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India

NepalOur quarterly Country Report on India and Nepal analysescurrent trends. This annual Country Profile providesbackground political and economic information.

1998-99The Economist Intelligence Unit15 Regent Street, London SW1Y 4LRUnited Kingdom

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ISSN 0269-5359

Comparative economic indicators, 1997

0 50 100 150 200 250 300 350 400

India

Indonesia

Singapore

Pakistan

Bangladesh

Vietnam

Sri Lanka

Nepal (a)

Gross domestic product$ bn

(a) Fiscal year beginning July 15th. Sources: EIU estimates; national sources.

0 200 400 600 800 1,000 1,200

Singapore

Indonesia

Sri Lanka

Pakistan

India

Vietnam

Bangladesh

Nepal (a)

Gross domestic product per head$


31,00031,00031,00031,00031,00031,00031,00031,00031,00031,00031,00031,00031,000

-2 0 2 4 6 8 10

Vietnam

Singapore

Sri Lanka

Bangladesh

India

Indonesia

Nepal (a)

Pakistan

Gross domestic product% change, year on year


0 2 4 6 8 10 12

Pakistan

Sri Lanka

India

Bangladesh

Indonesia

Nepal

Vietnam

Singapore

Consumer prices% change, year on year

Sources: EIU estimates; national sources.

EIU Country Profile 1998-99 © The Economist Intelligence Unit Limited 1998

November 9th 1998 Contents

India

4 Basic data

5 Political background5 Historical background7 Constitution and institutions8 Political forces

10 International relations and defence

11 The economy11 Economic structure11 Agriculture12 Economic policy14 Economic performance16 Regional trends

17 Resources17 Population18 Education19 Health19 Natural resources and the environment

20 Economic infrastructure20 Transport and communications21 Energy provision22 Financial services23 Other services

24 Production24 Industry26 Mining and semi-processing26 Agriculture, forestry and fishing27 Construction

27 The external sector27 Foreign trade30 Invisibles and the current account31 Capital flows and foreign debt 32 Foreign reserves and the exchange rate

33 Appendices33 Sources of information35 Reference tables35 Government finances35 Money supply and credit

1

© The Economist Intelligence Unit Limited 1998 EIU Country Profile 1998-99

36 Gross domestic product36 Gross domestic product by expenditure37 Gross domestic product by sector37 Prices and wages38 Availability of selected consumption items38 Population estimates38 Transport statistics39 Energy statistics39 Stockmarket indicators40 Industrial production40 Mineral production41 Agricultural production41 Gross domestic savings42 Exports43 Imports44 Main trading partners45 Balance of payments, IMF estimates46 Balance of payments, national estimates47 External debt47 Net official development assistance48 Foreign reserves48 Exchange rates

Nepal

49 Basic data

50 Political background50 Historical background52 Constitution and institutions 53 Political forces 54 International relations and defence

55 The economy55 Economic structure56 Economic policy 57 Economic performance

58 Resources58 Population 59 Education and health 59 Natural resources and the environment

60 Economic infrastructure60 Transport and communications 60 Energy provision 61 Financial services 61 Other services

2


62 Production62 Industry 63 Mining and semi-processing 63 Agriculture 64 Construction

64 The external sector64 Merchandise trade 66 Invisibles and the current account 66 Capital flows and foreign debt 67 Foreign reserves and the exchange rate

68 Appendices68 Sources of information70 Reference tables70 Government finances70 Interest rates71 Gross domestic product71 Prices72 Production index of manufacturing industries72 Tourism73 Foreign trade73 Main trading partners74 Balance of payments, IMF estimates75 External debt, World Bank estimates75 Foreign reserves76 Exchange rates

3


India

Basic data

Land area 3,287,263 sq km (including Indian-administered Kashmir); including 57% agri-cultural land and 16% forests

Population 955m (mid-1997)

Main towns Population in millions, 1991 census (total urban areas)

Mumbai (Bombay) 12.6Calcutta 11.0Delhi 8.4Chennai (Madras) 5.4Hyderabad 4.3Bangalore 4.1Ahmedabad 3.3

Climate Varied; humid subtropical in Ganges basin, semi-arid in north-west, tropicalhumid in north-east and most of peninsula, tundra in Himalayas; all areasreceive annual monsoon rainfall, with the south-west monsoon dominating

Weather in New Delhi(altitude 218 metres)

Hottest month, May, 26-41°C (average daily minimum and maximum); coldestmonth, January, 7-21°C; driest month, November, 4 mm average rainfall; wet-test month, July, 180 mm average rainfall

Languages Hindi and English are the most widely used, but there are many others

Religion Hindu (82% in 1991 census); Muslim (12.1%); Christian (2.3%); Sikh (1.9%);Buddhist (0.8%); Jain (0.4%)

Measures Metric system. Numbers are frequently written in lakhs (100,000) and crores(10m)

Currency Rupee (Rs)=100 paisa. Average exchange rate in 1997: Rs36.3:$1. Exchange rateNovember 6th 1998, Rs42.3:$1

Fiscal year April 1st-March 31st

Time 5 hours 30 minutes ahead of GMT

Public holidays January 26th; August 15th; October 2nd; also major Hindu, Muslim, Christianand other religious holidays

4 India: Basic data


Political background

Historical background

Early history The civilisation of the Indian sub-continent dates back about 5,000 years,when cities thrived in the Indus valley. Invading forces from across the regionestablished a series of powerful empires over the centuries, including theMuslim Mughal emperors. The resulting mix of ethnic and religious groups andthe emergence of social structures such as the Hindu caste system laid thefoundations for much of contemporary India.

From the 15th to the 17th centuries, European traders maintained a limitedpresence in the subcontinent, eventually overshadowed by the more aggressiveinterests of the British. In 1757 the Mughal emperor granted the British EastIndia Company the right to rule all of Bengal. The company expanded militar-ily until, by 1840, it controlled most of India. After a major Indian revolt in1858, the mandate to rule India passed from the company to the British crown.

Independence andCongress party domination

British rule in India ended in 1947 after a sustained campaign for inde-pendence. Soon after independence, India was partitioned amid great blood-shed to create the Islamic state of Pakistan, while India assumed a secularconstitution.

Important recent events

June 1991: Congress wins the general election and forms a minoritygovernment under P V Narasimha Rao. Congress secures a majority in early 1994.

July 1993: The Congress government defeats a no-confidence vote by 14 votes.

April-May 1996: No single party wins a majority in the Lok Sabha election. TheBJP wins the largest share of seats, followed by Congress.

May 1996: The BJP forms its first government, which only lasts 13 days. TheNational and Left Fronts join informally in the United Front (UF) and form agovernment by the end of the month.

November 1997: Congress, led by Sitaram Kesri, withdraws its support from theUF government. The government, led by Inder Kumar Gujral, falls.

February-March 1998: A general election again produce no single partywinner. The BJP (which wins the largest number of seats) forms a multipartycoalition.

April 1998: India conducts a series of nuclear tests. Pakistan follows with tests ofits own. Several foreign governments, led by the US, apply economic sanctions toboth countries.

November 1998: Sanctions against India and Pakistan are partially withdrawn.

India: Historical background 5


India’s first prime minister was Jawaharlal Nehru, leader of the Indian NationalCongress. Under his government, India established a complex system of social-ist economic controls which remained in place until the 1980s. The IndianNational Congress and its successor—Congress (Indira), better known asCongress (I) or simply Congress—have been in power for 45 of India’s 51 yearsof independence.

In 1966 Nehru’s daughter, Indira (after whom the Congress (I) was named),became prime minister. Her administration continued to implement an inward-looking economic policy, as well as manifesting particularly authoritarian ten-dencies. In 1975 Mrs Gandhi declared a state of emergency which lasted for twoyears. Civil rights were suspended, the press was controlled and many of hercritics were imprisoned. The electorate responded by ousting Congress fromgovernment—and Mrs Gandhi from her seat—in the 1977 general election.

The age of coalitionpolitics

After a series of coalition governments, Mrs Gandhi returned as prime ministerin 1980. In 1984 she was assassinated by Sikh bodyguards and her elder son,Rajiv, succeeded her as prime minister. An election later that year gaveMr Gandhi an unprecedented majority, and his administration began cautioussteps towards economic liberalisation. But Congress lost its majority in the1989 general election amid a series of corruption scandals, and Mr Gandhistepped down. He was assassinated by Sri Lankan Tamil extremists during the1991 election campaign.

General election results, 1998(seats in the Lok Sabha)

Bharatiya Janata Party (BJP) 181

Congress 141

Communist Party of India (Marxist) 32

Samajwadi Party 20

All-India Anna Dravida Munnetra Kazhagam 18

Rashtriya Janata Dal 17

Samata Party 13

Telegu Desam Party (TDP) 12

Biju Janata Dal 9

Communist Party of India 9

Shiromani Akali Dal 8

West Bengal Trinamool Congress 7

Janata Dal 6

Dravida Munnetra Kazhagam (DMK) 6

Shiv Sena 6

Bahujan Samaj Party 5

Revolutionary Socialist Party 5

Republican Party of India 4

Pattali Makkal Katchi 4

Haryana Lok Dal 4

Marumalarchi Dravideda Munnetra Kazhagam 3

Lok Shakti Party 3

Tamil Maanila Congress (TMC) 3

Total (includes other small parties and independent and appointed MPs) 545Source: Lok Sabha.

6 India: Historical background


Following the 1991 general election, Congress formed a minority governmentunder P V Narasimha Rao. A programme of economic reforms was initiated inthe same year, after a financial crisis forced recourse to the IMF for financing.

In May 1996 the Congress party lost power to the Hindu nationalist BharatiyaJanata Party (BJP), which formed a government that lasted for only 13 days. Thiswas followed by a minority United Front (UF) coalition supported from the backbenches by Congress. The UF government continued to implement the eco-nomic reforms begun under Congress, but Congress withdrew its support inNovember 1997 and the government fell. The general election, held in February-March 1998, offered inconclusive results. The BJP finally formed a coalitiongovernment with 13 other parties; Atal Behari Vajpayee became prime minister.

Constitution and institutions

Federalism The Republic of India is a constitutional democracy made up of 26 states andsix union territories. Its federal structure often leads to demands for furtherdevolution of powers and responsibilities to the states, as well as demands fornew states to be created. (In 1998 the government was considering creating twonew states—in Uttar Pradesh and Bihar.) The Indian constitution delegatessome powers to the centre and some to the states, while the remainder—theso-called concurrent list—are shared. But in practice, the centre has frequentlyclaimed for itself powers allocated to the states.

The centre versus the states

India’s 26 states have limited powers of taxation and rely on transfers from thecentre for most of their finance. But with increased efforts to decentralise powersbelow the state level—to several tiers of local government structures, orPanchayati Raj Institutions (PRIs)—and the decline of central planning, the stateshave begun to assume more individual profiles.

Unity in diversity: Federalism in India allows for a great variety of parties withcomparatively narrow linguistic or ethnic bases to rule at the state level. Examplesare the Tamil Maanila Congress (TMC) and the Dravida Munnetra Kazhagam(DMK) in Tamil Nadu; the Telegu Desam Party (TDP) in Andhra Pradesh; the AkaliDal and other Sikh groups in Punjab; Shiv Sena in Maharashtra; local nationalistparties in Assam, Nagaland and Mizoram; and Communist parties in West Bengal,Tripura and Kerala.

Economic liberalisation: State governments play a decisive part indetermining regional economic reform. Those wishing to liberalise and attractinvestment can streamline project clearance, legislate on land use and reformlabour markets (through the divestment of state-level public-sector enterprises)and utilities (predominantly the state electricity boards). Gujarat, Maharashtra,Karnataka and Andhra Pradesh are notable examples.

Social policy: Several state governments have initiated innovative social reforms.Programmes have included land share-cropping reforms (West Bengal); publicfood-for-work schemes (Maharashtra); school meals (Tamil Nadu); andpromoting primary education and healthcare (Kerala).

India: Constitution and institutions 7


The judiciary and thelegislature

The Indian constitution provides for an independent judiciary, with courts inevery state and a Supreme Court in New Delhi. There are two houses of parlia-ment. The lower house, or Lok Sabha, is elected every five years by universaladult suffrage. The prime minister is elected by the Lok Sabha. Members of theupper house, or Rajya Sabha, are elected by their respective state legislatures,according to state quotas. The president is elected every five years by bothhouses of parliament and the state legislatures. He is confined to acting on theadvice of the Council of Ministers, which is chosen by the prime minister.

Democracy and corruption India is the world’s largest democracy, with regular and fairly free elections. Inseveral areas, poll-rigging and intimidation are commonplace; party spendingis far in excess of legal limits; and many of the country’s elected representativeshave a criminal record. But a high level of political awareness and the sheer sizeof the electorate generally ensure that, despite these obstacles, the final resultsdo reflect the wishes of the people.

Political forces

The BJP The BJP traces its roots to the Bharatiya Jan Sangh, a party representing trad-itional Hindu values. In the general election of 1989, the BJP emerged fromobscurity to win 88 seats. A key campaign issue was the demand for a Hindutemple on the site of the Babri mosque in Ayodhya, which many Hindusbelieve was earlier the site of a temple marking the birthplace of the Hindu god,Ram. In the 1991 election the BJP established itself as the main national oppos-ition and formed four state governments. In December 1992 Hindu extremistsdemolished the Babri mosque, triggering communal riots which left hundredsdead. In the subsequent state elections held in 1993, the BJP suffered setbacks,winning just one state administration. But in the general election in 1996 theparty improved its standing to win 160 seats in the Lok Sabha.

The BJP formed its first government in May 1996, which lasted only 13 days.Atal Behari Vajpayee, who represents the moderate wing of the party, wasappointed prime minister. He sought to establish the BJP’s credentials as aparty of economic liberalism, reversing, for example, the party’s previous hos-tility to the Enron power project in Maharashtra.

Following the 1998 general election, in which it won 181 seats, the BJP wasforced to form alliances across caste, linguistic and political lines. The govern-ment has therefore been vulnerable to demands by smaller regional parties,whose power has been increased by a role at the centre.

The Congress party The Congress party has been a powerful force in Indian politics since beforeindependence, transcending religious, ethnic and caste lines, and is closelyassociated with Mahatma Gandhi. Under Jawaharlal Nehru, Congress oversawthe establishment of an independent India and a socialist system of economicregulation. A member of the Nehru-Gandhi dynasty has been leader of theCongress party throughout its history, barring a period after the assassinationof Rajiv Gandhi. Following the party’s poor performance in the 1998 generalelections, his Italian-born widow, Sonia, conceded to repeated requests andtook over as party leader.

8 India: Political forces


Congress has lost much of its power base to new caste-based and religiousparties, and has been weakened by repeated splits and allegations of corrup-tion. But with a fragile multiparty coalition in power, Congress is at least arelatively bulky opposition in a fractured political landscape.

The UF: the “third force” The UF coalition that fell at the end of 1997 comprised several Congress off-shoots. The largest was the Janata Dal whose power base is the “backwardcastes”. The Janata Dal split when the former party leader, Laloo Prasad Yadav,formed the Rashtriya Janata Dal (RJD). The Communist Party of India (CPI)also emerged from Congress, splitting from the Indian National Congress dur-ing the second world war. The CPI later split to form a Marxist group, theCPI(M). The CPI(M) has established itself at the state level in Kerala, Tripuraand West Bengal, where it has been in power for two decades.

Other members of the UF coalition are regional or language-based parties,including the Dravida Munnetra Kazhagam (DMK) in Tamil Nadu and theAsom Gana Parishad (AGP) in Assam (which lost its seats in the 1998 poll). Afew former UF constituents, including the Telegu Desam Party (TDP) in AndhraPradesh and the Samajwadi party, led by Mulayam Singh Yadav, left the alli-ance after the 1998 elections; the TDP has since offered support to the BJP-ledcoalition, while the Samajwadi party has aligned with the RJD.

Main political figures

Atal Behari Vajpayee: Prime minister and senior memberof the Bharatiya Janata Party (BJP). Foreign minister in1978-79 and briefly prime minister after the May 1996election. An artistic man with a penchant for writing poetry,he is comparatively moderate on nationalist and religiousissues and is the most widely supported of the BJP leaders.Born in 1926.

Kocheril Raman Narayanan: The current president andthe first Dalit to hold the post. His refusal to accept theimposition of central rule in Bihar demonstrates that he willbe more active and less ceremonial than his predecessors.

Lal Krishna Advani: Home minister; parliamentary leaderof the BJP, L K Advani has been described as a soft-spokenhardliner. A long-time member of the Hindu extremistRashtriya Swayamsevak Sangh (RSS). Born in 1927.

Sonia Gandhi: Italian-born widow of Rajiv Gandhi andleader of the Congress party. Despite a lack of politicalexperience, she has proved adept at pulling the crowds topolitical rallies. Her daughter, Priyanka, has also shownconsiderable interest in politics.

Chandrababu Naidu: Chief minister of Andhra Pradeshand leader of the Telegu Desam Party (TDP). Sophisticatedand young, he is a new breed of regional leader. Mr Naiduhas become his state’s roving ambassador, touring the worldto boost investment.

Bal Thackeray: Leader of the Marathi-nationalist Shiv Senaparty in Maharashtra; anti-Muslim, he is allegedly responsiblefor encouraging sectarian massacres. In power he has beenpragmatic, although his party has prevented Pakistani singersand cricket players from playing in Bombay.

Mulayam Singh Yadav: Leader of the Samajwadi party;former defence minister in the United Front (UF) coalition.Formed an alliance, the Rashtriya Loktantrik Morcha (RLM),with Rashtriya Janata Dal (RJD) leader Laloo Prasad Yadav.Important among the new breed of “backward caste”politicians.

Jayalalitha Jayaram: Former film star and erstwhile chiefminister of Tamil Nadu, she is leader of the All-India AnnaDravida Munnetra Kazagham (AIADMK)—a crucial memberof the BJP-led coalition. A number of corruption charges havetempered her repeated threat to withdraw from the coalition.

India: Political forces 9


International relations and defence

The Indo-Pakistani andSino-Indian wars

India has fought four wars since independence—three with Pakistan and onewith China. Disputes with Pakistan have been mainly territorial: in 1947Pakistani tribesmen invaded the mainly-Muslim princely state of Kashmir.Indian forces intervened at the request of the state’s Hindu maharaja. Theresulting war with Pakistan left about one-third of the territory with Pakistanand the remainder with India.

Kashmir contributed to two further wars and remains an issue of bitter disputebetween the two countries. There are regular skirmishes between Indian andPakistani positions on the so-called “line of control” (LOC) dividing Kashmir,and the two armies have been stuck in a stalemate on the Siachen glacier sincethe 1980s, fighting the world’s most expensive—and arguably least prod-uctive—war. Militants supported by Pakistan continue to wage an insurgencyin Indian-administered Kashmir.

Relations between India and Pakistan reached a new low in 1998 with theelection of the Hindu nationalist, BJP-led coalition. In May tension betweenthe two increased sharply when India and then Pakistan detonated severalnuclear devices. Talks resumed in October 1998. But the disputed status ofKashmir remains an obstacle to meaningful progress.

In 1962 a long-standing (and still unresolved) territorial dispute with Indiacame to a head and China launched a full-scale attack along the Sino-Indianborder. The Indian army, caught unawares, was routed, and India moved closerto the Soviet Union, signing a treaty of mutual support in 1971. Relations withChina remained strained. Both countries maintain around 250,000 soldiersalong their border. In 1998 relations between India and China showed no signsof improving, with India’s outspoken minister of defence, George Fernandes,making repeated claims that China was a significant military threat to India.

In 1971 India fought its third war with Pakistan, after sending troops into EastPakistan to support Bengalis fighting to break away from West Pakistan. The11-day war ended with the surrender of Pakistan’s entire army in the east, andBangladesh was established as an independent state. India’s relations withBangladesh are fairly good, improved by recent agreements to share the waterof the Ganges and extend transit rights to Indian goods.

