsourcing (BPO) activities such as accounting, procurement, insurance management, legal services, human resources, medical services, and other internal corporate control functions. This
industry's rapid growth is likely to be sustained, thanks to a continuing shift of BPO work to India. IT services continue to comprise the largest share of the ITES industry, contributing over 47%
of the total industry revenue. Meanwhile, hardware accounted for 21% of total revenue; BPO accounted for 18%; and engineering and R&D accounted for 18%. India's indigenous IT firms are
booming. Some of the leading companiesInfosys and Wipro and the service subsidiaries of large conglomerates such as Reliance and Tataare emerging as global competitive brands.
Recent years have also witnessed the coming of age of the Indian IT multinationals, with the traditionally India-centric, indigenous players beginning to build noticeable presence outside India
through cross-border acquisitions, mergers, onshore contract wins, and growth in other low-cost locations. This trend is complemented by global multinationals continuing to significantly
ramp-up their offshore delivery capabilities in India.
Financial services: The opening up of the Indian economy in the 1990s led to a series of financial-sector reforms, prominent being the banking and capital market reforms. The system is
dominated by public-sector banks, namely the State Bank of India, and nationalized banks. The banking system is relatively healthy, and access to capital is very good. Financial sector
offerings are available in the equity market, debt market, money market, derivative market, mutual funds, money market mutual funds, banking, and insurance. The banking system is
dominated by public-sector banks, namely the State Bank of India, and nationalized banks; other participants include development, private, and foreign banks. There are six fully foreign banks
in India, and the overall market is expanding at 15% per year. New private-sector banks reflect the high growth in the private sector; meanwhile, the public-sector banks are slumping. Over the
years, reforms in the equity markets have brought India's bourse to the standards of the major global equity markets. Today India's stock exchange has over 25 million shareholders (
third-largest investor base in the world after the United States and Japan). The capital market is significant for degree of development, volume of trading, and tremendous growth potential. The
debt market has undergone considerable changes in the last few years. Previously characterized by regulated interest rates, limited players, and lack of trading, the markets have become
more integrated and less regulated.
Light manufacturing and automobiles: Low-cost labor and a large domestic consumer market make India an attractive location for light manufacturing investors from a range of industries.
Indian industry produces practically all goods. Years of voluntary isolation from the world's exports required local companies to be self-sufficient, leading to rampant inefficiencies. Now, with
the market universally exposed to foreign manufacturing entrants, Indian industry has been forced to become more productive. International conglomerates Hyundai, Honda, Toyota, Ford, and
GM have quickly entered the automobile market, challenging domestic market leader Maruti. In other industries, other, smaller entrants are rapidly making their mark in newly successful
industries such as auto parts, as well as India's traditional products like textiles and garments and jewelry.
Pharmaceuticals: The Indian pharmaceutical industry is one of the fast-growing sectors of the Indian economy and has made rapid strides over the years. Long self-sufficient, the industry has
gained global recognition as a producer of low-cost, high-quality bulk drugs and formulations. The industry has adapted its business model to the 2005 amendment to Indias patent law that
reinstated product patents for the first time since 1972. In the last few years, several pharmaceutical companies have engaged in commercially viable R&D activities and become significant
players in the international market. Leading Indian companies include Ranbaxy Laboratories, Dr. Reddy Laboratories, Nicholas Piramal, Cipla, and Biocon.

India: Top-10 Sectors Ranked by Value Added


2014 Level

2015IHS.

2015 Percent Change

Percent Share of GDP

page 44 of 56

(Bil. US$)

(Real terms)

(Nominal terms)

1. Agriculture

320.6

1.3

17.2

2. Wholesale trade

158.1

8.7

8.5

3. Construction

141.9

6.0

7.6

4. Retail trade - total

129.0

7.5

6.9

5. Public Admin. & Defense

116.8

10.1

6.3

6. Real estate

97.8

12.4

5.3

7. Banking & related financial

92.0

11.5

4.9

8. Business services

79.9

10.5

4.3

9. Health and social services

71.1

8.8

3.8

10. Land transport

54.6

15.0

2.9

Top-10 Total

1,261.8

67.8

Source: World Industry Service, IHS Economics


Updated: 19 October 2015

Business environment: Legal system


The legal system and the judiciary follow the traditions of English common law, but while the system is mature and comprehensive in principle, the practical application of the law leaves much
to be desired. Legislation is complex and often outmoded, while its implementation is frequently inefficient and delayed. Furthermore, India's constitution, which came into effect in 1950, did
not disturb the continuity of existing laws and the unified structure of the courts as they had been under British colonial rule. The judiciary is independent and, in recent years, has been
increasingly assertive in checking perceived abuses of power by the executive.
The Indian constitution is federal in nature, with a distinct distribution of powers between the central and state governments in the areas of taxation, legislation, and the social sector. The main
sources of law in India are the constitution, statutes, customary law, and case law. At the apex of the judicial system is the Supreme Court, with an independent High Court for each state or
group of states. Under the High Courts, there is also a hierarchy of subordinate courts. Generally, local courts deal with small cases, and pass larger disputes to the higher courts. The
Supreme Court has original, appellate, and advisory jurisdictions. The High Courts are at the head of state judicial systems. Each High Court has powers of superintendence over all courts
within its jurisdiction. Moves are under way to improve the whole system, with the government looking to speed up access to justice both for foreign investors and India's citizens.

Business regulation
Dispute resolution
India's court system is notoriously slow and overburdened, but the government has set up a fast-track judicial system in an attempt to remedy the situation. India's prime legislation on dispute
resolution is the Arbitration and Conciliation Act 1996, which contains provisions for regulating domestic arbitration, international commercial arbitration and the enforcement of foreign arbitral
awards. India has also begun the establishment of so-called "mediation centres". Although these address a range of cases, rather than concentrating solely on business matters, the growing
existence of these centres underlines a trend towards using mediation to resolve disputes more effectively. In February 2007, the International Centre for Alternative Dispute Resolution (
ICADR) was inaugurated in New Delhi. The centre allows parties to a case to resolve their dispute through arbitration, mediation or negotiation using an independent expert as arbitrator, who
will be chosen by all parties. A distinctive feature of the Indian legal system is the Lok Adalats (People's Courts), voluntary agencies that provide an alternative forum for the resolution of
disputes through conciliation.
With increasing international trade and the widening scope of international transactions, arbitration has come to play a vital role in the resolution of disputes between Indian and foreign parties,
either on an ad-hoc or institutional basis. Besides the Indian Council of Arbitration, various state Chambers of Commerce provide facilities for institutional arbitration. Some international
Chambers of Commerce, such as the Indo-German Chamber of Commerce, also provide facilities for the conduct of international institutional arbitration. The Indian Council of Arbitration has
been rendering useful institutional services in the settlement of disputes in domestic as well as international arbitration. Many of the contracts involving Indian corporations, including state
undertakings with foreign parties, contain a clause for the reference of differences arising between the parties to the Indian Council of Arbitration for resolution.
Since July 2010, the government has established eight tax dispute resolution panels (DRPs) in eight major commercial centres two each in Delhi and Mumbai, and one each in Ahmedabad,
Kolkata, Bangalore, Hyderabad, Pune and Chennai in an effort to accelerate the settling of transfer-pricing tax disputes.
The Commercial Division of High Courts Bill 2009 was passed by the Lok Sabha in December 2009, but as of February 2013 has not yet been approved by the Rajya Sabha. The law, if
enacted, would provide a legal framework that allows adjudication of commercial disputes involving more than 50 million rupees within a year.
In April 2010, India's Ministry of Law proposed changes to the Arbitration and Conciliation Act 1996 that aim to make out-of-court settlements more effective, as previously the act has come
under fire for leaving too much leeway for "conflicts of interest", in particular of interference of courts. As of February 2013, no amendments have been passed, however.
India ratified the New York Convention of 1958 on the International Convention on Recognition and Enforcement of Foreign Arbitral Awards, and passed the Foreign Awards (Recognition and
Enforcement) Act 1961, which governs the enforcement of foreign awards in India. In international contracts involving foreign parties, Indian parties generally agree to the International
Chamber of Commerce's rules of arbitration, and arbitration can take place outside India.

Company law and corporate governance


General
The Companies Act 1956 currently regulates the functioning of corporations in India. India's lower house of parliament (Lok Sabha) passed the Companies Bill, 2011, on 18 December 2012,
although it also needs the approval by the upper house of parliament (Rajya Sabha) before being enacted. If it becomes law, it would replace the dated current Companies Act, 1956. The
Companies Bill, 2011, was brought by the government "to meet the changed national and international, economic environment, and further accelerate the expansion and growth of our

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economy". In many parts the Companies Bill, 2011, builds on existing provisions in the Companies Act, 1956, but it also includes numerous amendments to existing clauses and new
provisions that would improve a number of key areas.

