Indian Economy

The Economy of India is the ninth largest in the world by nominal GDP and the fourth largest by purchasing power parity (PPP). The country is a part of the G-20 major economies and the BRICS, in addition to being partners of the ASEAN. India has a per capita GDP (PPP) of $3,586 (IMF, 129th) as per 2010 figures, making it a low income country. The independence-era Indian economy was inspired by the economy of the Soviet Union with socialist practices, large public sectors, high import duties and lesser private participation characterizing it, leading to massive inefficiencies and widespread corruption. However, in 1991, India adopted free market principles and liberalized its economy to international trade under the guidance of current Prime Minister Manmohan Singh. Following these strong economic reforms, the country's economic growth progressed at a rapid pace with very high rates of growth and large increases in the incomes of people. India recorded the highest growth rates in the mid-2000s, and is one of the fastest-growing economies in the world. The growth was led primarily due to a huge increase in the size of the middle class consumer population, a large workforce comprising skilled and non-skilled workers, improvement in education standards and considerable foreign investments. India is the seventeenth largest exporter and eleventh largest importer in the world. Economic growth rates are projected at around 8% for the financial year 2011-2012. Overview: Social democratic policies governed India's economy from 1947 to 1991. The economy was characterised by extensive regulation, protectionism, public

ownership, pervasive corruption and slow growth. Since 1991, continuing economic liberalisation has moved the country towards a market-based economy. A revival of economic reforms and better economic policy in first decade of the 21st century accelerated India's economic growth rate. In recent years, Indian cities have continued to liberalise business regulations. By 2008, India had established itself as the world's second-fastest growing major economy. However, as a result of the financial crisis of 20072010, coupled with a poor monsoon, India's gross domestic product (GDP) growth rate significantly slowed to 6.7% in 200809, but subsequently recovered to 7.4% in 200910, while the fiscal deficit rose from 5.9% to a high 6.5% during the same period.[14] Indias current account deficit surged to 4.1% of GDP during Q2 FY11 against 3.2% the previous quarter. The unemployment rate for 20092010, according to the state Labour Bureau, was 9.4% nationwide, rising to 10.1% in rural areas, where two-thirds of the 1.2 billion population live. As of 2010, India's public debt stood at 71.84% of GDP which is highest among BRIC nations. India's large service industry accounts for 57.2% of the country's GDP while the industrial (28.6%)and agricultural sectors contribute 14.6% respectively. Agriculture is the predominant occupation in India, accounting for about 52% of employment. The service sector makes up a further 34%, and industrial sector around 14%.[16] However, statistics from a 200910 government survey, which used a smaller sample size than earlier surveys, suggested that the share of agriculture in employment had dropped to 45.5%. Major industries include telecommunications, textiles, chemicals, food processing, steel, transportation equipment, cement, mining, petroleum, machinery, information technology-enabled services and pharmaceuticals.

The labour force totals 500 million workers. Major agricultural products include rice, wheat, oilseed, cotton, jute, tea, sugarcane, potatoes, cattle, water buffalo, sheep, goats, poultry and fish. In 20092010, India's top five trading partners are United Arab Emirates, China, United States, Saudi Arabia and Germany.

Rank 9th (nominal) / 4th (PPP) Currency: 1 Indian Rupee (INR) () = 100 Paise Fiscal year :1 April 31 March Trade organizations: WTO, SAFTA, G-20 and others Statistics GDP $1.63 trillion (nominal: 9th; 2010)[1] $4.06 trillion (PPP: 4th; 2010)[1] GDP growth 8.5% (201011) GDP per capita $1,371 (nominal: 138th; 2010)[1] $3,339 (PPP: 129th; 2010)[1] GDP by sector: services (55.2%), industry (26.3%), agriculture (18.5%) (2010 est.) Inflation (CPI): 9.72% (September 2011)[2] Population below poverty line: 37% (2010)[3] Gini index: 36.8 (List of countries) Labour force: 478 million (2nd; 2010) Labour force by occupation: agriculture (52%), industry (14%), services (34%) (2009 est.) Unemployment: 9.4% (200910)[4] Main industries: telecommunications, textiles, chemicals, food processing, steel, transportation equipment, cement, mining, petroleum, machinery, software, pharmaceuticals Ease of Doing Business Rank: 134th[5] (2011) External Exports: $225.4 billion (2010 est.) Export goods: petroleum products, precious stones, machinery, iron and steel, chemicals, vehicles, apparel

Main export partners: UAE 12.5%, US 11.1%, China 6.1%, Hong Kong 4.2%, Singapore 4.1% (2009) Imports: $359 billion (2010 est.) Import goods: crude oil, precious stones, machinery, fertilizer, iron and steel, chemicals Main import partners:China 11.2%, US 6.5%, UAE 6%, Saudi Arabia 5.7%, Australia 4.2%, Germany 4.2%, Iran 4.1% (2009) FDI stock:$35.6 billion (200910) Gross external debt: $238 billion (31 December 2010 est.) Public finances Public debt: 71.84% of GDP (2010 est.)[6] Revenues: $185.4 billion (2010 est.) Expenses:$269.8 billion (2010 est.) Economic aid: $2.107 billion (2008)[7] Credit rating: BBB- (Domestic) BBB- (Foreign) BBB+ (T&C Assessment) Outlook: Stable (Standard & Poor's)[8] Foreign reserves: $319 billion (July 2011)[9] Main data source: CIA World Fact Book, (so data is subject to verification from India Year Book 2011 in January( Taken from Wikipedia)) All values, unless otherwise stated, are in US dollars
Previously a closed economy, India's trade and business sector has grown fast. India currently accounts for 1.5% of world trade as of 2007 according to the World Trade Statistics of the WTO in 2006, which valued India's total merchandise trade (counting exports and imports) at $294 billion and India's services trade at $143 billion. Thus, India's global economic engagement in 2006 covering both merchandise and services trade was of the order of $437 billion, up by a record 72% from a level of $253 billion in 2004.

India's total trade in goods and services has reached a share of 43% of GDP in 200506, up from 16% in 199091. India's total merchandisee trade (counting exports and imports) stands at $ 606.7 billion and is currently the 9th largest in the world. History Pre-colonial period (up to 1773) The citizens of the Indus Valley civilisation, a permanent settlement that flourished between 2800 BC and 1800 BC, practiced agriculture, domesticated animals, used uniform weights and measures, made tools and weapons, and traded with other cities. Evidence of well-planned streets, a drainage system and water supply reveals their knowledge of urban planning, which included the world's first urban sanitation systems and the existence of a form of municipal government. Maritime trade was carried out extensively between South India and southeast and West Asia from early times until around the fourteenth century AD. Both the Malabar and Coromandel Coasts were the sites of important trading centres from as early as the first century BC, used for import and export as well as transit points between the Mediterranean region and southeast Asia. Over time, traders organised themselves into associations which received state patronage. However, state patronage for overseas trade came to an end by the thirteenth century AD, when it was largely taken over by the local Parsi, Jewish and Muslim communities, initially on the Malabar and subsequently on the Coromandel coast. Further north, the Saurashtra and Bengal coasts played an important role in maritime trade, and the Gangetic plains and the Indus valley housed several centres of river-borne commerce. Most overland trade was carried out via the Khyber Pass connecting the Punjab region with Afghanistan and onward to the Middle East and Central Asia. Although many kingdoms and rulers issued coins, barter was

prevalent. Villages paid a portion of their agricultural produce as revenue to the rulers, while their craftsmen received a part of the crops at harvest time for their services. Assessment of India's pre-colonial economy is mostly qualitative, owing to the lack of quantitative information. The Mughal economy functioned on an elaborate system of coined currency, land revenue and trade. Gold, silver and copper coins were issued by the royal mints which functioned on the basis of free coinage. The political stability and uniform revenue policy resulting from a centralised administration under the Mughals, coupled with a welldeveloped internal trade network, ensured that India, before the arrival of the British, was to a large extent economically unified, despite having a traditional agrarian economy characterised by a predominance of subsistence agriculture dependent on primitive technology. After the decline of the Mughals, western, central and parts of south and north India were integrated and administered by the Maratha Empire. After the loss at the Third Battle of Panipat, the Maratha Empire disintegrated into several confederate states, and the resulting political instability and armed conflict severely affected economic life in several parts of the country, although this was compensated for to some extent by localised prosperity in the new provincial kingdoms. By the end of the eighteenth century, the British East India Company entered the Indian political theatre and established its dominance over other European powers. This marked a determinative shift in India's trade, and a less powerful impact on the rest of the economy. Colonial period (17731947) Company rule in India brought a major change in the taxation and agricultural policies, which tended to promote commercialisation of agriculture with a focus on trade, resulting in decreased production of food crops, mass impoverishment and destitution of farmers, and in the short term, led to numerous famines. The economic policies of the British Raj caused a severe decline in the handicrafts and handloom sectors, due to reduced demand and dipping employment.

