RESTRICTED  WORLD TRADE  
ORGANIZATION  WT/TPR/G/182 
18 April 2007  
 
(07-1526) 
Trade Policy Review Body Original: English 
  
 
   
 
TRADE POLICY REVIEW 
 
Report by 
 
INDIA 
 
 
 
 
Pursuant to the Agreement Establishi ng the Trade Policy Review Mechanism 
(Annex 3 of the Marrakesh Agreement Establishing the World Trade 
Organization), the policy statement by India is attached. 
 
 
Note: This report is subject to restricted circ ulation and press embargo until the end of the first 
session of the meeting of the Trade Policy Review Body on India. India WT/TPR/G/182 
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CONTENTS 
  Page 
I. INTRODUCTION 5 
II. INDIA – FUTURE GROWTH PROSPECTS 5 
 (a) Strengths of the Economy 5 
 (i) A more open Economy 5 
 (ii) A growing "middle class" 6  (iii) The Demographic Dividend 6 
 (iv) Strong and Competitive Corporate Sector 6 
 (v) Increase in Savings and Investment rates 7 
 (b) Major Challenges to Growth 7 
 (i) Infrastructure deficit 7 
 (ii) Fiscal deficit 11  (iii) Low Agricultural Growth 12 
 (iv) Skill deficit in manpower 14 
III. DEVELOPMENTS IN TRADE POLICY AND CONTINUOUS LIBERALISATION OF 
TARIFFS  15 
IV. REFORMS IN THE TAX SYSTEM 16 
V. TRADE FACILITATION 17 
VI. STRENGTHENING SECTORAL MARKETS 18 
 (a) Petroleum and Natural Gas 18 
 (b) Textiles  19 
 (c) Steel  19 
 (d) Information Technology 20  (e) Telecommunications 21 
 (f) Financial Sector 23 
 (i) Reforms in the Foreign Direct Investment (FDI) Regime 23  (ii) Reforms in the Foreign Exchange Market 24 
 (iii) Deregulation of Interest Rates 24 
 (iv) Banking Sector Reforms 25  (v) Insurance Sector 28 
 (vi) Capital Market Reforms 28 
VII. CORPORATE GOVERNANCE 29 VIII. INDIA AND THE WTO 29 
 (a) Intellectual Property Rights 29 
 (b) Services  30 
 (c) Some Impediments to the Growth of India's International Trade 32 
 (i) Unwarranted use of Trade Defense Action 32 
 (ii) Textiles & Clothing 33 
 (iii) SPS and TBT issues 33 
IX. REGIONAL TRADING ARRANGEMENTS 34 
 
 India WT/TPR/G/182 
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I. INTRODUCTION 
1. The Indian economy is the second fastest gr owing economy among the large economies of 
the world today.  In terms of purchasing power pa rity (PPP) GDP, India is the fourth largest economy 
after the US, China and Japan.  India’s share in  world GDP (PPP) basis has increased from 4.3% in 
1991 to almost 6% in 2005.  The World Bank has reported that India has been in the top 10% of all 
countries in growth performance since the 1980s.1  
2. Since the mid-1990s the growth rate in agricultu re has dropped to 2% compared to the earlier 
trend rate of 2.5-3.0 percent.  The growth in 2003-042 was 10% but it came down to 0% in 2004-05.  
The growth rate went up to 6% in 2005-06 and the advance estimate for 2006-07 puts the growth at 
2.7%.  In contrast to the sharp fluctuations in agriculture, industry and services have continued to 
grow steadily.  They have been t he twin engines driving the overall growth of the economy.  The 
services sector grew at an average rate of 9% in  the 1990s contributing nearly 60 percent of the 
overall growth of the economy. It continues to main tain impressive growth and has recorded, in the 
last three years, a growth rate of 9.6 per cent,  9.8 per cent and 11.2 per cent respectively.  The 
industrial sector is also expanding rapidly.  The sector revived in 2002-03  and its growth rate 
accelerated to 7.4 per cent in 2003-04 and to over 9 pe r cent in the next two years.  Industrial growth 
is estimated to be 11 per cent in 2006-07.  The growth rate of manufacturing has shown a steady 
acceleration from 7.8 percent in 2003-04 to 8.7 percen t, 9.1 per cent and 11.3 percent respectively in 
the next three years.  
II. INDIA – FUTURE GROWTH PROSPECTS 
3. The Indian economy has grown at an average growth rate of about 6% since the initiation of 
economic reforms in 1991.3  However, in the three year peri od 2003-06, the growth rate has been 
8.6% showing signs that the economy has cleaved from the past and has entered a phase of higher 
growth. 
4. There exists strong evidence to believe that the economy is being propelled by strong 
fundamental growth impulses which would sustain in the years to come.  These impulses stem from 
the strengths exhibited by the economy.4 
(a) Strengths of the Economy 
(i) A more open Economy 
5. The Indian economy in 2007 is far more open to the external sector than it was fifteen years 
ago.  Table 1 presents a few indices for comparison. 
                                                      
1 World Bank: India Inclusive Growth and Service delivery:  Building on India’s Growth. 
(29 May 2006) available at http://siteresource s.worldbank.org/SOUTHAS IAEXT/Resources/DPR_ 
FullReport.pdf. 
2 Indian fiscal year begins on 1 April and ends on 31 March in the next year.  A year such as 2000-01 
refers to the period 1 April 2000 to 31 March 2001.  The period 2003-06 starts on 1 April 2003 and ends on 
31 March, 2006. 
3 This section draws from Arvind Panagariya:  Transforming India; October, 2006 available at 
http://www.columbia.edu/~ap2231/Policy%20Pape rs/Transforming%20Indi a%20Panagariya.pdf. 
4 Adapted from:  Shankar Acharya: India’s Growth:  Past Performance and Future Prospects 
(November 2006) available at http://www.tcf .or.jp/data/2006120607_Shankar_Acharya.pdf. WT/TPR/G/182 Trade Policy Review 
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Table 1:  Towards A More Open Economy 
 1990-91 2005/06 
Peak Import Duties (manufactures) 200% plus 12.5% 
Import Controls Tight, detailed Negligible 
Trade (goods)/GDP Ratio (%) 14.6 32.7 
Current Receipts/GDP(%) 8.0 24.5 
Software Exports ($ billion) Nil 23.6 
Worker Remittances ($ billion) 2.1 24.6 
Foreign Investment ($ billion) Negligible 20.2 
Foreign Currency Reserves ( $billion, as on March 31) 2.2 145.1 
Debt Service Ratio (%) 35.3 10.2 
Source:  RBI, Annual Report, 2005/06, except for first two rows. 
6. This openness has empowered the Indian economy to become more competitive 
internationally.  For instance, the automobile co mponents industry and the generic drugs industry are 
in the process of becoming important players in the global market.  The growing international competitiveness of the Indian economy is reflected in the steady growth of Indian exports, including services exports.  
(ii) A growing "middle class" 
7. A survey by the National Council for Applied Economic Research, New Delhi estimates that 
about 100 million people now live  in households with annual in comes between Rs. 200,000 and 
Rs. 1 million (approximately PPP$ 20,000 to 100,0 00) compared to about 15 million in 1990-91.  
This would grow further in the years to come.  The aspirations of the growing middle class would 
provide a strong domestic demand stimulus to the economy. 
(iii) The Demographic Dividend 
8. According to most population projections, the share of the working age population in the total 
population will continue to rise for the next 30 y ears or so.  These demographics point to an 
augmented supply of labour and savings.  These demogr aphic trends have also helped raise household 
savings from 15-16 percent of GDP in the late  1980’s to 22-24 percent in recent years. 
(iv) Strong and Competitive Corporate Sector 
9. The growth in the industrial sector has hither to been with low levels of FDI, which is 
reflective of a strong indigenous entrepreneur ial sector.  A modernizing capital market; an 
increasingly liberal and competitive environment for investment, trade and production;  a wealth of entrepreneurial talent and sustained economic growth has spawned strong new companies and 
supported the expansion of the aggressive among the existing.  The World Bank has pointed out 
"After 1996, [Indian] companies started reinventing themselves.  By 2002, companies had substantially restructured financially and had rai sed production efficiency and quality while lowering 
costs. Starting in 2003, companies resumed inves ting in new capacity with a noticeable pick-up in 
momentum in 2005".
5  Net profits as a percent of net sales  of 1000 listed companies have increased 
from 4.5% in 2001-02 to 8.9% in 2004-05. 
                                                      