The nuclear issue India conducted its first atomic test in 1974; Pakistan then embarked on itsown nuclear programme. By 1994 it was widely accepted that Pakistan hadacquired both the atom bomb and Chinese-supplied ballistic missiles. India hasdeveloped its own intermediate-range ballistic missile. In 1998 India againtested nuclear devices; Pakistan responded with a series of tests. The US hopesto persuade India to sign the nuclear Non-Proliferation Treaty (NPT) and theComprehensive Test Ban Treaty (CTBT), both of which India considers biased.India has signalled its intention to sign. Now that the US has lifted some of thesanctions it imposed after the tests, the government may be in a good positionto sign without losing the domestic political capital it gained by conductingnuclear tests.

10 India: International relations and defence


The defence effort India’s army is the second largest in the world, with total armed forces of1.145m active servicemen and first-line reserves of another 528,400. The armedforces have a strictly non-political role, although they have increasingly beendrawn into India’s more intractable domestic law-and-order problems, such asthose simmering in Kashmir and the north-eastern states. Consistently highlevels of tension in the region make major defence cuts unlikely and difficultto implement.

The economy

Economic structure

Around 70% of India’s population relies on agriculture, forestry and fishing,which account for about 30% of GDP (for data on GDP, see Reference table 3).Most land is cultivated at subsistence level, and only one-third is irrigated.Annual population growth of 1.8% in recent years will make India the world’smost populous country in the next century. Human development indicators areamong the worst in the world. But India also has a wide range of advancedexpertise, and a number of internationally regarded industrial houses.

Main economic indicators, 1997

GDP growth (at factor cost)a (%) 5.0

Consumer price inflation (av; %) 7.2

Current-account deficit (% of GDP) 3.5

Total external debtb (end-1997; $ bn) 87.7

Exchange rate (av; Rs:$) 36.31

Population (mid-year estimate; m) 955

a Fiscal year April 1997-March 1998. b EIU estimate.

Source: IMF, International Financial Statistics.

Agriculture

Agriculture is dominated by foodgrain production—mainly rice and wheat.Other major crops are oilseeds, pulses, cotton, sugar, tea, coffee, rubber, juteand potatoes. (Reference table 7 shows per head availability of important con-sumption items.) After several years of growth in the agricultural sector, fiscalyear 1997/98 (April-March) saw a contraction of 1.5%. Yields per hectare for allmajor crops in India are low.

Industry India’s drive for self-sufficiency in the decades after independence contributedto a broad—if inefficient—industrial base. Recent liberalisation has opened upseveral sectors to foreign participation. There has been rapid expansion overrecent years in the production of durable consumer goods, such as cars andscooters, consumer electronics and computer systems, and white goods. A largeamount of heavy industry is publicly owned. (See reference table 12 for data onindustrial production.)

India: Economic structure 11


Comparative economic indicators, 1997

India Pakistan South Korea Hong Kong Japan

GDP ($ bn) 380 64 438 173 4,192

GDP per head ($) 398 467 9,527 26,601 33,213

Consumer price inflation (%) 7.2 11.4 4.4 5.7 1.7

Current-account balance ($ bn) –3.5 –2.6 –8.2 –21.1a 94.3

Exports of goods ($ bn) 35.4 8.8 138.6 188.1 409.2

Imports of goods ($ bn) –45.7 –11.4 –141.8 –209.2 –307.6

Foreign trade as % of GDPb 20.9 31.6 64.0 229.7 17.1

a Goods and services balance. b Merchandise exports plus imports.

Sources: National sources; EIU.

Services Services account for around 40% of GDP—from state-owned railways, banks,telecommunications and airlines, to small-scale private traders and construc-tion companies—and have seen rapid growth in recent years. But a high degreeof state ownership and inefficiency, especially in the banking sector, have beena constraint on growth.

Economic policy

Deficit monetisation andinflation

In recent years the government has found it increasingly difficult to keep fiscaldeficits within sustainable limits. Throughout the 1980s, the central govern-ment’s borrowing requirement was in excess of 5% of GDP. The position wasaggravated by subsidies and the poor performance of public enterprises. Fiscaldeficits eased in the mid-1990s, but the persistently high level of subsidies andthe slow pace of privatisation are hindering attempts to bring the annual deficitbelow 5% of GDP. (Data on government finances are given in Reference table 1.)

Government finances, 1997/98a

(Rs bn)

Total revenue 1,489 Current receipts 1,385 Tax revenue 992 Non-tax revenue 394 Capital receipts (less borrowings & other liabilities) 104

Total expenditure 2,352 Current expenditure 1,822 Capital expenditure 530

Fiscal deficitb 863 % of GDP 6.1

a Fiscal year April-March. b Total expenditure minus total receipts less borrowings & other liabilities.

Source: Ministry of Finance, Economic Survey.

Over the decades, India has financed a lax fiscal policy with an accommodativemonetary policy, combining deficit monetisation with high real interest rates.Consequently, annual inflation averaged over 9% in 1980-97. The policy ofdeficit monetisation was phased out in 1997, with a shift from ad hoc Treasurybill issues (which were then converted into longer-term government debt) to“ways and means advances” (WMAs)—in effect, an overdraft facility repaid

12 India: Economic policy


when government cash flow permits. But the system’s success depends onwhether the overdraft limits are enforced which, in turn, depends on howindependent the central bank—the Reserve Bank of India (RBI)—is willing, orable, to be.

India’s big bang From the early 1980s, there was a growing consensus in the country in favour ofeconomic liberalisation. Political inertia and powerful vested interests initiallyensured that little was done, save for limited incentives to exporters, minorindustrial deregulation and some simplification of the taxation regime. But aserious financial crisis in 1991 led to emergency IMF funding, and changes wereintroduced to reduce government control of the economy.

An obstacle course ofreforms

Powerful vested interests—unions, public-sector management, some protectedindustrialists, elements in the bureaucracy and recalcitrant ministers—haveput up significant resistance to the reform process. The advent of a coalition ledby the Bharatiya Janata Party (BJP) gave rise to fears that economic reforms(particularly trade and foreign investment policy) would be reversed: in itsNational Agenda for Governance the government pledged to continue with thereform process, but to give a thrust to swadeshi (self-reliance). However, theimposition of sanctions and a downgrading of India’s credit-rating in 1998

The reforms of the 1990s

• The opening up of more sectors to private investment, including power,steel, oil refining and exploration, road construction, air transport,telecommunications, ports, mining, pharmaceuticals and the financial sector.Areas reserved exclusively for the public sector are now mainly defence-related.

• The encouragement of foreign direct investment with majority equity,except in a few consumer goods sectors. Red tape has been greatly reduced.Portfolio investment is also welcome.

• The delicensing of most industries to encourage competition. Only a few(15) sectors, including luxury and defence-related items, as well as industriesreserved for the small-scale sector, remain subject to licensing, which is alsobeing phased out.

• The decontrol of some aspects of business decision-making, such as locationand technology transfer. However, labour relations, exit policy (shutting downloss-making enterprises) and areas such as the environment remain controlled.

• The devaluation of the rupee by 22% against the dollar in two instalments inJuly 1991, followed by the introduction of a market-determined exchangerate in March 1993 and current-account convertibility in August 1994. InJuly 1995 it was decided that all official foreign debt-service payments would bechannelled through the interbank market. The rupee is not yet fully convertibleon the capital account.

• Trade policy has been cautiously liberalised, with the conversion of someimport quotas into tariffs and phased reductions in import tariff rates.

• The capital markets have been liberalised, with the entry of private mutualfunds, foreign institutional investors and country funds, and with stronger andmore transparent regulation of the stockmarket.

India: Economic policy 13


compelled the BJP to continue with reforms and, in particular, encourageforeign direct investment. Moreover, an expanding constituency of powerfulinterest groups (including some of the BJP’s core supporters) has a growingstake in the development of the private sector. To this end, progress has beenmade towards further deregulation of industry and liberalisation of the finan-cial and insurance sectors; however, policies towards labour and subsidies re-main as fossilised as ever.

The states have a key role to play in determining the extent of further reforms.The 1998/99 budget ratified the transfer of 29% of the divisible pool of centraltaxes to the state governments, substantially increasing the resources availableto them. However, the central government is seeking to encourage states toimprove the management of their finances by controlling current expenditureand promoting private investment in infrastructure projects. Combined stateexpenditure on non-developmental outlays, administration and interest pay-ments account for around 70% of revenue receipts.

Some states, such as Andhra Pradesh, Karnataka and Maharashtra, have shownconsiderable initiative in raising additional finance, including issuing bondsand encouraging private investment in irrigation, roads, bridges, software de-velopment, and agricultural and horticultural projects. But most states havemade little progress. During 1997/98, 16 states resorted to overdrafts with theRBI, of which three had payments on their behalf halted when they failed toclear their accounts.

Economic performance

The “Hindu rate ofgrowth”

Throughout the 1980s GDP grew at an annual rate of about 5.5%—a significantimprovement on previous decades which saw rates of around 3.5% per year(equal to GDP per head growth of just over 1%). GDP growth slowed in the early1990s, but then revived to surpass 5% in four successive financial years. GDPgrowth peaked at 7.5% in 1996/97 slowing to 5% in 1997/98. This slowdown—which has been sharp in sectors such as cement, steel and vehicles and mild inothers—has prompted calls for policy action. But growth in India is fairly insen-sitive to demand stimuli and tends instead to reflect supply changes. In the longterm growth is affected by investment, but in the short term annual climaticvariations created by the monsoon are more important. (Reference table 5 cov-ers GDP at factor cost; GDP by expenditure is shown in Reference table 4.)

Gross national savings and investment as a percentage of GDP have risensteadily, if slowly, in recent years. (See Reference table 15 for data on grossdomestic savings.) But savings still account for only about 26% of GDP despiteincreases in household and corporate savings, the result of a persistent weak-ness in public-sector savings. As a result, capital formation is low.

Of the 28m workers in organised employment in India, 70% work for the state.But the state accounts for only around one-third of economic output and lessthan one-third of investment. The vast majority of public-sector enterprises areunproductive, massively overstaffed and debt-ridden. A high level of unionisa-tion (and political expediency) has restricted labour reforms and technologicaladvances that could threaten jobs—and, has therefore deterred investors. A

14 India: Economic performance


shortage of power is also a serious constraint on growth, but investors havebeen wary to enter a market where the purchasers—state electricity boards—areeffectively bankrupt.

Gross domestic producta

(% real change)Average

1997/98 1993/94-1997/98

Agriculture & allied sectors –2.0 3.1

Mining & quarrying 6.3 2.0

Manufacturing 6.1 9.6

Electricity, gas & water 6.4 6.7

Construction 3.2 5.0

Services 8.9 8.6

GDP (at factor cost) 5.0 6.7

a Fiscal years April-March.


India’s larger-scale private sector is similarly inefficient. Capital productivityhas fallen steadily, with negligible growth in total factor productivity and lowlevels of capacity utilisation. Even after recent reforms, India still has highlevels of protection for manufacturing.

Inflation is a very sensitive issue in India because it bears directly on realincomes and income distribution. Politicians worry that popular displeasurewith rising prices—as occurred in 1998 when supply problems caused foodprices to spike—will be conveyed through the ballot box. Annual average ratesof inflation have been relatively stable but high in recent years. Adequate foodsupplies help reduce price volatility, but have not helped lower trend inflationrates. (For data on wholesale and consumer price indices and wages, see Refer-ence table 6.) It is hoped that reforming minimum support prices for agricul-tural products, cutting subsidies for fertilisers and taxing agricultural incomeswill ease inflationary pressures in the longer term (although short-term, one-offprice rises may result). However, these measures have met with stiff resistance.

Inflation(average; % change)

Average1997 1993-97

Consumer prices 7.2 8.6

Wholesale prices 5.3 7.7

Import prices 5.2 3.7Source: IMF, International Financial Statistics.

Money supply (M2) has expanded steadily, averaging around 17% growthperyear over the 1990-97 period, driven partly by the monetisation of part of thefiscal deficit and exacerbated by large foreign-exchange inflows. (Referencetable 2 provides data on money supply, credit and interest rates.) The newmethod of funding the budget deficit through a limited overdraft at below-commercial rates of interest (WMA, see above) will exert greater discipline onmoney supply than the old system of issuing ad hoc Treasury bills. But money-

India: Economic performance 15


supply growth remains above the rate of expansion of nominal GDP, whichcan be inflationary.

High inflation, poor product quality (stemming in part from high import con-trols) and infrastructural constraints have undermined India’s export compet-itiveness. Although India has been largely untouched by the Asian financialcrisis, the devaluation of the currencies of several export-competing countrieshas posed problems for India’s exporters and manufacturers. Disincentives toexport have led to a steady decline in India’s share of world trade, from 2.4% in1951/52 to under 1% in the late 1980s and 1990s.

Regional trends

Economic activity is widely distributed, and growth rates differ greatlythroughout India. High-growth private-sector industry is concentrated in threemain areas: around Mumbai (Maharashtra) and into Gujarat; around Delhi,including Haryana and western Uttar Pradesh; and the corridor from Bangalore(Karnataka) to Chennai (Tamil Nadu). Andhra Pradesh is also emerging as acentre of growth. There is a concentration of poverty and underdevelopmentin some northern and eastern regions, notably Bihar, the eastern reaches ofUttar Pradesh and Orissa, although the latter is developing a reputation formore innovative policy reform.

Demographic indicators, 1991

Population Growth (%) Urban Literacy Development(m) (1981-91) share (%) (%) indexa (%)

Uttar Pradesh 139 2.27 20 42 68

Bihar 86 2.11 13 38 52

Maharashtra 79 2.29 39 65 146

West Bengal 68 2.21 28 58 93

Andhra Pradesh 67 2.17 27 44 92

Madhya Pradesh 66 2.38 23 44 75

Tamil Nadu 59 1.43 32 63 98

Karnataka 45 1.92 31 56 100

Rajasthan 44 2.50 23 39 79

Gujarat 41 1.92 34 61 120

Orissa 32 1.83 13 49 63

Kerala 29 1.34 26 90 93

All India 846 2.14 26 52 100

a Net national product divided by all-India average.

Source: Census of India 1991.

Several studies indicate that the gap between a few richer states and the rest ofIndia is widening. Maharashtra and Delhi have far higher net state domesticproduct, followed by Goa, Haryana, Punjab and Gujarat. Tamil Nadu andKarnataka have been successful in drawing in foreign direct investment. Thegovernment of Andhra Pradesh has also had some success in attracting invest-ors, promoting the state capital of Hyderabad, in particular, for its good tele-communications facilities and a relatively dependable power supply. Orissa has

16 India: Regional trends


capitalised on its innovative record of policy reform, and Kerala is increasinglywell known for its literate and healthy workforce. West Bengal and Rajasthanhave also actively promoted their investment potential. But the populous andpolitically powerful northern states known as the Hindi belt—Bihar, UttarPradesh, Madhya Pradesh and Rajasthan—which along with Orissa account foralmost 40% of India’s population, are sliding further behind.

Resources

Population

India’s population in mid-1997 was estimated at around 955m. The latestpopulation census counted 844m on March 1st 1991, of which 438m weremale and 406m were female. Population growth averaged 1.8% per year in1990-97, down from an average of 2.1% in 1980-90 and 2.3% per year in the1960s (see Reference table 8 for historical data).

Distribution of population, 1991

By residence % of total By age % of total

Big four citiesa 4 0-4 years 12.8

Other big cities (100,000+) 15 5-14 years 22.9

Medium-sized & small towns 10 15-59 years 57.7

Large villages 12 60 years & over 6.6

Small villages 59

a Mumbai (Bombay), Calcutta, New Delhi, Chennai (Madras).

Source: Census of India, 1991.

Life expectancy at birth increased from 32 years in 1951 to 62 years for menand 63 years for women in 1996. This compares unfavourably with figures forChina (68 years for men and 71 years for women) or Sri Lanka (71 years for menand 75 years for women), although male life expectancy is now higher than inRussia (60 years). Mortality rates for the under-fives have fallen significantlysince 1980 (173 per 1,000), to 85 per 1,000 in 1996. But the male mortality rateis strikingly lower than the female, reflecting female infanticide or neglect ofunwanted female children.

Control of populationgrowth

The rate of contraceptive use for women between the ages of 15 and 49 for1990-96 was 43%. This compares to 85% during the same period in China.Increased use of family-planning methods could reduce the population growthrate to about 1.5% by 2000, when India is projected to have a population ofmore than 1bn. India is expected to overtake China as the most populouscountry on earth by 2030, with the population stabilising at around 1.5bn.

A largely rural population India has a relatively low rate of urbanisation compared with most other devel-oping countries in Asia: 60% of Indians live in villages with a population of lessthan 5,000. On present trends, two-thirds of India’s population will still be rural

India: Population 17


by the year 2000. Population density rose from 216 per sq km in 1981 to 313 in1997. In 1991 the most densely populated state was Kerala (747 per sq km).

In 1991 there were 51 cities with more than 500,000 people, compared with 36 in1986. The largest urban conurbations are Bombay (now called Mumbai; 12.6m in1991), Calcutta (11m), Delhi (8.4m) and Madras (now called Chennai; 5.4m).

A diverse population India’s population is of extreme diversity—of language, colour, religion, casteand class. One main political divide exists between Hindus (83% of the popul-ation) and Muslims (11%). But Hinduism is itself a highly stratified religion,and large numbers of Hindus, especially among the lower castes, do not have apolitical affinity with Hindu movements.

Another important distinction is between the primarily Hindi-speaking northand the south, where a number of vernacular languages predominate alongwith English. But English is a lingua franca throughout the country, and com-petence in the language is more a function of class than region.

It is estimated that the top fifth of India’s population accounts for 39.3% ofincome or consumption, while the bottom fifth account for 9.2%. This is not awide differential by developing country standards. However, incomes varygreatly between one part of the country and another.

Education

Slow progress towardshigher literacy

India has a large number of educated and vocationally qualified people al-though they comprise a small fraction of the population. Adult literacy in thecountry as a whole is estimated at 52% (1991 census) with 39% for females(30% in 1981 and 9% in 1951) and 64% for males (56% in 1981 and 27% in1951). Thus, the number of illiterate people in India remains vast. There arealso large regional variations in literacy rates: Kerala has 96% literacy, whereasUttar Pradesh has a rate of 41%.

The proportion of the eligible age group enrolled in primary schools in Indiarose from 61% in 1960 to over 98% in 1991. The corresponding rate of enrol-ment of girls rose from 40% to 83% in the same period. The overall secondaryschool enrolment rate rose from 20% in 1960 to 44% in 1991 (with the femalerate rising from 13% to 32%). The rate of enrolment in higher education formales and females rose from 3% in 1960 to 9% in 1990 (the highest by far ofany low-income developing country).

A large pool of qualifiedmanpower

India has 2m engineers and scientists, 10m graduates from 185 universities,and a total of almost 50m people educated to higher secondary level. But thenumber of unemployed graduates is high, suggesting that India should concen-trate more resources on increasing educational opportunities at lower levels inrural areas, particularly for girls. A large proportion of India’s educated popul-ation is highly qualified, fluent in English and cheap to employ. But the poli-ticisation of a wide range of interest groups has brought demands for positivediscrimination, and many students are accepted for further education on thebasis of caste or religion rather than ability. Cheating in exams has become aserious problem.

18 India: Education


Health

Standards are generallypoor

India spent 0.7% of GDP on health in 1990-95, compared with 2.1% in Chinaand an average for South Asia of 1.2%. There has been a slow improvement inlife expectancy and child mortality rates, with the latter associated with a shiftto urban areas where rates of child mortality are much lower. But overall indica-tors for health and nutrition are poor. According to the National NutritionMonitoring Bureau, less than 15% of the population are adequately nourished,although 96% do receive adequate calorie intake. Daily average calorie intake in1988-90 was 2,230 kcal, compared with an estimated 2,640 kcal in China.

Although there is one doctor per 2,440 head of population (1990 figures)—15times the ratio found in Sub-Saharan Africa—doctors in India are concentratedin urban areas. There are also low levels of support staff. In 1990 there were asmany as 2,220 people per nurse.

There are large regional disparities in health indicators. Kerala has an infantmortality rate of 17 per 1,000, a figure not far short of high-income countrystandards, but Uttar Pradesh has an infant mortality rate of 93 per 1,000. Otherstates (such as Orissa, Bihar and Madhya Pradesh) have even worse rates. Accessto healthcare is also a function of wealth. India has a rudimentary publichealthcare system of hospitals and clinics, but in general healthcare and medi-cines must be bought.

