Background

India's diverse economy encompasses traditional village farming, modern agriculture, handicrafts, a wide range of modern industries, and a multitude of services. Services are the major source of economic growth, accounting for more than half of India's output with less than one third of its labor force. About three-fifths of the work force is in agriculture, leading the UPA government to articulate an economic reform program that includes developing basic infrastructure to improve the lives of the rural poor and boost economic performance. The government has reduced controls on foreign trade and investment. Tariffs averaged 12.5% on non-agricultural items in 2006. Higher limits on foreign direct investment were permitted in a few key sectors, such as telecommunications. However, tariff spikes in sensitive categories, including agriculture, and incremental progress on economic reforms still hinder foreign access to India's vast and growing market. Privatization of government-owned industries remained stalled in 2006, and continues to generate political debate; populist pressure from within the UPA government and from its Left Front allies continues to restrain needed initiatives. The economy has posted an average growth rate of more than 7% in the decade since 1996, reducing poverty by about 10 percentage points. India achieved 8.5% GDP growth in 2006, significantly expanding manufacturing. India is capitalizing on its large numbers of well-educated people skilled in the English language to become a major exporter of software services and software workers. Economic expansion has helped New Delhi continue to make progress in reducing its federal fiscal deficit. However, strong growth - more than 8 percent growth in each of the last three years - combined with easy consumer credit and a real estate boom is fueling Inflation concerns. The huge and growing population is the fundamental social, economic, and environmental problem.

Foreign Investment Assessment

Openness to Foreign Investment

Until the 1990s India had a tightly controlled economy that allowed little foreign investments. From July 1991 industrial and investment policies have become progressively simpler, more liberal, and more transparent. Nonetheless, even today, foreign investment remains relatively controlled with Equity limits for investors in many sectors and approval required for many types of foreign investment. In some of these sectors limits can be exceeded on a case-by-case basis. Sector details on investment norms follow later.

The current policy has automatic approval for foreign equity investment in many sectors. Investments in some sectors require approval by either the Foreign Investment Promotion Board (FIPB) or the Cabinet Committee on Foreign Investment. These bodies have discretionary powers and the approval process is not always routine or transparent. The rules vary from industry to industry and are frequently changed, usually to become more liberal. In the majority of cases foreign investment does not get national treatment.

Transparency of Regulatory System

India has adequate laws and regulations governing commercial transactions. Central and state governments regulate the prices of "essential" products, including food grains, sugar, edible oils, basic medicines, energy, fertilizers, water and many industrial inputs. Many basic food products are under a dual pricing system-at fixed prices through government distribution outlets, at market prices on the open market. The Indian government is revising the 1956 Companies Act, which governs competition laws and commercial practices.

The Indian Parliament in May 2000 passed the Information Technology Bill, 2000 to provide the legal framework for India's growing e-commerce sector. This legislation covers digital signatures, electronic records, service obligations, and penalties for hacking and introducing computer viruses.

Labor Force

Total: 482.2 million estimated

By occupation: agriculture 60%, industry 17%, services 23%

Agriculture and Industry

Agriculture products: rice, wheat, oilseed, cotton, jute, tea, sugarcane, potatoes; cattle, water buffalo, sheep, goats, poultry; fish

Industries: textiles, chemicals, food processing, steel, transportation equipment, cement, mining, petroleum, machinery, software

Import Commodities and Partners

Commodities: crude oil, machinery, gems, fertilizer, chemicals

Partners: Belgium 5.5%, US 5.4%, China 5.3%, UK 4.4%

Export Commodities and Partners

Commodities: textile goods, gems and jewelry, engineering goods, chemicals, leather manufactures