5 World Bank:  India Inclusive Growth and Service delivery:  Building on India’s Growth. 
(29 May 2006) page 104. India WT/TPR/G/182 
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(v) Increase in Savings and Investment rates 
10. These increases indicate that th e supply capacity of the economy is being significantly 
enhanced thus creating a potential for future gr owth.  Gross domestic savings have increased 
significantly over the recent years.  Gross domes tic savings as a proportion of GDP increased from 
23.5% in 2001-02 to 32.4 per cent in 2005-06.  There has also been a sharp rise in the savings of the 
private corporate sector for four years in succession.   The private corporate savings rate in 2002-03 
was 4.2%.  The private corporate savings rate fo r 2005-06 (as per quick estimates) has been placed at 
8.1%. 
11. Gross Fixed Capital Formation (GFCF), as a percent of GDP (at constant 1999-00 market 
prices) increased from 22.5% in 2000-01 to 26.7 % in 2005-06.  
(b) Major Challenges to Growth  
12. The Government recognizes the major challenges that have to be effectively addressed for 
realizing the high-growth  potential outlined above. 
(i) Infrastructure deficit 
13. Growth in the infrastructure sector has not  been commensurate with the rapid economic 
growth experienced by India over the past decade.  Th is has created a structural imbalance which, if 
not addressed quickly and effectively, can impair  the growth potential of the country.  The 
Government has taken concerted ac tion to repair this deficiency. 
Power 
14. The power sector has been radically restructur ed with the enactment of the Electricity Act 
2003.  This Act replaced the three legislations of  1910, 1948 and 1998 and provided a comprehensive 
framework for reforming the sector.  It built on th e experience in the telecommunications sector and 
introduced competition by permitting the entry of th e private sector.  The Act fully de-licensed 
generation and freely permitted setti ng up of captive power plants.  Only hydro projects involving a 
capital cost in excess of the cost limit notified by  the Central Government under the provisions of 
Section 8 of the Electricity Act, 2003 require c oncurrence of the Central Electricity Authority.  
Distribution licensees are free to undertake generati on and generating companies are free to take up a 
license for undertaking power distribution. 
15. The second major set of reforms is the Stat es signing Memoranda of Understanding (MOU) 
with the Central Government.  These MOUs cover inter alia  issues such as consumer metering, 
energy audit, control of theft and setting of tari ffs by the State Electricity Regulatory Commissions 
(SERCs).  The Electricity Act, 2003 provides that th e SERCs shall adopt tariffs through a transparent 
process of bidding in accordance with the guidelin es issued by the Central Government.  This 
approach to tariff determination, which is a radica l departure from the cost-plus approach, is expected 
to encourage private sector investment.  Governme nt issued the guidelines for competitive bidding for 
determination of tariff for procur ement of power by distribution licensees on 19 January 2005.  These 
steps are expected to take the power sector forward.   Efficiencies are expected to accrue with the 
increase in competition.  Competition with the privat e sector in the market place would also have a 
salutary effect on the public sector entities. 
16. The Tenth Plan (2002-07) capacity addition targ et of was 36,956 MW at the time of the Mid-
Term Appraisal.  The likely achievement is expect ed to be around 23,250 MW, which is 63% of the WT/TPR/G/182 Trade Policy Review 
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target in the Mid-term Appraisal.  While there is a shortfall vis-à-vis the targets, the shortfalls are 
lower than in the earlier Plans.   
17. An Inter-Institutional Group (IIG), comprisi ng senior representatives of the financial 
institutions and the Ministry of Power, has been co nstituted to especially focus attention on fast-track 
power projects, which could be taken up for ear ly commissioning and could achieve early financial 
closure.  16 private sector power projects having a total capacity of about 7,320 MW have achieved 
financial closure and another 12 projects with a to tal capacity of 12,000 MW are being monitored by 
the IIG for facilitating early financial closure. 
18. Recognising the fact that economies of scale lead ing to cheaper power can be secured through 
the development of large size power projects, the Mini stry of Power, the Central Electricity Authority 
(CEA), and the Power Finance Corporation are wo rking in tandem for the development of some 
projects under the tariff-based competitive bidding r oute.  The Ultra Mega Power Projects, each 
having a capacity of 4,000 MW, would also have scope for expa nsion in future.  These projects will 
be able to meet the power needs of a number of  States through the regional and national grids. 
19. An All India power grid also called the "Nationa l Grid", is envisaged to be developed in a 
phased manner - first by integrating a cluster of Regions and subsequently, by progressive and full 
integration of all the Regions by 2012.  The tota l inter-regional transmission system is planned to 
increase from its present capacity of 11,450 MW to about 37,150 MW by 2012. 
20. A Scheme of Rural Electricity Infrastructure and Household Electrification was introduced in 
April, 2005 for  providing access to electricity to a ll rural households over a period of four years.  At 
present, only 44 per cent of the rural households are el ectrified.  The services of Central Public Sector 
Undertakings (CPSUs) have been offered to the St ates for assisting them in the execution of rural 
electrification projects as per their willingness and requirement. 
21. The Government is encouraging the use of hy dro and wind energy sources which do not rely 
on fossil fuels and avoid carbon emissions.  India has an estimated hydro-power potential of more than 1,50,000 MW.  A study by the Central Electri city Authority (CEA) has identified 399 potential 
hydro projects with an aggregate capacity of 1, 07,000 MW.  Preparation of pre-feasibility Reports 
(PFRs) of 162 schemes with an aggregate installed capacity of 47,930 MW has already been completed by the CEA. 
Ports 
22. Congestion at the ports due to capacity constrai nts hampers the swift movement of goods.  In 
a world of complex supply chains and just-in-time inventories, this can inflict a cost premium and 
disadvantage the economy.  Significant progress has been made in reforming the port sector of the 
country.  100% FDI has been allowed in the por t sector.  Ennore Port situated on the Coromandel 
coast of India about 24 km north of Chennai Port, is the 12
th Major Port and the first Corporatised 
Major Port in the country.  Private Sector Partic ipation (PSP) has been enhanced by following the 
"landlord port" model, which implies that operational activities of the port are increasingly transferred 
to the private sector through contractual agreements. In India, PSP has been introduced in the form of 
a Build-Operate-Transfer (BOT) model.  Th e National Maritime Development Programme, 
formulated by the Department of Shipping, envi sages an investment of over US$13.3 billion for 
increasing the capacity of ports to bring th em up to globally competitive levels. 
23. Investments in the ports sector have taken place on a substantial scale.  This will be further 
spurred by institutional reforms in the coming years.  At present, 13 private or captive projects with a 
capacity addition of about 47.60 MTPA and an investment of about Rs.26.62 billion have been India WT/TPR/G/182 
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completed/made operational, while 24 others with a capacity addition of around 100.68 MTPA and an 
investment of Rs.79.10 billion are at various stages of evaluation and implementation. 
24. The reforms carried out in the port sector have borne fruit.  Port efficiency has improved as 
evidenced by the fall in average turnaround time from 5.1 days in 1999-2000 to 3.5 days in 2005-06.  
In container terminals in India, the average cran e movement per hour is 22 moves per hour per crane 
which compares favourably with the movements for other ports in the region. 
Airports 
25. The rapid expansion in civil aviation over the past few years has resulted in a severe capacity 
constraint being faced by the Indian airports. Th is has led to performance inefficiency and large 
wastages. 
26. The international airports in Delhi and Mumb ai are being modernized and upgraded through 
private sector participation.  It has been estimated  on a preliminary basis that  capital investment to 
the extent of Rs.79.61 billion a nd Rs.61.31billion will be  required for Delhi and Mumbai airports 
respectively over a period of 20 years in 4 stages of 5 years each.  These estimates do not include the cost of likely relocation of some of the assets and removal of encroachments.  An ‘in-principle’ 
decision has been taken to modernize Chennai ai rport also through the joint venture route.  
27. Construction work at greenfield airports of  international standards at Hyderabad and 
Bangalore is in progress.  The two airports are likel y to be operational by the middle of  2008.  ‘In-
principle’ approval has already been granted to set  up a similar greenfield airport in Goa and build 
new international terminals at Ahmedabad and Trivandrum.  State Governments have been  
encouraged to set up greenfield airports with private sector participation.  Proposals to set up 
greenfield airports in Navi Mumbai, Kannur in Kerala and Pakyong near Gangtok in Sikkim are under 
consideration.  An international greenfield  airport has already been built and is  operational in Kochi. 
28. The Airports Authority of India (AAI) is also c onsidering the development of  airports in the 
non-metropolitan cities.  AAI has decided to devel op and modernize 35 non-metro airports in the 
country.  The Committee on Infrastructure has approve d the report of Task Force for the development 
of 35 non-metro airports.  Development of air ports in NE Region will be taken up by AAI on a 
priority basis.   
29. A proposal is under consideration to set up an Airports Economic Regulatory Authority 
(AERA) to fix, review and approve the tariff structure for aeronautical services and monitor pre-set performance standards at Indian airports.  The Author ity would be expected to ensure a level playing 
field for all categories of airport operators and al so oversee and deal with the natural monopoly and 
the common user/carrier segments of airports.  
30. The government has adopted a liberal approach in  the matter of grant of traffic rights under 
bilateral agreements with various foreign countries. During the recent past, several new Air Services 
Agreements were initiated/signed based on mode rn practices in the civil aviation sector.  
31. The tourist charter guidelines have been significantly liberalized in 2004.  All airports in the 
country have been opened to inte rnational tourist charter flights.  Recently, the government has 
decided to liberalize the tourist charter guidelines further. WT/TPR/G/182 Trade Policy Review 
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Roads 
32. The Indian road network, the largest in the world aggregating 3.32 million km, consists of 
65,569 km of National Highways, 1,28,000 km of State Highways, 4,70,000 km of Major District 
Roads and about 26,50,000 km of other District and Rural Roads. 
33. Though the National Highways account for only about  2 per cent of the total length of roads, 
they carry about 40 per cent of the total traffic across the length and breadth of the country.  Considering the importance of the National Highways and the rapid increase in traffic, the Government has taken up the National Highways Deve lopment Project (NHDP), the details of which 
are given in the Secretariat Report. 
34. The substantial completion of NHDP PhaseI, i.e.  the Golden Quadrilateral connecting the 
four metropolitan cities of Delhi, Mumbai, Chennai and Kolkata, calls for a shift in emphasis to 
corridor management – the technique of managi ng the highways to deliver maximum throughput in 
terms of speed and traffic volume, while minimizing operational cost and enhancing road safety.  The 
concept of corridor management is being app lied to the completed sections of NHDP through 
operation and maintenance (O&M) c ontracts.  The scope of work, inter alia  includes road 
maintenance, road property management, incident management, traffic management and engineering 
improvements. 
35. Government has set ambitious plans for the upgr adation of the National Highways in a phased 
manner in the next few years as below: 
- 4-laning of 10,000 km (NHDP Phase III) including 4,000 km already approved. 
- Accelerated road development progra mme for the North Eastern region. 
- 2-laning with paved shoulders of 20,0 00 km of National Highways under NHDP 
Phase V. 
- Development of 1,000 km of expressways under NHDP Phase VI. 
- Development of ring roads, bypasses, grad e separators, service roads, etc. under 
NHDP Phase-VII. 
36. As a matter of policy, the Government has decided to take up future phases of NHDP 
proposals mainly on a PPP basis.  Implementation of projects through construction contracts will be only in exceptional cases, where private sector particip ation is not possible at all.  Preparatory work 
has begun in consultation with the Planning Commi ssion for seeking government approvals for the 
enhanced scope  of NHDP. 
37. The Special Accelerated Road Development Programme in the North Eastern Region 
(SARDP-NE), framed for improving road connectivit y to remote places of the region, envisages 
2/4 laning of about 3,251 km of National Highways, and 2 laning /improvement of about 2,500 km of 
State Roads and of 1,888 km of roads  of strategic importance.  This will also ensure the connectivity 
of 34 district headquarters, out of  a total of 85 which are still not connected, to the National Highways 
in the eight North-Eastern States. India WT/TPR/G/182 
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Railways 
38. The Indian Railways, the world’s second largest rail network under a single management, has 
been contributing to the industrial and economic de velopment of the country for over 150 years.  Of 
the two main segments of the railways– freight and passenger, the freight segment accounts for 
roughly two thirds of revenues.  Within the freight segment, bulk traffic accounts for nearly 
95 per cent, of which about 50 per cent is coal.  
39. The high density network, connecting the four metropolitan cities of Chennai, Delhi, Kolkata 
and Mumbai, including its diagonals, has got satura ted at most locations.  The Mumbai-Delhi and 
Mumbai-Howrah routes already have very high capacity  utilization.  The Ministry of Railways have 
sanctioned the construction of  two Dedicated Freight Corridors on the Eastern Route (Ludhiana – 
Son Nagar, 1,280 km) and on the Western Route (JNPT-Tughlakabad/Dadri, 1,483 km) at an approximate cost of Rs. 300 billion.  An SPV name d Dedicated Freight Corridor Corporation of India 
Limited (DFC-CIL) has been formed to implement the project.  Studies on 4 other corridors, viz. East-West, North-South, East-South and South-South  are proposed to be conducted in 2007-08. 
40. The reform programme embarked upon by th e Indian Railways for enhanced business 
orientation of the organization includes development of fully computerized cost accounting organized 
on business lines.  The new accounting system would support existing government reporting 
requirements and provide activity/service based reve nue and cost data.  Policy initiatives for the 
introduction of competition in certain sectors, like the movement of containers and concessioning of 
loss-making branch lines, have been taken up as a part of the programme.  The programme also 
includes simplification of procedures to improve cu stomer interface, provision of freight forwarders 
and private freight terminals. 
Public Private Partnerships in infrastructure 
41. The Government of India is actively encourag ing the PPP model in view of the advantages 
that it offers in terms of cost savings, access to  specialized expertise and proprietary technology, 
sharing of risks with the private sector and  leveraging its own share in  infrastructure investments.  
To accelerate and increase PPPs in infrastructure,  two major initiatives have been taken by the 
government:  (a) provision of viability gap funding;  and (b) setting up of a Special Purpose Vehicle 
(SPV), viz. the India Infrastructure Finance Company Limited (IIFCL) to meet the long term 
financing requirements of potential investors. 
42. IIFCL was incorporated on 5 January 2006 with a paid up capital of Rs. 100 million and an 
authorized capital of Rs. 10 billion.  Apart from its equity, IIFCL will be funded through long term 
debt raised from the open market.  There are many infrastructure projects which are financially viable 
but, in the current situation, face difficulties in ra ising resources.  It has been proposed that such 
projects in specified sectors – roads, airports and tourism, be funded through a financial SPV.  The 
SPV would lend funds, especially debt  of longer term maturity, directly to the eligible projects to 
supplement other loans from banks and financial institutions.  The company would fill the gap for 
long term infrastructure finance, which the banks ar e not in a position to address owing to concerns 
relating to mismatches in assets and liabilities.   
(ii) Fiscal deficit 
43. Public Finance, both at the Centre and in the States, had deteriorated progressively since the 
mid-1990s. The combined fiscal deficit of the Centre and the States, which was 9.4% in the year of 
the economic crises (1990-91), dropped to 6.3% in 1996-97 before creeping back to 9% in 1998-99. 
The fiscal deficit remained at over 9% until 2002- 03.  Since 2002-03 a distinct downward trend can WT/TPR/G/182 Trade Policy Review 
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be perceived, both in the fiscal deficit and the revenue deficit, indicating progress in fiscal 
consolidation.   
44. Fiscal imbalance has been addressed by the enactment of the Fiscal Responsibility and 
Budget Management (FRBM) Act 2003.  The Act manda tes the Centre to reduce the fiscal deficit to 
3% of GDP and to completely eliminate the revenue deficit by 2008-09.  24 of the 29 States too have 
enacted fiscal responsibility Acts accepting similar ob ligations – a fiscal deficit of 3% of the Gross 
State Domestic Product and zero revenue deficit by 2008-09. 
Table 2: Fiscal Indicators – Centre and States combined 
Fiscal Deficit (FD) Revenue Deficit (RD) RD/FD 
% of GDP Year 
Combined for Centre and States 
1990-91 9.4 4.2 44.6 
1995-96 6.5 3.2 48.8 
2004-05 7.5 3.7 48.9 
2005-06 (RE) 7.5 3.1 41.5 
2006-07 (BE) 6.5 2.2 33.6 
Source:  Reserve Bank of India, Annual Report 2005-06 Table 1.47. 
45. Progress in fiscal consolidation has been satisfactory in the post-FRBM period.  The fiscal 
deficit of the Centre as a proportion of GDP has come down from 6.2 per cent in 2001-02 to 
3.6 per cent in 2006-07.  Since FRBMA mandated a reduction in revenue deficit as well, gradual 
reduction in revenue deficit together  with the reduction in fiscal deficit resulted in a decline in the 
proportion of revenue deficit to fiscal deficit by 22 .7 percentage points in three years.  The proportion 
of borrowed funds applied to assets creation, theref ore, increased to 43 per cent in 2006-07 . Robust 
economic growth and improved performance of the manufacturing sector continued to maintain the 
revenue receipts, particularly the tax revenues,  buoyant through 2002-03  to 2006-07.  Gross tax 
revenue of the Central Government recorded an av erage annual growth of 18.8 per cent, higher than 
the rate of growth of GDP (at market prices), wh ich averaged 12.5 per cent during this period.  The 
gross tax-GDP ratio, which had stagnated at 8-10 pe r cent range, increased to 10.3 per cent in 2005-06 
(provisional) and is expected to improve  further to 10.8 per cent in 2006-07.   
46. In the Budget estimates for 2007-08, total reve nue receipts of the Central Government are 
projected to be Rs. 4,864 billion and the revenue ex penditure to be Rs. 5,579 billion.  Consequently, 
the revenue deficit is estimated at Rs. 715 billion which is 1.5 percent of the GDP.  The fiscal deficit is estimated at Rs. 1,509 billion which is 3.3 percent of the GDP.  The country is thus expected to be 
on course to achieve the FRBMA targets.  
(iii) Low Agricultural Growth 
47. Agriculture in India constitutes the backbone of  the rural livelihood security system since it 
provides employment to about 58.5% of the work fo rce (2001).  The total workforce in the agriculture 
sector rose from 185.3 million in 1991 to about 234. 1 million in 2001, an increase of about 26%.  This 
234.1 million included 127.3 million cultivators (with some land holding) and 106.8 million landless 
agricultural labourers.  According to the National Sample Survey Organisation’s survey of the 59
th 
round, the average monthly per capita consumption expenditure of farm households across India was 
Rs. 503 in 2003.  Endemic hunger (i.e. chronic under nutrition), is high both in families without assets 
like land or livestock, as well as in families with small land holdings without access to irrigation.  
About 81% of Indian farmers are small and marginal farmers with holdings of 2 hectares or less.  Out India WT/TPR/G/182 
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of 120.8 million operational holdings in the countr y, 98.9 million are small and marginal, as per the 
agricultural census 2000-01.  The average size of land holdings has reduced from 2.28 hectares in 
1970-71 to 1.57 hectares in 1990-91.  The estimate for the average size of land holdings for 2002-03 is only 1.06 hectares.  At the beginning of th e new millennium, 260 million people in the country did 
not have incomes to access a consumption basket, wh ich defines the poverty line.  Of these, 75% were 
in the rural areas.  It has to be noted that India is  home to 22% of the world’s poor.  Agricultural wage 
earners, small and marginal farmers and casual workers engaged in non-agricultural activities, 
constitute the bulk of the rural poor.  
48. From the foregoing it would be clear that grow th in agriculture is imperative to reduce 
poverty and inequality in the country.  Since the mid-1990s the growth rate in agriculture has dropped 
to 2% compared to the earlier trend rate of 2.5 -3.0 percent.  In order to provide inclusive growth and 
to dissipate social tensions, not only does this vulnerable sector of the economy need special care and protection, the pressure on land also needs to be relieved by providing alternative avenues of 
employment in manufacturing and services to the m illions joining the agricultural workforce every 
year.  This is the reason why India’s agricultural ta riffs are comparatively high in comparison to its 
non-agricultural ones and also of its high expectati ons in the negotiations in NAMA and Services of 
providing substantial market access in the developed markets of the world. 
49. The government has taken several steps to addr ess the problem of agricultural stagnation.  
The long term strategy as spelled out in the Nati onal Agriculture Policy seeks to promote sustainable 
and equitable growth based on the efficient use of  resources and conservation of soil, water and bio-
diversity.  The policy goals are to achieve a growth ra te of more than 4% per annum in the agriculture 
sector during the 11
th Plan period (2007-12) and thereby ensure food and nutrition security in the 
country. 
50. In order to reform agricultural markets, Stat e Governments have been advised to amend their 
respective legislations to promote competitive market s in association  with the private sector so that 
farmers can get the best prices.  To facilitate th e free movement of agricultural goods, the Essential 
Commodities Act is proposed to be amended to rem ove existing restrictions on trade of agricultural 
commodities within the country.  Modern terminal ma rkets for fruits, vegetables and other perishables 
in public private mode are being promoted to link th e farmers directly to the markets.  Further, a 
nationwide information network has been establis hed through electronic connectivity to provide 
quality market feed back and prices to farmers.  Rural infrastructure projects like the creation of 
irrigation facilities, rural electrification and rural connectivity are being reva mped through different 
programmes and initiatives taken by the Government.  With an improvement in rural connectivity and 
irrigation potential, the farmers would be able to get a remunerative price for their produce, which 
will in turn lead to productivity gains in agriculture. 
51. A number of legislative, institutional and admi nistrative initiatives have been undertaken in 
the past few years for broad-basing agricultural de velopment.  A major problem faced by the small 
and marginal farmers is access to in stitutional credit on equitable terms.  It has been estimated that in 
the large state of Maharashtra, over 55% of the fa rm households are in debt.  Mechanisms for risk 
mitigation are poor or absent.  Hardly 10% of th e farmers are covered by crop insurance.  An 
unfortunate consequence of the c onstellation of hardships faced by sm all farm families is the growing 
number of suicides among farmers.  In order to address these issues, a comp rehensive credit policy 
had been announced by the Government in June, 2004  for doubling the flow of credit to agriculture in 
three years.  The goal of doubling farm credit has been achieved in two years.  The target of 
Rs. 1,750 billion set for 2006-07 will be exceeded a nd is likely to reach Rs. 1,900 billion.  From 
April to December 2006, 5.33 million new farmers ha ve been brought into the institutional credit 
system.  For 2007-08, a target of Rs. 2,250 billion as farm credit and an addition of 5 million new WT/TPR/G/182 Trade Policy Review 
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farmers to the banking system, has been announced.  The government has also appointed a committee 
to examine all aspects of agricultural indebted ness.  The committee has held wide ranging 
consultations across the country and is in the process of finalizing its recommendations.  
52. In order to strengthen the institutional mechan ism for delivery of credit to the rural populace, 
whose chief occupation is agriculture, the governme nt is proposing to ask the Regional Rural Banks 
(RRBs), which are an arm of the nationalized banks, to open at least one branch in the 80 hitherto 
uncovered districts of the country.  In addition, the following measures are also under consideration, 
viz. to extend the Securitisation and Reconstr uction of Financial Assets and Enforcement of 
Securitisation of Interest (SARFAESI) Act to lo ans advanced to RRBs, to permit RRBs to accept 
NRE/FCNR deposits and to recapitalize in a phased  programme, the RRBs which have a negative net 
worth. 
53. In order to complement the activities on the cr edit front, the government has constituted the 
National Rainfed Area Authority for preparing a perspective plan for holistic and sustainable 
development of rainfed farming areas.  The Na tional Horticulture Mission has been launched for 
promoting agricultural diversification to high valu e crops and scientific post-harvest management 
beneficial for the farmers.  The National Fish eries Development Board has been established to 
provide focused attention to the deve lopment of fisheries and acquaculture. 
54. Programmes like watershed development in rain fed areas, expansion of irrigated areas along 
with efficient water resources management, agro  bio-diversity and envi ronmental protection, 
agro-forestry, harnessing of traditional knowledge, a re gionally differentiated growth strategy for food 
and nutrition security, introduction of schemes for th e development of allied sectors like horticulture, 
improvement of livestock, and fish eries, generation and transfer of  technology, adequate and timely 
supply of quality inputs, protection of plant varieti es, integrated pest management, etc. have been 
initiated by the government.  Emphasis has been la id on enhancing investments for the development 
of irrigation, rural warehouses and marketi ng infrastructure as well as agro-processing.  
55. Agriculture extension is being revamped to  provide decentralized and demand driven 
extension support by way of new institutional arra ngements for technology dissemination in the form 
of an Agriculture Technology Management Agency (ATMA) at the district level.  Other key extension reforms include convergence of line depa rtments, multi agency extension strategies, group 
approach to extension, gender strategies, and con cerns and sustainability of extension services.  
Integrated Pest Management (IPM), which encompasses cultural, mechanical and biological pest 
control techniques with minimum dependence on chemical pesticides, is also in progress. 
56. With these interventions, it is expected that the agriculture and allied activities sector would 
be able to achieve a growth rate of about 4% per annum. 
(iv) Skill deficit in manpower  
57. While India’s young demographic profile has the country favorably placed in terms of 
manpower availability, talent supply shortages are emer ging.  This is disconcerting, especially for the 
knowledge services sector, which over the past few y ears has emerged as a significant growth engine 
with demonstrated gains in terms of exports and em ployment.  Research has shown that so far, only a 
tenth of the global addressable market for these servi ces has been tapped.  With its early lead and 
strong fundamentals (demographics, economics and e xpertise), India is best positioned to take 
advantage of this opportunity.  Ye t the unsuitability of a large propor tion of the talent pool in the 
country could lead to significant lost opportun ities.  The NASSCOM-Mckinsey Report 2005 indicates 
that there will be a shortfall of about 500,000 suitable professionals (representing an opportunity cost India WT/TPR/G/182 
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of US$ 10bn) by the end of the decade and in the ab sence of corrective action, this gap will continue 
to grow.  However, if current trends are ma intained, the IT-ITES sector (IT-ITES alone of the 
knowledge sector) will need an additional 1 million pl us qualified people in the next 5 years and will 
generate exports of US$ 86 billion in FY 2012.  If the country is to capitalize on the huge opportunity 
in this sector and other areas of knowledge services, what  is needed is a major reform at all levels of 
education.  Clearly, substantial e xpansion and radical reform of the education sector are called for to 
ensure that the quality and numbers of professionals needed by the country are met. 
III. DEVELOPMENTS IN TRADE POLICY AND CONTINUOUS LIBERALISATION OF 
TARIFFS 
58. India had removed all quantitative restrictions  maintained earlier on account of balance of 
payment reasons in a progressive manner, culmin ating in the completion of this process in 
March, 2001.  The remaining restrictions maintain ed on account of security, health, safety and public 
morals etc. have also been reviewed and restricti ons on more than 150 tariff lines at the 8-digit level 
have been removed subsequent to  March 2001.  At present, India maintains quantitative restrictions 
only on items necessitated on account of security, health, safety, environment and public morals 
permissible under Article XX and XXI of GATT. 
59. Export restrictions have largely remained uncha nged since 2002.  Currently, 171 tariff lines at 
the 8-digit level are subject to export restrictions .  This excludes Special Chemicals, Organisms, 
Materials, Equipment and Technologies (SCOMET) items.   
60. India’s average applied tariff on non agricultu ral products was 24.5% during 2003-04, which 
has now come down to around 10.1% during 2007-08 as per the announcements made in the Union 
Budget on 28 February, 2007.  In order to take one more step towards comparable East Asian rates, 
the Finance Minster while presenting the Union Budget for the year 2007-08, announced a reduction 
in the most frequently occurring high tariff (a lso known as "peak tariff" in the Indian Budget 
document) for non-agricultural products from 12.5 per cent to 10 per cent.  In addition, he announced 
several other duty reductions.  Duties on most ch emicals and plastics have been reduced from 
12.5 per cent to 7.5 per cent.  The duty on seconds and defectives of steel has been reduced from 
20 per cent to 10 per cent.  All coking coal, irrespec tive of the ash content, has been fully exempted 
from duty. Customs duty on polyester fibres and yarns stands reduced from 10 per cent to 7.5 per cent.  Also customs duty on raw-material s such as DMT, PTA and MEG has been reduced 
from 10 per cent to 7.5 per cent.  Duty was brought down on cut and polished diamonds from 
5 per cent to 3 per cent; on rough synthetic stones from 12.5 per cent  to 5 per cent;  and on unworked 
corals from 30 per cent to 10 per cent.  The gene ral rate of import duty on medical equipment has 
been brought down to 7.5 per cent.  Duty on sunflower oil, both crude and refined, has also been reduced by 15 percentage points.  
61. These reductions were over and above to those made in January 2007, when the Government 
had announced a wide-ranging reduction in tariffs .  In January 2007, import duties on capital goods, 
project imports, metals and specified inorganic chem icals were reduced by 2.5 percentage points and, 
in some cases, by 5 percentage points.  Duties on  some edible oils were reduced by 10 to 12.5 
percentage points. 
62. The peak tariff has been slashed from 25% to 10% from 2003-04 to 2007-08, which is a 
reflection of the radical unilateral tariff liberalization carried out by India.  This has provided real and 
substantial additional market access, to all of India’ s trading partners without attaching any conditions 
of reciprocity. WT/TPR/G/182 Trade Policy Review 
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63. In terms of dispersion of tariffs, only 2.21% of the current tariff lines are above the average 
applied rates of 10.1% for non-agricultural tariffs in 2007-08, indicating that the duties on the bulk of India’s non-agricultural tariff lines remain moderate to low.  Around 8.4% of the tariff lines are equal 
to or below 5%. The average rate of tariff w ould be even lower if one took into account the 
exemptions available under several notifications issued by the Ministry of Finance. 
64. Therefore, in the period since the last Trade Po licy Review, India has not only maintained but 
speeded up the momentum of autonomous tariff liberalization. 
65. An important policy initiative for export prom otion has been the scheme for the Special 
Economic Zones.  The Special Economic Zones Ac t, 2005 was enacted with a view to instill 
confidence in investors and signal the Governme nt’s commitment to a stable SEZ policy regime 
thereby generating greater economic activity and employment through the establishment of SEZs.  
The SEZ Act, 2005, supported by SEZ Rules, came  into effect on 10 Fe bruary 2006 providing for 
simplification of procedures and for single window cl earance on matters relating to the Central as well 
as State Governments.  The main objectives of the SEZ Act are generation of additional economic 
activity, promotion of exports of goods and services, promotion of investment from domestic and 
foreign sources, creation of employment opportunitie s and development of infrastructure facilities.   
66. Various incentives and facilities are offered to both units in SEZs for attracting investments 
into SEZs (including foreign investment) as well as for SEZ developers.  It is expected that these 
incentives and facilities will trigger a large flow of  foreign and domestic investment in SEZs, in 
infrastructure and productive capacity, leading to the generation of additional economic activity and 
creation of employment opportunities. 
67. The SEZ scheme has generated an enthusias tic response amongst investors, both domestic 
and foreign, which is evident from the flow of i nvestment and creation of additional employment in 
the country.  In the 63 SEZs notified after 10 February, 2006, investment of the order of 
Rs. 113.45 billion has already been made in less than one year.  These SEZs have so far provided 
direct employment to 18,457 persons.  It is expected that the total investment in these SEZs would be 
around Rs. 525.61 billion and 15,75,452 additional jobs will be created by December 2009.  It is also 
expected that if all the 234 SEZs, for which formal  approvals have been granted so far, become 
operational, investment of the order of Rs. 3,000 billion may take place and 4 million additional jobs 
may get created. 
IV. REFORMS IN THE TAX SYSTEM 
68. Some of the important fiscal measures implemented in the recent past include:  rectifying 
anomalies like inverted tariff  structure;  rati onalising excise duties with a movement towards a 
median Central Value Added Tax (CENVAT) rate;  revisiting the tax exemptions;  relying on 
voluntary tax compliance through taxpayer facilitation;   introduction of State-level VAT for achieving 
a non-cascading, self-enforcing, and harmonized comm odity taxation regime;  increasing productivity 
of expenditure through an outcome budget framework , which seeks to translate outlays into better 
outcomes through monitorable performance indicators;   and innovative financing mechanisms like 
creation of a Special Purpose Vehicle (SPV) for infrastructure projects.  While the Central Government has continued to pursue the path of fi scal consolidation as laid down in the FRBM Rules, 
these efforts have been complemented by the Stat es, which have also initiated a process of fiscal 
consolidation in line with the Twelfth Fi nance Commission’s (TFC) recommendations.  
69. State-level VAT has proved to be an unqualified success.  VAT revenues of the implementing 
States increased by 13.8 percent in 2005-06 and by 24 .3 percent in the first nine months of 2006-07.  India WT/TPR/G/182 
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The next logical step is to phase out Central Sal es Tax (CST).  The Central Government has reached 
an agreement with the State Governments to ph ase out CST. Consequently, the CST rate will be 
reduced from 4 percent to 3 percent with effect from 1 April 2007.   
70. The direct tax reforms include reduction of corp orate tax rates and rationalization of income 
slabs for individuals.  The tax base has been c ontinuously broadened by gr adually eliminating or 
capping long-existing exemptions and deductions.  The current rates of taxation of personal and 
corporate income are moderate and at par with international levels.  Th e modernization of tax 
administration has been a constant endeavour of the Government and electronic filing of returns 
(compulsory for corporates and optional for othe rs from the financial year 2006-07) reflects the 
achievements and commitment of the Government on this front.  A system of collecting Third Party 
information on specified high-value financial tr ansactions has been put in place by making it 
mandatory for certain third parties to file Annual Information Returns about such specified financial 
transactions.  This system has enabled the Gove rnment to develop a non-intrusive method of 
investigation of tax evasion and has promoted voluntary compliance through a higher level of 
deterrence. 
71. The share of direct tax revenue as a percentage of Gross Tax Revenue has increased from 
37.6% in 2001-02 to 45.1% in 2005-06.  The collecti on of direct taxes in absolute terms has gone up 
from Rs. 692 billion in 2001-02 to Rs. 1,652 billion in  2005-06, clocking a growth rate of more than 
20% annually over this period. 
V. TRADE FACILITATION 
72. With a view to reduce the transaction time and co st for the trade, the Directorate General of 
Foreign Trade (DGFT) has taken a number of initia tives in the recent past, some of which are: 
 i) All 33 offices of the Directorate have been computerized.  Networking of these 
offices through high speed V-SAT/broad band has been completed. 
 ii) The website of DGFT, www.dgft.gov.in is  both informative and interactive.  The 
website allows online filing of various  applications for authorisations. 
 iii) More than 80% of the applications are received online by DGFT.  Processing of these 
requests is done within 24 hours and necess ary permissions are granted on the same 
day. 
 iv) Electronic payment gateway for onlin e payment of application fee has been 
implemented.  Efforts are under way to make  the operations of DGFT paperless with 
the introduction of digital signature based operations. 
73. The Indian Customs and Central Excise Electronic Commerce/Electronic Data Interchange 
(EC/EDI) Gateway enables Customs House Agents, Im porter, Exporters to file and track customs 
documents for import and export on 24x7 basis.  Pe rsons filing more than 5 documents per working 
day at any place have also been required to f ile their documents only through ICE GATE and not 
through service centres, in order to encourage frequent users of customs services to move over to the 
electronic filing system.  The Department of Reve nue has introduced a Risk Management System 
(RMS) for customs assessment and examination for clearance of imported goods at the Mumbai Air 
Cargo station, Mumbai Port and Nhava Sheva Port , Chennai Port and Air Cargo station, Delhi Air 
Cargo station and at a few other major customs statio ns.  This has the following features:  (i) System 
based assessment of risks, (ii) "No assessment, no exam ination" facility to clients with a proven track 
record, (iii) Intervention by exception.  The introduc tion of RMS has led to considerable reduction in WT/TPR/G/182 Trade Policy Review 
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the dwell time of incoming cargo.  The Department has also introduced a system of electronic 
payment of import duty on pilot basis in Delhi for the quick clearance of goods. 
VI. STRENGTHENING SECTORAL MARKETS  
74. The leitmotif of sectoral reforms and policy changes is to supply the institutional capital 
needed to make markets more co mpetitive and robust.  The Governme nt believes in the efficacy of 
increased competition for delivering desirable soci al outcomes and has continuously strived to 
unleash competitive impulses in different economic sectors.  The Government is committed to judiciously introducing elements of competition into the markets as th e following discussion on 
several sectors illustrates. 
(a) Petroleum and Natural Gas 
75. In 1991, a systematic effort on a regular basis to  attract private investment for exploration and 
production, along with the efforts of National Oil Co mpanies (NOC) was initiated.  Subsequently the 
New Exploration Licensing Policy  (NELP)  was approved by the government in 1997 and made 
operational in January, 1999.  NELP provides a level playing field to the private operators by giving 
them the same fiscal and contractual terms as a pplicable to NOCs for the offered acreages.  Under 
NELP, production sharing contracts (PSC) for 110 blocks have been signed.  In the first five rounds of 
NELP, the expected investment is of the order of US$ 5 billion.  The sixth round of New Exploration 
Licensing Policy (NELP-VI) was launched on 23 Februa ry 2006.  In NELP-VI, 55 exploration Blocks 
(24 deepwater, 6 shallow water and 25 on land) we re on offer, covering an area of 3,52,191 Sq. km. 
out of which bids were received for 52 blocks. The decision on successful bids was taken on 
8 February 2007 and the production sharing cont racts are expected to be signed shortly. 
76. Several other measures have been taken to deepen competition.  Since 10 February 2006 
restrictions on FDI in the sector have been eased .  The Administered Price Mechanism (APM) for the 
petroleum sector was dismantled on 1 April 2002.  Simultaneously, as specified in the Resolution of 
2002, private companies have been allowed to partic ipate in the distribution of petroleum products if 
they invest, or propose to invest, Rs. 20 billion in  identified activities in the petroleum sector.   
77. A Petroleum and Natural Gas Regulatory Board Act came into effect on 3 April 2006, which 
envisages the setting up of a Petroleum & Natural Gas Regulatory Board (PNGRB).  The Board shall 
regulate refining, processing, storage, transportation,  distribution, marketing and sale of petroleum, 
petroleum products and natural gas, so as to protect  the interest of consumers and entities engaged in 
specified activities relating to these products and ensu re their uninterrupted and adequate supply.  
Action for setting up the Board is in progress.   
78. A policy for the development of natural gas pipelines and city or local natural gas distribution 
networks, which inter alia  seeks to promote competition and arms-length business, was notified on 
20 December 2006.  This policy provides the frame work for regulation by the PNGRB, which is 
expected to become functional shortly.  For th e upstream (exploration and production) sector, the 
Director-General of Hydrocarbons was delegated certain powers vested in the Government in 
September, 2006 to effectively oversee ever increa sing exploration and pro duction activities in India 
for oil, gas, and coal-bed methane. 
79. Under the export-import policy, import of crude oil under EXIM Code 27090000 is 
unrestricted.  The data on import shows that non-re fining companies are also importing some quantity 
of crude oil.  India WT/TPR/G/182 
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80. Several thrust areas for the future have been  identified in the Petroleum and Natural Gas 
sector.  These include increase in production, improvi ng pipeline connectivity, encouraging the laying 
of gas transportation infrastructure and unification of state taxes and removal of tax anomalies.  
(b) Textiles 
81. India has initiated a series of measures in the past few years to rest ructure the textiles and 
clothing industry to prepare it for a quota-free re gime.  The textiles and clothing sector is labour-
intensive and is the second largest employer in India (after agriculture). As a part of the overall policy 
of de-regulation and de-control, the Government of India has de-reserved garments, hosiery and 
knitwear from the Small Scale Industries sector.  Foreign Direct Investment upto 100% has been 
allowed in the textiles and clothing sector under the automatic route. 
82. The Government of India has been pursuing a pa th of economic liberalization and structural 
reforms with a view to integrate its textile indus try with the global economy.  As a part of the 
liberalization and reform programme: 
- India has removed quantitative restrictions on  imports on all textile products, save for 
a small list of 10 tariff lines at the 8-digit level on account of safety and health 
exceptions.  
- There has been a progressive reduction in the applied Indian tariffs over the years.  
The peak rates have been slashed from 75% ad valorem   in 1998 to 30% in 2002 and 
further to 10% in 2007.  
- The export restrictions on raw cotton, cott on waste, and cotton yarn, have been done 
away with so as to allow free inter-play of ma rket forces.  There are no restrictions on 
the export of textile products. 
83. The abolition of the quota regime coupled with the Government’s initiatives aimed at 
restructuring of fiscal duties have led to an improve d investment climate in the textile sector.  The 
investments in the textile sector during the 5 year period between 1999-04 were US$ 5 billion.  In the 
next two years, it crossed US$ 6.5 billion.  The i ndustry is aiming at investments of the order of 
US$ 31 billion by 2010.  Textile and clothing exports ha ve recorded a growth of 22% in the first year 
of the quota free regime i.e. 2005-06.  
84. The textile industry is poised for strong grow th on account of rising domestic consumption, 
retail credit facilities and the recognition of India as a reliable supplier in many countries of the world.  
This makes the sector an attractive investment destination. 
(c) Steel 
85. The Indian steel industry is currently going through an expansion phase backed by a 
liberalized policy environment. Prospects of domestic  demand appear to be excellent, driven by a high 
investment rate, accelerated growth in the manuf acturing industry, and an expansion in physical 
infrastructure creation. 
86. Production of (non-alloy) finished steel record ed an average annual growth of 9.8% from 
30.64 MT in 2001-02 to 44.544 MT in 2005-06.  In addition, India produced about 2-2.5 MT of Special and Alloy Steel in the last four years.  This sector also grew at an impressive rate of around 12% in the corresponding period. WT/TPR/G/182 Trade Policy Review 
Page 20 
 
