India WT/TPR/S/249 
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 I. ECONOMIC ENVIRONMENT 
(1) OVERVIEW  
1. During the period under review (2007 to end-April 2011), India continued to reap the benefits 
from the process of trade liberalization and structural  reform initiated in the early 1990s.  Annual real 
GDP growth averaged over 8.4% between 2006/07 and 2010/11, despite the effects of the global 
economic crisis, which only caused a mild slowdown.   The Government conducted a very proactive 
policy to face the crisis, introducing a large stimul us package consisting of increased spending, lower 
excise and customs duties on some products, and subs idies.  However, as the economy started to get 
back on track and as inflation started to accelerate, the Government reversed most of these stimulus 
measures.  As has been the case for some years now, growth has been led by services and 
manufacturing, the two largest sectors, with agricultu re growing much more slowly.  India's growth 
prospects remain strong, as potential GDP growth has been estimated at between 8% and 8.5%.  
However, to achieve sustained growth at the potentia l rate, bottlenecks will need to be eliminated and 
investment will be needed in infrastructure and e ducation.  The business environment will also need 
to be simplified by streamlining the regulatory environment, and defining a more stable and 
transparent trade and investment policy. 
2. India embarked on a process of fiscal consolida tion in 2004.  This has not resulted in the 
intended decrease in the fiscal deficit, partly due to the effects of the global crisis.  Although progress 
has been made towards fiscal consolidation, achievi ng it remains a challenge for India, in particular 
considering its infrastructure needs and growth ta rgets.  Throughout the period under review, India 
continued to post sizeable public-sector deficits.  Indi a's public finances deteriorated partly as a result 
of lower revenue and the impact of the stimulus packag e in the wake of the global financial crisis;  the 
consolidated fiscal deficit reached 9.5% of GDP  in 2009/10.  Although the consolidated deficit 
declined to some 7.3% of GDP, this reduction largely reflects the effect of one-off items, though revenue collection in general also increased.  The focus of fiscal policy has been shifted back to 
achieving consolidation and tax rationalization.  A ne w tax Code has been drafted to simplify the tax 
regime and increase reliance on direct rather than indirect taxes. 
3. Strong domestic demand and rising oil prices have  resulted in a widening of the trade deficit, 
leading to a current account deficit throughout the reviewed period.  The deficit has been financed 
through large capital inflows, both foreign direct and portfolio investment, attracted by the expanding domestic demand and the good prospects of the econom y.  Capital inflows have been somewhat 
volatile and this volatility has been largely accomm odated by letting the exchange rate adjust.  
Although the floating exchange rate regime has served India well in accommodating substantial 
capital inflows, policies need to be designed to  attract more medium- and long-term capital, 
particularly given India's infrastructure and general i nvestment needs.  A step in this direction is the 
Government's recent decision to increase investor limits in the corporate bond and government bond 
markets. 
(2) R
ECENT ECONOMIC DEVELOPMENTS  
4. During the review period, the Indian economy continued to expand at a fast pace, despite the 
mild slowdown caused in 2008/09 by the global financ ial crisis.  Annual real GDP growth averaged 
over 8.4% between 2006/07 and 2010/11, supported pr imarily by strong domestic demand.  Growth 
was particularly strong in 2006/07 and 2007/08, exceeding 9% (Table I.1), driven mainly by private 
investment and, to a lesser extent, private consump tion.  In the wake of the global financial crisis, 
growth has been driven by government spending.  Strong domestic demand led to a sharp increase in WT/TPR/S/249 Trade Policy Review 
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 imports, particularly in 2008/09, only partly off set by a rise in exports.  Although both import and 
export levels declined slightly in 2009/10, they remained considerably above those of 2006/07 (see 
sections (5) and (6)).  The Government estimat es that GDP growth reached 8.6% in 2010/11.1  GDP 
growth at 2004/05 market prices reached 10.1% at  an annual rate in the April-December 2010 period. 
Table I.1 
Selected macroeconom ic indicators, 2006-11  
 2006/07 2007/08 2008/09 2009/10a 2010/11a 
Real GDP at factor cost (Rs billion, 2004/ 05 prices) 35,660.1 38,989. 6 41,625.1 44,937.4  .. 
Real GDP at factor cost  (US$ billion, 2004/05 prices ) 787.5 968.9 906.5 947.7  .. 
Real GDP at market prices (Rs billion, 2004/ 05 prices) 38,746.3 42,479. 2 44,653.6 48, 693.3 53,425.7 
Real GDP at market prices (US$ billion,  2004/05 prices) 855.6 1, 055.6 972.5 1,013.8  .. 
Current GDP at factor cost (Rs b illion) 39,522.4 45,814.2 52,820.9 61,332.3  .. 
Current GDP at factor cost (US$ billion) 872.8 1,138.5 1,150.4 1,293.5  .. 
Current GDP at market price (Rs billion) 42,936.7 49,864.3 55,826.2 65,502.7  .. 
Current GDP at market price (US$ billion) 948.1 1,239.1 1,215.8 1,381.4  .. 
GDP per capita at current market price (Rs) 38,268.0 43,817.5 48,376.3 55,985.2  .. 
GDP per capita at current market price (US$) 845.1 1,088.9 1,053.6 1,180.7  .. 
Real GDP (at 2004/05 factor cost) 9.6 9.3 6.8 8.0 8.6 
National accounts (% change) 
Real GDP at market prices (2004/05 prices) 9.4 9.6 5.1 9.1 10.1 
Consumption 7.5 9.8 8.3 8.7 7.7 
Private consumption 8.2 9.8 6.8 7.3 8.3 
Government consumption 3.8 9.7 16.7 16.4 4.7 
Gross fixed capital formation 14.3 15.2 4.0 7.3 16.1 
Exports of goods and non-factor services 24.5 26.6 15.0 5.8  .. 
Imports of goods and non-factor services 22.7 31.6 16.6 0.0  .. 
Unemployment rate (%) 7.3  ..  ..  ..  .. 