Natural resources and the environment

India is not well endowed with natural resources. The government has tried togenerate interest in exploring oil and gas reserves, but its main resources arecoal, iron ore and bauxite.

The large majority of Indians depend on agriculture for a living. In 1995 about57% of total land area was cropland, a ratio unchanged since 1980. The inelas-ticity of land supply means that increasing output will depend on improveduse of fertilisers and irrigation. Less than 30% of cultivated land is irrigated;thus agriculture is heavily influenced by monsoon patterns. Most Indian farm-ers harvest one crop per year, although double or even triple cropping is be-coming more common in some areas.

A Fertiliser Pricing Policy Review Committee has been established to look atways of promoting the balanced use of urea versus phosphatic and potassicfertilisers, deregulating the fertiliser industry to promote competition and re-evaluating subsidies and pricing policies.

India has about 53m ha of forests and woodland—16% of its total area. Abouthalf this area is reserved for the production of timber and other forestryproducts. Timber, firewood and charcoal are the chief products; minor productsinclude lac (resin) for export. There is growing concern over the severe depletionof forests, and efforts are being made to encourage conservation, tree plantingand commercial forestry.

India: Health 19


Economic infrastructure

Transport and communications

India’s weak transport and communications infrastructure is increasingly seento be a constraint on economic growth. (Transport statistics are given in Refer-ence table 9.)

Railways India has the world’s most extensive railway system, covering 62,800 km.Although annual freight carried by rail more than quadrupled between1950/51 and 1997/98, to almost 390m tonnes, India’s railways suffer fromextremely low labour productivity, a squeeze on capital spending and increas-ing prices. With 1.6m staff—perhaps the world’s largest single workforce—there is strong political resistance to reform.

Roads India’s roads are of poor quality, badly maintained and very congested. Roadscarry around 60% of freight traffic, and demand is rising rapidly, especially forshort journeys in urban areas. The government plans to double national mo-torways to 66,000 km by the end of the century. More than one-third ofvillages have no roads and 70% have no all-weather link. Lack of finance hasprompted the government to allow foreign investment in the road sector (al-though there have been few takers) as well as construction of toll roads. Theprivate sector has made proposals on a build-operate-transfer (BOT) basis.

Ports There are 11 major ports: five on the east coast and six on the west. Traffic atthese ports increased from 107m tonnes in 1984/85 to 227m tonnes in1996/97, mainly in oil, iron ore and coal. Capacity utilisation is high, althoughlabour and equipment productivity is low. The private sector is being encour-aged to invest in constructing, operating and maintaining ports and the ceilingon foreign investment in ports has risen to 74%, but further reforms areneeded. Several states have launched BOT port schemes, and attention is alsobeing given to developing smaller ports.

Airlines Private investment in the domestic market is encouraged, but foreign airlines arenot permitted equity participation. Private airlines now account for around 34%of domestic air traffic. The state-owned carrier Indian Airlines increased its shareof passengers by 5.6% in 1995/96, but the international carrier Air India hassuffered serious financial losses on international routes. The number of passen-gers and cargo handled by Indian airports rose in 1996/97, although profits fellfrom the previous year, reflecting increased pay awards and input costs.

Telecommunications The Telecom Regulatory Authority of India (TRAI) was established in 1997 toregulate the country’s fastest-growing infrastructure sector. Telephone connec-tions rose from under 1m in 1990 to 12.6m at the end of 1996, and demand isexpected to rise to 19m-20m lines by 2000, including plans for a line to everyvillage. Foreign investors can receive automatic approval for up to 51% equityin the manufacture of telecoms equipment, but further reforms are needed toallow foreign investment to meet increased demand for services.

20 India: Transport and communications


Licences have been issued to five private companies to provide basic telecomsservices in Andhra Pradesh, Gujarat, Maharashtra, Madhya Pradesh andPunjab. Other services, including cellular phones, paging services and Internetprovision, have been franchised to Indian companies. In November 1998 thegovernment announced that foreign companies could invest up to 49% inInternet providers. Progress in extending Internet provision has been slow anddemand is expected to rise sharply.

Post India claims to have the world’s largest postal system, with 500,000 letter boxesand 150,000 post offices, but it has come to be seen as a social service. Efforts arenow being made to introduce commercial disciplines, to privatise some services(couriers) and to bring in automated equipment to the main sorting offices.

Media services India has a free and diverse press, published in Hindi, English and vernacularlanguages. There are about 1,250 daily newspapers with a combined circulationof over 15m, as well as thousands of periodicals and journals. Several inter-national publishers have printing offices in India, although foreign companiesare not allowed to publish in the country.

India has one of the largest film industries in the world, providing the mainsource of popular entertainment and a major export. There is rapid growth indemand for satellite and cable television, and for specialised programming.Foreign ownership of terrestrial channels is banned and foreign participationin satellite channels is limited to 49% equity.

Energy provision

A major constraint togrowth

India produces 90% of its energy supply, mainly from thermal stations. Butdemand is rising fast and is projected to reach 465bn kwh by 2000—far beyondthe capacity of the public sector. Shortages are a major constraint on economicgrowth. At peak times, power shortages are close to 30% for India as a wholeand significantly worse in some states. (For data on national energy statistics,see Reference table 10.)

Private investment isessential

Several large private-sector power projects are at different stages of develop-ment. But electricity purchasers—the state electricity boards—are largely bank-rupt, rendering the process of investing in the sector politically fraught.Electricity is highly subsidised, with farmers receiving power free or at tokenrates. Non-payment of bills and theft of electricity are widespread. Operationalefficiency is very low; transmission and distribution losses are over 20%, com-pared with an international average of under 10%.

Coal, oil and gas Coal provides 67% of India’s commercial energy. Reserves are estimated atapproximately 200bn tonnes, of which about 70bn tonnes are proven. Indiancoal has a high ash content, making it a polluting and inefficient source ofenergy. Productivity is extremely low (around 0.55 tonnes per man-shift), ham-pered by power shortages, absenteeism and political instability in the easterncoal belt. In recognition of these problems, there is a steady move towards

India: Energy provision 21


deregulation, although an attempt to sell equity in three of Coal India’s profit-making subsidiaries was scrapped for financial reasons.

Crude oil production has not kept pace with demand, and imports of crude oiland petroleum products have been rising (although they fell from a high ofaround $10bn in 1996/97 to around $8bn in 1997/98 owing largely to low oilprices). With gas increasingly recognised as a cheap and clean source of power,attention has been focused on increasing extraction from new fields.

The government has offered improved terms to foreign oil companies inexploration, and private companies can invest in oil refining and distribution.Proven reserves of oil and gas are only one-quarter of the estimated total of17bn tonnes (oil equivalent), of which over 75% is natural gas.

Energy balance, 1997(m tonnes oil equivalent)

Oil Gas Coal Electricity Other Total

Primary supplyProduction 38.0 19.5 152.0 21.5a 198.0 429.0Imports 51.0 0.0 5.0 0.4a 0.0 56.4Exports –4.0 –0.0 –0.0 –0.0 –0.0 –4.0Stock change 0.0 0.0 –10.0 0.0 0.0 –10.0Total 85.0 19.5 147.0 21.9a 198.0 471.4

7.2b

Processing and transformationLosses & transfers –8.0 –9.5 –97.0 –31.9 –0.0 –146.4Transformation output 64.0 0.0 0.0 41.0b 0.0 105.0

Final consumptionTransport fuels 40.0 0.0 0.1 0.6b 0.0 40.7Industrial fuels 11.0 9.0 49.8 14.2b 29.0 113.0Residential etc 16.5 0.4 0.1 16.2b 169.0 202.2Non-energy uses 9.5 0.6 0.0 0.0 0.0 10.1Total 77.0 10.0 50.0 31.0b 198.0 366.0

Note. Losses and transfers comprise input to transformation processes (electricity generation, gas manufacture, liquids from coal etc), plusenergy industry fuel and losses. In the electricity column primary electricity output and imports/exports of electricity are expressed as inputequivalents, on an assumed generating efficiency of 33%.a Input basis. b Output basis.

Source: Energy Data Associates.

Financial services

India’s household sector provides the overwhelming majority (almost 90%) ofnational savings. A growing percentage of household savings is now in finan-cial form (bank deposits, shares and insurance policies) rather than physicalform (40% in 1991/92, compared with 10% in 1980/81). The financial sector isdominated by state-owned banks, which control roughly 85% of the bankingbusiness in India. But foreign banks, although small, are becoming increasinglyimportant.

The stockmarket is also dominated by state-owned financial institutions. Con-troversy over their management has caused instability in the market, and theovervaluation of the biggest unit trust—Unit Trust of India (UTI)—leading to acrisis in the market in 1998.

22 India: Financial services


Moves to liberalisebanking

The spread of retail banking has played a key role in mobilising savings, but inother respects India’s banks face enormous difficulties. On the positive side,their exposure to the stockmarket, property or external loans is low, and provi-sioning levels are high. But state banks have registered substantial losses be-cause of uncommercial—often politically-motivated—“directed” lending. Thusreforming the banking sector has become a more urgent priority. The 1998/99budget increased the minimum capital adequacy ratio from 8% to 9%, set upasset reconstruction companies to recover debts to state banks and strength-ened debt recovery tribunals. Competition has been increased by admittingnew private banks and bank employees’ unions have been persuaded to allowcomputerisation as part of a drive for efficiency.

A similar process of gradual liberalisation is being applied to government insti-tutions which supply most medium- and long-term credit. These institutionsalso control about 30% of all share capital and act as a channel for most foreignborrowing by the private sector.

The stockmarket There are more than 6,000 companies listed on India’s largest stockmarket, theBombay Stock Exchange (BSE), but only around 500 are actively traded. (SeeReference table 11 for stockmarket indicators.) The stockmarket has attracted alarge flow of international institutional equity finance into India, although netinflows slowed significantly following the imposition of sanctions in 1998.New capital issues also slowed in 1998, although they are likely to reboundwhen economic prospects improve.

Over the last few years major initiatives have been taken to establish a transpar-ent, efficient system of market regulation under the independent Securities andExchange Board of India (SEBI), modelled on the US system. SEBI is responsiblefor ensuring international standards of investor protection, and is increasinglyactive in introducing reforms and policy refinements.

The most recent round of disinvestment, now called privatisation, will offershares in the Container Corporation of India, the Indian Oil Corporation, theGas Authority and the telecoms provider, Videsh Sanchar Nigam Limited(VSNL), to Indian investors. Most shares are likely to be bought by Indianfinancial institutions—most of which are state-owned.

Other services

Tourism Estimated gross export earnings from tourism in 1997/98 were $2bn, whichmade the industry the fourthlargest export earner, on a par with chemicals ortextiles. An estimated 2m people visit India every year (many of these areexpatriate Indians visiting relatives).

But the tourist industry is hampered by a perception of India as poor, polit-ically unstable and requiring precautions against risks of disease. With less than0.4% of the world’s tourists and 1% of total spending on tourism, India hasbarely tapped its vast potential. Moreover, there is a shortage of hotel rooms toattract foreign visitors, and special tax incentives are now being offered to theindustry.

India: Other services 23


Production

Industry

Industrialisation has been a priority in successive development plans sinceindependence. Heavy industry has mainly been under state control, leavingmost goods production to the private sector. State-owned companies stilldominate the production of steel, non-ferrous metals (virtually 100% for cop-per, lead and zinc; half for aluminium), shipbuilding, engineering, chemicalsand paper. Despite some liberalisation the government retains a majority hold-ing in state enterprises.

Industrial production index, 1996/97(1980/81=100 unless otherwise indicated)

% change,Weighting (%) Index year on year

Mining & quarrying 11.46 269.2 0.7

Electricity 11.43 353.4 3.9

Manufacturing 77.11 302.7 8.6 Food products 5.33 214.0 3.4 Cotton textiles 12.31 191.1 10.4 Chemicals 12.51 364.4 2.2 Basic metal & alloy products 9.80 303.6 34.5 Non-electrical machinery & tools 6.24 250.8 0.2 Electrical machinery & appliances 5.78 754.0 3.4 Transport equipment 6.39 354.6 19.0

General index 100.00 304.7 7.1 Basic goods 39.4 n/a 8.2 Capital goods 16.4 n/a 5.9 Intermediate goods 20.5 n/a 9.7 Consumer goods 23.7 n/a 4.1Source: Ministry of Finance, Economic Survey.

A series of reforms since 1991 has reduced the licensing procedures regulatingprivate industry. The sector overall has registered steady growth but it slowedconsiderably in 1997/98. (Reference table 12 gives industrial production data.)

Steel Steel has been a priority area of industrial policy. Combined production ofsaleable steel in 1997/98 was an estimated 14.4m tonnes. Output centresaround six major producers—five of which are in the public sector—with theremainder produced in over 180 mini-plants (electric arc furnaces), almost allin the private sector.

Liberalisation of the sector has lifted controls on prices, distribution and im-ports of industrial inputs. Several state-owned plants and private producershave made serious inroads into the competitive world market. However, aslump in domestic demand in 1997/98, coupled with an influx of cheaperAsian steel imports, led to cutbacks in production. India had been forecast toproduce around 33m tonnes by 1999/2000, making it the world’s seventhlargest producer, although output in 1997/98 just topped 23m tonnes.

24 India: Industry


Industrial production, 1996/97(% change)

Average1996/97 1992/93-1996/97

Basic goods 8.2 6.8Capital goods 5.9 8.9Intermediate goods 9.7 8.5Consumer non-durables 3.7 4.8Consumer durables 5.4 13.4Source: Ministry of Finance, Economic Survey.

Textiles The textiles industry is India’s largest employer, providing around 20m jobs(many of them handloom weavers), and accounting for an estimated 23% ofexports and 15% of total industrial output. The powerloom sector has grownfrom 24,000 units in 1951 to around 1.5m units currently. Powerloom andhandloom fabrics contribute to India’s highly successful garment exports ind-ustry. Reforms have aimed to encourage modernisation and rationalisation,and to stimulate domestic demand by offering a better mix of man-made andnatural textiles.

Electronics and software Electronics has been given a major boost by liberalisation of technology andcomponent imports, delicensing, foreign investment and cuts in excise duties.The use and production of computers and consumer electronics have increasedrapidly, although these have a high import content. Software engineering hasproved a major growth area with a strong export element; sales grew by 58% in1997/98 (to over Rs100bn, or about $2.8bn) of which Rs63bn ($1.75bn) isexports. The government is trying to launch a strategy to make India a “soft-ware superpower” and has assigned a task-force to draft a national informaticspolicy.

Vehicles There has been a rapid expansion in vehicle production since the industry wasopened to foreign collaboration in 1980. The first collaborative venture—Maruti—is 50%-owned by the Japanese carmaker, Suzuki, and currently ac-counts for over 80% of all car sales in India. However, high import content andlimited demand within India has led to a push for export-oriented ventures.Maruti has started to sell overseas, mainly to eastern Europe but also to France.Several other major international manufacturers have launched joint ventures,including Mercedes and Ford, and many more are awaiting approval.

India’s two-wheel vehicle industry is the largest in the world; output ofmopeds, motorcycles and scooters expanded from 420,000 in 1980/81 tonearly 3m in 1997/98. Production of four-wheel vehicles is also expanding.

Small-scale industry Small-scale industry contributes over 40% to the gross turnover in the manu-facturing sector, 45% of manufacturing exports and 35% of total exports. Prod-uction in this sector has consistently surpassed targets: in 1995/96 growth (at1990/91 constant prices) was 21.2%, compared with 11.7%% for industrialproduction overall. Several sectors previously reserved for the small- and me-dium-scale sector were “dereserved” this year.

India: Industry 25


Mining and semi-processing

India is not well endowed with mineral wealth. Mining accounts for under 2%of GDP and the vicissitudes of world prices have generally had little impact. Inaddition to those listed below, India produces significant amounts of mica,manganese, dolomite, limestone, chromite, magnesite, apatite and phos-phorite. Private-sector participation in the mining sector is growing. (For dataon mineral production, see Reference table 13.)

Iron ore Reserves of iron ore are among the world’s largest at around 19.2bn tonnes, andIndia is one of the world’s lowest-cost sources. Some 60% of output is exported(the largest amounts from privately owned mines in Goa) to South Korea andJapan.

Bauxite India also has large reserves of bauxite—approximately 2.7bn tonnes or 8% ofthe world total—and ambitious projects for smelting and aluminium prod-uction for home consumption and export.

Copper There are substantial reserves of copper (estimated at 422m tonnes), althoughIndia is a copper importer. Reserves of lead and zinc are estimated at 360mtonnes, but again production falls short of demand. However, a new complexwith a lead-zinc capacity of 70,000 tonnes has cut import demand to 10,000-15,000 tonnes for each metal.

Gold and diamonds The opening of the mining sector to joint ventures with foreign investors hasled to considerable interest in the loss-making state-run gold mine at Kolar.Twenty-one companies, including De Beers and Cluff, have registered an inter-est in diamond prospecting in Madhya Pradesh.

Agriculture, forestry and fishing

India has very low levels of agricultural productivity. Less than 30% of crop-land is irrigated and average landholdings are small. Despite land reform limit-ing the size of large holdings, semi-feudal land tenure persists in some parts:the most recent figures available indicate that 10% of households hold 53% ofcultivated land, just 1% more than held the same acreage in 1954/55. Mostsmall farmers have fragmented landholdings and poor access to credit andmodern agricultural inputs.

Agricultural output is heavily influenced by the annual monsoon. The mainfoodgrain crops (the kharif crop—predominantly rice) and some cash crops(oilseeds, cotton, jute and sugar) depend on the south-west monsoon whichbrings 80% of India’s rain, usually in a three-month period from June tomid-September. A second, north-east, monsoon brings lighter rains to thesouth from mid-October to December, when a winter (rabi) crop of wheat andcoarse grains is grown in the north.

The green revolution Parts of Indian agriculture have experienced the green revolution over the pastthree decades. High-yielding varieties have been introduced, combined with

26 India: Mining and semi-processing


the timely use of inputs such as fertiliser and irrigation. But the increases inoutput have not been evenly spread, and larger landholders are better able toafford essential inputs and additional labour. Small average landholdings, over-intensive cropping, inappropriate use of fertilisers and insufficient reach ofirrigation facilities have also limited potential gains. (Reference table 14 givesdata on agricultural production.)

A desire for self-sufficiency Agricultural policy has been dominated by a drive for self-sufficiency, espe-cially in foodgrains. Since the mid-1970s India has maintained a comfortablebuffer stock to protect against failed harvests and seasonal fluctuations.

But a policy of self-sufficiency has played havoc with cash crops. The prod-uction of and trade in sugar, cotton, jute, vegetable oil, tea and coffee importsand exports have been managed to meet domestic consumption first. As aresult, exports have been erratic and imports have often been misjudged, caus-ing periods of shortages and surplus.

Recent studies suggest India has unexploited potential as an exporter of rice,cotton and many types of fruit, but is producing excessive amounts of oil seeds.

Construction

Construction is a major economic activity in India, contributing around 5% ofGDP, and employing perhaps 3.5m people full-time and another 6.5m season-ally. The construction industry contributes more incremental value added perunit of investment than any other, with knock-on effects on the production ofcement and steel. The industry accounts for about 40% of public-sector planoutlays, and more than 1m workers are engaged in public-sector constructionprojects.

The housing shortage Housebuilding has not been a development priority and the absolute defi-ciency of housing is immense. One survey estimated a national housing short-age of 31m units in 1991—more than one-quarter of current stock—andperhaps 50m people live in what are officially regarded as slums. Housingconditions in rural areas have not been quantified, but are generally worse.Overall it is estimated that 80m dwellings are needed by 2000 to meet thebacklog and house an increased population.

The external sector

Foreign trade

Indian trade policy has been guided by a general principle of self-sufficiencyand import substitution, with export earnings covering the cost of residualimports. Like many big economies, trade does not account for a large propor-tion of GDP. India’s share of world trade has shrunk from 2.4% in 1951/52 tounder 1% today. But government policy aims to increase exports by movingtowards a more open regime, particularly for imports, which will increase

India: Construction 27


competition and encourage foreign sales. In a continuing effort to boost trade,the 1997-2002 Export-Import Policy has removed a number of quantitativerestrictions on trade and simplified administrative procedures.