 
87. India is currently the 7th largest producer of steel in the world with a capability of producing a 
wide array of steel products.  India has also  developed upstream capabilities in processed 
feed-material for the iron and steel industry e.g., Spon ge Iron, Pig Iron, Ferro-alloys, Refractory.  It is 
now the largest producer of Sponge Iron in the world and this sector reported a production of 
12.649 MT in 2005-06.  Production of merchant  Pig Iron in India was 4.695 MT in 2005-06. 
88. The tariffs on various steel products, which were between 25% to 30% during 2002-03, have 
been significantly reduced to around 5%.  In the span of a single year i.e. 2003-04, the import tariff on most steel products was reduced from 15% to 5% to provide domestic consumers access to global 
supplies.  Consequently, in the following three years,  imports of saleable (finished plus semi-finished) 
steel more than doubled from 1.7 MT in 2003-04 to 4.1 MT in 2005-06.  
89. The progressive reduction in import tariffs in recent years has led to domestic prices moving 
in close correspondence with international prices.  The differences between the two sets of prices are 
largely determined by the external valu e of the Rupee and import duty rates.  
90. The Indian steel industry has turned around during the last four years.  The return on capital 
employed has improved significantly for both public and private sector firms.  Presently, the Indian 
steel industry is capable and credit-worthy enoug h to fund future projects of capacity expansion 
through its internal resources and capital raised from the markets. 
91. The formulation of the National Steel Policy 2 005 (NSP) has been an important development 
in the progress of the industry.  Recognizing the poten tial for the growth of steel consumption in the 
country as well as the abundance of raw materials,  technology and manpower competence available in 
the country, the NSP strives to provide an enabli ng policy environment for the industry to build upon 
its inherent advantages and to utilise the emergi ng opportunities.  The NSP has set a target of 
achieving a production level of 110 MT by 2019-2020.  The long-term aim of the NSP is that India 
should have a modern and efficient industry of world standard – in terms of cost, quality and 
efficiency parameters. 
92. The NSP proposes a multi-pronged strategy to move  towards the long-term policy objective.  
On the demand side, the strategy would be to cr eate incremental demand through efforts to promote 
the use of steel, creation of awareness regarding a pplication of steel and strengthening the delivery 
chain, especially in the rural areas.   On the supply side, the strategy consists of facilitating the creation 
of additional capacity, removal of pr ocedural and policy bottlenecks in the availability of inputs such 
as iron ore and coal, supporting higher investments in R&D and human resource development and 
encouraging the creation of infrastructur e such as roads, railways and ports. 
93. The ongoing process of global re-location and on-going restructuring of the industry has 
clearly shown that the focus of the world steel i ndustry is moving towards Asia and especially to 
countries with an advantageous raw material base combined with large markets with substantial 
growth potential and technological manpower base.  In  a deregulated policy environment, much of the 
stimulus to growth will come from the market forces .  However, the Government will have to provide 
necessary policy support to the sector especially in areas where the market forces do not play out fully 
or where there are market imperfections. 
(d) Information Technology 
94. The Information Technology (IT) sector has been  one of the fastest growing sectors in the 
economy.  The IT sector comprises IT Software development and IT services, including IT enabled 
Services (ITES) and Business Process Outsourcing (BPO) and electronics and IT hardware India WT/TPR/G/182 
 Page 21 
 