Procedures
Setting up a business in India is a cumbersome process, reflected in the World Bank's Doing Business in 2013 report in which India was ranked 173rd out of 185 assessed economies in the "
starting a business" category. According to the report, setting up a business in India takes an average of 27 days, with 12 procedures having to be undertaken. These comprise: (1) the
obtaining of a director identification number (din); (2) the obtaining of a digital signature certificate; (3) the reserving of the company name with the Registrar of Companies; (4) the paying of
stamp duties online and obtaining a certificate of incorporation; (5) making a seal; (6) the obtaining of a permanent account number (PAN); (7) the obtaining of a tax account number for income
tax; (8) registration with the Office of Inspector; (9) online registration for value-added tax (VAT); (10) registration for profession tax; (11) registration with the Employees' Provident Fund
Organisation; and (12) registration for medical insurance. Once a company has been incorporated under the Indian Companies Act 1956, it is treated on a par with other Indian companies
incorporated under the act, and is governed by the provisions of the act for matters such as administration and tax.

Corporate governance
India has undertaken significant efforts to provide a viable regulatory framework for corporate governance. In 2002, the Ministry of Corporate Affairs formed the Naresh Chandra Committee on
Corporate Audit and Governance, which has provided the government with recommendations, some of which have been taken up in the various Companies Bills. Legislation already passed
on corporate governance includes the Securities Contracts (Regulation) Act 1956, the Securities and Exchange Board of India Act 1992, and the Depositories Act 1996. The Companies Bill,
2011 (see above), contains several provisions to improve corporate governance.

Bankruptcy
Bankruptcy procedures in India are generally onerous. The Securitisation Act 2002 paved the way for more effective laws governing insolvency, but India still lacks comprehensive legislation
on bankruptcy, and there exists a confusing number of highly specialised laws, some of which overlap and conflict with each other. The main laws governing bankruptcy procedure include: the
Companies Act 1956; the Sick Industrial Companies (Special Provisions) Act 1985, which is due to be repealed by the Sick Industrial Companies (Special Provisions) Repeal Act 2003, but this
has not yet come into force; and the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interests Act 2002. According to the World Bank's Doing Business in
2013 report, it takes an average of 4.3 years to complete all the procedures associated with insolvency. The cost of this process averages out at 9% of the value of the estate, with a recovery
rate of 26 cents in the US dollar. The Companies Bill, 2011, which still needs to be passed by the Rajya Sabha, would introduce more time-bound bankruptcy procedures.

Competition
India's competition policy is governed by the Competition Act, 2002. The authorities phased out the Monopolies and Restrictive Trade and Practices Commission (MRTPC) and related
monopolies and restrictive-trade-practices legislation when a quasi-judicial body, the Competition Commission of India (CCI), became operational in mid-2008. The CCI formulates the
ground rules for competition policy, focusing on key issues such as liberalisation, privatisation and a more open trade policy. According to officials, the change was intended to "remove the lid"
on private investment and growth that was imposed by the MRTP Act 1969.
The CCI fully functional since 1 June 2011 and tasked with overseeing all high-value merger-and-acquisition deals is the body to which foreign institutional investors have to report
acquisitions, by releasing details of the control they will have over any new entity and when that control will be exercised.
The body is staffed with experts, and has a technocrat at its head. The Competition Act also established an appellate tribunal, headed by senior former judges. In the first instance, a case will
go before the CCI, and then onto the appellate tribunal. If a second appeal is necessary, it will go before the Supreme Court.
The CCI is becoming increasingly assertive, and is one of the few government bodies functioning effectively in a broader picture of policy paralysis and institutions bogged down by
bureaucratic red tape and corruption. Yet at the same time, the CCI's decisions, if appealed, still run the high risk of becoming entangled and thus significantly delayed in India's
cumbersome legal system.

Employment
Labour law
India has one of the most regulated labour markets in the world, and employment regulations are regarded as being one of the greatest obstacles to an improvement in productivity. Labour
issues are enshrined in the Indian Constitution in the concurrent list of subjects, meaning that the central and state governments share related responsibilities. Consequently, in addition to the
50 or so national-level labour laws, states have enacted their own laws in areas under their oversight. Industrial relations, including layoffs and retrenchments, are governed by the Industrial
Disputes Act 1947, which curbs unfair labour practices by employers, workers or trade unions through the imposition of fines and imprisonment; most significantly, it curbs the ability of
employers of more than 100 people to fire workers without the consent of state authorities. The most recent amendment to the Act came in the form of the Industrial Disputes (Amendment) Bill
2010. Wages are regulated by the Payment of Wages Act 1936, and the Minimum Wages Act 1948, but it should be noted that states have the autonomy to fix wage rates and as such there
can be significant differences between them. The government needs to address the country's labour laws further, not least because over-regulation and problems such as industrial action
deter potential investors and place obstacles in the path of those already involved in the Indian market.
On 15 February 2012, Indian Prime Minister Manmohan Singh hinted at possible reforms to the country's labour laws. Singh said that some provisions in the current labour laws are seen as "
unduly" protecting the "currently employed", resulting in difficulties in some industries to adjust their workforce, in particular surplus manpower in times of lower demand. Consequently, Singh
argued, this enticed numerous companies to keep the number of employees low and therefore stay below potential in times of higher demand, hindering the expansion of the economy. This
particularly concerns companies with 100 or more workers, as the cutting of surplus manpower, as specified by the Industrial Disputes Act, would require government permission that is difficult
to obtain. Given the decisive opposition of labour unions to labour laws, it is unlikely that the government would risk undertaking any substantive measures anytime soon. Indeed, industrial
action such as a countrywide strike on 28 February 2012 underscored labour unions' intentions to seek even more vigorous laws. Severe pressure on the government on other issues has
already resulted in some of the least productive parliamentary sessions in India's history since independence, serving as a further disincentive.

Labour flexibility
India's labour legislation contains many provisions that hinder flexibility. Although India is one of the world's least-restrictive countries on the employment of workers, the country fares
unfavourably in terms of redundancy costs. Of particular concern for India's labour-market flexibility is the ongoing debate on expanding caste quotas to the private sector. Currently, caste
quotas exist for about half of India's government and public-sector jobs.

Work permits for foreigners


Foreigners wishing to work in India generally need to apply for a work permit or employment visa.

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Environmental
The Ministry of Environment and Forests oversees and implements the country's environmental and forestry programmes. Generally, environmental issues feature prominently in the Indian
psyche, particularly following the Bhopal disaster of 1984, and the courts have taken a notably more stringent line when considering the clearance of particular projects. The Ministry of
Environment and Forests has become significantly more restrictive over mining businesses active in tribal areas in central India. More generally, any health scare strongly captures the public's
interest, often to the disadvantage of a foreign company.
Article 48A of India's constitution provides that it is the duty of the state to "protect and improve the environment and to safeguard the forests and wildlife of the country". India has passed a
number of environmental laws, including:
Factories Act 1948 (and 1987 Amendment) first act to express concern for the working environment. It was amended in 1987 to clarify its focus and expand its application.
Water (Prevention and Control of Pollution) Act 1974 created an institutional structure for addressing water pollution. It establishes standards for water quality and effluent, and
also created provision for the Central Pollution Control Board (CPCB).
Air (Prevention and Control of Pollution) Act 1981 provides for control of air pollution.
Atomic Energy Act 1982 deals with the problem of radioactive waste.
Environment Protection Act (EPA) 1986 came into force soon after the Bhopal disaster, and is widely regarded as a piece of overarching, umbrella legislation, filling many gaps in
the existing laws. It authorises the central government to protect and improve environmental quality, control and reduce pollution from all sources, and prohibit or restrict the setting and/
or operation of any industrial facility on environmental grounds. Following this act, a number of laws were introduced in response to environmental concerns, ranging from pollution to the
management of resources.
Hazardous Waste (Management and Handling) Regulations 1989 seek to control the generation, collection, treatment, import, storage and handling of hazardous waste. There are
a number of other associated regulations, which came into law between 1989 and 1998.

The government approved a National Environment Policy in May 2006 to provide a unified nationwide framework within which to address environmental issues. This has also been criticised,
with groups claiming that it concentrates on development and economics, rather than the environment.
In July 2011 Prime Minister Manmohan Singh announced the government's intention to create the National Environment Appraisal and Monitoring Authority, slated to become the new
regulator for the environmental clearance of new projects. However, no timeline was given as to when the body would be created.