After the removal of international restrictions by the Charter of 1813, Indian trade expanded substantially and over the long term showed an upward trend. The result was a significant transfer of capital from India to England, which, due to the colonial policies of the British, led to a massive drain of revenue rather than any systematic effort at modernisation of the domestic economy. India's colonisation by the British created an institutional environment that, on paper, guaranteed property rights among the colonisers, encouraged free trade, and created a single currency with fixed exchange rates, standardised weights and measures and capital markets. It also established a well-developed system of railways and telegraphs, a civil service that aimed to be free from political interference, a common-law and an adversarial legal system. This coincided with major changes in the world economy industrialisation, and significant growth in production and trade. However, at the end of colonial rule, India inherited an economy that was one of the poorest in the developing world, with industrial development stalled, agriculture unable to feed a rapidly growing population, a largely illiterate and unskilled labour force, and extremely inadequate infrastructure. The 1872 census revealed that 91.3% of the population of the region constituting present-day India resided in villages, and urbanisation generally remained sluggish until the 1920s, due to the lack of industrialisation and absence of adequate transportation. Subsequently, the policy of discriminating protection (where certain important industries were given financial protection by the state), coupled with the Second World War, saw the development and dispersal of industries, encouraging rural-urban migration, and in particular the large port cities of Bombay, Calcutta and Madras grew rapidly. Despite this, only onesixth of India's population lived in cities by 1951.

The impact of the British rule on India's economy is a controversial topic. Leaders of the Indian independence movement and left-wing people who opposed India's independence movement economic historians have blamed colonial rule for the dismal state of India's economy in its aftermath and argued that financial strength required for industrial development in Europe was derived from the wealth taken from colonies in Asia and Africa. At the same time, right-wing historians have countered that India's low economic performance was due to various sectors being in a state of growth and decline due to changes brought in by colonialism and a world that was moving towards industrialisation and economic integration. Pre-liberalisation period (19471991) Indian economic policy after independence was influenced by the colonial experience, which was seen by Indian leaders as exploitative, and by those leaders' exposure to democratic socialism as well as the progress achieved by the economy of the Soviet Union. Domestic policy tended towards protectionism, with a strong emphasis on 1. 2. 3. 4. 5. 6. import substitution industrialisation, economic interventionism, a large public sector, business regulation, and central planning, while trade and foreign investment policies were relatively liberal. 7. Five-Year Plans of India resembled central planning in the Soviet Union. 8. Steel, mining, machine tools, telecommunications, insurance, and power plants, among other industries, were effectively nationalised in the mid-1950s. Jawaharlal Nehru, the first prime minister of India, along with the statistician Prasanta Chandra Mahalanobis, formulated and oversaw economic policy during the initial

years of the country's existence. They expected favorable outcomes from their strategy, involving the rapid development of heavy industry by both public and private sectors, and based on direct and indirect state intervention, rather than the more extreme Soviet-style central command system. The policy of concentrating simultaneously on capital- and technology-intensive heavy industry and subsidising manual, low-skill cottage industries was criticised by economist Milton Friedman, who thought it would waste capital and labour, and retard the development of small manufacturers. The rate of growth of the Indian economy in the first three decades after independence was derisively referred to as the Hindu rate of growth by economists, because of the unfavourable comparison with growth rates in other Asian countries. Since 1965, the use of high-yielding varieties of seeds, increased fertilisers and improved irrigation facilities collectively contributed to the Green Revolution in India, which improved the condition of agriculture by increasing crop productivity, improving crop patterns and strengthening forward and backward linkages between agriculture and industry. However, it has also been criticised as an unsustainable effort, resulting in the growth of capitalistic farming, ignoring institutional reforms and widening income disparities. Post-liberalisation period (since 1991) In the late 1970s, the government led by Morarji Desai 1. eased restrictions on capacity expansion for incumbent companies, 2. removed price controls, 3. reduced corporate taxes and 4. promoted the creation of small scale industries in large numbers. 5. He also raised the income tax levels at one point to a maximum of 97.5%, a record in the world for noncommunist economies.

However, the subsequent government policy of Fabian socialism hampered the benefits of the economy, leading to high fiscal deficits and a worsening current account. The collapse of the Soviet Union, which was India's major trading partner, and the Gulf War, which caused a spike in oil prices, resulted in a major balance-of-payments crisis for India, which found itself facing the prospect of defaulting on its loans. India asked for a $1.8 billion bailout loan from the International Monetary Fund (IMF), which in return demanded reforms. In response, Prime Minister Narasimha Rao, along with his finance minister Manmohan Singh, initiated the economic liberalisation of 1991. The reforms 1. did away with the Licence Raj, 2. reduced tariffs and interest rates and 3. ended many public monopolies, allowing automatic approval of foreign direct investment in many sectors. Since then, the overall thrust of liberalisation has remained the same, although no government has tried to take on powerful lobbies such as trade unions and farmers, on contentious issues such as reforming labour laws and reducing agricultural subsidies. By the turn of the 20th century, India had progressed towards a free-market economy, with a substantial reduction in state control of the economy and increased financial liberalisation. This has been accompanied by increases in life expectancy, literacy rates and food security, although the beneficiaries have largely been urban residents. While the credit rating of India was hit by its nuclear weapons tests in 1998, it has since been raised to investment level in 2003 by S&P and Moody's.

In 2003, Goldman Sachs predicted that India's GDP in current prices would overtake France and Italy by 2020, Germany, UK and Russia by 2025 and Japan by 2035, making it the third largest economy of the world, behind the US and China. India is often seen by most economists as a rising economic superpower and is believed to play a major role in the global economy in the 21st century.

Sectors 1. Industry and services:

Industry accounts for 28% of the GDP and employ 14% of the total workforce. In absolute terms, India is 12th in the world in terms of nominal factory output. The Indian industrial sector underwent significant changes as a result of the economic reforms of 1991, which removed import restrictions, brought in foreign competition, led to privatisation of certain public sector industries, liberalised the FDI regime, improved infrastructure and led to an expansion in the production of fast moving consumer goods. Post-liberalisation, the Indian private sector was faced with increasing domestic as well as foreign competition, including the threat of cheaper Chinese imports. It has since handled the change by squeezing costs, revamping management, and relying on cheap labour and new technology. However, this has also reduced employment generation even by smaller manufacturers who earlier relied on relatively labour-intensive processes. Textile manufacturing is the second largest source of employment after agriculture and accounts for 20% of manufacturing output, providing employment to over 20 million people. As stated in late January, by the then Minister of Textiles, India, Shri Shankersinh Vaghela, the transformation of the textile industry from a degrading to rapidly developing industry, has become the biggest achievement of the central government. After freeing the industry in 20042005 from a number of limitations, primarily financial, the government gave the green light to the flow of massive investment both

domestic and foreign. During the period from 2004 to 2008, total investment amounted to 27 billion dollars. By 2012, still convinced of the government, this figure will reach 38 billion as expected; these investments in 2012 will create an additional sector of more than 17 million jobs. But demand for Indian textiles in world markets continues to fall. According to Union Minister for Commerce and Industries Kamal Nath, only during 20082009 fiscal year (which ends 31 March) textile and clothing industry will be forced to cut about 800 thousand new jobs nearly half of the rate of two million, which will have to go all the export-oriented sectors of Indian economy to soften the impact of the global crisis. Ludhiana produces 90% of woollens in India and is known as the Manchester of India. Tirupur has gained universal recognition as the leading source of hosiery, knitted garments, casual wear and sportswear. India is 13th in services output. The services sector provides employment to 23% of the work force and is growing quickly, with a growth rate of 7.5% in 19912000, up from 4.5% in 195180. It has the largest share in the GDP, accounting for 55% in 2007, up from 15% in 1950. Information technology and business process outsourcing are among the fastest growing sectors, having a cumulative growth rate of revenue 33.6% between 199798 and 200203 and contributing to 25% of the country's total exports in 2007 08. The growth in the IT sector is attributed to increased specialisation, and an availability of a large pool of low cost, highly skilled, educated and fluent Englishspeaking workers, on the supply side, matched on the demand side by increased demand from foreign consumers interested in India's service exports, or those looking to outsource their operations. The share of the Indian IT industry in the country's GDP increased from 4.8 % in 200506 to 7% in 2008. In 2009, seven Indian firms were listed among the top 15 technology outsourcing companies in the world.