 
manufacturing. IT Software development and IT ser vices account for more than 60% of this sector’s 
total revenue. 
95. The Government’s policy in the IT sector is to  promote competition and act as a facilitator for 
sound growth.  In line with this policy objective,  the Government has autonomously permitted 100% 
FDI under the automatic route in IT software a nd IT enabled services.  Likewise, 100% FDI is 
permitted in the area of electronics and IT hardware manufacturing. 
96. With a view to facilitate the growth of the IT sector, two export oriented schemes viz. the 
Software Technology Parks of India (STPs) and th e Electronics Hardware Technology Parks of India 
(EHTPs) Schemes for promoting the export of IT software and services and electronics and IT 
hardware products respectively have been in opera tion since 1991.  The units operating under these 
schemes are exempted inter alia  from payment of tariff on imports and excise duty on domestic 
procurement.  Both these schemes are implemente d by the Software Technology Parks of India 
(STPI), which is a not-for-profit autonomous orga nisation under the administrative control of the 
Department of Information Technology.  STPI h as 47 centres spread all over the country, through 
which it extends various services like providing basi c infrastructure, including international data 
communication, access to global Internet and incuba tion facilities for start-ups and small businesses, 
statutory services, handholding services and other support services. 
97. Since India is a member of the Information Technology Agreement (ITA), tariffs on all the 
217 tariff lines have been eliminated from Marc h 2005 to make the Information and Communication 
Technology (ICT) infrastructure affordable. 
98. The Indian IT software and services sector has grown at an annual rate of 28% during the last 
five years and its contribution to the GDP has incr eased from 1.2% in 1999-2000 to 4.8% in 2005-06.  
India is servicing 65% of the global outsourcing ma rket for IT software and ITES and 46% for the 
global BPO outsourcing market.  
99. The Government is trying to ensure that the IT sector does not face a shortage of quality 
manpower with knowledge and expertise in different domains required by the industry.  Accordingly, 
in addition to initiatives and reforms to improve  the overall academic and professional education 
system by the concerned agencies of the government , measures have also been taken to generate 
manpower in key verticals like bioinformatics, VLSI design and information security etc.  The National Association of Software and Service Companies (NASSCOM) has come up with an assessment of competence programme in order th e help the ITES-BPO segment of the business. 
100. With a view to further improve the infrastruct ure facilities for the IT sector, the government 
has identified a need to set up  integrated township s with a special focus on the ITES-BPO industry, in 
the Tier-II cities of the country, as one of the priority  areas.  These integrated  townships are expected 
to address the issues of making available worl d-class infrastructure, including IT facilities, 
communications, power, roads, airports and other necessary social infrastructure at one location. 
101. In order  to provide legal recognition for transactions carried out by means of electronic data 
interchange and other means of electronic commun ication, commonly referred to as "electronic 
commerce", the IT Act 2000 had been enacted by the Government. 
(e) Telecommunications 
102. The Indian telecommunications network, with 190 million connections, is the third largest in 
the world and the second largest among the emerging economies of Asia.  Currently, it is the fastest 
growing market in the world.  The sector, which w as growing in the range of 20 to 25 per cent up to WT/TPR/G/182 Trade Policy Review 
Page 22 
 