Intellectual property
India has seen a surge in patent applications in recent years fuelled by the modernisation of the country's patent and intellectual property (IP) offices. There are a variety of relevant laws to
protect intellectual property rights (IPRs), although in practice there are shortcomings regarding their enforcement.
India's Patents Act, 1970, has been amended several times (in 1999, 2002, 2005, and 2006) to align India's legislation with the World Trade Organization's Trade-Related Aspects of
Intellectual Property Rights (TRIPS) agreement without compromising the country's national interests. The patents law also aims to prevent traditional knowledge and life forms from being
patented. It provides for a 20-year patent term and reverses the burden of proof for process patents on infringers, incorporating specific requirements of Article 31 in the Compulsory Licensing
provisions, while consolidating and streamlining the scattered and often repetitive provisions. Under the TRIPS agreement, the act provides the patent holder with a minimum standard of rights
, while expanding the scope for patentability and providing protection for valuable and confidential information.
The main law protecting copyrights is the Copyright Act, 1970, which has undergone numerous amendments, with the latest changes passed in May 2012. The Trademarks Act, 1999, was
amended in August 2010 for it to comply better with international standards.
In 2008, the government passed amendments to the Information Technology Act, 2000, in an attempt to better counter theft and online fraud. This move was related to fears for the reputation
of the IT and outsourcing sector, and the penalties include up to five years' imprisonment and a fine for publishing "sexually explicit material", five years' imprisonment and fines for
impersonation, and two years' imprisonment and fines for sending offensive email messages. It is generally held that the IT laws should be technologically neutral, in line with the UN
Commission on International Trade Law's Model Law on Electronic Signatures.
In April 2012, the US government kept India on the Priority Watch List in its annual Special 301 Report on IP protection. The report noted that "India made limited progress on IPR protection
and enforcement in 2011", adding that "its legal framework and enforcement system remain weak". The US is engaging with India on IPR issues through numerous bilateral forums, such as
the Trade Policy Forum.

Financial crime
Money laundering
India's core legal framework governing anti-money laundering measures is the Prevention of Money Laundering Act 2002 (PMLA 2002). The PMLA 2002 came into force on 1 July 2005 and
requires banks, financial institutions and their intermediaries to report suspicious transactions involving international transfers on a regular basis to the Financial Intelligence Unit. The PMLA
also has the authority to seize and confiscate proceeds derived directly or indirectly from crimes. Amendments to the Act that were passed in June 2008 expanded the mandatory reporting of
suspicious transactions to casinos, credit cards, and money changers. Since the PMLA continued to face allegations of failing to deprive terrorists and drug traffickers of financing in the
absence of an adjudicatory mechanism, a further amendment to the Act was passed in 2009 that addresses these issues. The latest amendment to the law came in December 2012, which
enlarged the definition of money laundering, and better joined the law with laws of other countries.
India established the Financial Intelligence Unit India (FIU-IND) in 2004, which is the core national agency for dealing with information relating to suspicious financial transactions and for
sharing information with enforcement agencies and foreign FIUs. FIU-IND is an independent body reporting directly to the Economic Intelligence Council (EIC), which is headed by the finance
minister.
India is a federal state, and policing is for the most part undertaken at the state level, including general responsibility for investigating terrorism and economic crimes such as money laundering
. There are, however, a number of national agencies responsible for overseeing specific pieces of legislation that govern economic crimes. These are the Directorate of Enforcement, which is
responsible for foreign currency and remittance violations, the Commissioner of Customs, the Narcotics Control Bureau, and the Central Bureau of Investigation. Supervision of the financial
services sector is divided between three main agencies the RBI, the Securities and Exchange Board of India (SEBI), and the Insurance Regulatory and Development Authority (IRDA).
India is a member of the Asia/Pacific Group on Money Laundering (APG), which is an Associate Member of the Financial Action Task Force (FATF).

Corruption

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The prime investigative agency into corruption issues is the Central Bureau of Investigation (CBI), which deals with cases according to the Prevention of Corruption Act 1988. The agency has
powers to investigate cases against public officials, employees of the central government, and against corporations or bodies under the control of the government. In principle, the CBI as a
federal agency would need the prior consent of state governments to undertake investigations at the state-level, but in practice this requirement is waived in most instances as most states
have given general approval for the CBI to conduct such activities. Should a state not give its consent, then action could still be taken provided the Supreme Court or any High Court sanctions
such a move. Anyone can file a complaint with the CBI, although in many cases CBI action is recommended by bodies such as the Central Vigilance Commission (CVC), or state-level
anti-corruption bodies the Lokayuktas. State police also file corruption complaints, although these are in practice often referred to the CBI. The trials are then conducted in appropriate courts,
but as India's judiciary is overburdened with a backlog of millions of cases these tend to take years until heard.
Although independent on paper, critics have questioned the CBI's impartiality given that official sanction is required to process cases. It also has high vacancy rates, meaning that it is not
sufficiently staffed to carry out its duties, undermining efficiency. Although the CBI boasts high conviction rates of 6570%, this includes all cases, not only those of the Anti-Corruption Division,
and excludes all those cases that become stuck in the approval system. Very few holders of political office, in particular those holding higher office, have ever been convicted of corruption,
despite independent bodies such as the CVC and Lokayuktas referring thousands of cases to the CBI. This has given rise to demands for reform of the entire system, but ideas as to how
corruption cases should be prosecuted vary greatly.
At the heart of these problems is the Jan Lokpal Bill, 2011, which, if enacted, would significantly change the way that graft cases are handled in India. Several versions of the draft law currently
exist, and key disagreements revolve around the role of the CBI (whether it should be included in the Lokpal Bill or not; the CBI is strongly opposed to any inclusion); whether only "Grade A"
officials are included, or all public servants; the powers and nature of the Lokayuktas; the degree of protection for whistleblowers; whether the Lokpal can take direct punitive actions or whether
these would be referred to the court system as before; and whether the judiciary will be included.
There is currently no effective legislation to tackle corruption in the private sector, although Prime Minister Manmohan Singh announced in October 2012 that the government was mulling
legislation that would criminalise such behavior.

Land
The basic legislation covering land acquisition in India is the Land Acquisition Act, 1894. This law is outdated and impractical, and in frequently clashes with some 18 pieces of more
specialised legislation, for example on land acquisition for railways, defence, special economic zones (SEZs) and highways. It is also notable that the issue of land acquisition is on the current
list of subjects of the constitution, and as such both federal and state governments have the right to pass legislation. Indeed, most Indian states have passed their own policies on the issue,
meaning that terms and conditions for land acquisition differ substantially between states. As a result, some states have seen significant unrest over the issue in recent years, ranging from
protests against SEZs in West Bengal (which successfully thwarted investment there), to the upheavals of Uttar Pradesh over perceived inadequacies of compensation for road projects in
early 2011. Other states, such as Maharastra or Tamil Nadu, have seen less unrest, but have been unable to acquire tracts of land for certain projects. Gujarat, on the other hand, has been
lauded for its land-acquisition policy.
Moves are currently under way to reform the land laws, and to formulate a law that would override the Land Acquisition Act, 1894, and "enjoy primacy" over more specialised legislation. In this
respect, Prime Minister Manmohan Singh in July 2011 approved Rural Development Minister Jairam Ramesh's plans to unite legislation on land acquisition, rehabilitation and resettlement in
one single bill, arguably an attempt to simplify land laws. The draft bill is intended mainly for the acquisition of land for public purposes and explicitly not for private companies for private
purposes. In its current form, however, it does not preclude companies acquiring required land from farmers directly. The Draft Land Acquisitions and Rehabilitation and Resettlement Bill, 2011
, was placed in the public domain in July 2011, and introduced to parliament in September, but then sent to a parliamentary committee for further amendments. The cabinet passed a revised
Draft Land Acquisition and Rehabilitation and Resettlement Bill on 13 December 2012, which requires the government to seek the consent of at least 80% of landowners for land to be used for
private projects, and 70% for public-private partnership (PPP) projects. This would be in contrast to the version of the draft bill that was cleared by the Group of Ministers (GoM) on 17 October,
which stipulated a minimum two-thirds approval rate. One particular restriction refers to the acquisition of land in tribal areas, which would also require the consent of local institutions. Land
rights are a sensitive issue in India, in particular in tribal regions, and local residents' opposition to land acquisition drives have in the past impeded or delayed numerous investment projects,
including for badly needed infrastructure. At the same time, it is clearly felt by the government that it would be unrealistic to pass and effectively implement the legislation without catering to the
needs of landowners.