India’s exports are dominated by manufactured goods, which have performedpoorly in the last two years. (See Reference table 24 for historical trade data.)Moreover, India’s export markets are sluggish. The financial crisis in east Asiahas had comparatively little direct impact on India. But the slowdown hasbroadened, affecting India’s main export markets of western Europe and the US,which account for 50% of its merchandise exports. (See Reference table 18 forrecent trends in the direction of trade.) The general slowdown in world tradeand GDP growth, the increased competitiveness of other Asian exports andpersistent supply constraints are among the many factors constraining exportgrowth.

Main trading partners, 1996(% of total value)

Imports from:US 9.5UK 7.1Belgium 6.8Germany 6.7Saudi Arabia 6.4Japan 5.8Singapore 5.3

Exports to:US 19.3UK 6.0Hong Kong 5.8Japan 5.6Germany 5.3UAE 4.3Belgium 3.3Source: IMF, Direction of Trade Statistics.

Shifting mix of exports The composition of India’s trade has changed dramatically in recent decades(see Reference tables 16 and 17). There has been a marked decline in sometraditional exports: jute and tea account for around 2% of exports now, downfrom almost 40% in 1960/61. Currently, the most important export items—en-gineering goods, cut diamonds, chemicals and pharmaceuticals, leather goods,fish products and garments—were negligible exports three decades ago.

India is capable of strong and sustained expansion: it is price-competitive, hasconsiderable diversity by product and market and has increased attention toquality, as indicated by the widespread pursuit of ISO 9000 standards. Someprevious disincentives to export have been removed, such as difficulties inobtaining imports at world prices and a highly protected home market. Butfurther reforms to continue deregulating the movement of goods will be needed.

Import liberalisation The process of import substitution for foodgrains and finished manufacturesled to a sharp fall in the proportion of consumer goods imports and a rise in theshare of raw materials and intermediate goods, particularly petroleum anduncut gems. Despite attempts at import substitution, the demand for imported

28 India: Foreign trade


fertilisers, paper, steel and non-ferrous metals has also been rising. Recentpolicy changes have encouraged the import of efficiency-raising capital goods.

Foreign trade, 1997/98a

($ m; current prices)

Merchandise exports fob 33,980 Textile goods 8,047 of which: garments 3,776 cotton textiles 3,254 Handicrafts 6,040 Gems & jewellery 5,116 Engineering goods (incl iron & steel) 4,982 Chemicals & allied products 3,120 Leather & leather manufactures (incl footwear) 1,443 Ores & minerals 1,066 Fish & fish preparations 1,012 Tea 341 Spices 294 Others 2,519

Merchandise imports cif 40,779 Capital goods 9,187 Petroleum products & crude oil 8,217 Uncut precious stones 3,143 Iron & steel 1,506 Fertilisers 1,104 Non-ferrous metals 909 Pulp, paper & paper products 777 Edible oils 735 Cashew nuts (unpressed) 200 Others 15,001

Trade balance –6,799

a Provisional.

Sources: Reserve Bank of India, Annual Report 1997/98; Directorate General of Commercial Intelligence and Statistics.

How India proceeds with the liberalisation of its imports—and how quickly—will have a large influence on the development of its domestic industry and,therefore, overall growth. Currently, imports are categorised under variousforms of licence, ranging from “restricted” to “limited permissible” to “opengeneral licence” (OGL; the least restricted category). Since 1991 the number ofitems under OGL has been greatly expanded. The new trade policy (1997-2002)carries forward India’s obligations under the World Trade Organisation (WTO)by moving 336 items (out of 2,700) into the OGL category. Most of the itemsare consumer, fishery and agricultural products, ranging from hockey sticks tosoap and shaving cream to frozen prawns. These goods will no longer besubject to quantity restrictions, although they will still attract tariffs. This isscarcely opening the floodgates to imports. But these amendments keep Indiaon track to meet the WTO requirement for the phasing out of quantitativerestrictions by 2003, with 1,000 being eliminated by March 2000.

Capital and intermediate goods and raw materials are also in the process ofbeing delicensed. Imports of most bulk commodities are channelled throughthe public sector, although this also has been liberalised (for example, foreign

India: Foreign trade 29


oil companies are now importing oil products and marketing them outsidegovernment channels).

Quotas are being replaced by tariffs which are, in general, very high. In the1992/93 budget a start was made on cutting import duties by lowering themaximum rate from 150% to 110% (it is now 40%), and there is a programmeto cut tariffs sharply in annual instalments in the coming years. But politicalpressure for protectionism remains, and moves to cut more sensitive tariffshave been halted.

Some exports are subject to licensing, while some items consumed dom-estically, such as tea, are subject to quota restrictions. Only a few items, such astropical wood and beef, are banned for export.

Invisibles and the current account

Until recently the invisibles account was roughly in balance, with the deficiton the income and services account offset by the surplus on transfers. (Theinvisibles balance swung between a $2bn deficit and a $2bn surplus.) Conse-quently, variations in the current account were determined largely by mer-chandise trade (see Reference tables 19 and 20 for balance-of-payments data).But a surge in inward transfers, which include workers’ remittances, in 1996and 1997 resulted in a large surplus on the invisibles account ($4.1bn and$6.8bn respectively in those two years.

Current account, 1997/98($ bn)

Trade balance –16.3 Exports (fob) 34.9 Imports (cif) –51.1Non-factor services balance 1.1Income balance –3.5Transfers balance 12.2Current-account balance –6.5Source: Reserve Bank of India, Annual Report 1997/98.

Workers’ remittances have grown steadily since the 1980s when they remainedfairly constant at an annual $2bn-3bn. Since then, inflows from Indians work-ing overseas have risen to nearly $8bn in 1996 (although there are some con-fusing accounting conventions which result in some of the inflows fromoverseas Indians appearing as capital inflows and others as remittances).

The services deficit has widened gradually, from $1.5bn in 1990 to nearly $4bnin calendar year 1996, according to the IMF. (Official Indian statistics on tradeare usually calculated on a fiscal year basis.) Services income from tourism issteady at around $2bn annually, and receipts from software exports are nowadding about $2bn to services income. But services payments related to travel,technology transfer to India and transport (shipping and aviation) also con-tinue to expand. One point to note is that there may be large errors in thenumbers due to over- and under-reporting of merchandise trade and non-re-cording of remittances. Moreover, there is a massive disparity between the statis-tics of the Director General of Commercial Intelligence and Statistics (DGCIS),

30 India: Invisibles and the current account


whose monthly data on volumes and values traded and declared to customs isthe standard source for trade data, and the Reserve Bank of India (RBI, thecentral bank) which tracks actual payments made.

After falling to a recent low of $4bn in 1992, the income deficit has hoveredbetween $3.3bn-3.7bn. Investment income outflows overwhelmingly consistof interest and other licensing charges on foreign debt. In future, this will beaugmented by dividend outflows from foreign investors, both portfolio anddirect.

Capital flows and foreign debt

Throughout 1997 foreign direct investment (FDI) by multinationals has pickedup slowly. Red tape abounds, but the ideological resistance to foreign invest-ment is no longer the consensus. Flows of portfolio foreign investment andproceeds from foreign bond issues have been larger in recent years, as havemedium- and long-term loans. But the imposition of sanctions, the downgrad-ing of India’s credit rating by international credit-rating agencies and an over-all loss of confidence in emerging markets have left India in a more delicatecapital-account position in 1998.

A dip in net capitalinflows in 1998

India is also likely to face a fall in capital inflows in fiscal year 1998/99. Netforeign aid totalled about $1bn in 1997/98. With many programmes now inabeyance, net aid inflows could become negative. Net commercial loans(which rose to about $4bn in 1997/98) are likely to fall as a result in part of poorsentiment, exacerbated by the ratings downgrade which has rendered foreignborrowing by Indian companies very expensive. Net foreign portfolio flowswill also fall sharply (although if inflows from the Resurgent India Bond areincluded, portfolio flows will be positive).

FDI has grown steadily but not spectacularly (from $300m in 1993 to $3.2bn in1998); a sharp upturn in these inflows is unlikely to materialise in 1998 eventhough approval levels continue to rise. Hence, capital inflows are likely toslump from their 1997 level, implying that foreign-exchange reserves couldfall—a reversal of the pattern in the last few years.

The declining role of aid Aid has had a large role in India’s balance of payments, but it is becomingincreasingly less important than commercial finance (see Reference table 22).Net inflows of external assistance were $899m in 1997/98, down from $1.1bn,reflecting a continued rise in debt service (which reduces the value of net aid)and a large proportion of undisbursed aid. India is the World Bank’s biggestborrower but about one-half of the World Bank’s support is lent to India onnear-commercial terms (World Bank estimates of external debt are given inReference table 21). The imposition of sanctions in 1998 forced the World Bankto freeze lending for “non-humanitarian” purposes, although the recent easingof the sanctions signals a resumption of financing flows. OECD aid to India isco-ordinated by a World Bank-sponsored India Development Forum. India haspaid back most of the $4.5bn it borrowed from the IMF during the 1991financial crisis, and has not needed to tap funds again since then.

India: Capital flows and foreign debt 31


External debt position ismanageable

Commercial borrowing was a major feature of the late 1980s, when commercialborrowing overseas was used to plug holes in the balance of payments. India’sforeign debt stock rose dramatically, from $20.6bn in 1980 to $83.7bn in 1990.New borrowing ceased with the liquidity crisis in 1991, and has only recentlybegun to return, bringing the total debt stock to about $90bn by 1996. In 1997the government began to ease restrictions on external commercial borrowings(ECBs), a process which continued in 1998. But India’s current debt stock andforeign payments obligations are manageable. After peaking at 37.6% in 1992,the debt/GNP ratio has eased to under 26%; the debt-service ratio, too, hasdeclined from 32.4% in 1990 to about 24% in 1996.

Foreign reserves and the exchange rate

Ample foreign-exchangestocks

India’s foreign-exchange reserves grew from $17.9bn at the end of 1995 to$26.6bn by April 1998, although they fell to $24.8bn by August. Gold reservesare around $2.5bn (see Reference table 23). Total reserves are equivalent to morethan six months of imports. The central bank may, on occasion, use reserves tosmooth over extreme currency volatility, but it aims to keep levels sufficient tomaintain the flexibility to respond to reversals in capital flows.

The rupee’s expected slide The movement of the rupee over recent years has been defined by periods ofprolonged nominal stability, followed by correction and stabilisation—due inpart to the thin foreign-exchange market. After the devaluation in July 1993 thecurrency maintained a rate of around Rs31.37:$1 for over two years, followed bya nominal depreciation in late 1995. A similar pattern occurred in 1997 and1998, resulting in a fall in the nominal rupee exchange rate in both years.

The government’s real effective exchange-rate calculation—which takes intoaccount trade-weighted changes in the nominal rate against a basket of curren-cies and also relative inflation—reveals that following the 1991 devaluation,the rupee’s real effective exchange rate has been roughly constant. For thisreason, most policymakers are reasonably relaxed about the depreciation of theexchange rate. They have avoided intervention except to avert bursts of specul-ative pressure or smooth over volatility. This was the case in January andAugust 1998, when the central bank bolstered the rupee by adjusting the bankrate, increasing the cash reserve ratio and raising the rate at which it sellsrepurchase agreements.

Slow path tocapital-account

convertibility

India has gradually moved towards current-account convertibility. Remittancesof profits and capital repatriation are accepted with little formality, however,and resident Indians are still subject to control on the transfer of capitalabroad. A phased programme for the dismantling of capital controls will pro-gress with utmost caution, as policymakers recognise that fiscal and monetarystabilisation and banking sector reform must precede greater opening of thecapital account.

32 India: Foreign reserves and the exchange rate


Appendices

Sources of information

National statistical sources There are a great number of detailed statistics available, of variable but generally high quality. Two sources stand out: the annual Economic Survey ofthe Ministry of Finance is an excellent summary of most key economic data,and the Bombay-based Centre for Monitoring the Indian Economy (CMIE)produces monthly and annual data of great detail and variety. (The Ministry ofFinance’s web page is located at www.nic.in/finmin.)

For those maintaining a close watch on the Indian economy, the dailyEconomic Times of India from Bombay—the Indian equivalent of the FinancialTimes—is essential. It provides daily reporting on financial markets, exchangerates and weekly coverage of price trends and has a thorough web page(www.economic.times.com).

For the minutiae of primary data, the following are the most important.

Census of India 1991 (ten-yearly data)

Central Statistical Office, Annual National Accounts Statistics, NewDelhi

Central Statistical Office, Estimates of National Product, Savings and CapitalFormation (annual), New Delhi

Central Statistical Office, Monthly Abstract of Statistics, New Delhi

Ministry of Finance, Budget of the Central Government (annual), New Delhi(although Indian budgetary conventions are arcane and require someinterpretation)

Reserve Bank of India, Bulletin (monthly)

Reserve Bank of India, Report on Currency and Finance (annual), Bombay

Trade Statistics of the DGCIS (monthly and annual), Calcutta

International statisticalsources

Bank for International Settlements, International Banking and Financial MarketDevelopments (quarterly)

Energy Data Associates, 1 Regent Street, London SW1 4NR

IMF, International Financial Statistics (monthly)

International Institute for Strategic Studies, The Military Balance (annual)

OECD, Geographical Distribution of Financial Flows to Developing Countries(annual)

UN, Monthly Bulletin of Statistics

UN, World Investment Report (annual)

World Bank, World Development Report (annual)

India: Sources of information 33


Select bibliography There are several magazines that provide a picture of the Indian business environment.

Business India (fortnightly, New Delhi). One of several excellent businessmagazines with detailed company analysis.

Economic and Political Weekly (Bombay, monthly). A left-wing academicjournal with high-quality analysis.

India Today (fortnightly, New Delhi, and now published in London). Verystrong on politics and state-wide news.

For those trying to get a general feel for Indian society, the best source isIndia’s novelists. Particularly recommended are R K Narayan (especially theMalgudi novels); Vikram Seth (A Suitable Boy); Amit Chaudhuri (A Strange andSublime Address); Ruth Prawar Jhabwala; Ved Mehta (Portrait of India; Face toFace); Gita Mehta; Anita Desai; Mulk Raj Anand; Nayantara Sahgal; and SunilGangopadhyay.

A good overview of the Indian economy is the World Bank’s (restricted)annual review on India. The best academic analysis of the background tocurrent reforms is in Bimal Jalan (ed.), The Indian Economy; Problems andProspects, New Delhi, Viking/Penguin, 1992 and in Vijay Joshi and Ian Little(eds), Indian Economic Reform, Oxford University Press, 1995.

Major historical works are Louis Fischer’s Life of Mahatma Gandhi (Granada,1951) and Nehru’s Discovery of India (Meridian, London, 1945). Two morerecent additions to the literature include Patrick French’s Liberty or Death(Harper Collins, 1997) and Sunil Khilnani’s The Idea of India (HamishHamilton, 1997).

34 India: Sources of information


Reference tables

Reference table 1

Government financesa

(Rs bn)

1993/94 1994/95 1995/96 1996/97 1997/98b

Total revenue 1,309 1,598 1,685 2,010 2,352 Current 755 911 1,101 1,263 1,385 Tax c 535 675 819 937 992 Non-tax 220 236 281 326 394 Capital 554 687 583 747 967 Recovered loans 62 63 65 75 95 Borrowings & other liabilities 493 567 504 667 863 Other 0 57 14 5 9

Total expenditure 1,419 1,607 1,783 2,010 2,352 Current 1,082 1,221 1,399 1,589 1,822 of which: interest payments 367 441 500 595 657 food & fertiliser subsidies 83 108 126 161 196 Capital 337 386 384 421 530

Fiscal deficitd 603 577 602 667 863 % of GDP 7.5 6.1 5.5 5.0 6.1

Memorandum itemsRevenue deficite 327 310 297 327 437 Primary deficitf 236 137 102 73 206

a Fiscal years April-March. b Revised estimates. c Net of states’ share of income tax and union exciseduties. d Total expenditure minus total receipts less borrowings & other liabilities. e Revenueexpenditure minus revenue receipts. f Fiscal deficit minus interest payments.

Source: Ministry of Finance, Budget at a Glance.

Reference table 2

Money supply and credit(Rs bn unless otherwise indicated; current prices; end-fiscal year)

1993/94 1994/95 1995/96 1996/97 1997/98

Currency in circulation 823 1,007 1,183 1,324 1,452

Demand deposits 660 882 932 1,049 1,184

Money (M1) 1,508 1,923 2,148 2,406 2,672

M1 growth (%) 22 28 12 12 11

Time deposits with banksa 2,836 3,392 3,892 4,596 5,582

Broad money supply (M3) 4,344 5,314 6,040 7,002 8,254

M3 growth (%) 18.4 22.3 13.7 16.2 17.6

Bank rate (end-period)b 12.0 12.0 12.0 9.0 9.0

Money market rate (av)b 8.6 7.1 15.6 11.0 5.3

a Scheduled commercial banks. b Calendar years.

Sources: Reserve Bank of India, Bulletin; IMF, International Financial Statistics.

India: Reference tables 35


Reference table 3

Gross domestic product(factor cost)

1992/93 1993/94 1994/95 1995/96 1996/97a

Total (Rs bn)At current prices 6,308 7,329 8,680 10,063 11,492 At constant (1980/81) prices 2,252 2,389 2,577 2,761 2,969 Real change (%) 5.3 6.2 7.8 7.2 7.5

Per heada (Rs)At current prices 7,268 8,291 9,645 10,986 12,233 At constant (1980/81) prices 2,595 2,706 2,863 3,015 3,160 Real change (%) 3.3 4.2 5.8 5.3 4.8

a Provisional.


Reference table 4

Gross domestic product by expenditure(Rs bn; constant 1980/81 prices)

1992/93 1993/94 1994/95 1995/96 1996/97

Private consumption 1,759 1,914 1,964 2,009 2,132

Government consumption 268 285 290 304 320

Gross fixed capital formation 525 553 638 745 793

Change in stocks 44 –10 86 104 51

Exports of goods & services 187 215 234 303 333

Imports of goods & services 227 266 312 377 357

GDP at market pricesa 2,543 2,669 2,886 3,099 3,327

a Including statistical discrepancy.

Source: World Bank, 1997 Macro Economic Update.

36 India: Reference tables


Reference table 5

Gross domestic product by sector(%)

1992/93 1993/94 1994/95 1995/96 1996/97a

Primary (agriculture, forestry, fishing, mining & quarrying) Share of total 32.1 31.4 30.6 27.9 27.9 Real change, year on year 5.8 3.5 5.2 –2.3 7.3

Secondary (manufacturing, construction, electricity etc) Share of total 27.1 27.4 28.1 29.5 29.3 Real change, year on year 4.4 6.9 10.8 12.7 6.8

Trade, transport & communications Share of total 18.2 18.5 18.9 20.0 20.2 Real change, year on year 6.3 7.2 10.6 13.3 8.6

Property & finance Share of total 11.1 11.6 11.7 12.0 12.1 Real change, year on year 4.6 12.5 7.2 9.7 9.7

Services incl public administration & defence Share of total 11.4 11.1 10.7 10.6 10.5 Real change, year on year 5.0 3.9 3.3 6.0 5.4

GDP at factor cost Share of total 100.0 100.0 100.0 100.0 100.0 Real change, year on year 5.3 6.2 7.8 7.2 7.5

a Provisional.

Sources: Ministry of Finance, Economic Survey; Central Statistical Organisation, Estimates of National Product, Savings and Capital Formation.