 
2002-03, has moved to a higher growth path with  an  average rate of 40-45 per cent during the last 
two years.  
103. The Government has taken several initiatives for th e growth of the sector, some of which are:  
- All telecom services have been opened to international competition.  
- Foreign Direct Investment (FDI) in Basic and Cellular, Unified Access Services, 
National/ International Long Distance, V-Sa t, Public Mobile Radio Trunk Services 
(PMRTS), Global Mobile Personal Communi cations Services (GMPCS) and other 
value added telecom services has been perm itted up to 74% (including FDI, FII, NRI, 
Foreign Currency Convertible Bonds (FCCBs ), ADRs, GDRs, convertible preference 
shares, and proportionate foreign equity in  Indian promoters/ Investing Company). 
- FDI in Manufacturing of Telecom Equipm ent has been permitted up to 100% under 
the automatic route. 
- International Long Distance Services (ILDS)  have been opened to competition with 
effect from April 2002. 
- The license fee for Infrastructure Providers -II was reduced from 15% to 6% of the 
Adjusted Gross Revenue in June 2004. 
- The entry fee for NLD licenses was reduced to  Rs. 25 million from Rs. 1 billion.  The 
entry fee for ILD was reduced from Rs. 250 million to Rs. 25 million. 
- Lease line charges have been reduced to make bandwidth available at competitive 
prices to facilitate growth in IT enabled services. 
- One India plan, i.e. a single tariff of Re. 1 per minute for a call under certain schemes 
to any location in India, was introduced from 1 March 2006 by the public sector companies.  This tariff was emulated by most of the private service providers also. 
This scheme has led to the rapid shrinking of distance in telecommunication and is going to lead to greater benefits fo r the general consumers as well as trade. 
- The annual license fee for National Long Distance (NLD), International Long 
Distance (ILD), Infrastructure Provider-II, VSAT commercial and Internet Service 
Provider (ISP) with internet telephony (restricted) licenses was reduced to 6% of Adjusted Gross Revenue (AGR) with effect from  January 2006. 
- The Government’s policy is neutral on th e use of technology by telecom service 
providers subject to availability of scarce resources such as spectrum etc. 
- Tariffs for telecommunication services have evolved from a regime where tariffs 
were determined by the Telecom Regulatory Authority of India (TRAI) to a regime where tariffs are largely under forbearance.  TRAI intervenes by regulating the tariffs 
for only such services, whose ma rkets are not yet competitive. 
104. National Long Distance:  There is now no limit on the number of service providers in this 
sector.  At present 16 NLD (14 Private and 2 Public Sector) service providers are operating.  A 
licence for National Long Distance service is issued for a period of 20 years, extendable by 10 years at one time.   India WT/TPR/G/182 
 Page 23 
 