Foreign exchange and profit repatriation


The Reserve Bank of India (RBI), the country's central bank, implements most of the financial legislation relating to foreign companies operating in India. The draconian Foreign Exchange
Regulations Act (FERA), originally implemented in 1973, has been repealed and replaced by the Foreign Exchange Management Act (FEMA), which took effect on 1 June 2000. The RBI
controls all foreign exchange transactions, which require its general or specific permission. Regulations cover all aspects related to borrowing funds from abroad, including exceptions and
prohibitions. The RBI has a major role in overseeing trade, portfolio and foreign direct investment, with regulations governing all aspects of foreign participation in the domestic economy.
The rupee is fully convertible for current account transactions, and since 2007 the RBI allows individuals to transfer up to USD200,000 without prior approval. Certain transactions still require
RBI approval, however, including for the remittance of funds from asset liquidation.
Liberal trade and exchange rate policies enacted between 1991 and 1995 boosted India's foreign exchange reserves from less than USD1 billion in 1991 to the fourth largest in the world at
more than USD295 billion in October 2012. This success reduces the likelihood that draconian exchange controls will be reinstituted in the short-to-medium term.

Investment protection
Investment
Much has been made of India's first wave of economic liberalisation during the early-1990s, which saw the state free the domestic economy from licensing and other controls, while opening up
the external sector to foreign capital and other resources. The state's role has gradually changed alongside this, with the government striving to facilitate Foreign Direct Investment (FDI) rather
than provide the investment itself. The government is intent to push through much-needed further economic reforms to make India a more attractive market for investment, although reforms
moves generally move at a snail's pace, not least given the multitude of constituencies with significantly diverging interests need to be taken into account by any government. There is a
minimum risk of expropriation in India.

Privatisation
The fall in foreign investment, rising global oil prices, a depreciating rupee, bloated fuel and fertiliser subsidies, and a wealth of populist expenditure schemes have added to fiscal pressures.
Much of the government's success in trimming the deficit between 2009 and 2011 was down to the divestment of stakes in public sector utilities which raised USD10.4 billion, but this method is
finite and slowed in 20112012. The future of divestments is in doubt following a poorly received auction of ONGC shares in March 2012. The government raised only INR139 billion of its
INR400-billion target for divestments in 20112012 and has lowered the target to INR300 billion and INR250 billion in 20122013 and 20132014, respectively.

Procurement
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Procurement
India has a law governing procurement made by the centre in the form of the General Financial Rules of 1963. However, there are no overarching rules governing public procurement, and as a
result the transparency and efficiency of procurement processes still leaves much to be desired. In May 2012, the government introduced the Public Procurement Bill, 2012, to the lower house
of parliament, although no progress has been made since then. Among the objectives of the Bill is ensuring a greater degree of transparency in bidding processes.

Major international agreements


International Agreements
Paris Convention for the Protection of Industrial Property (1883)
Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958)
Agreement on Trade Related Aspects of Intellectual Property (1994)

Taxes: Corporate
Corporate
Corporate taxes are levied by the federal government and are thus uniform across India. Indian resident corporations, unless exempted, are subject to tax on their worldwide income, with
non-resident firms subject to tax on Indian-source income only. Companies incorporated in India, as well as those incorporated abroad, are considered resident if control and management of
their affairs is wholly situated in India. Domestic companies are subject to a corporate tax rate of 30%, with a 10% surcharge if net income exceeds 10 million rupees and 3% cess. For foreign
companies there is a basic corporate tax rate of 40% plus a surcharge of 2.5% if net income exceeds 10 million rupees, and 3% cess.
If tax payable by a company on its total income is less than 15% of its book profit, the company becomes liable for the minimum alternative tax (MAT). MAT on total income for the year is
charged at a basic rate of 15% plus 3% cess) of book profit, with a surcharge of 10% if the book profit exceeds 10 million rupees. Some items are subtracted when calculating book profit for
MAT purposes.

Capital gains
The computation of capital gains tax depends on whether the capital is short term (held for less than 36 months) or long term (held for more than 36 months).
Where the securities transaction tax (STT) has not been paid, the following rates are applicable:
Type of taxpayer

Short-term capital gains rate (%)

Long-term capital gains rate (%)

Resident Corporations

30

20

FIIs

30

10

Non-residents other than FIIs

40

20

Source: Ernst and Young

Withholding taxes
Non-resident companies are subject to withholding taxes on: interest on foreign currency loans (20%), royalties and technical service fees (10%), rent (40%), long-term capital gains (apart
from that which is exempt) (20%), income from the lottery and horse-racing (30%), and other income (40%). There is no tax on income from units of mutual funds or dividends.

Individual
Salary tax rates
Income tax is levied by the federal government, and rates are thus uniform across India. Non-residents are taxed only on income accruing from Indian sources and on income received or
arising in India. They can also be liable for tax on income deemed to have arisen through a business connection in India and through the transfer of capital assets or other sources of income in
India. Persons who are resident but not ordinarily so are subject to broadly similar terms but are also subject to tax on income received outside India either from a profession established or
business controlled in the country. This latter category encompasses people who are resident in India for 182 days or more of the fiscal year or who are resident for 60 days of the tax year and
for an aggregate of 365 days during the previous four tax years. In addition to meeting one of these two categories, people who are ordinarily resident must have been resident for nine out of
the preceding 10 years and for a total of 729 days or more in the previous seven tax years. Others are regarded as non-residents. All employees are taxed unless specifically exempted.
Non-residents compute income in the same manner as residents. Expatriate employees of a foreign enterprise are not subject to tax if the enterprise is not engaged in business in India, if the
employee did not stay in India for more than 90 days in a tax year (or 183 days under most tax treaties) or if the compensation paid is not claimed by the employer as a deduction from taxable
income in India. Certain forms of compensation, in particular benefits such as a company car or housing, receive preferential tax treatment. Other benefits, below set limits, are not included in
employees' taxable income including: medical expenses, home leave, air fare, treeing allowances and contributions to Indian retirement benefit funds. Excluding foreign technicians who have
been in India for less than 48 months, the amount of tax paid by the employer on behalf of the employee is grossed up and taxed to the employee. Bonuses paid at the beginning or end of
employment are included in taxable salary income.
India: Salary tax rates
Taxable income exceeding (rupees)...

...but not exceeding (rupees)

Rate (%)

200,000

200,001

500,000

10

500,001

1,000,000

20

1,000,001

30

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(Tax rates as proposed in the FY 2012-13 Budget)

Indirect
Indirect
Under the current value-added tax (VAT) system, goods and services are subject to tax levied between 0% and 12.5%. The list of items and the specific tax rates vary between states, which
pass their own VAT legislation. States are also responsible for the levying of entry tax (usually akin to prevalent VAT rates). Furthermore, some municipalities can impose a municipal levy on
goods entering city limits.
Federal levies include customs duty that comprises of the basic customs duty (BCD), an additional customs duty (ACD), education cess (currently 3% of BCD and ACD) and a special
additional customs duty that is charged in the place of VAT at a current rate of 4%. There is also a central excise duty that is levied at varying rates depending on the classification of goods in
the Central Excise Tariff; a service tax that is levied at a current rate of 10.3% (inclusive of cess). Although the central sales tax (CST), which is levied on the sale of goods between states, is a
federal levy, it is collected by the states this is usually akin to the state's prevalent VAT rate.
The Indian government is currently in the process of devising the conditions of a goods and services tax (GST) that would replace and simplify the complex range of taxes currently enforced at
the state and central level.
Since July 2010, India is levying a carbon tax of 50 Indian rupees per tonne of coal produced and imported into the country.

Infrastructure
Overview
The World Economic Forum's Global Competitiveness Report 201213 highlights an "inadequate supply of infrastructure" as "the most problematic factor for doing business in India". Given
the deterrent that India's dilapidated infrastructure poses to domestic and foreign investment, successive governments have attempted to address the problem. But although significant
progress was achieved over recent years with regard to building airport and seaport infrastructure (mainly minor ports), overall progress has remained far behind expectations. Key obstacles to
accelerated progress on this front are due to excessive bureaucratic red tape, especially with regard to land-acquisition processes, at times obscure tendering processes, widespread
corruption, a vibrant protest culture and increasingly assertive environment ministry which has made it difficult to obtain environmental and other clearances for such projects. Unless these
issues are tackled, infrastructure projects will remain bogged down by delays and, at times, cancellations. Necessary big-ticket reforms, including on a new law governing land acquisitions, are
unlikely under the current Congress-led United Progressive Alliance (UPA) government, whose economic reform drive has all but come to a standstill over a series of corruption scandals and
more general policy inconsistencies.
There is widespread agreement that government expenditures alone will not be sufficient to alleviate the situation. Following the government's announcement that it intends to spend a total of
USD1 trillion on infrastructure by FY2016/17 (an assertion that former prime minister Manmohan Singh reiterated in June 2012), public-private partnerships (PPP) in the infrastructure sector
are being actively encouraged. Sporadically, the international community weighs in to provide assistance, and a number of sub-regional initiatives have been unveiled to upgrade India's
infrastructure.