Mining forms an important segment of the Indian economy, with the country producing 79 different minerals (excluding fuel and atomic resources) in 200910, including iron ore, manganese, mica, bauxite, chromite, limestone, asbestos, fluorite, gypsum, ochre, phosphorite and silica sand. Organised retail supermarkets accounts for 24% of the market as of 2008. Regulations prevent most foreign investment in retailing. Moreover, over thirty regulations such as "signboard licences" and "anti-hoarding measures" may have to be complied before a store can open doors. There are taxes for moving goods from state to state, and even within states. Tourism in India is relatively undeveloped, but growing at double digits. Some hospitals woo medical tourism.

2. Information technology in India

The Indian Information Technology industry accounts for a 5.19% of the country's GDP and export earnings as of 2009, while providing employment to a significant number of its tertiary sector workforce. However, only 2.5 million people are employed in the sector either directly or indirectly. In 2010-11, annual revenues from IT-BPO sector is estimated to have grown over $54.33 billion compared to China with $35.76 billion and Philippines with $8.85 billion. It is expected to touch at US$225 billion by 2020. The most prominent IT hub are Bangalore and Hyderabad. The other emerging destinations are Chennai, Coimbatore, Kolkata, Kochi, Pune, Mumbai, Ahmedabad, NCR. Technically proficient immigrants from India sought jobs in the western world from the 1950s onwards as India's education system produced more engineers than its industry could absorb. India's growing stature in the Information Age enabled it to form close ties with both the United States of America and the European Union. However, the recent global financial crises has deeply impacted the Indian IT companies as well as global companies. As a result hiring has dropped sharply, and employees are looking at different

sectors like the financial service, telecommunications, and manufacturing industries, which have been growing phenomenally over the last few years. India's IT Services industry was born in Mumbai in 1967 with the establishment of Tata Group in partnership with Burroughs. The first software export zone SEEPZ was set up here way back in 1973, the old avatar of the modern day IT park. More than 80 percent of the country's software exports happened out of SEEPZ, Mumbai in 80s.

India PC Market Share Estimates for Second Quarter of 2011 Source Lenovo Date HCL Dell 16.7% Acer HP

Gartner Q2/2011 10.4% 6.6%

History

12.1% 11.2%

The Indian Government acquired the EVS EM computers from the Soviet Union, which were used in large companies and research laboratories. In 1968 Tata Consultancy Servicesestablished in SEEPZ, Mumbai by the Tata Groupwere the country's largest software producers during the 1960s. As an outcome of the various policies of Jawaharlal Nehru (office: 15 August 1947 27 May 1964) the economically beleaguered country was able to build a large scientific workforce, third in numbers only to that of the United States of America and the Soviet Union. On 18 August 1951 the minister of education Maulana Abul Kalam Azad, inaugurated the Indian Institute of Technology at Kharagpur in West Bengal. Possibly modeled after the Massachusetts Institute of Technology these institutions were conceived by a 22 member committee of scholars and entrepreneurs under the chairmanship of N. R. Sarkar.

Relaxed immigration laws in the United States of America (1965) attracted a number of skilled Indian professionals aiming for research. By 1960 as many as 10,000 Indians were estimated to have settled in the US. By the 1980s a number of engineers from India were seeking employment in other countries. In response, the Indian companies realigned wages to retain their experienced staff. In the Encyclopedia of India, Kamdar (2006) reports on the role of Indian immigrants (1980 - early 1990s) in promoting technology-driven growth:

The United States technological lead was driven in no small part by the brain power of brilliant immigrants, many of whom came from India. The inestimable contributions of thousands of highly trained Indian migrants in every area of American scientific and technological achievement culminated with the information technology revolution most associated with Californias Silicon Valley in the 1980s and 1990s.
The National Informatics Centre was established in March 1975. The inception of The Computer Maintenance Company (CMC) followed in 1976. Between 1977-1980 the country's Information Technology companies Tata Infotech, Patni Computer Systems and Wipro had become visible. The 'microchip revolution' of the 1980s had convinced both Indira Gandhi and her successor Rajiv Gandhi that electronics and telecommunications were vital to India's growth and development. MTNL underwent technological improvements. Between 1986-87, the Indian government embarked upon the creation of three wide-area computer networking schemes: 1. INDONET (intended to serve the IBM mainframes in India), 2. NICNET (the network for India's National Informatics Centre), and 3. ERNET, the academic research oriented Education and Research Network

Post liberalization
Regulated VSAT links became visible in 1985. Desai (2006) describes the steps taken to relax regulations on linking in 1991: In 1991 the Department of Electronics broke this impasse, creating a corporation called Software Technology Parks of India (STPI) that, being owned by the government, could provide VSAT communications without breaching its monopoly. STPI set up software technology parks in different cities, each of which provided satellite links to be used by firms; the local link was a wireless radio link. In 1993 the government began to allow individual companies their own dedicated links, which allowed work done in India to be transmitted abroad directly. Indian firms soon convinced their American customers that a satellite link was as reliable as a team of programmers working in the clients office. Videsh Sanchar Nigam Limited (VSNL) introduced Gateway Electronic Mail Service(GEMS) in 1991, the 64 kbit/s leased line service in 1992, and commercial Internet access on a visible scale in 1992. Election results were displayed via National Informatics Centre's NICNET. The Indian economy underwent economic reforms in 1991, leading to a new era of globalization and international economic integration. Economic growth of over 6% annually was seen between 1993-2002. The economic reforms were driven in part by significant the internet usage in the country. The new administration under Atal Bihari Vajpayeewhich placed the development of Information Technology among its top five priorities formed the Indian National Task Force on Information Technology and Software Development.

Wolcott & Goodman (2003) report on the role of the Indian National Task Force on Information Technology and Software Development:
Within 90 days of its establishment, the Task Force produced an extensive background report on the state of technology in India and an IT Action Plan with 108 recommendations. The Task Force could act quickly because it built upon the experience and frustrations of state governments, central government agencies, universities, and the software industry. Much of what it proposed was also consistent with the thinking and recommendations of international bodies like the World Trade Organization (WTO), International Telecommunications Union (ITU), and World Bank. In addition, the Task Force incorporated the experiences of Singapore and other nations, which implemented similar programs. It was less a task of invention than of sparking action on a consensus that had already evolved within the networking community and government. The New Telecommunications Policy, 1999 (NTP 1999) helped further liberalize India's telecommunications sector. The Information Technology Act 2000 created legal procedures for electronic transactions and e-commerce. Throughout the 1990s, another wave of Indian professionals entered the United States. The number of Indian Americans reached 1.7 million by 2000. This immigration consisted largely of highly educated technologically proficient workers. Within the United States, Indians fared well in science, engineering, and management. Graduates from the Indian Institutes of Technology (IIT) became known for their technical skills. Thus GOI planned to establish new Institutes specially for Information Technology to enhance this field. In 1998 India got the first IT institute name Indian Institute of Information Technology(IIIT) at Gwalior. The success of Information Technology in India not only had economic repercussions but also had far-reaching political consequences.

India's reputation both as a source and a destination for skilled workforce helped it improve its relations with a number of world economies. The relationship between economy and technologyvalued in the western world facilitated the growth of an entrepreneurial class of immigrant Indians, which further helped aid in promoting technology-driven growth.

In 1998 India got the first IT institute name Indian Institute of Information Technology(IIIT) at Gwalior.

Recent development
India is now one of the biggest IT capitals in the modern world. The economic effect of the technologically inclined services sector in Indiaaccounting for 40% of the country's GDP and 30% of export earnings as of 2006, while employing only 25% of its workforceis summarized by Sharma (2006): The share of IT (mainly software) in total exports increased from 1 percent in 1990 to 18 percent in 2001. IT-enabled services such as backoffice operations, remote maintenance, accounting, public call centers, medical transcription, insurance claims, and other bulk processing are rapidly expanding. Indian companies such as HCL, TCS, Wipro, and Infosys may yet become household names around the world. Today, Bangalore is known as the Silicon Valley of India and contributes 33% of Indian IT Exports. India's second and third largest software companies are head-quartered in Bangalore, as are many of the global SEI-CMM Level 5 Companies. Mumbai too has its share of IT companies that are India's first and largest, like TCS and well established like

Reliance[disambiguation needed ], Patni, LnT Infotech, iFlex, WNS, Shine, Naukri, Jobspert etc. are head-quartered in Mumbai. and these IT and dot com companies are ruling the roost of Mumbai's relatively high octane industry of Information Technology. Such is the growth in investment and outsourcing, it was revealed that Cap Gemini will soon have more staff in India than it does in its home market of France with 21,000 personnel+ in India. On 25 June 2002 India and the European Union agreed to bilateral cooperation in the field of science and technology. A joint EU-India group of scholars was formed on 23 November 2001 to further promote joint research and development. India holds observer status at CERN while a joint India-EU Software Education and Development Center is due at Bangalore.