Prices, interest rates and money (%) 
Inflation (%age change)      
CPI - industrial workers 6.7 6.2 9.1 12.4 10.6b 
WPI 6.5 4.8 8.0 3.6 9.0c 
Deposit rated  7.5-9.0  8.25-8.75  8.0-8.75  6.0-7.0 8.25-9.0 
Prime lending ratee  12.25-12.5  12.25-12.75  11.5-12.5  11.0-12.0 8-25-9.50f 
M3 21.7 21.4 19.3 16.8 15.9 
Exchange rate      
Rs/US$ (financial year - annual average) 45.28 40.24 45.92 47.42 45.58 
Real effective exchange rate (%age change)g -1.6 8.2 -8.7 0.2 13.4 
Nominal effective exchange rate (%age change)g -3.9 7.6 -13.0 -3.4 5.7 
 (% of GDP, unless otherwise indicated) 
Central Government balance      
Current (revenue) balance -1.9 -1.1 -4.5 -5.2 -3.4 
Current revenue (revenue recei pts) 10.1 10.9 9.7 8.7 9.9 
Tax revenue (net) 8.2 8.8 7.9 7.0 7.2 
Current expenditure (revenue e xpenditure) 12.0 11.9 14.2 13.9 13.4 
Capital receipts 3. 5 3.4 6.2 6.9 5.5 
Capital expenditure 1.6 2.4 1.6 1.7 2.1 
Gross fiscal balanceh -3.3 -2.5 -6.0 -6.3 -5.1 
Primary deficit 0.2 0.9 -2.6 -3.1 -2.0 
Central Government total debt 59.1 56.9 56.6 53.7 49.9 
Domestic debt 56.7 54.7 54.4 51.5 47.9 
External debt 2.4 2.2 2.2 2.1 2.0 
Table I.1 (cont'd)
                                                      
1 Ministry of Finance (2011a), Chapter 1:  State of the Economy and Prospect. India WT/TPR/S/249 
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  2006/07 2007/08 2008/09 2009/10a 2010/11a 
Saving and investment      
Gross domestic savings 34.6 36.9 32.2 33.7  .. 
Public sector 3.6 5.0 0.5 2.1  .. 
Gross domestic investment 35.9 38.0 35.4 35.8  .. 
Public sector 8.3 8.9 9.5 9.2  .. 
External sector      
Current account balance -1.0 -1.3 -2.3 -2.8 -3.1i 
Net merchandise trade -6.5 -7.4 -9.8 -8.6 -8.3i  
Merchandise exports 13.6 13.4 15.4 13.2 13.9i 
Merchandise imports 20.1 20.8 25.2 21.7 22.2i 
Services balance 3.1 3.1 4.4 2.6 2.9i 
Capital account 4.7 8.6 0.5 3.8 4.3i 
Direct investment 0.8 1.3 1.6 1.4 0.6i 
Balance of payments 3.8 7.4 -1.7 1.0 0.9i 
Terms of trade, (1978/79=100) 76.7 79.0 81.2 91.2  .. 
Merchandise exports (%age change)j 25.1 14.6 28.4 0.5 27.0i 
Growth rate based in US$ 22.6 28.9 13.7 -3.6 33.3i 
Merchandise imports (%age change)j 24.1 20.0 35.7 1.3 21.1i 
Growth rate based in US$ 21.4 35.1 19.8 -2.6 27.1i 
Service exports (%age change)j 30.3 9.0 34.4 -7.1 34.5i 
Growth rate based in US$ 28.0 22.4 17.3 -9.6 41.2i 
Service imports (%age change)j 30.7 3.4 15.9 18.3 44.6i 
Growth rate based in US$ 28.5 16.2 1.1 15.3 51.7i 
Foreign exchange reservesk (US$ billion, end-peri od) 191.9 299.2 241.4 254.7 304.8i 
In months of imports 12.5 14.4 9.8 11.1  .. 
Total external debt (US$ billion, as  at end-March) 172. 4 224.4 224.5 261.2 279.5l 
Debt service ratiom 4.7 4.8 4.4 5.5 3.9 l 
.. Not available. 
a  Provisional. 
b April 2010 to February 2011 
c March 2010/March 2011. 
d  Refers to the deposit rates of five major public sector ba nks of maturity of one to three years, as at end-March. 
e  Benchmark prime lending rate of five ma jor public sector banks (period average). 
f Base rate 
g  Six-currency trade based weight (includi ng the euro, Japanese yen, U.S. dollar, U.K. pound, Chinese renminbi, and H.K dollar ).   
h  Revenue receipts plus capital receipts (not includi ng borrowing and other liabilities) minus total expenditure. 
i  April to December 2010. 
j  Growth rates are based on national currency. 
k Excluding gold, SDRs (Special Drawing Right s), and Reserve Tranche Position in IMF. 
l  As at end-December 2010. 
m  Including debt-servici ng on non-civilian credits. 
Sources:   Ministry of Finance (2011), Economic Survey 2010-11 .  Viewed at:  http://indiabudget.nic.in/;  Reserve Bank of 
India (2010), Handbook of Statistics of the Indian Economy , 15 September.  Viewed at:  
http://www.rbi.org.in/scripts/AnnualP ublications.aspx?head=Handbook of Sta tistics on Indian Economy;  Reserve 
Bank of India (2011), Macroeconomic and Monetary  Developments in 2010-11 , 2 May;  and information provided 
by the Reserve Bank of India. 
5. The IMF estimates India's GDP growth potential to be some 8.5% per year;  the authorities 
consider the post-global-crisis grow th potential to be of some 8%.2  Achieving this in a context of a 
lesser reliance on public consumption and investment  will imply boosting private investment, which, 
over the medium run will require a simplification of the business and regulatory environment, as well 
as facing the challenges of improving infrastruct ure to overcome the current shortcomings. 
                                                      
2 Reserve Bank of India (2010a), p. 17. WT/TPR/S/249 Trade Policy Review 
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 6. Services continued to be the most dynamic s ector during the period under review, expanding 
at an average annual rate of around or over 10%, thus exceeding GDP growth, and exhibiting resilience to the negative effects of the global crisis .  Growth in services continued to be led by the 
financial sector, and the trade, hotel, transport,  and communications subsectors.  Manufacturing 
showed robust growth over 2006/07 and 2007/08, but  was subsequently affected by the global 
economic crisis, which led to a decline in foreign demand, particularly in areas such as textiles and 
clothing.  There was a resurgence of growth, however, in 2009/10, triggered mainly by stronger domestic demand, particularly for consumer dur ables, capital goods, and industrial inputs;  the 
production of non-durable goods showed only a modest increase.
3  Growth in agriculture remained 
weak throughout most of the review period due  to a prolonged drought, excessive reliance on 
monsoon-related crops, and low productivity. 