Reference table 6

Prices and wages(% change)

1992/93 1993/94 1994/95 1995/96 1996/97

Wholesale prices (base year 1981/82) General 10.1 8.3 10.9 7.7 6.4Food 12.4 4.9 9.9 7.4 9.6Fuel, power, light & lubricants 14.1 15.4 6.9 1.8 13.7Manufactures 11.3 7.5 10.7 8.9 4.1

Consumer prices (base year 1981/82) Industrial workers General 9.5 7.5 8.1 12.2 9.3 Food 10.4 7.1 9.2 13.5 9.5Urban non-manual employees 10.4 6.9 7.4 11.6 9.3Agricultural labourersa 12.3 3.5 8.1 n/a 9.4Index of relative prices of manufactures & agricultural products 2.8 1.6 –2.6 1.5 –4.1

Wages of agricultural workersAndhra Pradesh 1.6 8.6 2.7 –1.7 1.4Bihar –5.0 6.0 1.69 –2.3 –10.8Maharashtra 0.7 25.6 –0.7 –7.9 –2.8Punjab 4.3 1.5 –1.2 –6.5 –0.3Uttar Pradesh 7.6 –6.8 –2.3 14.8 –6.5 West Bengal 24.4 –6.5 –5.3 –0.3 1.7All India 5.2 5.6 –0.4 0.7 1.6

a Break in series. New series with a 1986/87 base year was introduced in November 1995.

Sources: Reserve Bank of India, Bulletin; Ministry of Finance, Economic Survey; ministries of labour and agriculture.



Reference table 7

Availability of selected consumption items(per head per year)

1992/93 1993/94 1994/95 1995/96 1996/97

Edible oilsa (kg) 5.8 6.1 6.3 7.0 8.1

Sugarb (kg) 13.7 12.5 13.2 14.1 14.6

Cotton clothc (metres) 15.6 15.9 15.2 16.3 16.2

Man-made fibre fabricsc (metres) 8.9 10.3 10.8 11.7 13.1

Teac (g) 649 667 664 646 657

Electricityc (kwh) 45.6 48.8 53.0 57.1 n/a

a Financial years April-March. b Crop years July-June. c Calendar years: 1992/93 refers to 1992 and so on.


Reference table 8

Population estimates

1993 1994 1995 1996 1997

Total (m) 884 900 916 939 955

Annual growth (%) 1.85 1.81 1.78 2.56 1.68Source: IMF, International Financial Statistics.

Reference table 9

Transport statistics1992/93 1993/94 1994/95 1995/96 1996/97

RailwaysTotal length (’000 km) 62.5 62.5 62.7 62.9 62.8 of which: electrified (’000 km) 11.3 11.8 11.8 12.3 12.7 Goods traffic (m tonnes) 350.1 358.7 365.0 390.7 409.0 Passengers (m) 3,749 3,708 3,915 4,018 4,153

RoadRegistered vehicles (’000) 25,505 27,660 30,287 n/a n/a of which: goods vehicles (’000) 1,603 1,691 1,796 n/a n/a Surfaced roads (’000 km) n/a n/a n/a n/a n/a

AirPassengers (m) 18.8 20.9 22.9 25.6 36.5 Goods traffic (’000 tonnes) 391 435 494 562 680

PortsGoods traffic (m tonnes) 166.6 179.3 197.3 215.3 227.3 Source: Ministry of Finance, Economic Survey.



Reference table 10

Energy statistics(m tonnes production unless otherwise indicated)

1992/93 1993/94 1994/95 1995/96 1996/97a

Coal 238.3 246.0 253.8 270.1 285.7

Lignite 16.6 18.1 19.3 22.1 22.5

Electricity Installed capacity (’000 mw) 82.4 86.9 92.2 95.2 98.5 Generation (bn kwh) 331.3 355.6 384.5 417.4 434.5

Crude petroleum 27.0 27.0 32.2 35.2 32.9

Petroleum products 50.4 51.1 52.9 55.1 59.0

a Provisional.


Reference table 11

Stockmarket indicators(end-period)

1993 1994 1995 1996 1997

BSE 200a (1989/90=100) 407.5 442.5 313.7 305.1 354.5

Change in dollar value of stockmarket index (%) 8.1 8.6 –36.8 –4.8 6.3

Price/earnings ratio 40.0 26.0 14.2 12.3 15.2

No. of listed companies 3,263 4,413 5,398 5,999 5,843

Market capitalisation ($ bn) 98 128 127 123 128

a Bombay Stock Exchange Index of 200 leading shares

Source: International Finance Corporation, Emerging Stock Market Review.



Reference table 12

Industrial productiona

1992/93 1993/94 1994/95 1995/96 1996/97a

Finished steel (m tonnes) 15.2 15.1 17.8 21.4 22.7

Aluminium (virgin metal; ’000 tonnes) 487.0 460.7 479.8 518.0 524.1

Copper (blister; ’000 tonnes) 47.0 56.3 45.6 40.3 41.4

Motor vehiclesb (’000 units) 335.1 403.2 505.5 669.8 783.3

Motorcycles & mopeds (’000 units) 1,510 1,756 2,191 2,654 2,979

Bicycles (’000 units) 6,963 7,721 8,901 9,926 10,861

Power-driven pumps (’000 units) 523 471 514 663 679

Power transformers (m kva) 34.8 34.5 41.5 38.1 33.0

Electric fans (m) 5.1 6.1 10.3 7.0 7.9

Radio receivers (’000 units) 245 152 210 153 48

Electric lamps (m units) 303.1 325.6 373.9 382.9 395.1

Nitrogenous fertilisers (’000 tonnes) 7,497 7,383 7,950 8,770 8,607

Phosphate fertilisers (’000 tonnes) 2,376 1,847 2,459 2,552 2,567

Caustic soda (’000 tonnes) 1,073 1,109 1,118 1,356 1,459

Paper & paper board (’000 tonnes) 2,533 2,734 3,133 3,565 3,847

Cement (m tonnes) 54.7 57.8 62.4 69.4 76.2

Jute textiles (’000 tonnes) 1,310 1,451 1,364 1,430 1,401

Cotton yarnc (m kg) 1,672 1,862 1,915 2,378 2,420

Cotton clothc (m sq metres) 13,054 15,576 17,656 18,030 20,131

Synthetic yarn & fibre (m kg) 417 531 538 618 728

Vanaspati (vegetable oil; ’000 tonnes) 893 900 907 974 994

Refined sugar (m tonnes) 10.6 9.8 12.6 14.8 15.3

a Provisional. b Four-wheeled; all types. c Including mixtures and blends; mill and decentralised sectors.


Reference table 13

Mineral production(m tonnes)

1992/93 1993/94 1994/95 1995/96 1996/97

Coal & lignite 254.9 264.1 273.1 292.3 308.2

Iron ore 53.3 56.3 53.4 65.9 65.1

Crude oil Domestic production 27.0 27.0 32.2 35.2 32.9 Imports 29.2 30.8 27.3 27.3 33.9 Refinery throughput 53.5 54.3 56.3 58.7 62.8

Petroleum productsa

Domestic production 50.4 51.1 52.9 55.1 59.0 Imports (net) 7.6 8.1 10.7 16.9 17.1

a Some disparity is likely owing to refinery consumption and stock changes. b Provisional.




Reference table 14

Agricultural productiona

(m tonnes unless otherwise indicated)

1992/93 1993/94 1994/95 1995/96 1996/97

Foodgrains & pulsesRice 72.9 80.3 81.8 77.0 81.3Wheat 57.2 59.8 65.8 62.1 69.3Coarse grains (millet, sorghum & maize) 36.6 30.8 29.9 29.0 34.3Pulses 12.8 13.3 14.1 12.3 14.4Total 179.5 184.3 191.5 180.4 199.3

Oilseedsb

Groundnuts 8.6 7.8 8.1 7.6 9.0Total (10 species) 20.1 21.5 21.3 22.1 25.0

Beveragesc

Tea 0.8 0.8 0.8 0.8 n/aCoffee 0.2 0.2 0.2 0.2 n/a

FibresCottond (lint; m 170-kg bales) 11.4 10.7 11.9 12.9 14.3Jute & mesta (m 180-kg bales) 8.6 8.4 9.1 8.8 11.0

Other productsMilk (m tonnes) 58.0 60.6 63.8 66.1 68.5Fish (’000 tonnes) 4,365 4,644 4,789 4,949 5,348Sugarcane (m tonnes) 228.0 229.7 275.5 281.1 277.3Rubberc (m tonnes) 0.4 0.4 0.5 0.5 n/aPotatoes (m tonnes) 15.2 17.4 17.4 18.8 25.1

Index of foodgrainse 144.3 150.2 155.9 146.1 160.8 % change 4.9 4.1 3.8 –6.3 10.1

Index of non-foodgrainse 163.7 169.4 180.9 185.4 201.1 % change 3.1 3.5 6.8 2.5 8.5

Index of agricultural productione 151.5 157.3 165.2 160.7 175.7 % change 4.1 3.8 5.0 –2.7 9.3

a Crop years (July-June) unless otherwise indicated. b October-September. c Fiscal years (April-March). d September-August. e 1979/80-1981/82=100.

Sources: Ministry of Finance, Economic Survey; Reserve Bank of India, Bulletin.

Reference table 15

Gross domestic savings(% of total)

1992/93 1993/94 1994/95 1995/96 1996/97

Household sector 80.3 81.2 77.0 76.4 77.8

Private corporate 12.7 15.4 15.8 16.1 14.8

Public sector 6.9 2.4 7.2 7.5 7.4Source: Ministry of Finance, Economic Survey.



Reference table 16

Exports(fob; % of total by value)

1992/93 1993/94 1994/95 1995/96 1996/97

Agricultural 16.9 18.0 16.0 19.2 20.3 of which: tea 1.8 1.5 1.2 1.1 0.8 coffee 0.7 0.8 1.3 1.4 1.2 cereals 1.9 1.9 1.5 4.7 3.3 tobacco 0.7 0.5 0.2 0.4 0.4 spices 0.7 0.8 0.7 0.7 1.0 cashew 1.4 1.5 1.5 1.2 1.1 oil meal 2.9 3.2 2.2 2.2 3.0 fruit & vegetables 0.6 0.6 0.7 0.8 0.6 fish products 3.2 3.7 4.3 3.2 3.4 raw cotton 0.3 0.9 0.2 0.2 1.4

Minerals 3.4 4.0 3.8 3.7 3.5 of which: iron ore 2.1 2.0 1.6 1.6 1.5 processed minerals n/a n/a 1.0 1.0 1.0

Manufactures 75.6 75.5 78.1 75.2 74.1 of which: leather & leather goods 4.7 3.8 4.0 3.6 2.9 leather shoes 2.2 2.2 2.1 1.8 1.7 gems & jewellery 16.6 18.0 17.1 16.6 14.3 pharmaceuticals 2.9 2.9 3.0 3.2 3.6 dyes etc 1.8 1.7 1.8 1.5 1.7 metals 3.0 2.8 2.7 2.6 2.8 machinery 2.9 2.9 2.8 2.6 3.2 transport equipment 2.9 2.7 2.9 2.9 2.8 semi-finished iron & steel 0.9 2.2 1.6 1.7 1.7 electronic goods 1.1 1.4 1.6 2.1 2.4 cotton textiles 7.3 7.0 8.5 8.1 9.4 garments 12.9 11.6 12.5 11.6 11.3 handicrafts 4.7 4.2 3.9 3.5 3.3

Total incl others 100.0 100.0 100.0 100.0 100.0Source: Ministry of Finance, Economic Survey.



Reference table 17

Imports(cif; % of total by value)

1992/93 1993/94 1994/95 1995/96 1996/97

Cereals 1.5 0.4 0.1 0.1 0.4

Pulses 0.5 0.8 0.7 0.6 0.5

Cashew nuts 0.6 0.7 0.8 0.6 0.5

Edible oils 0.6 0.7 0.7 1.8 2.1

Fuel 29.2 26.7 23.2 23.0 28.5 Coking coal 2.2 2.0 2.5 2.5 2.3 Crude oil & products 27.0 24.7 20.7 20.5 26.1

Fertilisers 4.5 3.5 3.7 4.6 2.4

Paper & newsprint 0.8 1.0 0.9 1.3 1.3

Capital goods 20.7 26.7 26.5 23.1 20.1 of which: electrical machinery 3.8 4.8 5.2 1.1 0.8 transport equipment 2.1 5.5 3.9 3.0 2.7 project goods 5.8 7.0 6.5 6.5 4.8 other machinery 7.6 8.1 9.5 10.7 9.6

Chemicals 9.2 8.5 10.3 9.9 9.7

Uncut diamonds 11.2 11.3 5.7 5.7 7.9

Iron & steel 3.3 3.2 3.8 3.7 3.6

Non-ferrous metals 1.8 2.0 2.5 2.5 2.9

Precision instruments 2.3 1.8 1.7 1.8 1.4

Unclassified 13.8 12.9 16.1 20.9 18.5

Total incl others 100.0 100.0 100.0a 100.0a 100.0a

a Including other food imports.




Reference table 18

Main trading partners(% of total)

1992/93 1993/94 1994/95 1995/96 1996/97

Exports to:US 19.0 18.0 19.1 17.4 19.8UK 6.5 6.2 6.4 6.3 6.1Japan 7.7 7.8 7.7 7.0 6.0Germany 7.7 6.9 6.6 6.2 5.6Belgium 3.7 3.8 3.8 3.5 3.3Netherlands 2.2 2.3 2.2 2.4 2.5Russia 3.3 2.9 3.1 3.3 2.4France 2.5 2.3 2.2 2.4 2.2Others 4.7 4.7 4.6 5.1 4.8OECD 60.5 56.8 58.7 55.7 55.7Other LDCsa 20.8 24.1 23.9 25.7 26.9OPEC 9.6 10.7 9.2 9.7 9.7Eastern Europe 4.4 3.8 3.6 3.8 2.9 Total 100.0 100.0 100.0 100.0 100.0

Imports from:US 9.8 11.7 10.1 10.5 8.8Saudi Arabia 6.8 6.7 5.5 5.5 7.3Germany 7.6 7.7 7.6 8.6 7.2Belgium 8.3 8.0 4.2 4.6 6.3Kuwait 4.4 4.8 5.2 5.4 6.2Japan 6.5 6.6 7.1 6.7 5.7UK 6.5 6.6 5.4 5.2 5.4Australia 3.8 2.8 3.2 2.8 3.2France 2.7 2.6 2.1 2.3 2.0Netherlands 1.7 1.6 1.3 1.6 1.3Others 4.6 4.6 5.3 5.0 5.0OECD 56.1 55.9 51.4 52.4 49.2OPEC 21.6 22.4 22.1 20.9 26.4Other LDCsa 15.2 15.3 19.9 18.3 16.9Eastern Europe 2.5 1.7 2.4 3.4 2.4Total 100.0 100.0 100.0 100.0 100.0

a Less developed countries.




Reference table 19

Balance of payments, IMF estimates($ m)

1993 1994 1995 1996 1997

Goods: exports fob 22,016 25,523 31,239 33,737 35,381

Goods: imports fob 24,108 –29,673 –37,957 –43,789 –45,730

Trade balance –2,092 –4,150 –6,719 –10,052 –10,349

Services: credit 5,107 6,038 6,775 7,238 8,864

Services: debit –6,497 –8,200 –10,268 –11,171 –12,443

Income: credit 375 821 1,486 1,411 1,484

Income: debit –4,121 –4,370 –5,219 –4,667 –5,002

Current transfers: credit 5,375 8,208 8,410 11,350 13,976

Current transfers: debit –23 –23 –27 –66 –62

Current-account balance –1,876 –1,676 –5,561 –5,956 –3,532

Direct investment abroad 0 –83 –117 –239 –113

Direct investment in India 550 973 2,144 2,426 3,351

Portfolio investment assets 0 0 0 0 0

Portfolio investment liabilities 1,369 5,491 1,590 3,958 2,543

Other investment assets 1,830 1,170 –1,179 –4,710 –4,743

Other investment liabilities 3,325 3,024 1,423 10,413 9,278

Financial balance 7,074 10,576 3,861 11,848 10,317

Capital-account credit n/a n/a n/a n/a n/a

Capital-account debit n/a n/a n/a n/a n/a

Capital-account balance n/a n/a n/a n/a n/a

Net errors & omissions –987 1,492 970 –1,934 –1,460

Overall balance 4,211 10,391 –733 3,958 5,325

Memorandum itemChange in international reserves (– indicates increase) –4,211 –10,391 733 –3,958 –5,325Source: IMF, International Financial Statistics.



Reference table 20

Balance of payments, national estimates($ m)

1992/93 1993/94 1994/95 1995/96 1996/97

Merchandise exports fob 18,869 22,683 26,855 32,311 33,764

Merchandise imports cif –24,316 –26,739 –35,904 –43,670 –48,063

Trade balance –5,447 –4,056 –9,049 –11,359 –14,299

Non-factor services, net 1,129 535 602 –186 2,407

Investment income, net –3,423 –3,270 –3,431 –3,205 –3,250

Private transfers, net 3,852 5,265 8,093 8,506 11,071

Grants 363 368 416 345 410

Current-account balance –3,526 –1,158 –3,369 –5,899 –3,661

Net foreign aid 1,859 1,901 1,526 883 1,109

Commercial borrowing –358 607 1,030 1,275 1,009

IMF (net) 1,288 187 –1,143 –1,715 –975

NRIa deposits 2,001 1,205 172 1,103 3,536

Direct foreign investment 313 586 1,228 1,943 2,524

Other foreign investment 242 3,649 3,579 2,661 3,310

Capital-account balance (incl others) 4,224 9,882 8,013 2,963 9,479

Change in reserves (– indicates increase) –698 –8,724 –4,644 2,936 –5,818

a Non-resident Indians.




Reference table 21

External debta

($ m unless otherwise indicated; current prices)

1992 1993 1994 1995 1996

Total external debt 90,264 94,524 102,611 94,414 89,827 Long-term debtb 79,126 85,858 94,035 86,991 81,788 Short-term debt 6,340 3,626 4,264 5,049 6,726 Use of IMF credit 4,799 5,041 4,312 2,374 1,313

Public & publicly guaranteed long-term debt 77,921 84,088 87,608 80,373 74,406 Official creditors 52,987 55,856 61,997 57,112 53,247 Multilateral 26,130 27,826 31,486 30,048 29,332 Bilateral 26,857 28,029 30,511 27,065 23,916 Private creditors 24,934 28,232 25,611 23,260 21,159 of which: banks 17,006 18,908 14,716 13,497 14,182 bonds 4,021 3,832 3,740 3,257 1,089

Total debt service 7,697 8,345 10,729 13,349 12,669 Principal 3,587 4,167 6,350 8,742 8,213 of which: IMF repurchases 334 134 1,174 1,719 973 Interest 4,110 4,178 4,379 4,607 4,457 of which: short-term debt 399 367 312 385 268

Ratios (%)Total external debt/GNP 37.6 37.2 34.3 29.2 25.6Debt-service ratioc 28.7 26.6 27.6 28.1 24.1Short-term debt/total external debt 7.0 3.9 4.2 5.3 7.5Concessional long-term loans/long-term debt 45.3 45.2 45.5 45.8 44.7

a End of calendar years. b Original maturity of more than one year. c Debt service as a percentage of earnings from exports of goods and services.

Source: World Bank, Global Development Finance.

Reference table 22

Net official development assistance($ m)

1992 1993 1994 1995 1996

Bilateral 1,171 988 2,472 1,212 3,714

Multilateral 1,951 1,422 1,447 713 1,335

Other –26 –22 –27 –27 –11

Total 3,097 2,388 3,891 1,898 5,037 of which: grants 1,017 873 1,000 995 1,025Source: OECD, Geographical Distribution of Financial Flows to Aid Recipients.



Reference table 23

Foreign reserves($ m unless otherwise indicated)

1993 1994 1995 1996 1997

SDRs 100 2 139 122 77

Reserve position at the IMF 292 310 316 306 287

Foreign exchange 9,807 19,386 17,467 19,742 24,324

Total reserves excl gold 10,199 19,698 17,922 20,170 24,688

Gold (m troy oz) 11.46 11.80 12.78 12.78 12.74

Gold (national valuation) 3,325 3,355 3,669 3,614 2,880

Total reserves incl gold 13,524 23,053 21,591 23,784 27,568Source: IMF, International Financial Statistics.