Roads
With approximately 3.3 million km of roads, India has the world's third-largest road network. Of this, 66,590 km are national highways, which come under the jurisdiction of the central
government. More than 45% of all traffic uses the national highways, which were not designed for such numbers and only comprise around 2% of all the country's roads. The National
Highways Development Project (NHDP) was initiated in 1998 as a means of co-ordinating the upgrading of main highways between Delhi, Mumbai, Chennai and Kolkata, involving the
expansion of 13,000 km of highway (known as the Golden Quadrilateral highway). The government declared it complete in January 2012.
The project suffered a number of problems, which have deterred potential contractors. These include the high cost of bidding for contracts; an opaque selection process; land acquisition
problems and sites that are handed over to the contractor uncleared; clients specifying equipment that is not in fact required for the project; a general shortage of experienced manpower; and
high financing costs. Former prime minister Manmohan Singh criticised the Ministry of Road Transport and Highways in June 2011 for having failed to fill the post of chairman for the National
Highways Authority of India (NHAI) six months after it was vacated.
Momentum has, however, picked up, and the NHAI, which was created in 1988, is now pursuing a much larger project. Its phases include:
Phase One: Approved in December 2000, this was aimed at increasing road capacity on 7,498 km of two key highways (the north-south and east-west corridor spanning 17 stages) as
well as port connectivity.
Phase Two: Approved in December 2003, this was again focused on the north-south and east-west corridor and other national highways, widening 6,644 km of highway.
Phase Three: This was approved in April 2007 and was focused on increasing the capacity at key tourist locations, important economic areas and state capitals. The phase is due for
completion in December 2013.
Phase Four: A proposal is under consideration for the widening of another 20,000 km of existing highways.
Phase Five: This saw plans for the four-lane highways to be expanded to six lanes over 6,500 km.
Phase Six: In November 2007 plans were approved for the construction of 1,000 km of expressways, due for completion in December 2015.
Phase Seven: The government has approved construction of 700 km of standalone ring roads/bypasses as well as grade separators, flyovers, elevated road, tunnels, bridges and
underpasses.

When it returned to power in 2009, the Congress-led government vowed to build 20 km of new road every day, but it fell far short of its target. In 201011, for example, only an average of 5 km
per day was built. Nonetheless, a total 26,883 km of national highways was completed between 2004 and 2011, compared with only 8,918 km in the five years preceding this period.
One of the key challenges in upgrading the country's road infrastructure arises from the process of acquiring and converting the land to develop these projects and overcoming operational
bottlenecks in ensuring that roads operate smoothly and efficiently. Much-needed amendments to the Land Acquisition Act and the Rehabilitation and Resettlement Bill have failed to make
progress in parliament given the political sensitivity of issues regarding the conversion of agricultural land for industrial use. This was starkly demonstrated in May 2011 when attempts to
acquire land from farmers in the Greater Noida area of Uttar Pradesh for the Yamuna Expressway (linking Delhi and Agra) led to violent protests and the death of at least two protesters at the
hands of the police.
Meanwhile, India's road infrastructure continues to face further obstacles from corrupt highway officials and multiple toll and inspection points on inter-state journeys despite the government
unveiling numerous measures to streamline the highways bureaucracy and improve road-user efficiency.

Investment
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Investment
The authorities introduced a Central Road Fund in 2000 which placed a levy on fuel, the money from which is directed towards the maintenance of the existing network. In an attempt to attract
greater private sector involvement in road building, the authorities automatically approve schemes using foreign equity up to a project cost of USD300 million.
In October 2004, former prime minister Manmohan Singh used his opening speech to the third meeting of the India-ASEAN (Association of Southeast Asian Nations) conference to call on the
region to invest in India's infrastructure. Its transport infrastructure was one of the key areas marked out for investment, with Singh calling for USD55 billion by 2015 for air, rail and road
construction. The most recent five-year plan (20072012) has witnessed an increase in infrastructure spending from USD200 billion to USD492 billion. The government only plans to contribute
30% of this, seeking the rest from the private sector. Despite being more than two years behind schedule, in early 2008, the 27.7 km expressway linking New Delhi to its airport and to Gurgaon
finally opened. The expressway is one part of the New Delhi-Mumbai section of the Golden Quadrilateral highway system.
The Planning Commission announced in March 2010 that it intends to spend USD1 trillion on infrastructure over the next five years, although the government has singularly failed to meet
recent targets for construction. A report released by Goldman Sachs in September 2009 noted that India will need USD1.7 trillion in infrastructure investment over the next decade. According
to the report, power and roads alone will need more than USD700 million in investment, which is of particular importance in meeting India's growth and development needs given that some
three quarters of India's national freight is transported along the country's road network.
In order to fund these initiatives the 20092010 budget announced a 23% increase in the country's highway budget up to USD4 billion while the government has negotiated with the World
Bank for a USD3-billion loan to finance the upgrade of 6,300 km of roads across 14 states from single to two-lane highways.
Alongside this scheme, the government is seeking to strengthen infrastructure in key areas, with the intention of opening up further to ASEAN. With Myanmar offering a direct land route to the
ASEAN market, the government unveiled a USD2.6-billion aid scheme in November 2004, part of which was earmarked for improved infrastructure in the states neighbouring Myanmar, Assam
and Manipur. India also offered Myanmar aid with its infrastructure development, providing the ruling junta with assistance for improved rail facilities. The two countries signed an agreement for
the USD120-million Kaladan Multi-Modal Transit Transport Facility agreement in April 2008 to upgrade Myanmar's Sittwe port and Kaladan waterway, and connect it to a road from Setpyitpyin
(Kaletwa) to the India-Myanmar border. In May 2012, a number of agreements were signed during a visit by former PM Singh to Myanmar focused on border area development, trade and
investment, and other areas, including the offer of a USD500-million line of credit to enhance road and rail links.
In July 2008, Singh also unveiled the Vision Document 2020 for the North-Eastern Region, which committed INR310 billion (USD7 billion) over the course of the country's 20072012 five-year
plan to address the area's infrastructure and development. Under the document, all state capitals in the region were to be linked by rail, while roads and air connectivity were to be upgraded
with the establishment of a green-field airport at Itanagar to connect the region with the rest of the country. However, most of the planned work has fallen victim to widespread corruption, poor
governance and the difficulty of operating in remote conditions and transferring equipment from elsewhere in the country. According to the Institute of Peace and Conflict Studies, a New Delhi
think tank, of 151 infrastructure projects sanctioned by the central government in the northeast for 201011, only 25 were completed.

India-Pakistan links
Travel from India to Pakistan is becoming increasingly possible. A Delhi-Lahore bus route was inaugurated in 1999 but was subsequently stopped when the border was closed to all vehicles
after a terrorist attack on parliament in Delhi in December 2001. The service resumed in July 2003 as part of wider moves to normalise relations between the two countries. A second bus link,
between Muzaffarabad (Pakistan-administered Kashmir) and Srinagar (the summer capital of Indian-administered Kashmir) was finally agreed in January 2005. The sticking point of
identification proved problematic for several months. India insisted that passengers carry a passport, which Pakistan claimed would effectively legitimise the Line of Control as an international
border. Ultimately, a compromise was reached with identity cards being sufficient. A number of other bus links have been developed and planned between Indian and Pakistan-administered
Kashmir; this includes the Poonch-Rawalkot bus service that was launched in 2006 and the Kargil-Skardu and Jammu-Sialkot/ Mirpur road links that remain under consideration.
As road links have expanded so have their flight counterparts. In February 2008, the two countries agreed to double the number of weekly passenger flights from 12 to 24. An increase in the
number of destinations was also agreed to include Pakistan's capital, Islamabad (allowing for direct flights between the two capitals), and India's southern city of Chennai. In addition to this, the
number of operators was also increased, from just two Indian Airlines and Pakistan International Airways to potentially six.
Rail links between both countries comprise the Samjhauta Express connecting the Pakistani city of Lahore with the India city of Atarri close to Amritsar and the Thar Express connecting
Karachi and Jodhpur. Transport links are a favoured target of terrorists, such as the bomb attack on the Samjhauta Express in February 2007. Plans remain for the rail connection between
Sialkot and Jammu to be resurrected, but the project has made no progress.