7. The services sector is the largest contributor to GDP;  its share of GDP increased from 53% in 
2006/07 to 56% in 2009/10 (Table I.2), while the share of manufacturing declined somewhat, from 16.1% to 15.5% and the share of agriculture fell from 18.1% to 16.6%.  The authorities have noted that, despite the decline in its relativ e share, agriculture continues to be  the mainstay of the majority of 
the population, occupying some 52% of the total workforce (including non-organized labour);  the 
sector is also critical for achieving the Government's objectives of food security and price stability.
4 
Table I.2 
Basic economic and social indicators, 2006-11 
 2006/07 2007/08 2008/09 2009/10 2010/11a 
 Annual % change  
GDP by economic activity at constant 2004/05 prices       
Agriculture, forestry, and fishing 4.2 5.8 0.1 0.4 5.4 
Mining and quarrying 7.5 3.7 1.3 6.9 6.2 
Manufacturing 14.3 10.3 4.2 8.8 8.8 
Electricity, gas, and water 9.3 8.3 4.9 6.4 5.1 
Construction 10.3 10.0 5.5 6.7 8.0 
Services 10.1 10.3 10.1 10.1 9.4 
Trade, hotels, transport, and communication 11.6 11.0 7.5 9.7 11.0 
Financing, insurance, real estate, a nd business services 14.0 11.9 12.5 9.2 10.6 
Community, social, and personal services 2.9 6.9 12.7 11.8 5.7 
 % 
Share of main sectors in current GDP at factor cost       
Agriculture, forestry, and fishing 18.3 18.3 17.6 17.8 .. 
Mining and quarrying 2.7 2.7 2.6 2.5 .. 
Manufacturing 16.1 16.0 15.5 14.8 .. 
Electricity, gas, and water 1.9 1.8 1.6 1.5 .. 
Construction 8.2 8.5 8.6 8.1 .. 
Services 53.0 53.1 54.6 56.0 .. 
Trade, hotels, transport, and communication 25.3 25.3 24.9 24.4 .. 
Financing, insurance, real estate, a nd business services 14.9 15.2 16.2 17.0 .. 
Community, social, and personal services 12.8 12.6 13.4 14.6 .. 
Table I.2 (cont'd)
                                                      
3 Reserve Bank of India (2010a), p. 23. 
4 Reserve Bank of India (2010a), p. 16.  Most of the people employed in agriculture do not fall under 
the category of organized employment, which explains why the share of agriculture in total organized 
employment (shown in Table I.2) is so low. India WT/TPR/S/249 
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  2006/07 2007/08 2008/09 2009/10 2010/11a 
Share of sector in total employmentb      
Agriculture, forestry, and fishery 5.3 5.4 .. .. .. 
Mining and quarrying 4.6 4.5 .. .. .. 
Manufacturing 21.7 22.2 .. .. .. 
Electricity, gas, and water 3.3 3.1 .. .. .. 
Construction 3.5 3.4 .. .. .. 
Services 61.7 61.4 .. .. .. 
Wholesale and retail trade 2.2 1.6 .. .. .. 
Transport, storage, and communication 10.2 10.1 .. .. .. 
Financing, insurance, real estate, etc. 8.3 9.0 .. .. .. 
Public administration and defence, a nd other services 41.0 40.7 .. .. .. 
.. Not available. 
a Advance estimate. 
b Organized sector employment only. 
Source:  Ministry of Finance (2011), Economic Survey 2010-11 .  Viewed at:  http://indiabudget.nic.in/;  Reserve Bank of 
 India (2010), Handbook of Statistics of the Indian Economy , 15 September.  Viewed at:  
 http://www.rbi.org.in/scripts/Ann ualPublications.aspx?head=Handbook of Statistics on Indian Economy;  and 
 Reserve Bank online information.  Viewed  at:  http://www.rb i.org.in/home.aspx. 
8. During the period under review, increasing commodity and oil prices and supply-side 
constraints, together with fast economic growth, in  particular strong domestic demand, resulted in an 
acceleration of headline inflation as measured by the new wholesale price index (WPI) during most of 
the period under review (with the exception of FY 2008/09).5  The WPI increased by 9% in the 
12-month period ending in March 2011 (8.3% in the 12 months to February 2011).6  T h e  
Government's headline inflation estimate for 2011 was increased from 7% to 8% in early 2011.7  Core 
inflation (excluding food and energy) has proceed ed at a similar pace than headline inflation, 
increasing also by 9% in the twelve months till Marc h 2011.  Although administered prices (fuels and 
fertilizers) were adjusted during the period under re view and steps taken to deregulate fuel prices (see 
below), inflation figures may be underestimated due to  the subsidization of some fuel prices, certain 
basic food prices, and electric power rates. 
9. The Government has undertaken a number of measures to fight inflation, including monetary, 
fiscal, and administrative actions;  the last two includ e measures that have an effect on trade.  With 
respect to monetary measures, the RBI has tighten ed monetary policy by raising its policy rates 
several times since early 2010 (see below), and narrowing the liquidity adjustment facility (LAF) 
corridor to reduce rate volatility.  Fiscal measur es have included custom s duty reductions, e.g. a 
reduction to zero of import duties on rice, wheat, pulses,  onions and shallots, edible oils (crude), and 
ghee, and to 7.5% on refined and hydr ogenated oils and vegeta ble oils;  also imports of raw sugar at 
zero duty have been allowed under a licensing system.8  
10. Trade-related administrative measures have also been used, such as export prohibitions 
(e.g. on non-basmati rice, onions, and edible oils  (see Chapter IV(2)) and minimum export prices 
(onions and basmati rice).  The authorities have i ndicated that these measures were taken in view of 
                                                      
5 A new WPI series with a 2004-05 basis was rel eased in September 2010.  The new series has a 
commodity basket comprising 676 items with different weights and more price quotations than the previous one. 
6 This average is considerably higher than the ten-year average of headline WPI inflation from 2000-01 
to 2009-10, which was of some 5.3%.  See Ministry of Finance (2011a), Chapter 4:  Prices and Monetary Management. 
7 Reserve Bank of India (2011b). 
8 Ministry of Finance (2011a), Chapter 4:  Prices and Monetary Management. WT/TPR/S/249 Trade Policy Review 
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 the emerging scenario of scarcity and the conseque nt rise in prices of essential commodities.  An 
Inter-Ministerial group was set up in early 2011 under the Ministry of Finance, to review the overall 
inflation situation, with particular reference to  primary food articles.  The group may recommend 
action on fiscal, monetary, production, marketing, dist ribution, and infrastructure matters to prevent 
price increases, but its recommendations are not binding. 