India's IT industry (USD bn)

Top 10 IT Hubs in India

Supercomputing in India
India's supercomputer program was started in late 1980s because Cray supercomputers were denied for import due to an arms embargo imposed on India, as it was a dual use technology and could be used for developing nuclear weapons. PARAM 8000 is considered India's first supercomputer. It was built by Centre for Development of Advanced Computing(CDAC) with Russian collaboration. Among Current Top500 Supercomputers

Notable Supercomputers of India SAGA-220: Recently unveiled supercomputer SAGA-220 built by ISRO, is capable of performing at 220000 GFLops (220 TFlops). It uses about 400 NVIDIA Tesla 2070 GPUs and 400 Intel Quad Core Xeon CPUs.[6] It is yet to be ranked on Top500 list. EKA: EKA is a supercomputer built by the Computational Research Laboratories with technical assistance and hardware provided by Hewlett-Packard. It is capable of performing at 132800 GFLops (132 TFlops) and is currently ranked 58th on the Top500 list. PARAM Yuva: PARAM Yuva belongs to the PARAM series of supercomputer developed by the Centre for Development of Advanced Computing. It is capable of performing at 38100 GFlops (38.1 TFlops) and is ranked 298th on the Top500 list.

3. Agriculture
India ranks second worldwide in farm output. Agriculture and allied sectors like forestry, logging and fishing accounted for 15.7% of the GDP in 200910, employed 52.1% of the total workforce, and despite a steady decline of its share in the GDP, is still the largest economic sector and a significant piece of the overall socio-economic development of India. Yields per unit area of all crops have grown since 1950, due to the special emphasis placed on agriculture in the five-year plans and steady improvements in irrigation, technology, application of modern agricultural practices and provision of agricultural credit and subsidies since the Green Revolution in India. However, international comparisons reveal the average yield in India is generally 30% to 50% of the highest average yield in the world. Indian states Uttar Pradesh, Punjab, Haryana, Madhya Pradesh, Andhra Pradesh, Bihar, West Bengal and Maharashtra are key agricultural contributing states of India. India receives an average annual rainfall of 1,208 millimetres (47.6 in) and a total annual precipitation of 4000 billion cubic metres, with the total utilisable water resources, including

surface and groundwater, amounting to 1123 billion cubic metres. 546,820 square kilometres (211,130 sq mi) of the land area, or about 39% of the total cultivated area, is irrigated. India's inland water resources including rivers, canals, ponds and lakes and marine resources comprising the east and west coasts of the Indian ocean and other gulfs and bays provide employment to nearly six million people in the fisheries sector. In 2008, India had the world's third largest fishing industry. India is the largest producer in the world of milk, jute and pulses, and also has the world's second largest cattle population with 175 million animals in 2008. It is the second largest producer of rice, wheat, sugarcane, cotton and groundnuts, as well as the second largest fruit and vegetable producer, accounting for 10.9% and 8.6% of the world fruit and vegetable production respectively. India is also the second largest producer and the largest consumer of silk in the world, producing 77,000 million tons in 2005.

History of agriculture in India

Indian agriculture began by 9000 BCE as a result of early cultivation of plants, and domestication of crops and animals.[2] Settled life soon followed with implements and techniques being developed for agriculture.[3][4] Double monsoons led to two harvests being reaped in one year.[5] Indian products soon reached the world via existing trading networks and foreign crops were introduced to India.[5][6] Plants and animalsconsidered essential to their survival by the Indianscame to be worshiped and venerated.[7] The middle ages saw irrigation channels reach a new level of sophistication in India and Indian crops affecting the economies of other regions of the world under Islamic patronage.[8][9] Land and water management systems were developed with an aim of providing uniform growth.[10][11] Despite some stagnation during the later modern era the independent Republic of India was able to develop a comprehensive agricultural program.

Early history
Wheat, barley and jujube were domesticated in the Indian subcontinent by 9000 BCE.[7] Domestication of sheep and goat soon followed.[2] This period also saw the first domestication of the elephant.[7] Barley and wheat cultivationalong with the domestication of cattle, primarily sheep and goatwas visible in Mehrgarh by 8000-6000 BCE.[3][14] Agro pastoralism in India included threshing, planting crops in rowseither of two or of sixand storing grain in granaries.[3][15] By the 5th millennium BCE agricultural communities became widespread in Kashmir.[3] Zaheer Baber (1996) writes that 'the first evidence of cultivation of cotton had already developed'.[14] Cotton was cultivated by the 5th millennium BCE-4th millennium BCE.[16] The Indus cotton industry was well developed and some methods used in cotton spinning and fabrication continued to be practiced till the modern Industrialization of India.[17] A variety of tropical fruit such as mango and muskmelon are native to the Indian subcontinent.[5] The Indians also domesticated hemp, which they used for a number of

applications including making narcotics, fiber, and oil.[18] The farmers of the Indus Valley grew peas, sesame, and dates.[18] Sugarcane was originally from tropical South Asia and Southeast Asia.[19] Different species likely originated in different locations with S. barberi originating in India and S. edule and S. officinarum coming from New Guinea.[19] Wild Oryza rice appeared in the Belan and Ganges valley regions of northern India as early as 4530 BCE and 5440 BCE respectively.[20] Rice was cultivated in the Indus Valley Civilization.[21] Agricultural activity during the second millennium BC included rice cultivation in the Kashmir and Harrappan regions.[20] Mixed farming was the basis of the Indus valley economy.[21] Denis J. Murphy (2007) details the spread of cultivated rice from India into South-east Asia:[22]

Several wild cereals, including rice, grew in the Vindhyan Hills, and rice cultivation, at sites such as Chopani-Mando and Mahagara, may have been underway as early as 7000 BP. The relative isolation of this area and the early development of rice farming imply that it was developed indigenously....ChopaniMando and Mahagara are located on the upper reaches of the Ganges drainage system and it is likely that migrants from this area spread rice farming down the Ganges valley into the fertile plains of Bengal, and beyond into south-east Asia.
Irrigation was developed in the Indus Valley Civilization by around 4500 BCE.[23] The size and prosperity of the Indus civilization grew as a result of this innovation, which eventually led to more planned settlements making use of drainage and sewers.[23] Sophisticated irrigation and water storage systems were developed by the Indus Valley Civilization, including artificial reservoirs at Girnar dated to 3000 BCE, and an early canal irrigation system from circa 2600 BCE.[24] Archeological evidence of an animal-drawn plough dates back to 2500 BC in the Indus Valley Civilization.

Vedic period Post Maha Janapadas period (1500 BCE 200 CE) Gupta (2004) finds it likely that summer monsoons may have been longer and may have contained moisture in excess than required for normal food production.[25] One effect of this excessive moisture would have been to aid the winter monsoon rainfall required for winter crops.[25] In India, both wheat and barley are held to be Rabi (winter) crops and like other parts of the worldwould have largely depended on winter monsoons before the irrigation became widespread.[25] The growth of the Kharif crops would have probably suffered as a result of excessive moisture.[25] Jute was first cultivated in India, where it was used to make ropes and cordage.[26] Some animalsthought by the Indians as being vital to their survivalcame to be worshiped.[7] Trees were also domesticated, worshiped, and veneratedPipal and Banyan in particular.[7] Others came to be known for their medicinal uses and found mention in the holistic medical system Ayurveda.[7] The Encyclopdia Britannicaon the subject of agriculture of the later Vedic periodholds that:

In the later Vedic texts (c. 1000500 BC), there are repeated references to iron. Cultivation of a wide range of cereals, vegetables, and fruits is described. Meat and milk products were part of the diet; animal husbandry was important. The soil was plowed several times. Seeds were broadcast. Fallowing and a certain sequence of cropping were recommended. Cow dung provided the manure. Irrigation was practiced.
The Mauryan Empire (322185 BCE) categorized soils and made meteorological observations for agricultural use.[27] Other Mauryan facilitation included construction and maintenance of dams, and provision of horse-drawn chariotsquicker than traditional bullock carts.[5] The Greek diplomat Megasthenes (c. 300 BC)in his book Indika provides a secular eyewitness account of Indian agriculture:

India has many huge mountains which abound in fruit-trees of every kind, and many vast plains of great fertility. . . . The greater part of the soil, moreover, is under irrigation, and consequently bears two crops in the course of the year. . . . In addition to cereals, there grows throughout India much millet . . . and much pulse of different sorts, and rice also, and what is called bosporum [Indian millet]. . . . Since there is a double rainfall [i.e., the two monsoons] in the course of each year . . . the inhabitants of India almost always gather in two harvests annually. Early Common Era High Middle Ages (200 1200 CE)
The Tamil people cultivated a wide range of crops such as rice, sugarcane, millets, black pepper, various grains, coconuts, beans, cotton, plantain, tamarind and sandalwood.[28] Jackfruit, coconut, palm, areca and plantain trees were also known.[28] Systematic ploughing, manuring, weeding, irrigation and crop protection was practiced for sustained agriculture.[29] Water storage systems were designed during this period.[1] Kallanai (1st-2nd century CE), a dam built on river Kaveri during this period, is considered the as one of the oldest water-regulation structures in the world still in use.[1] Spice trade involving spices native to Indiaincluding cinnamon and black peppergained momentum as India starts shipping spices to the Mediterranean.[6] Roman trade with India followed as detailed by the archaeological record and the Periplus of the Erythraean Sea.[6] Chinese sericulture attracted Indian sailors during the early centuries of the common era.[6] Crystallized sugar was discovered by the time of the Guptas (320-550 CE),[30] and the earliest reference of candied sugar come from India.[31] The process was soon transmitted to China with traveling Buddhist monks.[31] Chinese documents confirm at least two missions to India, initiated in 647 CE, for obtaining technology for sugar-refining.[32] Each mission returned with results on refining sugar.[32] Indian spice exports find

mention in the works of Ibn Khurdadhbeh (850), al-Ghafiqi (1150), Ishak bin Imaran (907) and Al Kalkashandi (fourteenth century).[33] Noboru Karashima's research of the agrarian society in South India during the Chola Empire (875-1279) reveals that during the Chola rule land was transferred and collective holding of land by a group of people slowly gave way to individual plots of land, each with their own irrigation system.[34] The growth of individual disposition of farming property may have led to a decrease in areas of dry cultivation.[10] The Cholas also had bureaucrats which oversaw the distribution of water-particularly the distribution of water by tank-and-channel networks to the drier areas.

Late Middle Ages Early Modern Era (1200 1757 CE)

The construction of water works and aspects of water technology in India is described in Arabic and Persian works.[8] The diffusion of Indian and Persian irrigation technologies gave rise to an irrigation systems which bought about economic growth and growth of material culture.[8] Agricultural 'zones' were broadly divided into those producing rice, wheat or millets.[5] Rice production continued to dominate Gujarat and wheat dominated north and central India.[5] The Encyclopdia Britannica details the many crops introduced to India during this period of extensive global discourse:

Introduced by the Portuguese, cultivation of tobacco spread rapidly. The Malabr Coast was the home of spices, especially black pepper, that had stimulated the first European adventures in the East. Coffee had been imported from Abyssinia and became a popular beverage in aristocratic circles by the end of the century. Tea, which was to become the common man's drink and a major export, was yet undiscovered, though it was growing wild in the hills of Assam. Vegetables were cultivated mainly in the vicinity of towns. New species of fruit, such as the

pineapple, papaya, and cashew nut, also were introduced by the Portuguese. The quality of mango and citrus fruits was greatly improved.
Land management was particularly strong during the regime of Akbar the Great (reign: 1556-1605), under whom scholarbureaucrat Todarmal formulated and implemented elaborated methods for agricultural management on a rational basis.[11] Indian cropssuch as cotton, sugar, and citric fruitsspread visibly throughout North Africa, Islamic Spain, and the Middle East.[9] Though they may have been in cultivation prior to the solidification of Islam in India, their production was further improved as a result of this recent wave, which led to far-reaching economic outcomes for the regions involved.

Colonial British Era (17571947 CE)

Few Indian commercial cropssuch as Cotton, indigo, opium, and ricemade it to the global market under the British Raj in India.[35] The second half of the 19th century saw some increase in land under cultivation and agricultural production expanded at an average rate of about 1 percent per year by the later 19th century.[35] Due to extensive irrigation by canal networks Punjab, Narmada valley, and Andhra Pradesh became centers of agrarian reforms.[35] Roy (2006) comments on the Influence of the world wars on the Indian agricultural system:[35]

Agricultural performance in the interwar period (19181939) was dismal. From 1891 to 1946, the annual growth rate of all crop output was 0.4 percent, and food-grain output was practically stagnant. There were significant regional and intercrop differences, however, nonfood crops doing better than food crops. Among food crops, by far the most important source of stagnation was rice. Bengal had below-average growth rates in both food and nonfood crop output, whereas Punjab and Madras were the least stagnant regions. In the interwar period, population growth accelerated while food output decelerated, leading to declining availability of food per

head. The crisis was most acute in Bengal, where food output declined at an annual rate of about 0.7 percent from 1921 to 1946, when population grew at an annual rate of about 1 percent.
The British regime in India did supply the irrigation works but rarely on the scale required.[36] Community effort and private investment soared as market for irrigation developed.[36] Agricultural prices of some commodities rose to about three times between 1870-1920.[36] A rich source of the state of Indian agriculture in the early British era is a report prepared by a British engineer, Thomas Barnard, and his Indian guide, Raja Chengalvaraya Mudaliar, around 1774. This report contains data of agricultural production in about 800 villages in the area around Chennai in the years 1762 to 1766. This report is available in Tamil in the form of palm leaf manuscripts at Thanjavur Tamil University, and in English in the Tamil Nadu State Archives. A series of articles in The Hindu newspaper in the early 1990s authored by researchers at The Center for Policy Studies [1] led by Shri Dharampal highlight the impressive production statistics of Indian farmers of that era.

Sutlej Valley from Rampur ca. 1857. A number of irrigation canals are located on the Sutlej river. Republic of India (1947 CE onwards)
Bhakra Dam (completed 1963) is the largest dam in India. Special programs were undertaken to improve food and cash crops supply.[37] The Grow More Food Campaign (1940s) and the Integrated Production Programme (1950s) focused on food and cash crops supply respectively.[37] Five-year plans of Indiaoriented towards agricultural developmentsoon followed.[37] Land reclamation, land development, mechanization, electrification, use of chemicalsfertilizers in particular, and development of agriculture oriented 'package approach' of taking a set of actions instead of promoting single aspect soon followed under government supervision.[38] The many 'production

revolutions' initiated from 1960s onwards included Green Revolution in India, Yellow Revolution (oilseed: 1986-1990), Operation Flood (dairy: 1970-1996), and Blue Revolution (fishing: 1973-2002) etc.[39] Following the economic reforms of 1991, significant growth was registered in the agricultural sector, which was by now benefiting from the earlier reforms and the newer innovations of Agro-processing and Biotechnology.[40] Due to the growth and prosperity that followed India's economic reforms a strong middle class emerged as the main consumer of fruits, dairy, fish, meat and vegetablesa marked shift from the earlier staple based consumption.[41] Since 1991, changing consumption patterns led to a 'revolution' in 'high value' agriculture while the need for cereals is experienced a decline.[41] The per capita consumption of cereals declined from 192 to 152 kilograms from 1977 to 1999 while the consumption of fruits increased by 553%, vegetables by 167%, dairy products by 105%, and non-vegetarian products by 85% in India's rural areas alone.[42] Urban areas experienced a similar increase.[42] Agricultural exports continued to grow at well over 10.1% annually through the 1990s.[43] Contract farmingwhich requires the farmers to produce crops for a company under contractand high value agricultural product increased.[44] Contract farming led to a decrease in transaction costs while the contract farmers made more profit compared to the noncontract workforce.[45] However, small landholding continued to create problems for India's farmers as the limited land resulted in limited produce and limited profits. Since independence, India has become one of the largest producers of wheat, edible oil, potato, spices, rubber, tea, fishing, fruits, and vegetables in the world.[46] The Ministry of Agriculture oversees activities relating to agriculture in India. Various institutions for agriculture related research in India were organized under the Indian Council of Agricultural Research (est. 1929). Other organizations such as the National Dairy Development Board (est. 1965), and National Bank for Agriculture and Rural Development (est. 1982) aided the formation of cooperatives and improved financing.