Reference table 24

Exchange rates(annual averages)

1993 1994 1995 1996 1997

R:$ 30.493 31.374 32.427 35.433 36.313

R:£ 45.80 48.05 51.19 55.34 59.47

R:DM 18.44 19.33 22.63 23.55 20.93

R:¥ 0.274 0.307 0.345 0.326 0.300Source: IMF, International Financial Statistics.



Nepal

Basic data

Land area 147,181 sq km

Population 20.7m (1997 mid-year estimate, Nepal Rastra Bank)

Main towns Population in ’000, 1991 estimates (Central Bureau of Statistics)

Kathmandu (capital) 421.3Biratnagar 129.4Lalitpur 115.9Pokhara 95.3

Climate Temperate, varying with altitude

Weather in Kathmandu(altitude 1,337 metres)

Hottest month, July, 20-29°C (average daily minimum and maximum); coldestmonth, January, 2-23°C; driest month, December, 3 mm average rainfall; wet-test month, July, 373 mm average rainfall

Languages Nepali (official). English is widely used in commerce and there are many re-gional languages and dialects

Measures Metric system; local units also used include 1 seer=0.933 kg; 1 maund=40 seer

Currency Nepalese rupee (NRs)=100 paisa. Annual average exchange rate in 1997:NRs58.01:$1. Exchange rate on November 6th 1998: NRs68.33:$1

Fiscal year July 16th-July 15th

Time 5 hours 45 minutes ahead of GMT

Public holidays in 1999 National Unity Day, January 11th; Martyrs’ Memorial Day, January 29th; ShreePanchami, February 1st; National Democracy Day, February 19th; Women’sDay, March 8th; Phagu Purnima, March 12th; New Year’s Day, April 14th;Queen’s birthday, November 7th; Constitution Day, November 8th; King’sbirthday, December 29th

Nepal: Reference tables 49


Political background

Historical background

The modern history of Nepal dates from the second half of the 18th centurywhen one of the many principalities of the region, Gorkha, began to expandunder the leadership of Prithivi Narayan Shah. Before the expansion was haltedby the British in 1814-16, more than 75 of the small hill principalities hadsuccumbed to the armies from Gorkha, bringing all of the sub-Himalayan hillareas between Bhutan in the east and the Sutlej River in the west under itscontrol.

A constitutionalmonarchy formed in 1951

The Shah dynasty retained its political prerogatives until 1846, when JungBahadur Rana gained political control, extracting a decree from the king whichleft only a nominal role for the monarch and transferred all the sovereignpowers to the Rana family. This system endured until January 1951, when theIndian prime minister, Jawaharlal Nehru, brokered an accord betweenKing Tribhuvan and the Ranas that recognised the pre-eminent role of themonarch, legalised political parties and provided for an election to a Constitu-ent Assembly to be held by 1952.

The rise of political parties In the ensuing ten years political parties mushroomed and there were frequentchanges of government. But persistent tensions between the elected primeminister and the king led the monarch to introduce a different political struc-ture, known as the panchayat system. Introduced in December 1962 under anew constitutional ordinance, this system prohibited political parties and op-erated largely under the guidance of the palace. Resentment towards this sys-tem provoked a national protest movement in 1979 which led King Birendra tohold a constitutional referendum, in which voters were asked to decide be-tween continuing the panchayat system with some reforms and reintroducinga multiparty system. A majority voted in favour of a reformed version of thepanchayat system. Direct elections to the 140-member National Panchayat(parliament) were held in 1981 and 1986 (although still on a non-party basis).

The panchayat systemcollapses in 1990

In April 1990 the panchayat system finally collapsed. This was partly the resultof the impact of a year-long economic blockade imposed by India, as well asthe inspiration provided to the opposition by the downfall of authoritarianregimes in eastern Europe. Beginning in February, the Movement for theRestoration of Democracy (MRD)—consisting of the Nepali Congress (NC) andthe United Left Front (ULF), a coalition of seven leading communist factions—organised popular demonstrations which led to the system’s disintegration.

On April 6th, faced with sustained domestic pressure and mounting inter-national concern over the brutal fashion in which the demonstrations weredealt with by the authorities, King Birendra offered political reforms. Protestscontinued, and on April 8th the king agreed to end the 30-year ban on politicalparties and to delete the word “partyless” from the constitution. The finalcapitulation by the panchayat regime came on April 15th, when the lastpanchayat prime minister, Lokendra Bahadur Chand, resigned. The king

50 India: Basic data


dissolved the National Panchayat, and the acting president of the NC, KrishnaPrasad Bhattarai, was asked to form an interim government (which was man-dated to prepare a new constitution and hold a multiparty election within ayear). On November 9th 1990 King Birendra promulgated a new constitutionwhich guaranteed multiparty democracy and changed his position to one ofconstitutional monarch.

Democratic elections andcoalition governments

The NC, led by Girija Prasad Koirala, won a majority of the seats in parliamentin the May 1991 election. But in July 1994 Mr Koirala resigned after he failed toreceive parliamentary support from dissidents within his own party for thegovernment’s programme.

The NC government’s fall has been followed by a series of unstable coalitionand minority governments. The Communist Party of Nepal-Unified Marxist-Leninist (CPN-UML) won the largest share of seats (88 in the 205-seat parlia-

ment) in the November 1994 election, with the NC displaced to second posi-

Important recent events

April 8th 1990: King Birendra lifts the ban on politicalparties.

April 19th 1990: An interim government, led by KrishnaPrasad Bhattarai, is formed.

November 9th 1990: The king approves the newconstitution, which relegates the monarchy to aconstitutional role.

May 12th 1991: Parliamentary elections are held. TheNepali Congress (NC) wins.

July 10th 1994: G P Koirala resigns after his governmentloses a confidence vote. King Birendra accedes toMr Koirala’s request for a mid-term poll.

November 15th 1994: The election produces no clearwinner. Unable to form a majority coalition, the CommunistParty of Nepal-Unified Marxist-Leninist (CPN-UML) (with 88seats in the 205-seat assembly) forms a minority government.Man Mohan Adhikari is appointed prime minister.

June 9th 1995: The prime minister seeks a dissolution ofparliament.

August 28th 1995: A special bench of the Supreme Courtrules that the dissolution is unconstitutional and thatparliament must be reconvened.

September 12th 1995: Mr Adhikari submits hisresignation after losing a vote of no-confidence in the Houseof Representatives.

September 19th 1995: A three-party coalitiongovernment comprising the NC, the National DemocraticParty (NDP), and the Nepal Sadbhavana Party (NSP) isformed, led by Sher Bahadur Deuba of the NC.

March 6th 1997: Mr Deuba loses a parliamentary vote ofconfidence. The coalition collapses and a new one, led byLokendra Bahadur Chand of the NDP, is established by theNDP with the CPN-UML and the NSP.

September 22th 1997: A motion proposed by the NC ofno-confidence in the government is passed, prompting theresignation of Mr Chand on October 4th and the collapse ofhis government.

October 7th 1997: Another three-party coalition,comprising the NDP, NC and NSP, is formed. The new primeminister is Surya Bahadur Thapa.

January 16th 1998: Mr Chand’s NDP splinter group, theNew National Democratic Party (NNDP), is recognised byparliament, formalising a long-standing de facto split in theNDP between the Thapa and Chand factions.

March 5th 1998: The leader of the minority faction of theCPN-UML, Bam Dev Gautam, forms a new party, theCommunist Party of Nepal-Marxist Leninist (CPN-ML).

April 12th 1998: The NC forms a minority governmentwith the support of the CPN-UML and the NNDP.

August 10th 1998: The CPN-ML joins the NC in acoalition government.

Nepal: Historical background 51


tion (83 seats), followed by the National Democratic Party (NDP) with 20. ManMohan Adhikari was appointed prime minister at the head of a minorityCPN-UML government. But the CPN-UML remained in office for less than ayear, losing a no-confidence motion in September partly as a result of man-oeuvring against the government by the NC and the NDP.

A three-party coalition between the NC, the NDP and the regional NepalSadbhavana Party (NSP), and led by Sher Bahadur Deuba, followed. However,significant inter- and intra-party disputes—many of which were motivated bylong-standing personal antagonisms—destabilised the coalition. Factionalismwithin the NC finally brought about the collapse of the coalition in March1997. This paved the way for the formation of an ideologically incompatiblecoalition government comprising the CPN-UML, a faction of the conservativeNDP, led by Lokendra Bahadur Chand, and the NSP. For his willingness toforge an alliance with the communists Mr Chand was made prime minister.However, unsurprisingly, this coalition was also plagued by factionalism and ittoo soon fell. On October 4th 1997 Mr Chand resigned, and a new coalition—comprising the NC, the NDP and the NSP and led by the NDP party chairman,Surya Bahadur Thapa—was formed. But the CPN-UML’s split into two partiesdivided the parliamentary strength of the Communists, rendering the NC thelargest party in the assembly. With the support of the CPN-UML and the NDPsplinter party, the New National Democratic Party (NNDP), the NC won aconfidence vote in April 1998. The NDP and the communist splinter party, theCommunist Party of Nepal-Marxist Leninist (CPN-ML) abstained. However,following the party split, the CPN-UML quickly emerged as the stronger of thetwo communist parties. The NC, eager to undermine the more threateningelectoral opponent, decided to draw the CPN-ML into its government. It hopedto boost the CPN-ML at the expense of the CPN-UML. Although a distastefulideological union for the CPN-ML, it is preferable to an early election, forwhich it is not prepared. The CPN-ML joined the NC in October.

Constitution and institutions

The king’s powers werereduced substantially

Political parties are left almost totally free, subject to the conditions that theydo not restrict membership on the basis of religion, community, caste or re-gion; that their constitutions are democratic; that their executive office bearersare elected at least once every five years; and that at least 5% of each party’selectoral candidates are women.

The 205-member House of Representatives is elected by universal suffrage everyfive years. Its members then elect a Council of Ministers, which chooses theprime minister. All persons aged 18 and above are eligible to vote.

The 1990 constitution relegates the king to the role of constitutional monarch.The king is required to act on the advice and consent of the Council of Min-isters and, when reviewing legislation seeking to repeal or amend constit-utional provisions, must approve them if they are presented to him for thesecond time. The king is empowered to declare a state of emergency, but thismust be ratified by the House of Representatives within three months.

52 Nepal: Constitution and institutions


With the advent of the multiparty system, the judicial branch has often beencalled on to give important decisions on the interpretation of the new constit-ution. Given the extent to which politics infringes upon public life in Nepal, itis encouraging to note that the judiciary has, to date, remained above thepolitical fray.

Political forces

Political parties are slowly beginning to establish themselves after being out-lawed during the 30 years of panchayat rule. However, the major parties havebeen debilitated by defections and division.

The communist parties The Communist Party of Nepal was established in the late 1940s, but theCommunist Party of Nepal-Unified Marxist-Leninist (CPN-UML) was formedonly in 1990 as a result of the merger of the Communist Party of Nepal (Marx-ist-Leninist) and the Communist Party of Nepal (Marxist). However, factional-ism—between those favouring a liberal or conservative interpretation ofcommunist doctrine—caused a party split in 1998 when one faction, led byBam Dev Gautam, formed a new party, the Communist Party of Nepal-Marxist-Leninist (CPN-ML).

The Nepali Congress The Nepali Congress (NC) is currently going through a soul-searching phase asa result of perennial intra-party conflicts and a run of electoral disappoint-ments (particularly the party’s humiliating defeat in the 1994 general election).The split in CPN-UML in 1998 made the NC the largest party in the lowerhouse, allowing it to form a minority government. However, the party is di-

Main political figures

Surya Bahadur Thapa: Former prime minister and leader of the NationalDemocratic Party (NDP).

Lokendra Bahadur Chand: Former prime minister and leader of the New NationalDemocratic Party (NNDP), a breakaway from the NDP.

Man Mohan Adhikari: Former prime minister and president of the CommunistParty of Nepal-Unified Marxist-Leninist (CPN-UML).

Madhav Kumar Nepal: General secretary of the CPN-UML.

Girija Prasad Koirala: Current Nepali Congress (NC) prime minister.

Bam Dev Gautam: Leader of the Communist Party of Nepal-Marxist-Leninist(CPN-ML). Former deputy prime minister and senior leader of the CPN-UML.

King Birendra: Head of state.

Prince Dipendra Bir Bikram: Crown prince.

Nepal: Political forces 53


vided into those who support the current prime minister, Mr Koirala, andthose who do not—the same type of division which led to its electoral defeat in1994.

Other parties Composed of politicians from the defunct panchayat system, the NationalDemocratic Party (NDP) has benefited from an extensive national network ofsympathisers and contacts in the villages inherited from the panchayat era. Inthe three years following the 1994 election, the small NDP played the role ofkingmaker in parliament as neither the NC nor the CPN-UML could form amajority government without its support. But both the NDP led by Mr Thapaand the party which split from it in 1998, the New National Democratic PartyNNDP, led by Mr Chand, have been rendered bit players in the current parlia-ment as a result of the division of the CPN-UML. Smaller parties in parliament,such as the Nepal Workers’ and Peasants’ Party (NeWPP) and the NepalSadbhavana Party (NSP; support for which depends largely on its ability toinflame the regionalist sentiments of the Terai people of southern Nepal) havesimilarly been made redundant in the current power equation.

Election results

May 12th 1991 Nov 15th 1994Total votes Total seats Total votes Total seats

No. % No. % No. % No. %

CPN-UML 2,040,102 28.0 69 33.6 2,352,601 30.9 88 42.9

NC 2,752,452 37.7 110 53.6 2,545,287 33.4 83 40.5

NDP 871,103 12.0 4 2.0 1,367,148 17.9 20 9.8

NeWPP 91,335 1.3 2 1.0 75,072 1.0 4 1.9

NSP 298,610 4.1 6 2.9 265,847 3.5 3 1.5

UPFN 351,904 4.8 9 4.4 100,285 1.3 0 0

CPN-(United) 177,323 2.4 2 1.0 29,273 0.4 0 0

Independents 303,723 4.2 3 1.5 471,324 6.2 7 3.4

Total incl others 7,291,984 100.0 205 100.0 7,625,348 100.0 205 100.0Source: Election Commission, House of Representative Members’ Election.

International relations and defence

Nepal’s geopolitical position as a small country sandwiched between two majorAsian powers, India and China, obliges it to conduct its external relationspragmatically. A policy of non-alignment—globally as well as regionally—haspersisted. Its landlocked status and close historical links with India have madeit more susceptible to pressure from the south.

The relationship withIndia dominates

Relations with India have revolved around the 1950 Peace and FriendshipTreaty which gives India a fairly advantageous position in the kingdom insecurity matters, economic investment and employment opportunities for In-dian nationals. Moreover, because of Nepal’s landlocked status, the countryhas in the past frequently been subjected to Indian pressures at the time ofrenewal of trade and transit agreements between the two countries (as occurredin 1989 when New Delhi refused to renew trade and transit treaties and block-aded all but two border trade points). However, since then, several trade and

54 Nepal: International relations and defence


transit treaties have been agreed, as has a major treaty providing for the jointdevelopment of the water resources of the Mahakali River. Nevertheless, dis-putes over border demarcation have persisted.

The role of China China has historically served as a counterweight to Indian influence in Nepal,but with severe limitations imposed by geography. China supported the royal-ist regime in the early 1960s when India backed armed raids by NC supportersinto Nepal from Indian territory. High-level visits in recent years have strength-ened ties. The Nepalese government has consistently upheld the One Chinapolicy and discouraged Free Tibet activity on its territory.

For much of the cold war period Nepal’s strategic position in the Himalayasattracted competing foreign powers, including China, the US and the SovietUnion, and assured the kingdom of financial assistance from these sources.Since the early 1980s Nepal has participated in the South Asian Association forRegional Co-operation (SAARC), which comprises seven countries.

Nepal’s defence forces are small. In the past two decades personnel from theRoyal Nepalese Army and the police have participated in UN peacekeepingoperations on a regular basis.

The economy

Economic structure

Main economic indicators, 1997

GDP growth (%) 2.3a

Consumer price inflation (%) 2.9

Current-account balance ($ m) –418

Foreign debt ($ m) 241.3b

Exchange rate (NRs:$) 58.01

Population (m) 21.1c

a Fiscal year July 16th 1997-July 15th 1998; preliminary official estimate. b Calendar year 1996.c Mid-year estimate.

Sources: IMF, International Financial Statistics; World Bank, Global Development Finance.

The economy is mainlyagrarian

Around 90% of the economically active population lives in rural areas anddepends on subsistence farming. But the contribution to GDP of agriculture,forestry and fishing has slipped from about 72% in fiscal year 1974/75 (July16th-July 15th) to about 40% in 1997/98, owing to growth in public utilities,trade and hotels, transport and other services. Most agricultural production takesplace in the southern Terai and several fertile valleys in the central hill belts.Nepal’s difficult topography—about 30% of the land area is unfit for agriculture orforestry—complicates the transport and marketing of agricultural goods.

The manufacturing sector—which is dominated by carpets, garments andhandicrafts industries—is very small, accounting for less than 10% of GDP.

Nepal: Economic structure 55


Strong Indian competition, lack of infrastructure, a limited local market andlack of access to the sea hinders development of this sector.

Economic policy

Development plans havefailed to achieve

objectives—

Nepal has not advanced economically in the last 45 years despite the emphasisplaced by successive governments on a series of five-year development plans.Low GDP and high population growth rates have resulted in only marginalimprovement in the per head income of the people and in continued depend-ence on foreign assistance. Many development programmes and projects havebeen launched with foreign assistance but these have made only slow progressbecause of, among other factors, weak institutional capability, corruption andfragmented authority between ministries.

—and IMF assistance hasbeen required

In December 1985 the government implemented a “stabilisation programme”with IMF support in order to correct serious imbalances in the economy. Thiswas followed by a structural adjustment programme aimed at addressing long-term structural problems supported by structural adjustment loans (SAL I in1987 and SAL II in 1989) and a structural adjustment facility in 1988. After1992, with the support of an IMF enhanced structural adjustment facility, amore systematic reform programme focusing on liberalising the economy wasfollowed by the democratically elected Nepali Congress (NC) government.

Economic reform measures led to: full current-account convertibility for theNepalese currency; the withdrawal of licence or quota requirements on inter-national trade; significantly liberalised industrial and foreign investment regul-ations; a restructured tax system; a lowering of tariff barriers; privatisation of anumber of public enterprises; and a reformed financial sector, including re-structured commercial banks.

Fiscal imbalances andpolitical instability hurt

development goals

But the budget deficit continued to widen. Recent budgets have included largeincreases in expenditure, which are not met by revenue gains. In part Nepal’sgrowing budget deficits are a response to raised expectations among voters whoexpected the introduction of democracy to deliver economic gains. The minor-ity Communist Party of Nepal-Unified Marxist Leninist (CPN-UML) govern-ment presented a populist budget in 1994/95 in an effort to appeal to voters inadvance of a mid-term general election. This budget included finance for socialwelfare provisions, and funds for a village development initiative known as the“Build Your Village Yourself” campaign. The coalitions which have followedthe communist government have chosen to continue with these programmesrather than risk the political consequences of abandoning them. Domesticrevenue continues to fall short of expectations, despite efforts to improve taxcollection and expand the revenue base, resulting in a rising level of net foreignborrowing in recent years.

Donor fatigue is on the rise. Several bilateral and multilateral donors haveexpressed reservations about continued high levels of assistance. In 1998 theJapanese ambassador warned that Japan, Nepal’s largest bilateral donor, mightbe forced to cut its aid budget to Nepal if the country did not address problemssuch as poor management of development projects and inadequate budget

56 Nepal: Economic policy


allocation. Representatives of the Asian Development Bank (ADB), the UNDevelopment Programme (UNDP) and the World Bank voiced similar concernsabout the need for administrative efficiency, accountability, transparency, andthe problems created by the politicisation of the bureaucracy.

Summary of government finances, 1996/97a

(NRs m)

Revenue 30,374

Grants 5,988

Total revenue & grants 36,361

Current expenditure 24,181

Development expenditure 26,543

Total expenditure 50,724

Balance –14,362

a Revised official estimates.