11. India does not publish official unemployment figur es.  The latest available information points 
to an unemployment rate of 7.3% in 2006/07.  Si nce then, the Government has conducted surveys to 
assess the conditions  of the labour market;  no complete employment figures are available.  The 
authorities have indicated that this is due to the relatively large segment of non-organized (not 
formally employed) workers, and that only figures for organized employment are available.  Total 
organized employment in 2008 was 275.5 million, of which 176.7 million were employed by the 
public sector and 98.8 million by the private sector.9  The Ninth Quarterly Quick Employment Survey, 
conducted by the Labour Bureau, shows that, dur ing 2010, organized employment increased by 
870,000 persons;  some 60% of this increase was in information technology and business process 
outsourcing.  With respect to the sectoral distribution of employment, it is estimated that some 22% of 
organized labour is employed in the manufacturing sector.  Agriculture accounts for just over 5% of 
total organized employment but this figure is misleading, as most agriculture labourers are not unionized or otherwise organized.  It is estimated th at over 50% of India's workforce is employed in 
the agricultural sector.  Services accounts for over 60% of organized employment. 
12. High economic growth has translated into risi ng per capita incomes.  GDP per capita at 
current market prices reached US$1,180.7 in 2009/10 , some 40% higher than in 2006/07.  Growth has 
also improved social and poverty indicators, with infant mortality declining from 68 per 1,000 in the 
mid 1990s to 52 per 1,000 in 2008, and literacy leve ls reaching 66% of people over 15 in 2008, up 
from 49% in 1990.
10  Despite high growth, however, poverty a lleviation remains a challenge.  There 
are no recent statistics, but data from the Planni ng Commission show that 27.5% of the population 
lived under the poverty line in 2004/05, down from 36% in 1993/94.11  However, a 2009 study by an 
expert group, found a 37.2% poverty ratio for 2004/05.12  Although these levels are considerably 
below those of a decade ago, there is still a larg e number of poor, especially in the rural areas. 
(3) FISCAL POLICY  
13. India's public finances deteriorated in the wake  of the global financial crisis.  The 2009/10 
consolidated fiscal deficit reached 9.5% of GDP, up from 8.5% in 2008/09, with the Central 
Government deficit at 6.4% of GDP, and state govern ment deficits of 3.3% of GDP.  After two years 
of increasing deficits, the consolidated deficit d eclined to some 7.3% of GDP in 2010/11, as both 
central and state government deficits fell, to 5.5% an d 2.5% of GDP, respectively.  This reduction in 
the deficit largely reflects the effect of one-off items (e.g. telecommunications licences), although an 
increase in general revenue also played a role.  While progress has been made towards fiscal 
consolidation, achieving it remains a challenge for I ndia, in particular considering its infrastructure 
needs and growth targets.  Fiscal consolidation would also be an important step to prevent an excessive real exchange rate appreciation, which w ould lead to further deterioration of the current 
account of the balance of payments. 
                                                      
9 Planning Commission of India (2011). 
10 World Bank (2011). 
11 The poverty level in India is defined on the basis of calorie intake of 2,100 kilocalories in urban areas 
and 2,400 kilocalorie s in rural areas. 
12 Planning Commission of India (2011). India WT/TPR/S/249 
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 14. For part of the period under review, fiscal polic y has been conducted within the framework of 
the Fiscal Responsibility and Budget Management Ac t (FRBMA), notified in 2004, which calls for 
the Central Government to take measures to reduce the revenue (current) and overall fiscal deficits 
with a view to eventually eliminating them.  Tax revenue growth was instrumental in allowing 
progress toward fiscal consolidation prior to the glob al financial crisis.  Gross tax revenue rose as a 
proportion of GDP, from 9.2% in 2003/04 to a peak of 12% in 2007/08, before falling to 10.9% and 
9.5% in 2008/09 and 2009/10, respectively.  Tax reve nue net of states' shares was only 7% of GDP in 
2009/10, down from a pre-crisis level of 8.8%, pa rtly on account of lower excise and customs duty 
collection (Table I.3).  Tax revenue/GDP was expect ed to recover to 10.8% in 2010/11, but advance 
estimates point to a 10% ratio.  This is of concern since tax revenue continues to be insufficient to 
finance India's infrastructural and developmental needs. 
Table I.3  
Central Government's tax revenue, 2006-11 
(Rs billion and %)  
 2006/07 2007/08 2008/09 2009/10 2010/11a 
Total tax revenue, net of states' share (R s billion) 3,511.8 4,395.5 4,433.2 4,651. 0 5,340.94 
(% of GDP) 8.2 8.8 7.9 7.0 7.2 
 (% of total tax revenue) 
Direct taxes 48.6 52.6 55.2 60.5 56.7 
Corporation taxes 30.5 32.5 32.5 39.2 37.7 
Personal income taxes 18.1 20.0 20.0 21.2 18.9 
Wealth taxes 0.1 0.1 0.1 0.1 0.1 
Indirect taxes 51.4 47.4 44.8 39.5 43.3 
Customs 18.2 17.6 16.5 13.3 16.7 
Union excise duties 24.8 20.8 17.9 16.5 17.4 
Service taxes 7.9 8.6 10.1 9.4 8.8 
a Estimates.  
Source :   Reserve Bank of India (2010), Handbook of Statistics of the Indian Economy , 15 September .  Viewed at:  
http://www.rbi.org.in/scripts/Annua lPublications.aspx?head=Handbook of Statistics on Indian Economy;  and 
information provided by the Indian authorities.   
15. India classifies its expenditure into revenue (current) and capital, and Plan and non-Plan 
(interest payments, subsidies, de fence expenditure, payrolls, and pe nsions).  The thrust of public 
expenditure management policies has been on containing non-Plan re venue expenditure and raising 
the levels of Plan expenditure, preferably capita l expenditure.  Defence e xpenditure and interest 
payments have been relatively stable during the pe riod under review (at some 1.8%-2.2% of GDP and 
3.1%-3.4%, respectively), and budgets have focu sed on streamlining expenditure on subsidies.  
However, due to the increase in subsidies to crude oi l and fertilizers, and othe r subsidies to consumers 
during the global slowdown, their proportion of GDP rose from 1.3% in 2006/07 to 2.3% in 2008/09, before declining slightly to 2.2% in 2009/10, and to an estimated 2.1% of GDP in 2010/11.  This 
recent improvement followed policy steps to deregul ate the price of gasoline and increase, albeit 
modestly, the regulated prices of kerosene and LPG (liquefied petroleum gas) (Chapter III). 