Partners: US 18.6%, UAE 7.6%, Hong Kong 5.1%, UK 4.8%, China 4.5%, Germany 4.1%

Telephone System

Telephones- main lines in use: 48.917 million

Telephones- mobile cellular: 26,154,400

General Assessment: recent deregulation and liberalization of telecommunications laws and policies have prompted rapid change; local and long distance service provided throughout all regions of the country, with services primarily concentrated in the urban areas; steady improvement is taking place with the recent admission of private and private-public investors, but telephone density remains low at about seven for each 100 persons nationwide but only one per 100 persons in rural areas and a national waiting list of over 1.7 million; fastest growth is in cellular service with modest growth in fixed lines

Domestic: expansion of domestic service, although still weak in rural areas, resulted from increased competition and dramatic reductions in price led in large part by wireless service; mobile cellular service (both CDMA and GSM) introduced in 1994 and organized nationwide into four metropolitan cities and 19 telecom circles each with about three private service providers and one state-owned service provider; in recent years significant trunk capacity added in the form of fiber-optic cable and one of the world's largest domestic satellite systems, the Indian National Satellite system (INSAT), with five satellites supporting 33,000 very small aperture terminals (VSAT)

International: country code - 91; satellite earth stations - 8 Intelsat (Indian Ocean) and 1 Inmarsat (Indian Ocean region); nine gateway exchanges operating from Mumbai (Bombay), New Delhi, Kolkata (Calcutta), Chennai (Madras), Jalandhar, Kanpur, Gandhinagar, Hyderabad, and Ernakulam; 5 submarine cables, including Sea-Me-We-3 with landing sites at Cochin and Mumbai (Bombay), Fiber-Optic Link Around the Globe (FLAG) with landing site at Mumbai (Bombay), South Africa - Far East (SAFE) with landing site at Cochin, i2icn linking to Singapore with landing sites at Mumbai (Bombay) and Chennai (Madras), and Tata Indicom linking Singapore and Chennai (Madras), provide a significant increase in the bandwidth available for both voice and data traffic

Internet

Internet Hosts: 86,871

Internet users: 18.481 million

Roads, Airports, Ports and Harbors

Railways: 63,140 km

Highways: 2,525,989 km

Ports and harbors: Chennai (Madras), Cochin, Jawaharal Nehru, Kandla, Kolkata (Calcutta), Mumbai (Bombay), Vishakhapatnam

Airports: 333; w/paved runways: 234

Legal System and Considerations

India’s legal system is based on English common law. The government allows limited judicial review of legislative acts. India also accepts compulsory ICJ jurisdiction, with reservations. Separate personal law codes apply to Muslims, Christians, and Hindus who inhabit India.

Dispute Settlement

At present, there are no Indo-American investment disputes over expropriation or nationalization. Indian courts provide adequate safeguards for the enforcement of property and contractual rights, but case backlogs frequently lead to long procedural delays. India is not a member of the International Center for the Settlement of Investment Disputes, but is a member of the New York Convention of 1958. In February 1996, a new arbitration law came into effect providing for quick arbitration. Companies have now begun to take cases to the Arbitration Council of India rather than through the slow judiciary process.

The Arbitration and Conciliation Act of 1996 is based on the UNCITRAL (United Nations Commission on International Trade Law) Model Law. The act attempts to unify the adjudication process on commercial contracts in India with the rest of the world. It is a major step in the ongoing process of liberalization.

Corruption Perception Ranking

As reported by Transparency International, from the least to most corrupt countries (1-163), India 70, making it one of the more corrupt nations in the world (according to this index).

Cultural Considerations

In India, the traditional greeting is the namaste. Namaste is offered by holding the palms of the hands together below the chin, nodding or bowing slightly, and saying the word, "namaste." Rough translation of the word suggests that it conveys peace, respect and hospitality from one person to another. Literally, it means something akin to "I bow to the divine in you." This soulful and lyrical greeting is useful for foreigners in any situation where a handshake may not be acceptable.

It is also worth noting that titles are highly valued in India and adhering to the strictures of formality is highly advisable. One should always use professional titles and avoid addressing another by his or her first name unless one is asked to do so, or one is a close friend.

For more information see:

United States’ State Department Commercial Guide