Economic performance

Declining contribution ofagriculture

Annual GDP growth has averaged 4.5% in 1993/94-1997/98 (see Referencetable 3 for historical data). The contribution of the agriculture sector to GDPhas fallen in recent years mainly because of the growth of the non-agriculturalsectors of the economy, particularly after the mid-1980s. The manufacturingsector’s share of GDP has increased, but remains below 10%.

Gross domestic product(% real change)

1997/98 1993/94-1997/98

GDP (at factor cost) 2.3 4.5Source: Ministry of Finance, Economic Survey.

GDP growth has been insufficiently rapid to improve GDP per head, which wasabout $230 in 1997. Nepal ranks 154th out of 175 in the Human DevelopmentIndex (UNDP, Human Development Report 1997), while the government esti-mates that 45% of the population is currently living below the poverty level(this is thought to be a conservative estimate).

Inflation remains high Consumer price inflation has averaged about 7% in the 1993-97 period (calen-dar years), after peaking at 17% in 1991 in response to shocks caused by variousliberalisation measures (including the move to partial convertibility of theNepalese rupee), the food shortages caused by poor harvests and, most impor-tantly, high inflation rates in India (fiscal year inflation data are contained inReference table 4). Of the two long-term factors driving inflation in Nepal,one—inflation in India—is exogenous. The second, domestic liquidity, has inthe past been increased by the practice of partially monetising the govern-ment’s fiscal deficit. During 1997 narrow money increased by 8.6% and broadmoney by 15.8%. Wage rates have generally moved in line with the rate ofinflation although, since the fall of the panchayat system, demands for higherwages have increased. Strikes have accompanied these demands.

Nepal: Economic performance 57


Inflation(% change)

1997 Average 1993-97

Consumer prices 2.9 7.1Source: IMF, International Financial Statistics.

The trade balance has widened sharply in recent years, from $376m in 1992(calendar year) to $1.3bn in 1997. Export growth averaged about 5% in 1980-90; more recently, exports contracted in 1993 and 1994 before recording posi-tive growth in 1996 (11%) and 1997 (5.6%). Import growth has beenincreasingly strong, growing by an average rate of nearly 20% in 1993-97,compared with under 10% per year during the 1980s. The trade deficit haswidened accordingly, dragging the current account deeper into deficit as well.The current-account deficit widened from $181m in 1992 to $418m in 1997.

Resources

Population

Nepal had an estimated population of 20.7m in 1997 (mid-July), according tothe Central Bureau of Statistics. (The most recent census, in July 1991, counted18.5m people.) The population has grown rapidly—at an average rate of 2.1%per year over the last ten years—despite high rates of infant mortality (100 per1,000 live births in 1992) and a low life expectancy at birth (53 years in 1992).

Population distribution by age and region, 1991% of total

Age range (years) 0-14 41.915-24 18.725-34 13.635-44 10.645-54 7.555-64 4.765 & over 3.1Total 100.0

RegionEastern 24Central 33Western 20Mid-Western 13Far-Western 9Total 100Source: Central Bureau of Statistics, 1991 Census.

The population growth rate is lower in the mountains than in the towns as aresult of urbanisation: land scarcity in the hills has led to large-scale migrationto the Terai and the few urban centres in search of work. Urban areas have haddifficulty absorbing the growing influx of migrants—a problem exacerbated bythe influx of Indian migrants from across the open southern border. The popul-ation consists of at least 60 different ethnic and caste groups in the country.

58 Nepal: Population


Education and health

An uphill task The number of educational institutions has grown since the 1950s, when lessthan 5% of the population was literate and education was nearly non-existent.The last 50 years have witnessed the establishment of several good secondaryschools, skill-training centres, engineering and forest institutes, an agriculturecollege, training programmes for health workers and an ambitious NationalEducation System Plan (NESP), which initiated a national system of publiceducation.

However, the quality of the education system overall is still poor. The govern-ment aims to make primary education free and compulsory for all, but progressis painfully slow: by 1997/98, compulsory primary education had been en-forced in just two of the 40 administrative districts. Moreover, enrolment fig-ures are most likely far below official estimates (over 80% of the primaryschool-age population), student retention rates are low (in 1992, 48% of chil-dren dropped out of school before year five) and the supply of fully trainedteachers is woefully inadequate. Secondary education is also seriously under-funded, even by Nepali standards. General literacy rates rose from 13% of the15-plus age group in 1970 to 28% (14% for women) in 1995. The total numberof students enrolled in higher education in 1996/97 was estimated by thegovernment at 93,500.

Basic health services arelimited

Health facilities in Nepal have expanded gradually over the last 30 years froma very low base. The focus of the development of health services has shiftedfrom curative services in the 1956-70 period, to “promotive” and preventiveservices in the following decade. In the early 1980s a 15-year perspective planwas introduced with the aim of developing preventive and simple curativehealth services at the village level.

Despite such measures, basic health services in the country are limited, and itis difficult to extend services to rural areas because of the reluctance of medicalstaff to work in remote posts. As a result, health services are concentrated inurban areas, particularly the Kathmandu Valley. Life expectancy at birth isestimated at only 53 years—the lowest in South Asia, with the exception ofBhutan. Infant mortality has declined but is still high by international stand-ards, at 100 per 1,000 births for children under one year, according to UNICEF.According to the latest data, there is still only one doctor for every 13,600Nepalese. Half of all children under the age of five are considered to be mal-nourished.

Natural resources and the environment

The topography of the country varies greatly: the plains of the Terai and theforest-clad slopes of lower hills (which rise to about 1,200 m) are in the south;the central region has a succession of mountains varying in height from 1,200m to 3,000 m; and the Himalayan region consists of chains of mountainsranging from 3,000 m to 8,882 m. Nepal has five climatic zones—tropical,mesothermal, microthermal, taiga and tundra—within a distance of about160 km.

Nepal: Education and health 59


About 80% of the country is hilly or mountainous. Most agricultural activitytakes place in the Terai plains—which contain 70% of the total cultivatedland—and the fertile valleys in the central hilly regions. Forested area hasdeclined within the last 30 years as a result of extensive use of firewood as fuel,uncontrolled grazing, the clearance of land for cultivation and overexploita-tion for commercial purposes.

Economic infrastructure

Transport and communications

Roads Owing to the rugged terrain, transport is both difficult and expensive to maintain.Nepal’s transport system includes a small number of highways, feeder roads anddistrict roads, many of which are in poor condition. (Only about one-third ofroads are black-topped.) An extensive trail network—suitable for those on foot orfor pack animals—is the primary means of movement in the hills.

Air services Tribhuvan International Airport in Kathmandu is the only international air-port, but there are many airfields and helipads. The national carrier, RoyalNepal Airlines Corporation (RNAC)—which is perceived to be both poorly-runand overstaffed—faces increased competition from more than a dozen privateair-carriers (allowed since 1992) on both domestic and foreign routes. Another12 have applied for licences.

Radio andtelecommunications

Medium-wave broadcasts are available to 90% of the population, while about40% of the population can receive the broadcasts of the national televisionservice (Nepal Television).

By June 1997, it was estimated that 140,000 telephone lines had been installed,the bulk in Kathmandu. Over half of the 79 districts have subscriber trunkdialling (STD) and international dialling facilities and are linked to 33 add-itional remote rural areas that also have access to these facilities.

The press The 1990 constitution provided for freedom of the press. The main daily news-papers are the government-owned Rising Nepal (in English) and Gorkhapatra (inNepali). A large number of daily and weekly privately owned newspapers, mostof them affiliated to a political party, are also published.

Energy provision

Dependence ontraditional energy sources

Traditional sources of energy— fuelwood, farm and livestock residues—still acc-ount for over 90% of total energy consumption, with damaging implications forthe environment, particularly forests. Electricity usage is low, due to low supplyand high cost. It is supplied primarily to urban areas at subsidised rates.

Hydroelectric power Nepal’s rivers are a potentially large source of hydroelectric power. But thepotential has not been tapped for a variety of reasons: water flows are highly

60 Nepal: Transport and communications


variable; there is controversy over Nepal’s use of rivers that flow into India(despite the signing in 1996 of the Mahakali Treaty which provides for theexploitation of the Mahakali River on Nepal’s western border); national-levelplanning has been ineffective; infrastructure is expensive; the issue of waterresources is often used as a political tool by opposing political parties; and theonly viable customers of Nepal’s electricity exports are India’s state electricityboards which are themselves cash-strapped. In 1998 Enron Corporation of theUS withdrew its interest in the giant Karnali Chisapani hydropower project,citing political instability as the main reason.

Energy balance, 1997(m tonnes oil equivalent)

Elec- Oil Gas Coal tricity Other Total

Primary production 0.00 0.00 0.00 0.32a 6.75 7.07

Imports 0.60 0.00 0.08 0.02a 0.00 0.70

Exports –0.02 –0.00 –0.00 –0.01a –0.02 –0.04

Primary supply 0.58 0.00 0.08 0.32a 6.75 7.73

Net transformation –0.02 –0.00 –0.00 –0.23 –0.00 –0.25

Final consumption 0.56 0.00 0.08 0.09b 6.75 7.48

a Input basis. b Output basis.

Source: Energy Data Associates.

Financial services

The banking system The banking system in Nepal has until recently centred on state-owned orstate-controlled institutions, namely the Nepal Rastra Bank (NRB, the centralbank), the Nepal Bank and Rastriya Banijya Bank (commercial banks) and twoprincipal development banks, the Nepal Industrial Development Corporation(NIDC) and the Agricultural Development Bank of Nepal (ADBN). Foreignbanks have been allowed in Nepal since 1984, and several foreign banks—in-cluding ANZ Grindlays, Banque Indosuez and Habib Bank—have establishedjoint ventures.

The Nepal Stock Exchange The Security Exchange Centre (SEC), which was set up in 1981 under thecontrol of the NRB and the NIDC, was converted into the Nepal Stock Ex-change (NEPSE) in 1993. However, the performance of the exchange has beenpoor, owing in part to: weak management of both the NEPSE and registeredcompanies; lack of a corporate culture; poor financial performance particularlyof manufacturing companies; and lack of understanding of the share market.

Other services

Constraints on tourism The number of tourists visiting Nepal has risen in recent years, although an-nual tourism expenditure has not. The sector faces several constraints to expan-sion, including inadequate infrastructure, limited internal air capacity anddomestic transport services, poor waste and water services in urban areas, andthe dilapidation of trekking routes. (There is, however, hotel overcapacity in

Nepal: Financial services 61


Kathmandu Valley.) The success of private carriers on international flights mayboost tourist traffic or at least compensate for the loss of other internationalroutes (the German carrier Lufthansa, which flew from western Europe toNepal, ceased its service in May 1997).

A tourism masterplan To encourage tourism, 1998 was declared “Visit Nepal Year”. But the govern-ment recognises that long-term development of the industry is needed if em-ployment and foreign-exchange goals are to be met. Special attention must begiven to extending trekking to remote areas in order to develop and createemployment opportunities for Nepal’s rural population as well as to improvingthe management of solid waste and pollution in Kathmandu Valley. Anothergoal is to extend tourists’ average length of stay.

Production

Industry

Manufacturing facesmany constraints

The manufacturing sector in Nepal is severely constrained by the small dom-estic market, by Indian competition and the impracticality of restricting im-ports along the open southern border, by the landlocked position of thecountry, and by the more general problems of lack of infrastructure, skill andcapital. Although a policy of planned industrialisation has been pursued bygovernments since the 1960s, in 1997/98 manufacturing accounted for lessthan 10% of GDP.

Successive governments have attempted to encourage private investment inindustry, beginning with the 1991/92 budget. But the industrial sector has notattracted large-scale domestic investment (which continues to be invested intraditional sources of wealth, such as land, gold and gems, or is invested abroadand in the services sector). India is the most important foreign investor in theindustrial sector.

Most firms in the manufacturing sector are small-scale and concentrate on themanufacture of light consumer goods. Most are found in Kathmandu Valleyand in the eastern Terai. Over 67,000 cottage and small firms have been regis-tered in Nepal since 1974/75.

Textiles and garmentsdominate exports

Over the 1993/34 to 1997/98 period the index of manufacturing output rose byan average rate of 6.7%, which was higher than the average annual increase inGDP. (Historical data on the production index of manufacturing industries areshown in Reference table 5.)

The carpet and garment industries experienced periods of high growth in thelate 1980s and early 1990s; by 1993/94, woollen carpets and ready-made gar-ments accounted for almost 80% of total exports. (Carpets and ready-madegarments do not figure in Nepal’s manufacturing statistics because the formulawas established at a time when these industries were in their infancy; theirexpansion is only revealed by data on carpet and garment exports.) However,garment and carpet exports are dependent on two main markets: Germany

62 Nepal: Industry


takes around 80% of Nepal’s carpet exports and the US around 80% of itsgarment exports. Consequently, these sectors are vulnerable to fluctuations inUS and German demand. Competition from India is also a persistent problem.

Exports of carpets and garments, 1996/97

Value % change, % of total(NRs m) year on year exports

Carpets 9,145.0 13.9 40.7

Garments 5,414.7 3.7 25.0

Total exports incl others 22,480.6 13.1 100.0Source: FNCCI, Nepal and the World: A Statistical Profile.

Mining and semi-processing

Mining and quarrying accounted for 0.6% of GDP in 1997/98. The majorknown exploitable mineral reserves include oil, lead, zinc, iron ore, limestone,marble and magnesite. In general, however, discovered deposits are not consid-ered commercially valuable.

Limestone processingfor cement

Processing of limestone for cement is carried out in Kathmandu and Hetauda.Several million tonnes of limestone reserves have been identified in a few sitesaround the country. About 10m tonnes of high-grade deposits of lead and zincexist in the Ganesh Himal region. Oil reserves have been estimated at 300m-700m barrels. Magnesite reserves are estimated at 180m tonnes, about 70mtonnes of which are refractory grade.

Agriculture

Agriculture suffers fromseveral disadvantages

Over 80% of Nepal’s population is dependent on agriculture, which generallycontributes about half of GDP. But agriculture suffers from several disadvan-tages: unpredictable weather; poor performance of irrigation projects; a dwin-dling rate of capital formation; and a feudal land tenure system characterisedby concentration of ownership and exorbitant rates of rent. (The land reformprogramme carried out in 1964 only managed to redistribute 1.2%—32,000ha—of all agricultural land.)

Non-subsistence agriculture is practised in the plains in the south and in a fewvalleys in the hills. The food surplus in the Terai does not compensate forchronic food deficits in the hills. The burgeoning population has extendedcultivation on marginal land and steep slopes leading to deforestation, soilerosion and landslides on an alarming scale.

Yields of the main cereal crops have recorded a marginal upward trend, al-though drought caused downturns in 1991/92 and 1992/93. In general, themajor cash crop, jute, has undergone a decline in area planted, production andyield since 1986/87. Sugarcane production has improved, with some marginalfluctuation. (However, most agricultural statistics in Nepal are unreliable and, toan extent, this has obscured the sector’s generally disappointing performance.)

Nepal: Mining and semi-processing 63


Better fertiliser use andirrigation is needed

Greater use of fertiliser is needed to boost crop yields. Currently, the use ofinorganic fertilisers is very low. Fertiliser is heavily subsidised (which discour-ages private-sector participation in its production) but shortages and poor dis-tribution are chronic. Despite the presence of numerous major river systems,Nepal’s crops are largely rain-fed (only about 30% of land is irrigated).

Construction

The construction industry is relatively underdeveloped even though urbancentres, like the Kathmandu Valley, have witnessed a tremendous surge inbuilding construction in recent years. Despite high demands on the industry,domestic production of basic materials has been inadequate. The three maincement factories (in Kathmandu, Hetauda and Udaipur) meet only about one-half of domestic demand. Artificial shortages created by entrepreneurs to pushup the market price of cement often create difficulties for consumers. In recentyears, private industries have taken initiatives in manufacturing steel bars,galvanised sheets and angle-irons, but they depend entirely on raw materialsimported from India. Laws in the construction industry mostly focus on thepublic sector, while the private sector remains largely neglected.

The external sector

Merchandise trade

Trade relations with India As Nepal is a landlocked country, merchandise trade is a difficult sector todevelop. India’s protectionism and its control over the transit routes have beena perennial problem.

Foreign trade, 1996/97(NRs m)

ExportsTo India (fob) 5,448 To other countries (fob) 17,032 of which: of which: pulses 500 woollen carpets 8,879 twine 421 garments 5,947 toothpaste 384 pulses 528 polyester yarns 326 hides & skins 289 cardamom 188 niger seeds 259

Imports From India (cif) 25,844 From other countries (cif) 70,162 of which: of which: machinery & parts 2,345 gold 30,497 medicine 2,112 diesel fuel 2,620 transport & vehicle parts 1,549 machinery & parts 2,390 cotton textiles 1,045 kerosene 2,192 cement 1,038 raw wool 2,161Source: Federation of Nepalese Chambers of Commerce and Industry (FNCCI), Nepal and the World: A Statistical Profile.

64 Nepal: Construction


Trade with India is lopsided: Nepal accounts for only 2% of India’s total trade,whereas India accounts for 26% of Nepal’s. A prominent feature of Nepal’strade with India is its large deficit, which has grown by over 30% per year inrecent years. This is due in part to a few recent crop failures (which underminedNepal’s export of agricultural products) although mainly to rising imports ofmanufactured goods (transport vehicles, medicines, machinery and spareparts).

The importance of carpetand garment exports

Nepal’s trade with countries other than India has been growing rapidly inrecent years (see Reference table 8 for main trading partners). From 8% of totaltrade in 1970/71 it reached a peak in 1989/90 (78%) although it has eased toaround 70% in recent years.

Carpets and ready-made garments dominate Nepal’s exports overall and tocountries other than India. After 1988/89 carpet exports increased rapidlyreaching a peak of NRs9.52bn ($210m) in 1992/93. Export of carpets declinedin the following two years before growing slightly in 1996/97. Garment exportspeaked in 1993/94 at NRs5.9bn but hovered around NRs5.5bn in the sub-sequent three years.

Nepal’s dependence on two products and on a limited number of markets makesits export performance extremely vulnerable to shifts in demand and tastes. Themajor market for Nepal’s carpets is Germany but exports to this market havestagnated because of scandals over the use of child labour in the industry,saturation of the market, a fall in standards of production as well as changingfashions. Similar vulnerabilities have been highlighted in the garment industry,which grew dramatically as Indian producers shifted production to Nepal inorder to avoid the Indian floor price system and to bypass US textile quotas onIndia. However, producers have begun to shift production back to India

Imports have increased enormously in recent years—by 17% in 1995/96 and afurther 29% in 1996/97—driving the growth of Nepal’s trade deficit. Exportgrowth has not matched this pace, leading to a sharp increase in the tradedeficit in recent years. The major import items are gold, diesel fuel, electricalgoods, medicines, machinery and parts, and vehicles and vehicle parts.

Main trading partners, 1996/97(% of total)

Exports to: Imports from:

Germany 34.0 India 26.9

US 26.4 Hong Kong 21.1

India 24.2 Singapore 10.4

Bangladesh 2.2 UAE 5.8

Italy 1.8 Japan 4.1

Switzerland 1.5 UK 3.3

Austria 1.4 China 3.1Source: FNCCI, Nepal and the World: A Statistical Profile.

Nepal: Merchandise trade 65


Invisibles and the current account

Current account, 1996/97(NRs m)

Merchandise exports fob 22,507

Merchandise imports cif –96,114

Trade balance –73,607

Services balance (incl investment income) 39,361

Transfers balance 15,130

Current-account balance –19,116Source: Ministry of Finance, Economic Survey.

Financing thecurrent-account deficit

The surplus on the invisibles account of the balance of payments has risenconsistently over the years. Receipts from tourism have grown, but it is theexplosive growth in an unspecified “other” category of services which hasdriven the growth of the services balance from NRs3.9bn in 1991/92 toNRs39.4bn in 1996/97. Net receipts from this undefined category of servicesrose from NRs5.6bn in 1991/92 to NRs42.7bn. Net transfers have also risen,although not as dramatically, because of rising levels of foreign aid and, to alesser extent, private remittances.

Nevertheless, the current account remains persistently, and deeply, in deficit.The widening trade deficit has more than offset the growing services andtransfers surplus, pushing the current-account deficit from NRs2.9bn in1986/87 to about NRs20bn in both 1995/96 and 1996/97.