16. To counter the effects of the global financia l crisis, India engaged in a policy of fiscal 
expansion, which was one of the largest among em erging economies, estimated at about 10% of GDP 
in both 2009 and 2010.  As growth resumed at a fast er pace than expected, the authorities, following 
the recommendations of the Thirteenth Finance Co mmission, changed policy course and returned to 
focusing on fiscal consolidation in the 2010/11 Budge t, including through a partial withdrawal of the 
stimulus measures put in place during the crisis.  The policy stance was shifted to addressing long-run 
sustainability concerns, while continuing to suppor t growth in the short run.  For example, the 
2010/11 Budget recommended bringing expenditure dow n through a proper targeting of subsidies and WT/TPR/S/249 Trade Policy Review 
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 announced that new policies to reduce subsidies on fertilizers and petroleum products would be 
implemented. 
17. The 2010/11 Budget reversed some of the measure s adopted to face the crisis.  The standard 
rate of excise duty (CENVAT), which had been lowered to 8% by two successive reductions, in 
December 2008 and February 2009, was raised to  10%.  Excise duty on petrol and diesel was 
increased by Rs 1 per litre so as to restore the pr e-June 2008 levels, while excise duty on cigarettes 
and other tobacco products, as well as of the ad valorem  component of the excise duty on certain 
vehicles, was raised from 20% to 22%.  Full or pa rtial excise duty exemptions/concessions available 
on some items were withdrawn and duty imposed on them at the rates of 4% or 10%.  The customs 
duties on crude petroleum and diesel were increased , and eight new services were brought under the 
service tax.  On the other hand, the 2011/12 Budget seems to have placed more emphasis on growth;  
it contains provisions to lower customs duty rates,  for example on imports of certain inputs and of 
agricultural machinery, to promote the developm ent of agricultural and manufacturing production, 
and of exports. 
18. The 2010/11 fiscal results were better than expected.  While the Budget for 2010/11 had 
estimated the fiscal and revenue deficits at 5.5% an d 4% of GDP, respectively, they were 5.1% and 
3.4% of GDP, respectively.  The lower deficits we re partly due to higher-than-expected tax revenue 
due to economic growth and the termination of excise and customs duties reduction, but also to the substantial increase in non-tax revenues arising from telecom 3G/BWA (third generation/broadband 
wireless access) licence auctions, a one-time event (see Chapter IV(3)(iii)). 
19. When India embarked on the path of economic reform in 1991/92, the ratios of direct and 
indirect taxes to gross tax revenue  were 22.6% and 77.4%, respectivel y;  in 2009/10 these ratios were 
of 60.5% and 39.5%, respectively (Table I.3).  This w as partly a result of the gradual reform of the tax 
structure to reduce customs and excise duties and rely  more on direct taxes, particularly corporate 
income tax, and on service tax revenues.  Union excise duties were the single largest revenue earner 
until 2006/07, when they were replaced by corporat e income tax.  The Government aims to improve 
direct tax collection through rationalization of the tax structure:  to this end, the 2010/11 Budget 
reduced the surcharge on corporate income tax from 10%  to 7.5%.  The authorities are confident that 
tax rationalization will allow cor porate and personal income tax collection to continue growing 
rapidly and help improve the prosp ects of revenue-led medium-term cons olidation.  However, indirect 
taxes, including taxes that fall solely or mainly on imports, continue to be an important source of 
revenue, and changes in their levels are a much used policy tool. 
20. For several years the Government has been intent on introducing a goods and services tax 
(GST) and on consolidating the Income Tax Act 1961 and the Wealth Tax Act 1957 in a single law.  
In March 2011, a Constitutional Amendment B ill was introduced in Parliament for the 
implementation of the GST.  The authorities indicat ed that, as at May 2011, progress has been made 
in creating the information technology infrastruct ure required for the implementation of the GST, 
including with respect to the creation of a GST ne twork.  They also indicated that work was under 
way on drafting model legislation for the implementa tion of the GST at the Central Government and 
State levels.  With respect to the consolidation of the two tax acts, a Direct Taxes Code Bill was 
introduced in Parliament in August 2010, envisaged to be effective from 1 April 2012.  The Direct 
Taxes Code Bill seeks to establish a more effective a nd equitable direct tax system and help increase 
the tax to GDP ratio.  The proposed Code would do away with the current system of determining tax 
rates every year through an approved Finance Act, even if no tax changes take place, and replacing it 
by fixed Schedules (to the Code) containing the rele vant tax rates.  New legislation would only be India WT/TPR/S/249 
 Page 9 
 
 
 required when a change of rates is decided, thus enhancing the stability and predictability of the tax 
system. 
21. The proposed Code also seeks to improve pred ictability with respect to the taxation of 
international transactions.  It contains provisions to eliminate the differences in taxation on profits 
between foreign companies, currently taxed at 42. 2% (inclusive of surcharge and cess) and domestic 
companies, taxed at 33.2% (inclusive of surcharge and cess).  It is proposed to set both rates at 30%, 
and to levy a branch profit tax of 15% to replace th e current dividend distributio n tax of 16.6%.  There 
are also provisions to enhance tr ansfer-pricing stability in interna tional transactions by introducing 
five-year advance pricing agreements. 
22. The Code also modifies the current system of  incentives, by phasing out profit-linked tax 
incentives, replacing them with investment-linked incen tives.  This is a very important step, since the 
persistence of the different incentives schemes has been  costly for the Indian economy.  It has resulted 
in forgone excise and customs duties revenue of Rs 4 trillion (US$88.9 billion), some 6.1% of GDP, 
in 2009/10.  Revenue forgone due to corporat e income tax exemptions was estimated at 
Rs 72.8 billion in 2009/10 (some US$1.61 billion), or  0.11% of GDP, while personal tax exemptions 
totalled Rs 45 billion (some US$995 billion, or 0. 07% of GDP).  Revenue forgone on account of 
various export promotion schemes was estimated at Rs 381 billion (US$8.5 billion, or 0.6% of GDP) 
in 2009/10. 