 
105. International Long Distance:  In the field of international telephony, India had agreed under 
the GATS to review its opening up in 2004.  Howe ver, open competition in this sector had been 
allowed with effect from April 2002 itself.  There is now no limit on the number of service providers in this sector.  The licence for an IL D service provider is issued initially for a period of 20 years, with  
an automatic extension of the licence by a period of 5 years.  At present 10 ILD service providers 
(9 Private and 1 Public Sector ) are present in the field. 
106. Unified Access Services: The Unified Access License Regime was introduced in 
November 2003.  Unified Access Serv ices operators are free to provide , within their area of operation, 
services which cover collection, carriage, tran smission and delivery of voice and/or non-voice 
messages over the licensee’s network by deploying ci rcuit and/or packet switched equipment.  The 
country is divided into 23 Service Areas consisti ng of 19 Telecom Circles and 4 Metro Service Areas 
for providing UAS.   The licence for UAS is issued on non-excl usive basis, for a period of 20 years, 
extendable by 10 years at one time within the terr itorial jurisdiction of a licensed Service Area.  At 
present 3 to 6 service providers (2-5 private and 1 public sector) are present in most of the service 
areas.   
107. Internet and Internet Telephony Service Provi ders:  Internet services were opened to the 
private sector in November 1998 without internet  telephony.  The token licence fee is Re. 1 for 
Internet Services. Internet with Telephony (computer  to computer, SIP to SIP and computer to out 
side India) was opened to the private sector in Ap ril 2002.  The licence fee is 6% of AGR for Internet 
Telephony.  There are 385 internet service providers  and 125 internet telephony service providers at 
present. 
108. With the opening of the telecom sector to pr ivate operators, their share in the number of 
subscribers has been increasing rapidly.  The shar e of the private sector in the number of telephones 
has increased from 15.12% (6.80 million telephon es) in March 2002 to 65.0% (123.44 million 
telephones) in December 2006. 
(f) Financial Sector 
(i) Reforms in the Foreign Direct Investment (FDI) Regime  
109. India has been opening up its external sector  steadily and several new measures have been 
taken since 2002.  The foreign exchange regime of India is now considered to be one of the most 
liberal amongst countries where restrictions on the capital account still exist.  The FDI policy has been to encourage investment in manufacturing, servi ces and infrastructure.  Foreign investment is 
permitted up to 100 per cent of the paid up capital in most sectors, including in Non Banking Finance 
Companies (NBFCs) under the automatic route. FD I is also permitted up to 49%, with prior 
government approval, in Asset Reconstruction Compan ies registered with the Reserve Bank of India 
(RBI). 
110. As per current policy, FDI up to 100% is allowed under the automatic route in most 
sectors/activities of manufacturing.  FDI under the au tomatic route does not require the prior approval 
of either the Government of India or the RBI.  Investors are only required to notify the concerned 
Regional office of the RBI within 30 days of the re ceipt of inward remittances and file the required 
documents with that office within 30 days of the issue of shares to foreign investors.  
111. Foreign investments in equity capital of an I ndian company under the Portfolio Investment 
Scheme are governed by the regulations of the RBI/Securities & Exchange Board of India (SEBI). WT/TPR/G/182 Trade Policy Review 
Page 24 
 
 
Rationalisation of the FDI Policy 
112. A major liberalization of the FDI Policy was carried out in February 2006 which, inter alia , 
allows FDI under the automatic route in sectors such as potable alcohol, hazardous chemicals, 
industrial explosives, greenfield airport projects et c.;  enhances FDI caps  to 100% for setting up 
infrastructure relating to marketing in the Petr oleum & Natural Gas sector and permits FDI up to 
100% under the automatic route for power trading, subject to compliance with regulations under the 
Electricity Act, 2003 
113. By and large, the FDI policy followed by India h as encouraged more inflows into the country.  
Inflows of foreign direct investment (FDI) into India have witnessed a susbstantial growth during the 
financial year 2006-07 and are expected to be more than double the inflows recorded in the previous 
year.  FDI equity inflows in the period, April-Decem ber 2006, have been US$ 9.3 billion – the highest 
ever received in equity capital since the commencement of economic liberalization in India. According to the World Investment Report 2006 publ ished by UNCTAD, FDI stocks as a percentage 
of GDP have grown from a level of 0.5 in 1990 to 5.8 in  2005. 
(ii) Reforms in the Foreign Exchange Market 
114. Several steps have also been taken to liber alise foreign exchange transactions.  A key 
consideration has been the rationalisation and simplif ication of procedures with a view to facilitating 
prompt and efficient customer service in external transactions.  Foreign institutional investors (FIIs) 
registered with the SEBI are allowed to invest in  the Indian market, including in debt securities, 
subject to certain limits.  The limits for FII invest ment in government securities and corporate debt 
have been gradually enhanced in order to provide  more investment opportunities to FIIs and greater 
depth to the Indian debt market.  Certain qualified Mutual Funds are also permitted to invest in overseas exchange traded funds.  In February 2004,  a Liberalised Remittanc e Scheme was introduced 
whereby resident Indians were permitted to remit up to US$ 25,000 per calendar year, for any current 
or capital account transaction or a combination of both.  
115. The RBI, in consultation with the Government of India, had appointed a Committee on Fuller 
Capital Account Convertibility (FCAC) (S.S. Ta rapore, Chairman) on 20 March 2006.  The 
Committee submitted its report to the RBI in July, 2006 which has been placed on the website of the  
RBI.  Following the recommendations of the Committ ee, several measures ha ve been announced in 
October 2006 (Mid-term Review of Annual Polic y Statement for the Year 2006-07) for further 
liberalising foreign exchange transactions .  The policy announcements relate to inter alia  
liberalisation of Exchange Earners’ Foreign Cu rrency (EEFC) accounts , increased access to External 
Commercial Borrowings (ECBs), enhancement of ceiling of overseas investment by mutual funds, bank guarantee/letter of credit to cover temporar y trade related credits and remittances out of 
Non-resident Ordinary (NRO) accounts. 
(iii) Deregulation of Interest Rates 
116. Progressive deregulation of financial markets in recent years has improved the competitive 
environment in the financial system and strengt hened the transmission mechanism of monetary 
policy.  The interest rates have been largely de regulated except for (i) savings deposit accounts, (ii) 
non-resident Indian (NRI) deposits, (iii) small loans up to Rs. 200,000 and (iv) export credit.  A short 
term credit to farmers up to Rs. 300,000 at 7 pe r cent per annum has been made available from kharif  
2006-07 in order to help farmers obtain credit at a reasonable rate. 
117. The Bank Rate, which was reduced from 6.5 per cent to 6.25 per cent with effect from 
October 30, 2002 and further to 6 per cent with e ffect from 30 April 2003, h as remained unchanged at India WT/TPR/G/182 
 Page 25 
 
 
6 per cent.  The cash reserve ratio (CRR) was redu ced to 4.50 per cent with effect from 14 June 2003 
from 4.75 per cent.  Thereafter, the CRR was increase d to 5.0 per cent in two stages of 25 basis points 
each with effect from 18 September 2004 and 2 Oct ober 2004 to combat inflationary pressures.  On 
8 December 2006 it was announced that the CRR rate would be hiked by one-half of one percentage 
point on net demand and time liabilities (NDTL) in  two stages effective from 23 December 2006 
(5.25 percent) and 6 January, 2007 (5.50 percent).  The RBI announced on 13 February 2007 a further 
hike in CRR by 25 basis points each effectiv e from the fortnights be ginning 17 Febr uary and 
3 March 2007.  The statutory liquidity ratio (SLR), which was 37.75 per cent in 1992-93, has been brought down to 25 per cent with effect from 25 Oct ober 1997.  Currently, the stipulated level of SLR 
remains at 25 per cent.  
118. On the deposit side, banks have been given the freedom to offer fixed rate or floating rate 
loans with a reset at six-monthly intervals, linked to an anchor rate.  The lending rates have been 
gradually deregulated since 18 October, 1994.  The lending rates currently regulated by the RBI are 
the ceiling rates for export credit and small borro wers up to Rs. 200,000. In order to enhance 
transparency in the pricing of loan products, banks  have been advised to fix their Benchmark Prime 
Lending Rate (BPLR) after taking into account:  (i) actual cost of funds (ii) operating expenses and 
(iii) a minimum margin to cover provisioning/capital  charge and profit margin and ensure that the 
BPLR truly reflects the actual cost.   
(iv) Banking Sector Reforms 
119. The financial sector reforms initiated in India ar e in harmony with reforms in other sectors of 
the economy and are a component of the overall schem e of structural reforms.  The objectives of 
reforms in the banking sector were to strengthen Indi an banks, make them internationally competitive, 
and encourage them to play an effective role in accelerating the pace of growth.  
120. Banking sector reforms in India are based on five fundamentals, viz.  strengthening of 
prudential norms and market discipline, adopti on of appropriate inte rnational benchmarks, 
management of organisational ch ange and consolidation, technological up-gradation, and human 
resource development.  A hallmark of the entire fina ncial sector reform process has been the element 
of phasing, with due consideration of the ti ming, pace and sequencing, following extensive 
consultations with the stakeholders at each stag e.  Deregulation, technological up-gradation, and 
increased market integration, have been the key fa ctors driving change in the financial sector.  The 
steady and sustained reform measur es taken over the last four years have transformed the banking 
sector in India into a reasonably strong, diverse and resilient system.  The major initiatives undertaken 
relate to deregulation, prudential measures and ap proach to supervision, competition and enabling 
measures.  
Deregulation 
121. Two major problems confronted by the banking system in the pre-reform stage were large-
scale pre-emption of banks' resources by way of statutory reserve requirements and administered 
interest rates.  These significantly impacted their ability to deploy their funds as well as price them. 
Removal of these constraints required a planned redu ction in the statutory r eserve requirements along 
with a gradual deregulation of interest rate prescr iptions.  The statutory preemptions in the form of 
SLR and CRR have been brought down in a phased ma nner.  The recent amendment to Section 42 of 
the RBI Act, 1934, in June 2006 vests the RBI w ith the power to prescribe the CRR for scheduled 
banks without any floor or ceiling rate.   WT/TPR/G/182 Trade Policy Review 
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Prudential measures and supervision 
122. Prudential norms on capital adequacy, income recognition, asset classification, provisioning 
relating to advances and investment, have been introduced.  These are periodically reviewed and 
refined to meet international standards.  With the gradual liberalisation of the Indian financial system 
and growing integration of the domestic market with  the external markets, th e risks associated with 
banks’ operations have become in creasingly complex, requiring strategic management.  The RBI has 
issued guidelines on Asset-Liability Management (ALM ) systems and on integrated risk management 
systems in banks.  Due to the diversity and varyin g sizes of their balance sheets, banks have been 
advised to design their risk management architectur e taking into consideration their size, complexity 
of business, risk philosophy, market perception and  le vel of capital.  With a view to fine-tuning risk 
management systems in banks and to help smalle r banks in achieving the minimum standards, the 
Reserve Bank had issued guidance notes on credit risk  and market risk in 2002.  Recently, guidance 
notes on operational risk and guidelines on managi ng risks in outsourcing of financial services by 
banks as well as guidelines regarding capital charge  on market risk have also been issued. 
123. In view of the increased focus on empoweri ng supervisors for undert aking consolidated 
supervision of bank groups, eff ective from March 2003, preparati on of consolidated financial 
statements (CFS) have been mandate d for all groups where the controlling entity is a bank.  In recent 
years, prevention of money laundering has assu med importance in international financial 
relationships. In this context, the Reserve Bank has revised and tightened the guidelines on 'Know 
Your Customer' (KYC) principles in November 2004  in line with the recommendations made by the 
Financial Action Task Force (FATF) on sta ndards for Anti-Money Laundering (AML) and 
Combating Financing of Terrorism (CFT).  
124. The twin pillars of supervision, viz., on-s ite examination and off-site monitoring and 
surveillance have been evolving dynamically in r esponse to developments in the Indian financial 
system and international best practices.  The on-site examination of banks is modeled on the 
CAMELS (Capital, Asset quality, Management, Earn ings, Liquidity and Systems) framework.  The 
Off-site Monitoring and Surveillance (OSMOS) system c onsists of a set of structured returns designed 
to capture critical information concerning the fina ncial health of supervised entities at frequent 
intervals.  It enables the Reserve Bank to carry out  continuous supervision and set priorities for the 
allocation of scarce supervisory resources.  
Competition 
125. As a part of the reforms programme, initiall y there had been infusion of capital by the 
government in public sector banks, which was followed  by expansion of  the capital base with equity 
participation by private investors up to 49 per cent.  Guidelines have since been laid down in respect 
of the establishment of new banks in the private sector and foreign banks have been allowed more 
liberal entry. Post-reform, 11 new private sector ba nks are in existence.  As a major step towards 
enhancing competition in the banking sector, fore ign direct investment is now allowed up to 
74 per cent from all sources in private sector banks under the automatic route, subject to conformity 
with the guidelines issued from time to time.  Fo reign banks are allowed to have a banking presence 
in India either through the establishment of subsidia ries incorporated in India or through branches.  
Enabling measures 
Institutional and legal reforms 126. A high powered Board for Financial Supervision (BFS) had been constituted in 1994, with the 
mandate to exercise powers of supervision and inspec tion in relation to banking companies, financial India WT/TPR/G/182 
 Page 27 
 