Capital flows and foreign debt

Foreign aid andpublic-sector development

Despite the current-account deficits, Nepal has generally managed to record apositive overall balance-of-payments position, thanks almost entirely to offi-cial, and mainly (concessional) foreign loans. Foreign direct investment issmall, contributing just NRs388 in 1995/96 and NRs1.6bn in 1996/97.

Foreign aid has had a pervasive influence in Nepal’s development. The FirstFive-Year Plan, introduced in 1956, was totally financed by foreign aid. Theshare of foreign aid in public-sector development expenditure declined gradu-ally to 45% by the fourth plan (1970-75), but increased again to 75% in theseventh (1985-90) and to 65% in the eighth (1992-97). In the ninth plan(1997-2002) Nepal hopes to reduce its dependence on foreign assistance to58% of development expenditure.

A shift in source andcomposition

There was a surge in foreign assistance in the early 1990s as donors sought tosupport Nepal’s new democratic system; however, donor fatigue may result infrozen, if not falling, levels of aid.

The composition of aid is also changing, with a growing proportion in the formof concessional loans as opposed to grants; also, over the years foreign aid hasshifted from bilateral to multilateral sources. Multilateral assistance is mostlyloans which come from the International Development Association (IDA),followed by the Asian Development Bank (ADB) and other agencies. With theestablishment of the Nepal Aid Group in 1976, there has been a multi-

66 Nepal: Invisibles and the current account


lateralisation of bilateral aid, through which different sources have tried toco-ordinate their contribution with Nepal’s development priorities. The AidGroup, whose members include Australia, Canada, France, Germany, Japan,Switzerland, the UK and the US, together with the ADB, the IDA, the IMF andthe UN Development Programme (UNDP), now accounts for over 90% of thetotal aid commitment.

Debt is rising The increasing use of foreign loans to finance the government’s budget deficithas raised both the amount of debt and the debt-servicing burden of thegovernment. According to World Bank data, the ratio of external debt to GNPhas risen from 2% in 1975 to 56.3% in 1994. More recently, the debt/GNP ratiohas remained in the 50-57% range. (Further data on Nepal’s external debt aregiven in Reference table 10.)

Foreign reserves and the exchange rate

The shift tocurrent-account

convertibility

The dollar and the Indian rupee are the two main currencies in which Nepal’strade is transacted. Since 1983 the Nepalese rupee has been tied, in principle,to a basket weighted according to the importance of each main trading cur-rency, with the US dollar as the intervention currency. However, in practice theexchange rate is de facto pegged against the Indian rupee—a reflection of thehigh degree of integration between the Indian and Nepalese economies.

The exchange rate has gradually depreciated, broadly in line with that of theIndian rupee. A new period of volatility followed the deterioration in externalsentiment toward India following the nuclear tests, causing the Nepalese rupeeto fall from NRs55.96:$1 in mid-December 1997 to NRs68.25:$1 in early August1998. (Reference table 11 contains historical exchange rate information.) It hasremained at around this level since then.

Foreign-exchange reserves increased after structural adjustment loans from theWorld Bank began in 1986/87 and reached NRs6.2bn in 1989/90, equivalent to80% of imports at the 1984/85 level. Although foreign-exchange reservesdipped in 1995 and 1996, they recovered in 1997. Overall, total reserves ex-cluding gold have hovered in the $575m-$700m range for the last five years(see Reference table 12).

Nepal: Foreign reserves and the exchange rate 67


Appendices

Sources of information

National statistical sources Although economic data on Nepal have improved considerably in recent years,they still face the common problem of credibility. The First Five-Year Plan(1956-61) failed to utilise even half of the budget owing to the paucity of data.The second plan was made only for three years, so as to correct the planningprocess for the future. In the late 1950s Nepal Rastra Bank (the central bank)established a research wing to help gather information on various aspect of theeconomy. The Department of Census, which was the first institution to pro-duce data on population in the late 1940s, was renamed the Central Bureau ofStatistics and its role expanded during the 1960s to incorporate data on theeconomy and the social sectors. In the early 1970s, the Trade Promotion Centrewas established to keep track of Nepal’s trade with the outside world. Today, allthe important ministries, and the various departments under them, function asconduits of data to the Planning Commission and the finance ministry. Sincedata collection techniques and analysis models do not always tally from onesource to another, the information provided by the central bank is consideredto be more accurate than the others.

The fullest range of official data is provided in the statistical trables appendedto the Economic Survey, published annually in July, at the end of Nepal’s finan-cial year, by the Ministry of Finance. In 1997 this contained 79 tables coveringthe following: national accounts; agriculture; industry, public enterprises andtourism; energy; transport and communications; trade, balance of paymentsand foreign-exchange reserves; money, banking, credit and financial institu-tions; public finance; price and supply situation; and social services. The mainsources for these tabulations are primarily government ministries, as well as thecentral bank.

The Central Bureau of Statistics of the Planning Commission also publishes aStatistical Year Book of Nepal, which covers some of the information notincluded in the Economic Survey. Since 1995 the Federation of NepaleseChambers of Commerce and Industry (FNCCI) has published a compendiumentitled Nepal and the World: A Statistical Profile, which includes a wide rangeof data on Nepal’s economy and its economic position vis-à-vis the SouthAsian countries and the rest of the world, with an eye towards prospectiveinvestors in Nepal.

Other national statistical sources include:

Central Bureau of Statistics, Census of Manufacturing, Kathmandu

Central Bureau of Statistics Nepal: Living Standards Survey Report 1996

Ministry of Finance, Budget Speech (annual), Kathmandu

Ministry of Tourism, Nepal Tourism Statistics (annual), Kathmandu

National Planning Commission, Five Year Plans, Kathmandu

Nepal Rastra Bank, Main Economic Indicators (monthly), Kathmandu

68 Nepal: Sources of information


Nepal Rastra Bank, Quarterly Economic Bulletin, Kathmandu

International sources Asian Development Bank, Country Report on Nepal (annual), Manila

Asian Development Bank, Key Indicators of Developing Asian and PacificCountries (annual), Manila

Energy Data Associates, 1 Regent Street, London SW1 4NR

IMF, IMF Economic Review: Nepal, Washington DC

World Bank, Nepal: Poverty and Incomes, Washington DC, 1991

Select bibliography Pradyumna P Karan and Hiroshi Ishii, Nepal: Himalayan Kingdom in Transition,UN University Press 1996

The Kathmandu Post (daily), Kathmandu

N Khadka, Foreign Aid, Poverty and Stagnation in Nepal, Vikas, New Delhi, 1991

Nepal Press Digest (weekly), Kathmandu

R D Pant, The Flow of Funds in Nepal, Institute for Economic and Social Studies,Kathmandu, 1995

S R Poudyal, Foreign Trade, Aid and Development in Nepal, CommonwealthPublishers, New Delhi, 1988

The Rising Nepal (official daily), Kathmandu

B P Shrestha, Nepalese Economy in Retrospect and Prospect, Himalayan Booksellers, Kathmandu, 1990

Nepal: Sources of information 69


Reference tables

Reference table 1

Government financesa

(NRs m)

1993/94 1994/95 1995/96 1996/97 1997/98b

Total expenditure 33,597.4 39,060.0 46,542.4 50,723.7 62,022.3 Current expenditure 12,409.2 19,265.1 21,561.8 24,181.1 27,983.4 Development expenditure 21,188.2 19,794.9 24,980.5 26,542.6 34,038.8

Total revenue 21,974.4 28,512.3 32,718.2 36,361.2 43,082.0 Foreign grants 2,393.6 3,937.1 4,825.2 5,988.3 6,029.5 Other receipts 19,580.8 24,575.2 27,893.1 30,373.5 37,052.5

Fiscal deficit 11,623.0 10,547.7 13,824.2 14,361.9 18,940.3

Financed by: Foreign loans 9,163.6 7,312.3 9,463.9 9,043.9 15,540.3 Domestic borrowings 1,820.0 1,900.0 2,200.0 3,000.0 3,400.0 Banking system 1,000.0 1,300.0 750.0 1,500.0 1,600.0 Non-banking system 820.0 600.0 1,450.0 1,500.0 1,800.0

Cash balancec

(– indicates surplus) 639.4 1,335.4 2,160.2 2,318. 3 n/a

a Fiscal years July 16th-July 15th. b Budget. c Increase in net credit from central bank (monetiseddeficit).


Reference table 2

Interest rates(%)

1993 1994 1995 1996 1997

Discount rate (end-period) 11.0 11.0 11.0 11.0 9.0

Treasury-bill rate 4.50 6.50 9.90 11.51 2.52

Lending rate n/a n/a n/a 12.88 14.54

Government bond yield n/a 3.0 3.0 3.0 3.0Source: IMF, International Financial Statistics.

70 Nepal: Reference tables


Reference table 3

Gross domestic product(NRs m unless otherwise indicated; factor cost)

1993/94 1994/95 1995/96 1996/97 1997/98

Total GDPAt current prices 199,272 219,175 248,913 280,582 293,461At constant 1984/85 prices 69,686 71,685 75,773 78,762 80,562 % change 7.9 2.9 5.7 3.9 2.3

GDP by sectorAgriculture, forestry & fishing 80,589 85,569 96,896 108,785 110,823Mining & quarrying 990 1,117 1,342 1,525 1,618Manufacturing 17,861 19,555 22,466 24,508 26,442Electricity, gas & water 2,163 2,862 359 4,516 4,424Construction 19,621 23,093 26,093 27,807 27,382Trade, hotels, etc 22,497 24,326 28,317 31,609 34,309Transport & communications 12,625 13,995 15,898 19,761 22,497Finance & real estate 18,122 20,553 23,521 26,890 29,632Social services 17,128 18,924 21,257 23,991 26,074GDP at factor cost (less imputed value of bank charges) 187,123 204,914 233,456 262,630 275,491Source: Ministry of Finance, Economic Survey.

Reference table 4

Prices(1983/84=100 unless otherwise indicated; period averages)

1993/94 1994/95 1995/96 1996/97 1997/98a

Food & beverages 289.5 310.7 338.4 364.7 377.6 % change 9.1 7.3 8.9 7.8 3.5

Non-food items & services 274.8 298.0 316.8 341.2 359.9 % change 14.7 8.4 6.4 7.6 5.5

All items 283.7 305.4 330.2 355.9 370.9 % change 8.9 7.4 8.1 7.8 4.8

a July 16th-April 15th.

Source: Ministry of Finance, Economic Survey



Reference table 5

Production index of manufacturing industries(1986/87=100 unless otherwise indicated)

1993/94 1994/95 1995/96 1996/97 1997/98

Food manufacturing 251.2 284.5 302.4 309.5 375.8 % growth 14.8 13.3 6.3 2.3 21.4

Beverage industries 178.0 216.0 233.7 257.5 263.3 % growth –23.9 21.3 8.2 10.2 2.3

Tobacco manufacturing 116.3 125.1 135.4 133.2 129.1 % growth –12.5 7.6 8.2 –1.7 –3.0

Textiles 109.4 101.7 132.1 146.4 159.1 % growth 18.0 –7.0 29.9 10.9 8.6

Leather & leather products 64.0 82.9 88.3 86.5 98.2 % growth –5.7 29.6 6.5 –2.0 13.5

Footwear 578.5 566.1 536.4 454.5 454.6 % growth –15.0 –2.1 –5.2 –15.3 0.0

Wood & wood products 34.5 32.3 31.8 35.7 18.3 % growth 32.7 –6.4 –1.5 12.2 –48.8

Paper & paper products 300.3 325.5 424.7 498.5 594.2 % growth 20.7 8.4 30.5 17.4 19.2

Chemicals 125.3 157.0 214.2 230.6 195.7 % growth –4.9 25.3 36.5 7.7 –15.1

Plastic products 212.1 203.9 219.0 226.6 191.2 % growth –1.5 –3.9 7.4 3.5 –15.6

Non-metallic mineral products 137.0 140.5 138.7 121.9 131.6 % growth 13.2 2.5 –1.3 –12.1 8.0

Iron & steel 205.6 275.3 265.1 310.7 290.1 % growth 17.8 33.9 –3.7 17.2 –6.6

Cutlery & hand tools 79.6 68.6 54.2 56.0 22.1 % growth –7.7 –13.8 –21.0 3.4 –60.6

Electrical & industrial machinery 90.8 134.4 170.3 219.4 219.6 % growth 0.6 48.0 26.7 28.8 0.1

Overall index 150.3 164.1 180.0 185.4 198.0 % growth 4.6 9.2 9.7 3.0 6.8Source: Ministry of Finance, Economic Survey.

Reference table 6

Tourism1993 1994 1995 1996 1997

Tourist arrivals (’000) 293.6 326.5 363.4 393.6 407.3 % change –12.2 11.2 11.3 8.3 3.5 By land 39.4 37.1 38.4 50.3 53.0 By air 254.1 289.4 325.0 343.3 354.3

Average length of stay (days) 11.9 10.0 11.3 13.5 14.0

Tourist expenditurea (NRs m) 5,966 8,252 8,973 9,521 8,523

a Fiscal years July 16th-July 15th.




Reference table 7

Foreign tradea

(NRs m; current prices)

1992/93 1993/94 1994/95 1995/96 1996/97b

Exports 17,266.5 19,293.4 17,639.2 19,881.1 22,480.6 Food & live animals 1,862.9 1,163.4 1,562.7 1,946.6 2,824.2 Tobacco & beverages 13.2 12.8 11.3 9.7 18.8 Raw materials & inedible oils 531.8 432.4 485.5 768.7 592.9 Mineral fuels & lubricants 0.3 0.0 0.0 1.3 1.1 Animal & vegetable oils & fats 176.4 138.4 214.1 251.3 150.3 Chemicals & drugs 28.7 212.1 302.3 640.4 1,327.7 Manufactured goods classified by materials 10,298.3 10,912.6 9,260.3 10,455.7 10,950.1 Machinery & transport equipment 1.2 6.4 37.1 35.2 59.6 Miscellaneous manufactured articles 4,352.3 6,415.1 5,765.8 5,772.2 6,555.9 Commodities & transactions not classified 1.4 0.2 0.1 0.0 0.0

Imports 39,205.6 51,570.8 63,679.5 74,454.5 96,005.6 Food & live animals 3,024.7 4,084.8 4,464.0 4,785.8 6,305.7 Tobacco & beverages 469.3 367.6 500.9 508.6 689.2 Raw materials & inedible oils 3,977.0 3,122.3 3,347.9 4,865.9 5,328.3 Mineral fuels & lubricants 3,834.1 4,837.0 4,717.1 5,549.3 7,215.9 Animal & vegetable oils & fats 1,085.1 1,457.2 2,056.0 2,830.9 2,319.6 Chemicals & drugs 5,265.0 5,541.4 7,193.2 8,686.8 8,477.4 Manufactured goods classified by materials 11,633.1 19,147.4 25,300.6 28,129.7 45,668.5 Machinery & transport equipment 7,701.7 10,037.5 13,027.6 15,301.1 14,068.0 Miscellaneous manufactured articles 2,185.9 2,884.5 3,057.2 3,794.6 4,421.8 Commodities & transactions not classified 29.7 91.1 15.0 1.8 1,511.2

a By standard international trade classification. b Provisional.


Reference table 8

Main trading partners($ m)

1992 1993 1994 1995 1996

Exports to:Germany 154 179 148 135 121US 81 100 117 99 119India 21 17 13 25 33UK 9 9 10 7 11Switzerland 21 15 14 11 10Italy 5 4 5 7 7France 6 4 5 7 7Belgium 7 8 8 6 6Bangladesh 0 0 0 4 5Austria 6 7 8 5 5

Imports from:India 80 83 93 118 150Hong Kong 34 41 52 82 92Singapore 57 63 75 93 84Japan 65 75 73 67 72China 39 37 44 59 41New Zealand 39 49 25 37 33Thailand 26 70 109 142 31Germany 23 13 16 28 28UK 12 20 16 13 18US 6 6 8 11 9Source: IMF, Direction of Trade Statistics.



Reference table 9

Balance of payments, IMF estimates($ m)

1993 1994 1995 1996 1997

Goods: exports fob 397.0 368.7 349.9 388.7 410.5

Goods: imports fob –858.6 –1,158.9 –1,310.8 –1,494.7 –1,718.6

Trade balance –461.6 –790.3 –961.0 –1,105.9 –1,308.1

Services: credit 333.2 579.2 679.0 757.5 865.7

Services: debit –251.8 –296.6 –313.3 –242.8 –224.5

Income: credit 28.9 34.6 43.6 33.1 31.9

Income: debit –23.7 –30.8 –34.9 –32.0 –28.6

Current transfers: credit 155.5 160.7 239.2 281.6 267.4

Current transfers: debit –3.0 –8.7 –9.1 –18.0 –21.8

Current-account balance –222.5 –351.9 –356.4 –326.6 –418.1

Direct investment abroad n/a n/a n/a n/a n/a

Direct investment in Nepal n/a n/a n/a 19.2 23.1

Portfolio investment assets n/a n/a n/a n/a n/a

Portfolio investment liabilities n/a n/a n/a n/a n/a

Other investment assets 149.6 159.2 264.4 91.6 89.4

Other investment liabilities 133.9 248.0 104.1 164.5 227.8

Financial balance 283.5 407.3 368.5 275.2 340.3

Capital-account credit n/a n/a n/a n/a n/a

Capital-account debit n/a n/a n/a n/a n/a

Capital-account balance n/a n/a n/a n/a n/a

Net errors & omissions 4.6 7.1 2.8 82.3 246.6

Overall balance 65.6 62.5 15.0 30.9 168.8

Memorandum itemTotal change in reserve assets (– indicates inflow) –65.6 –62.5 –15.0 –30.9 –168.8Source: IMF, International Financial Statistics.



Reference table 10

External debt, World Bank estimates($ m unless otherwise indicated)

1992 1993 1994 1995 1996

Total external debt 1,802 2,004 2,320 2,399 2,413 Long-term debta 1,752 1,934 2,202 2,328 2,349 Short-term debt 6 21 63 23 26 Use of IMF credit 44 49 55 48 39

Public & publicly guaranteed long-term debt 1,752 1,934 2,202 2,328 2,349 Official creditors 1,670 1,864 2,142 2,277 2,308 Multilateral 1,449 1,588 1,805 1,950 1,983 Bilateral 221 277 337 326 325 Private creditors 83 70 61 51 41 Commercial banks 0 0 0 0 0 Other private 83 70 61 51 41

Total debt service 68 70 82 93 85 Principal 39 43 50 61 54 Interest 29 28 33 32 31 of which: short-term debt 1 1 2 2 1

Ratios (%)Total external debt/GNP 50.9 52.2 56.3 53.5 53.4Debt-service ratiob 10.5 9.0 7.7 7.7 7.7Short-term debt/total external debt 0.3 1.0 2.7 0.9 1.1Concessional long-term loans/long-term debt 92.3 92.8 92.2 94.8 95.5

a Original maturity of more than one year. b Debt service as a percentage of exports of goods and services.

Source: World Bank, Global Development Finance.

Reference table 11

Foreign reserves($ m unless otherwise indicated)

1993 1994 1995 1996 1997

SDRs 0.0 0.1 0.0 – 0.1

Reserve position at the IMF 7.9 8.4 8.5 8.2 7.7

Foreign exchange 632.3 685.1 577.9 563.1 618.4

Total reserves excl gold 640.2 693.6 586.4 571.4 626.2

Gold (m troy oz) 0.153 0.153 0.153 0.153 0.153

Gold (national valuation) 6.5 6.5 6.5 65.2 50.1

Total reserves incl gold 646.7 700.1 592.9 636.6 676.3Source: IMF, International Financial Statistics.



Reference table 12

Exchange rates1993 1994 1995 1996 1997

NRs:SDR 67.63 72.82 83.24 82.01 85.41

NRs:$ End-period 49.24 49.88 56.00 57.03 63.30Average 48.61 49.4 51.89 56.69 58.01Source: IMF, International Financial Statistics.

Editor: Elisabeth PaulsonAll queries: Tel: (44.171) 830 1007 Fax: (44.171) 830 1023



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