The contribution of agriculture in employing India's male workforce declined from 75.9% in 1961 to 60% in 1999 2000.[47] Dev (2006) holds that 'there were about 45 million agricultural labor households in the country in 1999 2000.'[48] These households recorded the highest incidence of poverty in India from 1993 to 2000.[49] The green revolution introduced high yielding varieties of crops which also increased the usage of fertilizers and pesticides.[50] About 90% of the pesticide usage in India is accounted for by DDT and Lindane (BHC/HCH).[51] There has been a shift to organic agriculture particularly for exported commodities. During 2003-04, agriculture accounted for 22 % of India's GDP and employed 58 per cent of the country's workforce.[53] India is the world's largest producer of milk, fruits, cashew nuts, coconuts, ginger, turmeric, banana, sapota, pulses, and black pepper.[53] India is the second largest producer of groundnut, wheat, vegetables, sugar and fish in the world.[53] India is also the third largest producer of tobacco and rice, the fourth largest producer of coarse grains, the fifth largest producer of eggs, and the seventh largest producer of meat.

Agriculture in India has a significant history

Today, India ranks second worldwide in farm output. Agriculture and allied sectors like forestry and logging accounted for 16.6% of the GDP in 2007, % of the total workforce[1] and despite a steady decline of its share in the GDP, is still the largest economic sector and plays a significant role in the overall social-economic development of India. India is the largest producer in the world of fresh fruit, anise, fennel, badian, coriander, tropical fresh fruit, jute, pigeon peas, pulses, spices, millets, castor oil seed, sesame seeds, safflower seeds, lemons, limes, cow's milk, dry chillies and peppers, chick peas, cashew nuts, okra, ginger, turmeric guavas, mangoes, goat milk and buffalo milk and meat. India

is also the largest producer of millets like Jowar Bajra and Ragi.

It is second only to China in the production of rice.[2][3] India is the 6th largest coffee producer in the world[4] It also has the world's largest cattle population (281 million). It is the second largest producer of cashews, cabbages, cotton seed and lint, fresh vegetables, garlic, egg plant, goat meat, silk, nutmeg. mace, cardamom, onions, wheat, rice, sugarcane, lentil, dry beans, groundnut, tea, green peas, cauliflowers, potatoes, pumpkins, squashes, gourds and inland fish.[2][6] It is the third largest producer of tobacco, sorghum,

rapeseed, coconuts, hen's eggs and tomatoes.[2][6] India accounts for 10% of the world fruit production with first rank in the production of mangoes, papaya, banana and sapota. India's population is growing faster than its ability to produce rice and wheat. Initiatives: The required level of investment for the development of marketing, storage and cold storage infrastructure is estimated to be huge. The government has not been able to implement various schemes to raise investment in marketing infrastructure. Among these schemes are Construction of Rural Go downs, Market Research and Information Network, and Development / Strengthening of Agricultural Marketing Infrastructure, Grading and Standardization.[8] The Indian Agricultural Research Institute (IARI), established in 1905, was responsible for the research leading to the "Indian Green Revolution" of the 1970s. The Indian Council of Agricultural Research (ICAR) is the apex body in agriculture and related allied fields, including research and education.[9] The Union Minister of Agriculture is the President of the ICAR. The Indian Agricultural Statistics Research Institute develops new techniques for the design of agricultural experiments, analyses data in agriculture, and specializes in statistical techniques for animal and plant breeding. Recently Government of India has set up Farmers Commission to completely evaluate the agriculture program.[10] However the recommendations have had a mixed reception. Indian agriculture policy Indian agriculture policy is aimed essentially at improving food self sufficiency and alleviating hunger through food distribution. Aside from investing in agricultural infrastructure, the government supports agriculture through measures including minimum support prices (MSP) for the major agricultural crops, farm input subsidies and

preferential credit schemes.Under the price support policy, MSPs are set annually for basic staples to protect producers from sharp price falls, to stabilise prices and to ensure adequate food stocks for public distribution. In the past guaranteed prices have been below the prevailing market prices, according to the International Food Policy Research Institute (IFPRI) in 2007.At the same time subsidies on farm inputs including fertilisers, electrical power and irrigation water have led to inefficient use of inputs and indirectly subsidise income. IFPRI concluded that support for agriculture (from 1985-2002) has been largely counter cyclical to world prices.

Problems Cotton flower in India. This is the main cash crop in Vidarbha region. "Slow agricultural growth is a concern for policymakers as some two-thirds of Indias people depend on rural employment for a living. Current agricultural practices are neither economically nor environmentally sustainable and India's yields for many agricultural commodities are low. Poorly maintained irrigation systems and almost universal lack of good extension services are among the factors responsible. Farmers' access to markets is hampered by poor roads, rudimentary market infrastructure, and excessive regulation." World Bank: "India Country Overview 2008"
The low productivity in India is a result of the following factors: 1. According to the World Bank, Indian Branch: Priorities for Agriculture and Rural Development", India's large agricultural subsidies are hampering productivityenhancing investment. Overregulation of agriculture has increased costs, price risks and uncertainty. Government intervenes in labour, land, and credit markets. India has inadequate infrastructure and services.[13] World Bank also says that the allocation

2.

3.

4.

5.

6.

7.

of water is inefficient, unsustainable and inequitable. The irrigation infrastructure is deteriorating.[13] The overuse of water is currently being covered by over pumping aquifers, but as these are falling by foot of groundwater each year, this is a limited resource.[14] Illiteracy, general socio-economic backwardness, slow progress in implementing land reforms and inadequate or inefficient finance and marketing services for farm produce. Inconsistent government policy. Agricultural subsidies and taxes often changed without notice for short term political ends. The average size of land holdings is very small (less than 20,000 m) and is subject to fragmentation due to land ceiling acts, and in some cases, family disputes. Such small holdings are often over-manned, resulting in disguised unemployment and low productivity of labour. Adoption of modern agricultural practices and use of technology is inadequate, hampered by ignorance of such practices, high costs and impracticality in the case of small land holdings. Irrigation facilities are inadequate, as revealed by the fact that only 52.6% of the land was irrigated in 2003 04,[15] which result in farmers still being dependent on rainfall, specifically the Monsoon season. A good monsoon results in a robust growth for the economy as a whole, while a poor monsoon leads to a sluggish growth.[16] Farm credit is regulated by NABARD, which is the statutory apex agent for rural development in the subcontinent. At the same time overpumping made possible by subsidized electric power is leading to an alarming drop in aquifer levels.

4. Banking and finance

The Indian money market is classified into the organised sector, comprising private, public and foreign owned commercial banks and cooperative banks, together known as scheduled banks, and the

unorganised sector, which includes individual or family owned indigenous bankers or money lenders and non-banking financial companies.[83] The unorganised sector and microcredit are still preferred over traditional banks in rural and sub-urban areas, especially for non-productive purposes, like ceremonies and short duration loans.[84] Prime Minister Indira Gandhi nationalised 14 banks in 1969, followed by six others in 1980, and made it mandatory for banks to provide 40% of their net credit to priority sectors like agriculture, small-scale industry, retail trade, small businesses, etc. to ensure that the banks fulfill their social and developmental goals. Since then, the number of bank branches has increased from 8,260 in 1969 to 72,170 in 2007 and the population covered by a branch decreased from 63,800 to 15,000 during the same period. The total bank deposits increased from 5,910 crore (US$1.2 billion) in 197071 to 3,830,922 crore (US$776.91 billion) in 200809. Despite an increase of rural branches, from 1,860 or 22% of the total number of branches in 1969 to 30,590 or 42% in 2007, only 32,270 out of 500,000 villages are covered by a scheduled bank.[85][86] India's gross domestic saving in 200607 as a percentage of GDP stood at a high 32.7%.[87] More than half of personal savings are invested in physical assets such as land, houses, cattle, and gold.[88] The public sector banks hold over 75% of total assets of the banking industry, with the private and foreign banks holding 18.2% and 6.5% respectively.[89] Since liberalisation, the government has approved significant banking reforms. While some of these relate to nationalised banks, like encouraging mergers, reducing government interference and increasing profitability and competitiveness, other reforms have opened up the banking and insurance sectors to private and foreign players.

Banking in India Banking in India originated in the last decades of the 18th century. The first banks were The General Bank of India, which started in 1786, and Bank of Hindustan, which started in 1790; both are now defunct. The oldest bank in existence in India is the State Bank of India, which originated in the Bank of Calcutta in June 1806, which almost immediately became the Bank of Bengal. This was one of the three presidency banks, the other two being the Bank of Bombay and the Bank of Madras, all three of which were established under charters from the British East India Company. For many years the Presidency banks acted as quasi-central banks, as did their successors. The three banks merged in 1921 to form the Imperial Bank of India, which, upon India's independence, became the State Bank of India.