Railways
Railways were planned during British rule with the aim of connecting military cantonments; in the case of an emergency, railroad tracks would be made available to the armed forces as a
priority over passenger or freight traffic. Following independence, the railway network expanded phenomenally with several new routes, faster traffic, and air-conditioned coaches. The network
now consists of 7,083 railway stations, 131,205 railway bridges, 9,000 locomotives, 51,030 passenger coaches, 219,931 freight cars and 63,974 route kilometres. It operates 19,000 trains
each day, comprising 12,000 passenger trains and 7,000 freight trains. It transports 2.65 million tonnes of freight traffic and 23 million passengers every day and 7.2 billion passengers per year
. It currently has 1.36 million employees.
Since 2000, all reservations and ticketing have been handled electronically, allowing purchase from any medium or major station for travel from any point to any point throughout the railway
network. Railways are regarded as being so critical to Indian society and its economy that the Ministry of Railways is the only ministry that presents its own budget separately to the Indian
Parliament.
Like roads, the sector faces considerable problems, with years of severe and chronic under-investment creating infrastructure problems as confirmed by an increasing number of rail accidents.
In March 2012, the government announced that it planned to invest close to USD150 billion in the railways during the 2012 to 2017 five-year plan period. An expert group put together by the
Ministry of Transport reported in March 2012 that a further INR3.96 trillion (USD100 billion) was required to modernise the rail network to the point where it became a boost to the economy,
adding a potential 23% to GDP. The report stated: "Indian Railways is close to falling into the vicious circle of diminishing efficiency, falling safety standards, eroding share in national freight
and passenger traffic and possibly ending up as a burden on the national economy instead of being its bulwark and vital support."
The central government has announced a USD90 billion freight corridor between New Delhi and Mumbai. The expert group said other freight corridors were needed, along with the
modernisation of 19,000 km of existing track, and investment in safety measures, signals and bridges, a quarter of which are over 100 years old. A National High-Speed Rail Authority was set
up in 2009 under former railways minister Mamata Banerjee to oversee the creation of high-speed priority routes between Delhi, Mumbai, Bangalore, Chennai, and Kolkata. However, progress
on all these projects has been slow to non-existent.
It is not clear that the government will be able to meet these requirements, given its widening fiscal deficit and aversion to private investment. An attempt to meet part of the shortfall through a
small increase in passenger fares in the 2012 budget (the first in nine years) led to the almost-immediate sacking of the railways minister, Dinesh Trivedi, and the cancellation of the rate
increase.

Waterways

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The Inland Water Authority of India (IWAI) states that the waterway network stretches to 14,500 km but that only 5,200 km of major rivers and 485 km of canals are presently suitable for
mechanised vessels. Calls are occasionally made for a 'National Highways Development Project' to be designed for the waterway system, but this is unlikely to happen given that only 0.15%
of all cargo is moved on the domestic waterway system, compared with 9% in China, for instance.

Airports
Indira Gandhi International (New Delhi)
Reference point

2834.1'N, 07706.8'E

Maximum runway length

3,801 m (12,500 ft)

Runway surface

Concrete/asphalt

Elevation

226 m (744 ft)

Nearest town/city

New Delhi (8 km)

Chennai International
Reference point

1259.6'N, 08010.6'E

Maximum runway length

3,063 m (10,050 ft)

Runway surface

Concrete/asphalt

Elevation

10 m (34 ft)

Nearest town/city

Chennai (16 km)

Chhatrapati Shivaji International (Mumbai)


Reference point

1905.5'N, 07252.0'E

Maximum runway length

3,488 m (11,445 ft)

Runway surface

Concrete/asphalt

Elevation

8 m (27 ft)

Nearest town/city

Mumbai (20 km)

Sardar Vallabhbhai Patel International (Ahmadabad)


Reference point

2304.4'N, 07237.6'E

Maximum runway length

743 m (9,000 ft)

Runway surface

Concrete

Elevation

55 m (180 ft)

Nearest town/city

Ahmadabad

Netaji Subhash Chandra Bose International (Kolkata)


Reference point

2239.2'N, 08827.0'E

Maximum runway length

3,627 m (11,900 ft)

Runway surface

Concrete/bituminous

Elevation

5 m (17 ft)

Nearest town/city

Kolkata (13 km)

Civil airlines
The air sector is developing at an incredibly rapid pace. The industry has been growing at around 1520% annually since the mid-2000s, barring a brief lull during the economic slowdown.
Passenger numbers were up 16.6% in 2011 to 60.6 million. It is estimated that India will need more than 1,000 new planes over the next 20 years and investment of over USD30 billion. In
January 2011, low-cost carrier IndiGo announced the biggest-ever purchase in commercial aviation history: a USD15.6 billion deal with European aerospace group EADS for 180 Airbus
aircraft. Furthermore, a more concerted effort to deregulate the industry has opened up the market's low-cost niche, making the industry increasingly competitive.
In the past there has been a certain amount of resistance to deregulation as was seen at the end of 2004 when attempts to raise foreign direct investment (FDI) ceilings in the sector were
strongly opposed. Nonetheless, new routes are opening up and domestic, privately owned airlines have, since the end of 2004, been allowed to pursue long-haul flights.

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The private sector carriers have outpaced the state-owned Air India (established by JRD Tata in 1946 and nationalised in 1953), especially those offering cheaper air fares. Low-cost operator
Air Deccan emerged in 2003 modelling itself on low-cost European operators Easyjet and Ryanair, with prices 3040% below competitors. SpiceJet emerged in early 2005, launching
operations in May along with Kingfisher Airlines. In addition to these, Air India has its own budget operator, Air India Express. GoAir began operating out of Mumbai in 2005. The same year,
Paramount Airways began flights from its hub in Chennai. IndiGo began operating in late 2006 out of Gurgaon. Rising fuel costs and the global recession led to some consolidation. Air Sahara
was bought by Jet Airways in April 2007 and renamed JetLite while Kingfisher has acquired stakes in Air Deccan and the state-owned Air India and Indian Airlines have merged.
Financial problems caused by poor management, a declining rupee and rising oil prices have caused severe problems for the industry. In 2011-12, only IndiGo was profitable of the domestic
carriers and two Kingfisher and Air India were on the brink of bankruptcy. The Centre for Asia Pacific Aviation estimated that the sector lost USD2.5 billion in the year. Aviation fuel in India
is among the most taxed in the world, with levies at the national and state level close to 30%. An infrastructure building spree has improved key airports, although many remain choked and
under-equipped, leading to expensive landing fees to pay for construction. The government has signed off on a USD5.8 billion bailout for the beleaguered and mismanaged state-run Air India,
while Kingfisher has struggled to finance USD1.3 billion in debt and is no longer operational.
The industry was hit by a number of scandals in early 2011. Several pilots were found to have obtained their flying certificates with fake documents and investigations were launched into the
licences of 4,000 pilots. Forty flying schools were also investigated after allegations that some of them were inflating the number of flying hours students had undertaken to help them reduce
the cost of their training. Further scandal emerged when the government revealed in March 2011 that 57 pilots had reported for work drunk in the past two years.

Ports
Indian sea ports play a crucial role in the country's economy. According to the Ministry of Shipping, they absorb around 95% of India's international trade by volume, and 70% in terms of value.
Cargo throughput in India's 12 major and 176 minor ports has increased five-fold from 163.84 million metric tonnes per annum (mmtpa) in fiscal year (FY) 1990/91, to 885 mmtpa in FY2010/11
, strongly correlating with India's high growth since economic liberalisation began in the early 1990s.
Over the last 10 to 15 years, India's port sector has undergone structural changes, with state monopolies in the major ports slowly transitioning to increased private sector participation. This
participation, actively encouraged by successive governments since 1996, has aided the growth of the sector. Foreign direct investment (FDI) of up to 100% is now permitted for the
construction of dry docks, cargo-handling berths, container terminals, and warehouses. So far, Department of Industrial Policy and Promotion (DIPP) statistics reveal that the sector received
FDI totalling USD1.64 billion between April 2000 and December 2011, but the government's ambitious growth plans could boost this figure to more than USD50 billion by FY2019/20.
Although much of the growth of the sector has occurred in the major ports, which are under the purview of the federal government, the key drivers of future growth are most likely to be the
country's state-administered minor ports. The share of minor ports has consistently increased over the past two decades. Accounting for less than one-tenth of cargo throughput in FY1990/91,
within two decades their share increased to nearly one-third.
Despite the sector's impressive growth, it has continued to operate below potential. Performance indicators at nearly all Indian ports suggest that operational constraints continue to inhibit the
attractiveness of the sector, and thus the growth of cargo throughput. The strong link between India's international trade volumes and traffic handled at its ports has led to most Indian ports are
operating close to, and some even above, capacity means the government is keenly aware that a lack of capacity dampens prospects for economic growth. Consequently, the federal
government, and some state governments, have formulated ambitious growth plans that, if realised, would increase capacity in India's major ports three-fold by FY2019/20. The vast majority of
these projects are to include private-sector involvement.