23. The Government's debt-management policy objec tives are to meet the Central Government's 
financing needs at the lowest possible long-term bo rrowing costs and to keep the total debt within 
sustainable limits, while reinforcing th e development of a domestic bond market.13  There are no 
explicit debt caps or limits.  Reflecting the genera l fiscal consolidation policy thrust, the ratio of 
Central Government debt to GDP declined during the period under review, from 61.2% of GDP in 
2005/06 to 53.7% in 2009/10, and is estimated at 49. 9% in 2010/11.  Some 92% of India's (Central 
Government) debt is domestic, most of it medium- to long-term, with a weighted average maturity 
period of ten years.  Some 97% of the Central Governme nt's debt is at fixed rates;  the average interest 
rate is 7.8% per year.14 
24. The net outstanding debt of state governments is estimated at 25% of GDP for 2009/10.  The 
consolidated debt of the Government declined from 78.6% of GDP in 2004/05 to 71.4% in 2007/08, and 69.1% in 2009/10.  Total debt was well below the 74% of GDP target recommended by the 12
th Finance Commission. 
25. FRBM Rules limited Central Government annual indebtedness to a maximum of 9% of GDP 
for 2004/05 to be reduced progressively by at least  one percentage point of GDP in each subsequent 
financial year.  Although there is no explicit public debt target, the Thirteenth Finance Commission 
recommended that action be taken to reduce the co mbined public debt to GDP ratio to 68% by 
2014/15.  A status paper with a roadmap for de bt reduction was presented to Parliament in 
November 2010.  The paper estimated that, at curre nt GDP growth rates, the Central Government's 
debt as a proportion of GDP would decline to 43% in 2014/15, while the state governments' debt would fall more moderately, to 23.1% of GDP in the same fiscal year;  the consolidated Government 
debt would decline from 73% of GDP in 2009/10 to 64.9% in 2014/15. 
                                                      
13 Ministry of Finance (2011a), Chapter 3:  Fiscal Developments and Public Finance. 
14 Ministry of Finance (2011a), Chapter 3:  Fiscal Developments and Public Finance. WT/TPR/S/249 Trade Policy Review 
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 (4) MONETARY AND EXCHANGE RATE POLICY  
26. The Reserve Bank of India (RBI) formulates, implements, and monitors monetary policy.  
The RBI's objective to maintain price and financia l stability and ensure an adequate flow of credit.15  
However, the RBI does not resort to inflation ta rgeting.  The RBI's Monetary Policy Department 
(MPD) formulates monetary policy, while the Financial Markets Depa rtment (FMD) handles 
day-to-day liquidity management operations.  The Technical Advisory Committee (TAC) on Monetary Policy, created in July 2005, provides advice on monetary policy formulation.  The RBI also acts as the Central Government's banker and de bt manager, and acts as banker for the states that 
require it do so. 
27. The RBI implements monetary policy through the use of several direct and indirect 
instruments based on an assessment ma de that takes into account indicators such as interest rates, the 
inflation rate, money supply and credit levels, ex change rate fluctuations, trade and capital flows, 
output trends, and the fiscal position.
16  The RBI's monetary policy operational target is the weighted 
average overnight money rate.  The main direct in strument used to conduct monetary policy is the 
cash reserve ratio (CRR), followed by the statutor y liquidity ratio (SLR) and refinance facilities.17  
The RBI uses the liquidity adjustment facility (LAF),  as its main indirect instrument which enables it 
to adjust short-term liquidity through repo and reverse repo auctions.18  The RBI also makes use of 
open market operations, and the Market Stabilizati on Scheme (MSS) to sterilize foreign inflows.  
Under the MSS, the RBI auctions government secur ities and keeps the equivalent cash balance in a 
special account.  Since mid 2010, the RBI has not ma de much use of the MSS, opting for letting the 
exchange rate adjust. 
28. Until May 2011, the RBI fixed three policy interest  rates:  the repo and reverse repo rates, and 
the Bank rate, which is the rate at which the RBI will buy or rediscount bills of exchange or other 
commercial papers.  The first two rates signalled th e short-term monetary policy stance, while the 
Bank rate signalled the medium-term stance.  As  of 3 May 2011, the repo rate is the only 
independently varying policy rate;  the RBI expect s that a single independently varying policy rate 
will more accurately signal the monetary policy stance.19  The reverse repo was pegged to the repo 
rate at a rate fixed at 100 basis points below it, and a new Marginal Standing  Facility (MSF) rate was 
created.  The MSF is to be at 100 points above the repo rate (8.25% as at May 2011), and will enter 
into effect once the MSF becomes operational.20 
29. In response to the global financial crisis, the RBI adopted an accommodative monetary policy 
stance in September 2008 to boost conf idence and prompt economic growth.21  As economic growth 
                                                      
15 Reserve Bank of India online information, "About us".  Viewed at:  http://www.rbi.org.in/scripts/ 
AboutusDisplay.aspx. 
16 Reserve Bank of India (2010b). 
17 The CRR is the share of net demand and time liabilities (NDTL) that banks must maintain as cash 
balance with the RBI;  the SLR is the share of NDTL that banks must maintain in safe and liquid assets such as 
government securities, cash, and gold. 
18 The repo rate is the rate at which the RBI lends money to banks under the LAF;  the reverse repo rate 
is the return earned by banks on funds deposited with the RBI. 
19 Reserve Bank of India (2011c). 
20 The new Marginal Standing Facility (MSF) w ill allow scheduled commercial banks to borrow 
overnight up to 1% of their respective NDTL. 
21 The measures the RBI took as a response to the global financial crisis, included:  reductions in 
interest rates;  loosened restrictions  on access to foreign currency;  the crea tion of a rupee-dolla r swap facility to 
manage short-term funding requirements;  the establishment of a refinancing window and special-purpose India WT/TPR/S/249 
 Page 11 
 
 
 accelerated in 2009/10 and headline inflation increased, the RBI partly shifted policy stance, restoring 
the statutory liquidity ratio (SLR) of scheduled co mmercial banks to its pre-crisis level.  During 
2010/11, the RBI continued to gradually abandon the accommodative policy stance and refocused 
monetary policy on containing inflation and inflationary expectations.22  The RBI raised its policy 
rates seven times until April 2011, with the repo rate  cumulatively rising by 200 basis points (bps) to 
6.75% and the reverse repo rate by  250 bps to 5.75%.  The CRR was ke pt at 6%, at which it stood in 
May 2011.  In May 2011, following the change in po licy stance to fix only one rate, the repo rate was 
increased to 7.25%, while the reverse repo was adjusted automatically to 6.25%. 