 
institutions and non-banking companies.  A Board for Regulation and Superv ision of Payment and 
Settlement Systems (BPSS) has been constituted to  frame policies relating to the regulation and 
supervision of all types of payment and settlement  systems, set standards for existing and future 
systems, authorise the payment and settlement system s and determine criteria for membership to these 
systems.  The government has enacted 'The Secur itisation and Reconstruction of Financial Assets and 
Enforcement of Security Interest Act, 2002,' which provides, inter alia , for the enforcement of 
security interest for realisation of dues without the in tervention of courts or tr ibunals.  An independent 
Banking Codes and Standards Board of India (BCS BI) on the UK model has also been set up, to 
ensure that a comprehensive code of conduct for fair treatment of customers is established. 
Transparency and disclosure 
127. Transparency and disclosure standards as per international best practices are being 
implemented in a phased manner.  The initial discl osure requirements relate to capital adequacy, 
NPAs, profitability ratios and details of provisions a nd contingencies.  Disclosure requirements have 
been further broad-based and banks have been advi sed to disclose the maturity pattern of deposits, 
borrowings, investments and advances and forei gn currency assets and liabilities, movements in 
NPAs, provisions and contingencies, penalties imposed, exposure in derivatives and lending to 
sensitive sectors.  
Consultative process 128. In order to ensure timely and effective impl ementation, the Reserve Bank has been adopting a 
consultative approach before introducing policy me asures.  On all important issues, working group 
reports or technical reports are prepared, genera lly encompassing a review of international best 
practices, options and the way forward.  Draft re ports are often placed in the public domain and the 
final report takes due account of all inputs, in particular, from the industry associations and self-
regulatory organizations.  
Dissemination of Credit Information   129. In order to establish an efficient credit informa tion system that would help in enhancing the 
quality of credit decisions and improving the asset quality of banks, the Reserve Bank had facilitated 
the establishment of the Credit Information Bureau Indi a Ltd. (CIBIL).  With a view to strengthening 
the legal mechanism and facilitating credit informat ion bureaus to collect, process and share credit 
information on borrowers of banks/FIs, the Governme nt of India had passed and notified 'The Credit 
Information Companies (Regulation) Act, 2005, cove ring registration, responsibilities of the bureaus, 
rights and obligations of the credit institutions and safeguarding of privacy rights.  
Implementation of Basel II   
130. Foreign banks operating in India and Indian banks having a presence outside India will start 
implementing Basel II with effect from 31 March, 2008.  All other scheduled commercial banks would be required to implement Basel II  with effect from 31 March 2009.   
The Impact of Reforms 
131. Financial sector reforms have had a significan t impact on the overall efficiency and stability 
of the banking system.  The average capital to ri sk-weighted assets ratio (CRAR) of all scheduled 
commercial banks increased from 9.2 per cent as on 31 March, 1994 to 12.3 per cent as on 
31 March 2006.  The gross NPAs as a proportion of  gross advances of the banking system have 
declined steadily and appreciably  over the years from 14.4 per cent at end-March 1998 to 3.3 per cent WT/TPR/G/182 Trade Policy Review 
Page 28 
 
 
at end-March 2006.  Over the same period, the per centage of net NPAs to net advances declined from 
7.3 per cent to 1.2 per cent.  The absolute level of  the gross NPAs has also decreased in the recent 
past.  The profitability of banks has also improve d during the period.  The return on assets (RoA) of 
all banks rose from 0.4 per cent in the year 1991-92 to 0.9 per cent in 2005-06.   The net interest 
income as percentage to total assets (the spread) d eclined from 3.3 in 1991-92 to 2.8 in 2005-06.  The 
business per employee of PSBs has increased from Rs . 18.8 million in 2002 to Rs. 31.15 million in 
2005.  
(v) Insurance Sector 
132. There are 16 life insurers, 15 non-life insurers and 1 reinsurer operating in the country.  Of 
these, there are 15 private life insurers and 9 non-life pr ivate insurers.  The first year premium of  the 
life insurance industry has grown at the rate of 30%  per annum  to  Rs.388 billion for the year ending 
31st March, 2006 as compared to Rs.97 billion in  2000-01.  Like-wise the non-life insurance industry 
also witnessed an annual average growth of 15.72%  by writing gross premium of Rs. 204 billion in 
2005-06 up from Rs. 98 billion in 2000-01.  Insuran ce premium per capita in India has increased to 
US$22.70. 
133. One of the significant policy changes envisaged by the government is a comprehensive 
amendment to the Insurance Act.  The major th rust is on modernizing the Act based on the new 
developments in the insurance sect or and in removing the redundancies of the erstwhile era.  Some of 
the major suggestions include modification of the FD I ceiling in Indian insurance companies;  change 
in the procedures for licensing of agents;  providi ng flexibility in the role of Insurance Councils; 
consolidation of the investment provisions for both li fe and general Insurers and to give flexibility to 
the Authority to determine the types of investme nt, the method and manner of Investments under the 
Regulations. 
134. The other important policy change being cons idered by the Government of India is a 
reduction in the capital requirements for a stand-alone health insurance company.  The IRDA is in the 
process of framing a separate set of regulations in the health insurance sector.  In case of new health 
products being filed with the IRDA, the pre-exis ting disease clause has been standardized.  ICD-10 
coding has been made mandatory for insurance comp anies and third party administrators (TPAs).  
135. One of the significant events in  the insurance sector is the detariffication of the general 
insurance industry from 1 January 2007.  Insuran ce companies have now been given the freedom to 
vary their premium rates.  However, the terms and conditions of the insurance policies have not been 
allowed to be changed till 31 March 2008.  The fr eeing of the terms and conditions as well as the 
premium rates of tariff policies simultaneously coul d have resulted in instability and upheaval which 
would not have been in the interests of the policyholde rs as well as the industry.   Therefore, freeing of 
only the premium rates was carried out so that the movement to a tariff free regime is in an orderly, gradual and planned manner.  
(vi) Capital Market Reforms 
136. Major reforms in the primary market since 2002 include introduction of green shoe option; 
flexibility in price band indication in book buildin g issues;  proportionate allotment to Qualified 
Institutional Buyers (QIBs) in allotment of shares in  public issues;  introduction of 10% margin for 
QIB bids in public issues;  rationalization of discl osure requirements;  ECS facility for public issue 
refunds;  facility of shelf prospectus for public  sector banks and public financial institutions;  
increased allocation of shares to retail investors; and introduction of guidelines for delisting of 
securities.    India WT/TPR/G/182 
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137. Major reforms in the secondary market since 2002 include shift to rolling settlements on T+2 
basis;  implementation of straight through pro cessing for all institutional trades on stock exchange;  
introduction of margin trading;  introduction of sing le stock futures and options trading in addition to 
index derivatives.  The National Stock Exchange (N SE) is now the leading exchange in the world in 
single stock derivatives trading.  In 2004, the Securities Law (Amendment) Act 2004 was enacted, to 
enable all stock exchanges to be corporatized  and demutualized in accordance with a scheme 
approved by SEBI. 
VII. CORPORATE GOVERNANCE 
138. Norms for corporate governance, which include de tails about the composition of the board of 
directors, board procedures, code of conduct of board members and composition and powers of an  
independent audit committee are specified in the listing  agreement of companies listed on stock 
exchanges.  From January 2006, all listed companie s are required to adopt these corporate governance 
requirements.  All new listing in particular w ould need to ensure compliance with corporate 
governance provisions and make disclosures to this effect in the offer document for their IPOs. 
Companies are required to file a quarterly compliance report with the stock exchanges. 
139. In order to provide a comprehensive legal fra mework to address the anti-competitive practices 
of enterprises, the Government has enacted the Co mpetition Act, 2002.  However, implementation of 
the core enforcement provisions of the Act has b een delayed because of legal challenges to certain 
provisions of the Act.  These are being addressed through the Competition (A mendment) Bill, 2006, 
which is expected to be enacted soon by Parliament. 
VIII.  INDIA AND THE WTO 
(a) Intellectual Property Rights 
140. India amended its legislations relating to the pr otection of intellectual property rights in order 
to honour all its commitment under the TRIPS Agreemen t.  These changes were reflected in the last 
Trade Policy Review.  During the current policy revi ew period, further amendments have been made 
in 2005  to the Patents Act, 1970.  Indian patent law is now fully compatible with the TRIPS 
Agreement.  
141. With the amendments made in 2005, both pr ocess and product patent protection is now 
available in all fields of technology, including food,  pharmaceuticals and chem icals.  The law now has 
provision both for pre-grant and post-grant opposition in the Patent Office.  The term of patent 
protection is now 20 years for all inventions. 
142. A provision has also been introduced in the Pa tents Act, in 2005, to enable the grant of 
compulsory licenses for export of medicines to countries with limited or no manufacturing capacities to meet emergent public health situations in accordance with Decision of the WTO of 30 August 2003 
on the Implementation of Paragraph 6 of the Doha  Declaration on the TRIPS Agreement and Public 
Health. India has also accepted the protocol amending the TRIPS Agreement (Article 31 bis) which 
incorporated the flexibilities agreed  to in the Doha Ministerial Declaration..  The Patent law now 
effectively balances and calibrates intellectual prope rty protection with public  health concerns and 
national security. 
143. The period 2002-06 witnessed a rise in the regi stration and granting of various forms of 
intellectual property rights.  During 2001-02, the numb er of patent applications filed were 10,592, and 
1,591 patents were granted.  In 200 5-06, the numbers went up to 24,505
 and 4,320 , respectively; 
reflecting an increase of 130 percent in four year s in the number of patent applications, and an WT/TPR/G/182 Trade Policy Review 
Page 30 
 
 
increase of 170 percent in the number of patents grante d.  A similar increase h as been noticed in the 
case of other intellectual property rights also.  While trademark registrations have gone up from 
6,204 in 2001-02 to 184,325 in 2005-06;  industrial design registrations have increased from 2,426 to 
4,175 during the same period.  
144. Such an increase in the number of patents and ot her intellectual property rights is indicative of 
an economic and institutional regime which provide s incentives for the efficient use of existing and 
new knowledge and for exhib iting entrepreneurship.  
145. Provisions exist in the various laws for deali ng with counterfeiters a nd those who engage in 
the manufacture and marketing of pirated goods.  Persons found guilty of indulging in the 
manufacture of pirated products or in any way dea ling with pirated/spurious goods are tried under the 
relevant legislations governing the offences.  Furthe r, the Court may also order that the goods which 
are found to be infringing and materi als and implements, the predominan t use of which is made in the 
creation of infringing goods shall be seized, forfeited or destroyed.    
146. The Customs Act empowers the Central Government to prohibit or restrict import or export of 
goods in order to protect trademarks, copyrights and pa tents.  The Central Government has also issued 
a notification prohibiting import of goods in violation of the Trade Marks Act.  
147. Courts in India have also issued on occasion an  ‘Anton Pillar Order’ which originates from  
British Law and which in substance provides for ex-parte  seizure of infringing goods in cases where 
incriminating materials are likely to be tampered w ith and such  relief coul d facilitate preservation of 
evidence at the trial stage. 
148. The actual enforcement of the law is the concer n of the State Governments through the use of 
its enforcement machinery.  Most of the States ha ve set up Intellectual Property Rights Cells to look 
into the complaints of violation and infringement  of Intellectual Property Rights.  The primary 
responsibility for investigating complaints of manuf acture of pirated goods rests with the concerned 
State police within whose jurisdiction the manufacturi ng unit is situated.  The State police takes action 
in accordance with the rules provided under the di fferent Acts relating to the counterfeiting of goods 
and initiates proceedings against the guilty.  The Ce ntral Government has set up an Inter-Ministerial 
Coordination Committee on Intellectual Property Ri ghts Enforcement Issues to have a focused 
approach in the matter.. 
(b) Services 
149. The expected contribution of Services to th e GDP is about 55.1% in 2006-07.  The sector 
accounted for about 37% of the country’s exports in the combined basket of goods and services.  
These statistics reveal in unambiguous terms the importance of the sector for India.  
150. The services’ negotiations of the Doha Deve lopment Agenda (DDA) are significant for both 
developed and developing countries.   These negotiations intend to secure a pro-development outcome 
for developing countries and at the same time to st rengthen the international trading system making it 
more open and based on fair and equitable rules and disciplines.  
151. As a part of these negotiations, India had s ubmitted its Initial Offer in January 2004 and 
Revised Offer on 24 August 2005, which marked a substantial improvement ove r its Initial Offer.  
The new areas covered in the Revised offer include  architectural, integrated engineering and urban 
planning and landscape services;  veterinary services; environmental services; distribution services;  educational services;  recreational, cultural and spor ting services, maintenance and repair of aircraft.  
Further, the coverage and commi tments were improved in constr uction and related engineering India WT/TPR/G/182 
 Page 31 
 