Large
Mumbai (Maharashtra)
Mumbai, the main port of India, is located on the western coast of Maharashtra state, and handles most cargoes. There are three main berthing areas as well as tanker terminals at Pir Pau
and Jawahar Dweep.

Chennai (Tamil Nadu)


Chennai is located on the coromandel coast in southeast India in Tamil Nadu stae. Chennai has a main harbour that is enclosed by a breakwater. On the north side of the main harbour lies
Bharathi dock, and Jawahar dock on the south side. Ambedkar dock is situated in between these docks and has eight berths for handling cleaner cargoes.

Kolkata (West Bengal)


Kolkata, in West Bengal state, is situated on the River Hughli, a tributary of the River Ganges about 80 nautical miles (nm) from the Bay of Bengal. The port has berths for most cargoes and
there are repair facilities operated both privately as well as by the Port Trust. Kolkata Port comprises the Kolkata Dock System (CDS) and the Haldia Dock Complex. CDS consists of Kidderpur
docks (KPD), Netaji Subhas Dock (NSD) and the petroleum wharves at Budge.

Kochi (Kerala)
Kochi is located in Kerala state and is the main deep water harbour south of Mumbai. The main imports are mineral oils, chemicals and raw cotton, and the main exports include iron ore, coir
products, cashew kernels, tea rubber and coconuts.

Haldia (West Bengal)


Haldia is located on the western bank of the Hughli River in the Bay of Bengal. The Dock Complex comprises three river oil jetties, two river barge jetties and one wet dock system that has 14
berths. There is a container terminal designed to handle trade otherwise destined for Kolkata which due to the shallow depths of the upper Hughli, is now forwarded by inland transport.

Kandla (Gujarat) large


Kandla is located in Gujarat state on the west bank of of Kamdla creek of the north side of the Gulf of Kutch. It has a natural and well-protected harbour with 10 berths, one steel floating
drydock, three jetties for small vessels, one maintenance jetty and six oil jetties.

Mormugao (Goa)
Mormugao, an open harbour protected by a breakwater, is located on the west coast in Goa state, 200 nautical miles south of Mumbai. There are three mooring dolphins for vessels loading
from barges. .

Telecommunications

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India has gradually liberalised its telecoms markets over the past decade. However, its two state-owned telecommunication companies, BSNL and MTNL, are not yet privatised. The
Department of Telecommunications (DoT) issued new legislation unifying fixed local and mobile services under a single licence in November 2003. The much-delayed auction of spectrum for
3G and broadband wireless access (BWA) services finally went ahead in April 2010, and raised USD14.6 billion, double the expected total. Seven of the nine competing firms were successful,
sharing the 22 geographic regions between them. Bharti Airtel, Reliance Communications and Vodafone Essar won spectrum in the key Delhi and Mumbai areas. Bharti Airtel, Reliance
Communications and Aircel each won bids in 13 of 22 areas, more than any other company.
However, a series of scandals have led to accusations that successive governments have mismanaged spectrum allocations and regulation, leading to billions of dollars in lost potential
revenue. In February 2012, the Supreme Court ruled that former telecoms minister Andimuthu Raja had "virtually gifted away" 2G licences to preferred companies, including real estate firms
that had no prior experience in the telecoms business, and who quickly sold on their allotted spectrum for huge profits. The court also criticised the decision to "arbitrarily" fix prices at 2001
levels a decision that cost the exchequer USD36 billion, according to an audit by the Central Bureau of Investigation in 2010. Raja was arrested and charged with corruption in 2011 along
with several officials and corporate executives, and a separate trial is currently seeking to determine whether any bribes were paid to fix the process. The government has blamed the
first-come-first-served principle introduced by the previous NDA administration, and has since announced that spectrum will be auctioned.
The Supreme Court cancelled all 122 mobile phone licences awarded under the 2G allocation process, and a re-auction was scheduled for August 2012. In the wake of the decision, two of the
affected companies, Norway's Telenor Group and UAE mobile phone operator Etisalat, announced they were abandoning their India operations. Etisalat said it would consider re-entering India
when there is a clearer "telecommunications policy and greater legal and regulatory certainty and stability." The company is filing a lawsuit against its Indian partner, DB Group, for fraud and
misrepresentation, which DB Group denies.
India is the world's second-biggest mobile phone market, with 696 million subscribers as of March 2012, an increase of 9% on the previous year. Penetration currently stands at 51% and is
projected to hit 72% growth rate by 2016. Many people have multiple subscriptions to take advantage of extremely low prices that resulted from the proliferation of companies in the 2000s. The
country's top seven mobile operators-Bharti, Reliance Communications, Vodafone Essar, BSNL, Idea Cellular, Tata Teleservices, and Aircel-controlled over 95% of the mobile market.
Although the market potential is huge, low purchasing power remains a significant obstacle to increased penetration. Penetration rates are as high as 100% in many urban areas, but fall to
around 20% in rural areas.
The number of broadband users was 13.3 million in March 2012, an increase of 24.5% on the previous year. Indian private consumers have largely by-passed the need for fixed-line telephony.
There were 32.3 million landline users in February 2012, a slight fall on the previous year.
BSNL still dominates the local fixed-line sector, although competition is growing from private operators such as Bharti Airtel. Former international and long-distance monopoly VSNL, now a part
of Tata Communications, has been steadily losing market share to aggressive new entrants over the past seven years. The competition is also set to increase with the entry of foreign
operators such as AT&T, BT Group, Cable and Wireless, France Telecom, and Verizon which have secured licences to offer domestic and international long-distance services in India.
Nevertheless, BSNL is likely to remain the dominant fixed line player.

Security: Crime
Overview
India's most populous states of Uttar Pradesh and Bihar in the north of the country suffer from significant levels of lawlessness, including kidnapping and extortion. Crime levels are generally
low but rising, although the risk to foreign business personnel remains small. Petty crime such as pick-pocketing is common in crowded cities, but the risk of physical attack is minimal.
However, figures highlight that there is an increasing problem with crime particularly attacks on women in Delhi. More generally, crimes such as kidnapping are carried out to settle
long-running feuds or secure ransoms, and as such, foreigners are rarely targeted.

Organised crime
Organised crime in major cities is a problem, particularly in Mumbai. The organised crime gangs, divided along Hindu and Muslim lines, are mainly involved in arms-running and
gold-smuggling, usually to and from the Gulf. Gangs also operate from the east of the country, supplying guns from neighbouring Bangladesh and Myanmar. Mumbai's criminal gangs are
prominent in the city's affairs, as soaring property prices make extortion and related crimes more profitable. However, moves have been made since the 1990s to address these mafia-styled
gangs, both in Mumbai and elsewhere. Criminal gangs target local companies, especially the "Bollywood" film industry, but their operations rarely affect foreign businesses.
The most famous Indian organised criminal is undoubtedly Dawood Sheikh Ibrahim Kaskar, known more widely as Dawood Ibrahim. Dawood ran the infamous D-Company in Mumbai during
the 1980s and 1990s. In his heyday he had numerous illegal and legal businesses under his control and largely controlled Mumbai's underworld. In the early 1990s, Mumbai business was
heavily affected by organised crime, and killings associated with organised crime numbered more than 100 a year. However, the 1993 Mumbai bombings, which killed hundreds of people and
injured many hundreds more, led to a split in Dawood's group with disagreement over the perception that Ibrahim was using communal violence to pursue his own ends. Following the 1993
bombings, Dawood was forced into hiding, initially surfacing in Dubai before apparently taking up residence in Karachi, something that Islamabad denies. In 2003, Dawood was listed as a
terrorist by the US Department of State. Rumours and reports surrounding Dawood continue to regularly emerge in the domestic press. Dawood is believed to have business interests in a
number of countries worldwide, and to be involved in activities as diverse as film production, gun running, real estate and share trading.