30. The persistent liquidity pressure led the RBI to provide additional liquidity support to 
scheduled commercial banks in November 2010.23  Subsequently, in December 2010, the RBI reduced 
the SLR of scheduled commercial banks from 25% to 24%.  As at April 2011, growth remained 
strong and inflation was still significantly above the comfort level of the RBI, with risks on the upside, both from domestic demand and higher glob al commodity prices.  One of the RBI's major 
challenges continues to be to supply the liquidity  required while containing inflation and anchoring 
inflationary expectations. 
31. India has had a managed float since 1993, with th e exchange rate determined in the interbank 
market.  The degree of intervention of the RBI to stabilize the market has varied over time;  the RBI 
does not have a fixed or pre-announced target or band,  and has intervened in the market when deemed 
necessary in accordance with its general monetary po licy stance.  The exchange rate policy in recent 
years has approached more a pure float, with the RBI intervening very little in the market.  
Maintaining a floating exchange rate helps India abso rb external shocks and large inflows of capital. 
32. After appreciating sharply in FY 2007/08 as a re sult of large capital inflows, the nominal 
effective exchange rate (NEER) depreciated in the af termath of the global financial crisis.  During the 
crisis and in its aftermath, the RBI focused less on the exchange rate, allowing for wider flotation and 
higher volatility.  Since 2010, the nominal eff ective exchange rate has been appreciating.
24  The real 
effective exchange rate (REER) de preciated in 2008/09, but started appreciating in 2009/10;  this 
appreciation has been modest even though inflation in India has been considerably higher than in 
countries whose currencies comprise its REER basket.25 
33. Further currency appreciation is likely in the ab sence of fiscal tightening, particularly given 
the increasingly floating nature of the exchange rate  regime.  Estimating a real appreciation of the 
rupee of some 6% (as at December 2010) from its ten-year histori cal average, the IM F considers that 
further moderate REER appreciation would not have a significant negative impact on growth.26  
Moderate appreciation could be beneficial, partic ularly as it would make imports cheaper and help 
rein-in inflation, and it could lead to some sel f-correction, as it would reduce the attraction for 
                                                                                                                                                                     
vehicle for non-banking financial companies;  and the expa nsion of funding sources for financial institutions to 
keep credit flowing to small and export businesses and for housing (Ministry of Finance, 2011a). 
22 Reserve Bank of India (2010e). 
23 The RBI has fixed a liquidity comfort level of +/- 1% of net demand and term liabilities.  When 
liquidity departs too much from this range, the RBI intervenes through open-market operations or the MSS.  The 
liquidity pressure observed in 2010 stemmed from a large build-up of Government cash balances, accompanied by a strong demand for credit. 
24 The NEER and REER baskets comprise:  U.S. dollar, euro, yen, pound sterling, HK$, and the 
renminbi. 
25 Initially the rupee appreciated against the U.S. do llar, however this did not offset its depreciation 
against other currencies in its NEER basket resulting in the NEER depreciating. 
26 IMF (2011). WT/TPR/S/249 Trade Policy Review 
Page 12 
  
 additional inflows.  However, over the medium run,  further appreciation would result in a worsening 
of the current account deficit, requiring further inflow s of capital and or debt to finance it (see below). 
(5) BALANCE OF PAYMENTS  
34. India posts a structural trade deficit, partly explained by its large p opulation and development 
needs.  During the period under review, strong domestic demand and rising oil and food prices 
resulted in a widening of the trade deficit, leading to a current account deficit throughout the reviewed 
period.  The trade deficit peaked at US$119.5 bi llion in 2008/09 (some 10% of GDP) (Table I.4), 
before declining somewhat in 2009/10.  Partial da ta for 2010/11 shows an increase in the deficit, 
linked to higher growth rates and hence increased absorption, which translated into a substantial 
increase in imports, which more than offset the expansion in exports. 
Table I.4 
Balance of payments, 2006-11 
(US$ million)  
 2006/07 2007/08 2008/09 2009/10 2010/11a 
Current account -9,565 -15,737 -27,915 -38,383 -38,940 
Goods and services balance -32,313 -52,615 -65,604 -82,648 -82,648 
Goods balance -61,782 -91,467 -119,520 -118,374 -102,124 
Exports f.o.b. 128,888 166,162 189,001 182,235 173,004 
Imports c.i.f. 190,670 257,629 308,521 300,609 275,128 
Services balance 29,469 38,852 53,916 35,726 34,246 
Receipts 73,780 90,342 105,963 95,759 95,920 
Transportation 7,974 10,014 11,310 11,177 10,133 
Travel 9,123 11,349 10,894 11,859 10,757 
Insurance 1,195 1,639 1,422 1,603 1,359 
Softwareb 31,300 40,300 46,300 49,705 41,812 
Business 14,544 16,772 18,603 11,368 17,846 
Finance 3,106 3,217 4,428 3,736 4,900 
Communication 2,262 2,408 2,298 1,229 1,166 
Government n.e.s. 253 331 389 440 369 
Other 4,023 4,313 10,319 4,642 7,578 
Payments 44,311 51,490 52,047 60,033 61,674 
Transportation 8,068 11,514 12,820 11,934 10,642 
Travel 6,684 9,258 9,425 9,342 7,990 
Insurance 642 1,044 1,130 1,286 1,099 
Softwareb 2,267 3,358 2,564 1,469 1,869 
Business 15,866 16,553 15,317 18,049 20,913 
Finance 2,991 3,133 2,958 4,643 5,270 
Communication 796 860 1,087 1,355 811 
Government n.e.s. 403 376 793 526 543 
Other 6,594 5,394 5,952 11,429 12,573 
Income balance -7,331 -5,068 -7,110 -8,040 -10.645 
Credit 9,308 14,272 14,309 13,022 6,925 
Debit 16,639 19,339 21,418 21,062 17,570 
Current transfers 30,079 41,945 44,798 52,305 39,583 
Credit 31,470 44,261 47,547 54,623 41,830 
Debit 1,391 2,316 2,749 2,318 2,247 
Capital account 46,171 107,901 7,835 51,824 49,959 
Direct investment 7,693 15,893 19,816 18,771 7,606 
Foreign direct investment in I ndia 22,739 34,728 37,672 33,124 18,033 
India's direct investment abroad -15,046 -18,835 -17,855 -14,353 -10,427 
Portfolio investment 7,060 27,433 -14,031 32,396 30,095 
Loans, net 24,490 40,652 8,318 13,259 22,006 
External assistance 1,775 2,114 2,441 2,893 4,190 
Commercial borrowingsc 22,715 38,538 5,877 10,366 17,816 
Table I.4 (cont'd)India WT/TPR/S/249 
 Page 13 
 
 
  2006/07 2007/08 2008/09 2009/10 2010/11a 
Banking, net 1,913 11,759 -3,246 2,084 5,741 
Rupee debt service -162 -122 -100 -97 -17 
Other capital, net 4,209 10,968 -3,990 -13,016 -12,699 
Errors and omissions 968 1,316 1,067 -1,573 -2,773 
Reserve assets (a minus sign denotes an 
increase) -36,606 -92,164 20,080 -13,441 -11,019 
a April to December 2010. 
b Software services include computer services and informati on technology enabled services (I TES)/business process outsourcing 
 (BPO). 
c Includes short-term credit. 