 
services;  tourism services;  financial Services etc.  New commitments have also been offered in cross 
border supply in a large range of other business services;  professional services;  research and 
development services;  rental and leasing services;  real-estate services;  etc. Thus, in the current round of services negotiations under GATS, India has offered to substantially increase the depth and 
coverage of its commitments in its Revised Offer.  
152. India’s interest in the ongoing negotiations li es in seeking from developed countries improved 
modal commitments in Cross Border Supply of Serv ices (Mode 1) and Movement of Natural Persons 
(Mode 4).  India’s Mode 4 objectives are driven by the competence of its service professionals, while its Mode 1 objectives are driven by its strong competitive edge in Information Technology and 
Information Technology Enabled Services.  In Mode 1, India would like to have binding 
commitments to impart predictability and certainty  in the public policy environment of its trading 
partners.  In Mode 4, India wants the removal of  the Economic Needs Test (ENT), a clear prescription 
of the duration of stay, provisions of extension, et c.  Such commitments will lead to gains for both 
developed and developing countries It needs to be not ed that an estimate carried out by the WTO with 
regard to the share of the four modes of supply in  the global trade in services shows that while Mode 
4 contributes only 1% of all services trade, the shar es of Mode 1, Mode 2 and Mode 3 are 28%, 14%, 
and 57% respectively.  The imbalance between the various modes of supply of services needs to be 
corrected.  
153. As noted above, Mode 4 is extremely important for India and without a satisfactory outcome 
in this area, India would be hard pressed to r espond favorably to the requests for market access.  
Mode 4 commitments are important for India because our service providers continue to face barriers 
in the markets of developed countries, particularly the US and EC.  Some such barriers are:  
- Non-recognition of Indian qualificati ons, training and work experience. 
- Burdensome entry procedures, in cluding those relating to Visas. 
- Layers of regulations, which are not tran sparent, making it difficult for a service 
provider to understand what licensing a nd qualifications are necessary and how 
shortfalls, if any can be met. 
- Imposing numerical quotas on the number of service providers. 
- Imposition of an Economic Needs Test and Labour market tests, making it difficult to 
access markets. 
- Requirement of wage parity, which constric ts the ability of developing countries to 
exploit their comparative advantage in labour. 
- Discriminatory treatment of service provi ders in terms of tax treatment and 
contribution to social security. 
- Residency and Citizenship requirements. 
154. The above restrictions can be met by taking the following measures: 
- Ensuring market access in a wide range of sectors for Mode 4, particularly 
professional services, other business services, financial services, telecom services. 
- Ensuring full National Treatment commitments in Mode 4. WT/TPR/G/182 Trade Policy Review 
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- Ensuring that the Mutual Recognition Agre ements (MRAs) being negotiated at the 
bilateral level give adequate  opportunity for participation of third party Members in 
line with the obligations u nder Article VII of GATS. 
- Deeper disciplines on domestic regulati on under VI:4 of GATS and building on 
provisions in Article VI:6  ensuring fair ness and objectivity in the evaluation of 
competence and recommendations for remedial action. 
- Ensuring implementation of Transparency commitments under Article III of GATS;  
a one stop website for each profession would be a good start. 
- Transparent and efficient processes fo r the evaluation of qualifications. 
- A liberal visa regime that not only ensu res that market access commitments taken are 
met effectively but also ensuring that all regulatory requirements are met. 
155. Another area of crucial interest to India in  services is the development of disciplines in 
Domestic Regulation (DR) particularly in qualif ication and licensing requirements and procedures, 
without which Mode 4 access is severely impede d. Negotiations on Domestic Regulation are under 
way at the WTO.  India wants that disciplines in DR should be put in place before the end of the 
current round as per the Hong Kong mandate.  India d esires to strike a balance between the right to 
regulate and regulations becoming unnecessary barriers to trade. 
156. In pursuance of the Hong Kong Ministerial di rectives under which plurilateral discussions  
were initiated at the WTO, India has received plur ilateral requests in 14 different service sectors, 
including Telecom, Finance, Maritime, Environment,  Education, Air transport, Energy, Audio Visual 
and Retail.  India is the coordinator of the plurilate ral requests on Mode 1 and Mode 4.  India is also 
the co-sponsor of plurilateral requests on Computer  and Related Services (CRS) and Architectural, 
Engineering and Integrated Engineering Services (AIE). 
(c) Some Impediments to the Growth of India’s International Trade 
(i) Unwarranted use of Trade Defense Action 
157. India has a current share of only around 1% of global merchandise exports.  In 1995, the share 
was much less.  However, it has been subjected to a disproportionate number of trade defense actions.  
For instance during the period 1 January 1995 to 30 J une 2006, Indian products have been subjected 
to 124 out of the 2938 anti-dumping actions  initiated gl obally, which amounts to more than 4% of the 
total.  These 124 initiations resulted in measures be ing taken in 69 cases (55.6%).  The large scale 
initiation of anti-dumping action, led to considerable disruption and loss of trade.  Again out of the 
69 measures, 15 each relate to chemicals and plastics,  8 to textiles and 22 to metal products (mainly 
iron and steel products)- areas in which India has gained some measure of comparative advantage 
globally in recent times.  The most noteworthy of the anti-dumping cases relate to bedlinen, hot rolled coils and shrimps.  
158. It also needs to be mentioned that in many  cases, importing countries have initiated both anti-
dumping and countervailing action simultaneously, to en sure that their objective is satisfied in one 
way or the other.  In the matter of counterva iling measures, 30 out of 41 cases (till 2004), had been 
initiated by the developed countries.  India WT/TPR/G/182 
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(ii) Textiles & Clothing 
159. Textiles and Clothing is an important sector for India.  Currently, the sector contributes about 
14 percent to the industrial productio n of the country.  The sector is the second largest provider of 
employment after agriculture, employing close to 85 million people;  35 million directly in textiles 
and 50 million in allied activities.  It also cont ributes substantially to India’s export earnings, 
accounting for nearly 17% of the country’s total exports.  
160. The textiles and clothing sector has witnessed a relatively high incidence of trade defense 
action.  This includes back-to-back anti-dumping ac tion.  Some of the restraining countries took 
frequent recourse to the anti-dumping and countervaili ng measures in respect of India’s textile and 
clothing products, notwithstanding the fact that their exports were already circumscribed by quota 
limits.  In many cases investigations were subsequen tly terminated.  Nevertheless, damage to trade did 
occur due to the chilling effect caused by the initiation of such investigations. 
161. In the Uruguay Round, the efforts of the de veloping countries were centered on the more 
visible and immediate effects of quota restrictions and, therefore, on getting the sector reintegrated into the same rules and disciplin es of the multilateral system as for any other sector of industrial 
goods.  Consequently, textiles and clothing tari ffs escaped being subjected to any significant 
reductions and therefore remain much higher than other industrial products.  
(iii) SPS and TBT issues 
162. The rising incidence of non-tariff barriers, in the form of Sanitary & Phytosanitary (SPS) 
Measures and Technical Barriers to Trade (TBT), has emerged as a major trade concern. New SPS 
and TBT-related measures very often have market access implications and it is important that these 
issues be addressed adequately.  
163. The WTO Agreements recognize the diversity of standards across countries, but the issue of  
actual needs  also needs to be factored in.  Ma ny times these standards and measures are such that 
they impose inappropriate or unwarranted economic and social costs on the exporting countries – more so if the exporting countries are the develo ping and the least developed countries- without 
actually conferring a commensurate gain to the impor ting countries.  Such measures thus impede trade 
and deny a trade opportunity to developing countri es like India.  For instance India had to wait, 
without much scientific reason, for almost two deca des to secure access for its mangoes to two of the 
leading developed countries.  
164. Besides the above, these mandated standards chan ge frequently, and that too quite rapidly, 
leading to compliance cost implications.  As the exporters/producers get ready to meet a particular 
standard, the major importing  countries move to a different standard, which may be only slightly 
different from the earlier one .  But adjusting again to the new sta ndard can involve huge costs for the 
producers.  Sometimes incremental higher standard s or regulations entail a higher share in total 
production costs, making low-value products relativ ely more vulnerable and often forcing producers 
out of business. 
165. Given the above issues, the WTO members ne ed to embark on a collaborative and 
cooperative approach for realizing the free trade objec tive.  Only such an approach would lead to 
trade enhancement, sustainable development and benefits to the national economies in terms of 
improved resource efficiency.  Ex-ante assessment of the impact of these standards and regulations can be an important step in the right direction.   WT/TPR/G/182 Trade Policy Review 
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IX. REGIONAL TRADING ARRANGEMENTS 
166. India attaches significance to her participati on in regional trade agreements within the 
framework of multilateral rules.  India has b een instrumental in setting up the South Asian 
Association for Regional Cooperation (SAARC), whose major achievement in 1995 was the 
conclusion of the negotiations on trade preferences within the framework of  the SAARC Preferential 
Trading Arrangement (SAPTA).  The Agreemen t on setting up the South Asian Free Trade Area 
(SAFTA) was signed by member countries of SAARC in January 2004 and a phased tariff 
liberalization programme under its aegis, has been implemented from 1 July 2006. 
167. India has bilateral trade agreements with its  two neighbouring LDCs, namely, Bhutan and 
Nepal which provides them preferential market access.  A Free Trade Agreement between India and 
Sri Lanka was made operational in March, 2000.  The Agreement envisages phasing out of tariffs on 
all products except for a limited number of items in  the Negative List.  While India has completed the 
process of tariff elimination in March 2003, Sri Lanka is scheduled to reach zero duty by 2008.  The 
two countries have initiated negotiations in Augu st, 2004 on a Comprehensive Economic Partnership 
Agreement (CEPA) which covers trade in services and investment.  A Preferential Trade Agreement 
was signed between India and Afghanistan on 6 Ma rch 2003 in New Delhi which provides for, among 
others, establishing a PTA between the two countr ies to promote harmonious development of 
economic relations and free movement of  goods through reduction of tariffs.  
168. The text of the Bangkok Agreement has been re-n egotiated and has been re-named as the Asia 
Pacific Trade Agreement (APTA). This  was signed in the first session of the Ministerial Council on 
2 November 2005 in Beijing.  The APTA is opera tional among five countries, namely, Bangladesh, 
PR China, India, the Republic of Korea and Sri La nka.  Till date three Rounds of Trade Negotiations 
have taken place under APTA.  The third Round of tariff concessions have been implemented from 
1 September 2006. 
169. India is also a member of a regional grouping named BIMST-EC (Bangladesh, India, 
Myanmar, Sri Lanka, Thailand Econom ic Cooperation) formed in 1997.  During the first BIMST-EC 
Summit held in July 2004, the initiative has been  renamed as the Bay of Bengal Initiative for Multi-
sectoral Technical and Economic Cooperation (BIMSTEC ) with the admission of Bhutan and Nepal 
as members to the grouping.  The Framework Agreement on the BIMST-EC FTA was signed on 
8 February 2004 in Phuket, Thailand.  The Framework Agreement includes provisions for 
negotiations on an FTA in goods, services and investment.  A Trade Negotiating Committee (TNC) 
has been constituted to carry forward the programme of negotiations.     
170. An India – Singapore Comprehensive Economic  Agreement (CECA) has been signed on 
29 June, 2005.  The Agreement came into fo rce on 1 August 2005.  A Framework Agreement on 
Comprehensive Economic Coopera tion between ASEAN and India and an India – Thailand 
Framework Agreement have also been signed an d an FTA on Goods, Services and Investment are 
under negotiation under its aegis.  Framework Ag reements on economic cooperation followed by 
PTA have also been entered into with MERCOSUR a nd Chile.  India is also engaged with the Gulf 
Cooperation Council and Mauritius for an FTA/Com prehensive Economic Cooperation Partnership 
Agreement respectively.  Joint T ask Forces with the respective count ries have also been set up to 
negotiate a Comprehensive Economic Partners hip Agreement with Korea and Japan.  
171. Negotiations for a broad based trade and invest ment agreement with the European Union are 
expected to commence in May 2007 provided all the requis ite approvals are in place. 
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