Countermeasures
Attempts have been made, particularly in Mumbai, to tackle the problem of organised crime. In the 1990s, 5 'elite' units were created within the police with the aim of tracking down organised
criminals. The units' work has proven effective but has been dogged by controversy. Human rights groups claim that most of the killings undertaken by the police during operations actually
occur in cold blood, as summary executions, or when suspects are held in custody, with the police reporting later that they were acting in self-defence.
Countermeasures outside of Mumbai have been limited. In Delhi, the problem is largely overlooked, despite the May 2004 Maharashtra Control of Organised Crime Act (MCOCA) which first
came into force in Mumbai in 1999 and is intended as a 'preventative' measure for tackling organised crime in the capital. The Act provides the security forces with unprecedented powers and
can see those found guilty of such crimes sentenced to death. Police in Mumbai have used it to justify clamping down on a number of unrelated activities and it has been heavily criticised by
human rights groups for leading to wrongful arrests and extended periods of imprisonment without trial.
The extent to which criminal activity impinges on the political sphere was highlighted in October 2004, when an independent watchdog, the India-based Public Affairs Centre, released a report
revealing that almost one-quarter of the current parliamentarians face criminal charges. It was found that members of parliament from almost all political parties were found to be facing criminal
charges, one half of whom were within the ruling coalition. This is a problem that the parties are largely ignoring, despite their assertions to the contrary.
The fight against organised crime has been bolstered by the introduction of new legislation and capabilities designed to tackle terrorism. This includes the National Investigating Agency Bill
2008 and the Unlawful Activities (Prevention) Act (UAPA) Amendment Bill 2008, which allows for the establishment of fast-track courts, tighter bail provisions and an increase in the legal
detention without charge from 90 to 180 days; upgrading coastal security with a new coastal command; upgrading the capacity of the elite National Security Guards (NSG); and the
establishment of 20 counter-terrorism training schools.
In June 2010, India became a full member of the Financial Action Task Force (FATF). having had observer status since February 2007. A report by the FATF and Asia Pacific Group
conducted in December 2009 found that India had made significant improvements in tackling money laundering and the financing of terrorism, although it was fully compliant in only 3 of the

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FATF's "40+9" recommendations and non-compliant in 4. A key area of concern is the country's failure to properly monitor Designated Non-Financial Businesses and Professions and
non-governmental organisations. Casinos have been included within the purview of financial investigators, although there are concerns it will take some time for supervision regulations to be
fully implemented.

Trafficking
India's lengthy borders and geographical location make transnational crime inevitable, which fuels instability within the union. The country's position near major drug-producing regions such as
the Golden Triangle and Afghanistan, neighbouring unstable regions, internal insurgencies and a burgeoning middle class all fuel a variety of trafficking activities.
India has instigated moves to address transnational trafficking, with a number of working groups created, as well as co-ordinated military operations conducted with Myanmar to remove
separatists. However, these measures have had limited effect, particularly as other trade routes are easily found. The sporadically fractious relationship between the Indian and Bangladeshi
governments undermines co-operation on cross-border issues, and given the sizeable and shifting nature of the border, smuggling opportunities abound. Furthermore, as with Myanmar, the
border areas have provided a hospitable terrain for Indian insurgents.
Even if India was able to improve relations with all of its neighbours to ensure co-operation in transnational crime, the level of instability in its immediate vicinity makes it impossible to eradicate
the criminal opportunities. As such, transnational crime is likely to be a major part of India's security focus for decades to come.

Drug
Drugs, mainly opium, heroin and cannabis, are largely smuggled across the border from Myanmar, although Nepal is also a key supplier of cannabis. The Indian states of Arunachal Pradesh,
Manipur and Nagaland all run alongside Myanmar, with the border areas populated by Indian separatists and Myanmar drugs syndicates. New Delhi claims that groups such as the National
Socialist Council of Nagaland-Khaplang (NSCN-K) and, following its exit from Bhutan in late 2003, the United Liberation Front of Assam (ULFA) have established links with the drugs
syndicates to help fund their activities.

Arms
Arms are ferried into India through Southeast Asia, Bangladesh and China. It emerged that South and Southeast Asia are also responsible for much of the world's people trafficking with the
industry worth an estimated USD32 billion annually.

Financial crime and counterfeiting


Financial crime has become an increasing concern since the early 1990s given India's burgeoning financial services sector, but has been a problem for decades. The types of crime include
fraud, bribery, counterfeiting, corporate espionage, forgery, money laundering, tax evasion and embezzlement.
A study by the US-based group Global Financial Integrity released in November 2010 estimated that there had been illegal capital outflows of USD462 billion between 1948 and 2008, and that
some 68% of that outflow occurred after the liberalising reforms of 1991.
One of the most notable cases in recent years has been that of Ramalinga Raju, chairman of Satyam, one of India's largest outsourcing companies, who admitted a USD1 billion fraud in
January 2009. It later emerged that the figure could be closer to USD1.7 billion achieved through false accounting and obtaining loans illegally against his stake in the company.
Another recent case came to light in November 2010 when 8 officials from various financial institutions, including an insurance company, bank and investment firm, were arrested on charges
of conspiracy to funnel loans to preferred firms in exchange for bribes.
There are numerous governmental bodies tasked with financial supervision, investigation and enforcement, including the Financial Intelligence Unit, Serious Fraud Investigation Office,
Securities and Exchange Board of India (supervises stock exchanges and markets), the Insurance Regulatory and Development Authority, the Department of Banking Supervision, the Central
Economic Intelligence Bureau (tax evasion and the black economy), as well as numerous other bodies. The sheer number of competing agencies is part of the problem when it comes
investigation and enforcement. There have been regular calls to improve procedures but there is little political will to address white collar crime.
India has seen a surge in patent applications in recent years fuelled by the modernisation of the country's patent and intellectual property (IP) offices. There are a variety of relevant laws to
protect intellectual property rights (IPRs), although in practice there are shortcomings regarding their enforcement.
India's Patents Act, 1970, has been amended several times (in 1999, 2002, 2005, and 2006) to align India's legislation with the World Trade Organization's (WTO) Trade-Related Aspects of
Intellectual Property Rights (TRIPS) agreement without compromising the country's national interests. The patents law also aims to prevent traditional knowledge and life forms from being
patented. It provides for a 20-year patent term and reverses the burden of proof for process patents on infringers, incorporating specific requirements of Article 31 in the Compulsory Licensing
provisions, while consolidating and streamlining the scattered and often repetitive provisions. Under the TRIPS agreement, the act provides the patent holder with a minimum standard of rights
, while expanding the scope for patentability and providing protection for valuable and confidential information.
The main law protecting copyrights is the Copyright Act, 1970, which has undergone numerous amendments, with the latest changes passed in May 2012. The Trademarks Act, 1999, was
amended in August 2010 for it to comply better with international standards.
In 2008, the government passed amendments to the Information Technology Act, 2000, in an attempt to better counter theft and online fraud. This move was related to fears for the reputation
of the IT and outsourcing sector, and the penalties include up to five years' imprisonment and a fine for publishing "sexually explicit material", five years' imprisonment and fines for
impersonation, and two years' imprisonment and fines for sending offensive email messages. It is generally held that the IT laws should be technologically neutral, in line with the UN
Commission on International Trade Law's Model Law on Electronic Signatures.
In April 2012, the US government kept India on the Priority Watch List in its annual Special 301 Report on IP protection. The report noted that "India made limited progress on IPR protection
and enforcement in 2011", adding that "its legal framework and enforcement system remain weak". The US is engaging with India on IPR issues through numerous bilateral forums, such as
the Trade Policy Forum.

Highlights
India offers a mixed environment for investors. There is evidence of improvement, but both domestic and foreign investment have been stifled by intrusive market regulation, poor infrastructure
, inflexible labour-market practices, and recurring fiscal deficits. Politically, the country is more stable after the 2014 parliamentary election, which resulted in a Bharatiya Janata Party (BJP)
majority government free of coalition politics. Newly elected prime minister Narendra Modi has vowed to streamline bureaucratic procedures and focus on much-needed improvements in
infrastructure. He will continue to face some obstacles to reform because of India's powerful state governments, which oversee many policy areas independently, including indirect taxation.
Some state governments have proven highly effective and reformist, which has led to the creation of "hubs" attractive to foreign direct investment (FDI), especially Delhi, Gujarat, and
Maharashtra. Other states are lagging behind, beset with corrupt, fractured, or simply ineffective governments. This has already created a considerable divide in the country in terms of wealth

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and development, and threatens social conflict over the longer term. Parts of the country face significant security threats, often related to leftist (Naxalite) or separatist campaigns in the east
and northeast, although violence in the disputed region of Kashmir has greatly diminished in recent years. The external threat of conflict, most notably with neighbouring Pakistan, constitutes a
significant long-term risk. Although a peace process has been under way since 2002, mutual mistrust remains a problem. Operational problems are an issue, particularly with regards to
infrastructure deficiencies and bureaucratic delays. The judiciary is regarded as strong and independent of politics, but extremely slow and inefficient, ranking among the bottom four in the
world for resolving corporate disputes, according to 2013 World Bank ratings. India's tax system is relatively mature, but an ever-expanding range of targeted incentives to encourage specific
sectors or investors has made it increasingly complicated. Plans to centralise and streamline taxation will be a key early test for the new government.

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