Structure of the organised banking sector in India. Number of banks are in brackets.
History Indian merchants in Calcutta established the Union Bank in 1839, but it failed in 1848 as a consequence of the economic crisis of 1848-49. The Allahabad Bank, established in 1865 and still functioning today, is the oldest Joint Stock bank in India.(Joint Stock Bank: A company that issues stock and requires shareholders to be held liable for the company's debt)

It was not the first though. That honor belongs to the Bank of Upper India, which was established in 1863, and which survived until 1913, when it failed, with some of its assets and liabilities being transferred to the Alliance Bank of Simla. When the American Civil War stopped the supply of cotton to Lancashire from the Confederate States, promoters opened banks to finance trading in Indian cotton. With large exposure to speculative ventures, most of the banks opened in India during that period failed. The depositors lost money and lost interest in keeping deposits with banks. Subsequently, banking in India remained the exclusive domain of Europeans for next several decades until the beginning of the 20th century. Foreign banks too started to arrive, particularly in Calcutta, in the 1860s. The Comptoire d'Escompte de Paris opened a branch in Calcutta in 1860, and another in Bombay in 1862; branches in Madras and Puducherry, then a French colony, followed. HSBC established itself in Bengal in 1869. Calcutta was the most active trading port in India, mainly due to the trade of the British Empire, and so became a banking center. The first entirely Indian joint stock bank was the Oudh Commercial Bank, established in 1881 in Faizabad. It failed in 1958. The next was the Punjab National Bank, established in Lahore in 1895, which has survived to the present and is now one of the largest banks in India. Around the turn of the 20th Century, the Indian economy was passing through a relative period of stability. Around five decades had elapsed since the Indian Mutiny, and the social, industrial and other infrastructure had improved. Indians had established

small banks, most of which served particular ethnic and religious communities. The presidency banks dominated banking in India but there were also some exchange banks and a number of Indian joint stock banks. All these banks operated in different segments of the economy. The exchange banks, mostly owned by Europeans, concentrated on financing foreign trade. Indian joint stock banks were generally under capitalized and lacked the experience and maturity to compete with the presidency and exchange banks. This segmentation let Lord Curzon to observe, "In respect of banking it seems we are behind the times. We are like some old fashioned sailing ship, divided by solid wooden bulkheads into separate and cumbersome compartments." The period between 1906 and 1911, saw the establishment of banks inspired by the Swadeshi movement. The Swadeshi movement inspired local businessmen and political figures to found banks of and for the Indian community. A number of banks established then have survived to the present such as Bank of India, Corporation Bank, Indian Bank, Bank of Baroda, Canara Bank and Central Bank of India. The fervour of Swadeshi movement lead to establishing of many private banks in Dakshina Kannada and Udupi district which were unified earlier and known by the name South Canara (South Kanara ) district. Four nationalised banks started in this district and also a leading private sector bank. Hence undivided Dakshina Kannada district is known as "Cradle of Indian Banking". During the First World War (1914-1918) through the end of the Second World War (1939-1945), and two years thereafter until the independence of India were challenging for Indian banking. The years of the First World War were turbulent, and it took its toll with banks simply collapsing despite the Indian economy

gaining indirect boost due to war-related economic activities. At least 94 banks in India failed between 1913 and 1918 as indicated in the following table:

Post-Independence: The partition of India in 1947 adversely impacted the economies of Punjab and West Bengal, paralyzing banking activities for months. India's independence marked the end of a regime of the Laissez-faire for the Indian banking. The Government of India initiated measures to play an active role in the economic life of the nation, and the Industrial Policy Resolution adopted by the government in 1948 envisaged a mixed economy. This resulted into greater involvement of the state in different segments of the economy including banking and finance. The major steps to regulate banking included: The Reserve Bank of India, India's central banking authority, was nationalized on January 1, 1949 under the terms of the Reserve Bank of India (Transfer to Public Ownership) Act, 1948 (RBI, 2005b).[Reference www.rbi.org.in] In 1949, the Banking Regulation Act was enacted which empowered the Reserve Bank of India (RBI) "to regulate, control, and inspect the banks in India." The Banking Regulation Act also provided that no new bank or branch of an existing bank could be opened without a license from the RBI, and no two banks could have common directors.

Nationalisation of Banks Despite the provisions, control and regulations of Reserve Bank of India, banks in India except the State Bank of India or SBI, continued to be owned and operated by private persons. By the 1960s, the Indian banking industry had become an important tool to facilitate the development of the Indian economy. At the same time, it had emerged as a large employer, and a debate had ensued about the nationalization of the banking industry. Indira Gandhi, then Prime Minister of India, expressed the intention of the Government of India in the annual conference of the All India Congress Meeting in a paper entitled "Stray thoughts on Bank Nationalisation." The meeting received the paper with enthusiasm. Thereafter, her move was swift and sudden. The Government of India issued an ordinance and nationalised the 14 largest commercial banks with effect from the midnight of July 19, 1969. Jayaprakash Narayan, a national leader of India, described the step as a "masterstroke of political sagacity." Within two weeks of the issue of the ordinance, the Parliament passed the Banking Companies (Acquisition and Transfer of Undertaking) Bill, and it received the presidential approval on 9 August 1969. A second dose of nationalization of 6 more commercial banks followed in 1980. The stated reason for the nationalization was to give the government more control of credit delivery. With the second dose of nationalization, the Government of India controlled around 91% of the banking business of India. Later on, in the year 1993, the government merged New Bank of India with Punjab National Bank. It was the only merger between nationalized banks and resulted in the reduction of the number of nationalised banks from 20 to 19. After this, until the 1990s, the nationalised banks grew at a pace of around 4%, closer to the average growth rate of the Indian economy.

Liberalisation In the early 1990s, the then Narasimha Rao government embarked on a policy of liberalization, licensing a small number of private banks. These came to be known as New Generation tech-savvy banks, and included Global Trust Bank (the first of such new generation banks to be set up), which later amalgamated with Oriental Bank of Commerce, Axis Bank(earlier as UTI Bank), ICICI Bank and HDFC Bank. This move, along with the rapid growth in the economy of India, revitalized the banking sector in India, which has seen rapid growth with strong contribution from all the three sectors of banks, namely, government banks, private banks and foreign banks. The next stage for the Indian banking has been set up with the proposed relaxation in the norms for Foreign Direct Investment, where all Foreign Investors in banks may be given voting rights which could exceed the present cap of 10%,at present it has gone up to 74% with some restrictions. The new policy shook the Banking sector in India completely. Bankers, till this time, were used to the 46-4 method (Borrow at 4%;Lend at 6%;Go home at 4) of functioning. The new wave ushered in a modern outlook and tech-savvy methods of working for traditional banks.All this led to the retail boom in India. People not just demanded more from their banks but also received more. Currently (2007), banking in India is generally fairly mature in terms of supply, product range and reacheven though reach in rural India still remains a challenge for the private sector and foreign banks. In terms of quality of assets and capital adequacy, Indian banks are considered to have clean, strong and transparent balance sheets relative to other banks in comparable economies in its region. The Reserve Bank of India is an autonomous body, with minimal pressure from the government. The stated policy of the Bank on the Indian Rupee is to manage

volatility but without any fixed exchange rate-and this has mostly been true. With the growth in the Indian economy expected to be strong for quite some time-especially in its services sector-the demand for banking services, especially retail banking, mortgages and investment services are expected to be strong. One may also expect M&As, takeovers, and asset sales. In March 2006, the Reserve Bank of India allowed Warburg Pincus to increase its stake in Kotak Mahindra Bank (a private sector bank) to 10%. This is the first time an investor has been allowed to hold more than 5% in a private sector bank since the RBI announced norms in 2005 that any stake exceeding 5% in the private sector banks would need to be vetted by them. In recent years critics have charged that the nongovernment owned banks are too aggressive in their loan recovery efforts in connection with housing, vehicle and personal loans. There are press reports that the banks' loan recovery efforts have driven defaulting borrowers to suicide. Adoption of banking technology The IT revolution had a great impact in the Indian banking system. The use of computers had led to introduction of online banking in India. The use of the modern innovation and computerisation of the banking sector of India has increased many fold after the economic liberalisation of 1991 as the country's banking sector has been exposed to the world's market. The Indian banks were finding it difficult to compete with the international banks in terms of the customer service without the use of the information technology and computers.

Number of branche of scheduled banks of India as of March 2005

The RBI in 1984 formed Committee on Mechanisation in the Banking Industry (1984)[4] whose chairman was Dr C Rangarajan, Deputy Governor, Reserve Bank of India. The major recommendations of this committee was introducing MICR[5] Technology in the all the banks in the metropolis in India.This provided use of standardized cheque forms and encoders. In 1988, the RBI set up Committee on Computerisation in Banks (1988)[6] headed by Dr. C.R. Rangarajan which emphasized that settlement operation must be computerized in the clearing houses of RBI in Bhubaneshwar, Guwahati, Jaipur, Patna and Thiruvananthapuram.It further stated that there should be National Clearing of inter-city cheques at Kolkata,Mumbai,Delhi,Chennai and MICR should be made Operational.It also focused on computerisation of branches and increasing connectivity among branches through computers.It also suggested modalities for implementing on-line banking.The committee submitted its reports in 1989 and computerisation began form 1993 with the settlement between IBA and bank employees's association[7] . IN 1994, Committee on Technology Issues relating to Payments System, Cheque Clearing and Securities Settlement in the Banking Industry (1994)[8] was set

up with chairman Shri WS Saraf, Executive Director, Reserve Bank of India. It emphasized on Electronic Funds Transfer (EFT) system, with the BANKNET communications network as its carrier. It also said that MICR clearing should be set up in all branches of all banks with more than 100 branches. Committee for proposing Legislation On Electronic Funds Transfer and other Electronic Payments (1995)[9] emphasized on EFT system. Electronic banking refers to DOING BANKING by using technologies like computers, internet and networking,MICR,EFT so as to increase efficiency, quick service,productivity and transparency in the transaction. Apart from the above mentioned innovations the banks have been selling the third party products like Mutual Funds, insurances to its clients.Total numbers of ATMs installed in India by various banks as on end March 2005 is 17,642.[10] .The New Private Sector Banks in India is having the largest numbers of ATMs which is followed by SBI Group, Nationalized banks, Old private banks and Foreign banks[7].The total off site ATM is highest for the SBI and its subsidiaries and then it is followed by New Private Banks, Nationalised banks and Foreign banks. While on site is highest for the Nationalised banks of India.

Number of ATMs of different Scheduled Commercial Banks Of India as on end March 2005

Reforms in Banking Systems of India

I. Working Group to consider feasibility of introducing MICR/OCR Technology for Cheque Processing (1982) Convenor : Dr.Y.B.Damle, Adviser, Management Services Department, Reserve Bank of India. Recommendations : **Introduction of 'item processing' (sorting and listing of cheques with the help of computers) in three phases.In the first phase at the four metropolitan

cities viz. Mumbai, New Delhi, Chennai and Calcutta, with the help of MICR technology. In the second phase all state capitals and important commercial centres. In the final phase national clearing to be introduced by dividing the country into four Regional Grids with headquarters at Mumbai, New Delhi, Chennai and Calcutta. Each Regional Centre was to perform two functions: (i) to act as a clearing house for intra-grid instruments, and (ii) participate in national clearing on behalf of the grid for extra-grid outstation cheques. II. Committee on Mechanisation in the Banking Industry (1984) Chairman : Dr.C.Rangarajan, Deputy Governor, Reserve Bank of India. Recommendations : **Banks should set up service branches at centres where they have more than 10 branches. The service branch so set up would exclusively be devoted to clearing operations of the bank at that particular centre. **Banks to be in readiness for the introduction of MICR Clearing at the four metropolitan cities by assessing their requirements for encoders, adopting standardised cheque forms and reorganising work procedures where necessary, and training staff down to the branch level. III. Committees on Communication Network for Banks and SWIFT implementation (1987) Chairman : Shri T.N.A.Iyer, Executive Director, Reserve Bank of India. Recommendations : **Setting up of X.25 based packet switching network called 'BANKNET' to be jointly owned by the Reserve Bank and the public sector banks. It suggested that the computer system resources of the four IBM Mainframes (installed at the four metros for cheque processing operations) could be made use of during the day time by BANKNET for data communication with additional equipment. **BANKNET to be implemented in two phases. In Phase I the computer systems available in the Head Offices of the Public Sector Banks in the four metropolitan cities would be connected to the four

IBM Mainframe servers. In the second phase connectivity could be gradually extended to eight to ten banking intensive centres, and to a hundred centres over a three year period. The applications that were identified were:inter-bank fund transfers on banks' own account and on customers' account; inter-branch funds transfers on banks' own account and on customers' account; currency chest transactions; government transactions; improvements in payment systems by facilitating automated clearing services (similar to BACS); any branch banking, etc. **India should join the SWIFT (Society for Worldwide Interbank Financial Telecommunication) Network for the transmission and reception of international financial messages. **BANKNET should strive to emulate SWIFT in matters of data security, encryption, and authentication and SWIFT message standards which are internationally accepted should be adopted by BANKNET. IV. Committee on Computerisation in Banks (1988) Chairman : Dr. C. Rangarajan, Deputy Governor, Reserve Bank of India Recommendations : **Computerisation of the settlement operations in the clearing houses managed by Reserve Bank of India at Bhubaneshwar, Guwahati, Jaipur, Patna and Thiruvananthapuram. **Operationalisation of MICR technology and the National Clearing of inter-city cheques at the four metropolitan cities. **Introduction of one-way collection of cheques drawn on the 4 metros received from Ahmedabad, Bangalore, Nagpur and Hyderabad. **Framing of Uniform Regulations and Rules of Clearing Houses. **Branch level computerisation and the establishment of connectivity between branches. **Improvements in customer service - introduction of on-line banking. **Standardisation and rigorous security features to ensure an efficient and risk free transfer of funds electronically.

**Setting up a network of Automated Teller Machines (ATMs) in Mumbai. ATMs to be strategically located at airports, railway stations, hospitals, important commercial centres, as well as bank branches, to be used by the customers to perform a variety of functions such as deposits, withdrawals, balance enquiries, statement of accounts etc., at any point of time during the day. **Introduction of a single 'All Bank' credit card and advocated the need for its widespread acceptance by merchant establishments and usage by customers to reduce the load on cash and cheque transactions. V. Committee on Technology Issues relating to Payments System, Cheque Clearing and Securities Settlement in the Banking Industry (1994) Chairman : Shri W.S.Saraf, Executive Director, Reserve Bank of India Recommendations **Establishment of an Electronic Funds Transfer (EFT) system, with the BANKNET communications network as its carrier. The message transfers would be in a batch mode with high value institutional funds transfers being batched every one hour and the transactions of retail customers being batched at the end of the day. Starting with the 4 metropolitan cities, the scheme to be extended in a phased manner to all important centres. **Enactment of suitable legislation on the lines of the Electronic Funds Transfer Act 1978, USA and Data Protection Act 1984, UK. **MICR clearing be introduced at all centres with more than 100 bank branches. Priority should be given to centres such as Ahmedabad, Bangalore, Hyderabad, Pune and Surat which have relatively large volumes. **Introduction of a Delivery versus Payment (DvP) system for SGL transactions, with settlement on gross basis both for securities transactions in PDO and funds transactions in current accounts at DAD. **Introduction of Electronic Clearing Service Credit for low value repetitive transactions such as interest, dividend, salary, pension payments and an Electronic Debit Clearing for payments to utility companies. **A uniform size for MICR instruments. **Geographical expansion of the BANKNET network with nodes in all important branches of banks and

modifications in COMET software to enable dial-up connectivity, file transfer facility, encryption etc. **Switch over to on-line inter-bank clearing on a gross basis. **Introduction of 'Clearing Bank' concept for decentralised cheque processing. ** Truncation of cheques upto the value of Rs.5,000/**Large scale induction of computers and communication technology in service branches **Optimal usage of SWIFT. **NICNET, to be used for the reporting of currency chest transactions by the chest branches to their Link Offices and Issue Departments of the RBI. **Promotion of a card culture, as well as enhanced training facilities. VI. Committee for proposing Legislation On Electronic Funds Transfer and other Electronic Payments (1995) Chairperson : Smt.K.S.Shere, Principal Legal Adviser, Reserve Bank of India. Recommendations : **EFT system could be introduced immediately by framing regulations under Section 58 of the RBI Act. A Model Customer Contract agreement to govern the banker-customer relationship with regard to EFT should be adopted by all banks participating in the system. **As a long term measure, a new legislation needed for regulating, defining and determining the rights and obligations of the system providers and users.