Source :  Reserve Bank of India online information, "RBI Bu lletin".  Viewed at:  http://rbi.org.in/scripts/BS_ 
ViewBulletin.aspx. 
35. While posting a structural trade deficit, India has a sizeable surplus in the services balance.  
Until the global financial crisis this surplus increased substantially, on account mainly of higher 
exports;  in FY 2009/10, in the aftermath of the cris is, the surplus dropped by a third, partly due to 
lower exports but also to an increase in imports, in particular of financial and business services. 
36. India's increasing current account deficit is a re flection of the extent by which gross domestic 
investment needs in India exceed gross domestic savi ng.  During the review period, public investment 
was consistently greater than public sector savings, partly due to the high growth rates, but also reflecting the deterioration of the fiscal accounts and the resulting increase in the public deficit. 
37. The financing of the current account deficit has not been a problem:  although unevenly 
spread across the period, there have been large capita l inflows, both as foreign direct investment (FDI) 
and as portfolio investment, attracted by the expanding domestic demand and the good prospects of 
the economy.
27  Foreign institutional investor (FII) investment, external commercial borrowing 
(ECBs), and trade credit account for most capital flows, with FII flows being the largest.28  Foreign 
convertible currency bonds (FCCBs), which can be c onverted into equity at maturity, constituted a 
significant part of the ECBs raised in 2007/08 and 2009/10.29 
38. Despite their general upward trend, capital in flows have been highly volatile during the 
period under review, due to the heavy reliance on portf olio capital and to the global financial crisis:  
FIIs have accounted for some 47% of flows, comp ared to just 9% represented by FDI inflows.  
Volatility has been largely accommodate d by exchange rate fluctuations , without the need for massive 
                                                      
27 Net capital inflows (excluding errors and omissions ) totalled US$106.6 billion, or 8.7% of GDP in 
2007/08;  they plummeted to 0.5% of GDP during 2008/09, but rose to 4.1% during 2009/10.  During the first 
three quarters of 2010/11 (April-D ecember 2010), net capital flows were US$52.7 billion, almost 40% higher 
than during the same period of the previous year. 
28 Foreign institutional investors (F IIs), non-resident Indi ans (NRIs), and person s of Indian origin 
(PIOs) are allowed to invest in the primary and se condary capital markets in India through the portfolio 
investment scheme (PIS).  Under this scheme, FIIs/NRIs can acquire shares/debentures of Indian companies 
through the stock exchanges in India.  The ceiling for overall investment for FIIs is 24%t of the paid-up capital 
of the Indian company and 10% for NRIs/PIOs.  The limit is 20% of the paid-up capital in the case of public-sector banks.  The ceiling of 24% for FII investment can be raised up to the sectoral cap/statutory ceiling, 
and the ceiling of 10% for NRIs/PIOs to 24%, subject to the approval of the general body of the company.  The 
ceiling for FIIs is independent of the ceiling of 10/24% for NRIs/PIOs.  Repatriation by any single NRI/PIO must not exceed 5% of the paid up equity capital of the company. 
29 FCCBs are issued outside of India and give the investor the option to convert the bond into equity at 
a fixed conversion price or as per a pre-determined pricing formula. WT/TPR/S/249 Trade Policy Review 
Page 14 
  
 open market interventions on the part of the RBI.  The policy approach to wards capital inflows has 
been to aim at the broader objective of financia l and macroeconomic stability and let the exchange 
rate adjust.  To this end, the authorities seek to encourage non-debt-crea ting and long-term capital 
inflows and to discourage short-term debt flows, ex cept for trade transactions.  The authorities expect 
to achieve this through the use of multiple inst ruments, including quantitative limits, price-based 
measures, and administrative measures, particular ly to limit corporate foreign currency borrowing.30  
In particular, the Government has undertaken measur es to attract capital that may be converted into 
equity, for example, through the use FCCBs.  Also, private investor limits in the corporate bond market have been increased to US$40 million per inv estor, and to US$10 million per investor in the 
case of government bonds.  Moreover, foreign investor s may now invest in corporate bonds issued by 
non-listed companies. 
39. As a result of strong capital inflows, and desp ite the rising current account deficit, foreign 
exchange reserves continued to s how robust growth overa ll through the period, increasing by almost 
US$50 billion between 2006/07 and 2010/11.  India's foreign exchange reserves were at US$309.7 billion in late-April 2011, equivalent to so me 9.9 months of imports.  Reflecting the mostly 
short-term nature of capital inflows, India's extern al liabilities have been increasing.  The debt/service 
ratio was at 5.5% of exports at the end of 2009/10, up from 4.7% in 2006/07, while the ratio of external debt to foreign exchange reserves in creased from 89.1% of GDP in 2008/09 to 99.9% at 
end-December 2010, and the ratio of  short-term debt to reserves increased from 17.2% to 21.0%.  
Although pressures for repayment of FCCBs could star t building up in the near future, the authorities 
consider that the issue is not to limit capital flows but to be able  to manage the capital account to 
respond to the needs of the real economy while maintaining financial stability.
31 
(6) DEVELOPMENTS IN TRADE  
(i) Composition of trade in goods 
40. Merchandise trade as a percentage of GDP conti nued to increase during the review period, to 
40.3% of GDP in 2009/10 up from 30.1% in 2005/06.  This was despite the negative effects on trade 
of the global economic crisis.  Impor ts continued to grow faster than  exports, leading to a widening of 
the trade deficit. 
41. Exports increased from US$126.4 billion in 2005/ 06 to US$178.8 billion in 2009/10, growing 
at an average annual rate of 15.4% during the period.  However, in 2009/10, they decreased by 3.5% over 2008/09, reflecting the effects of the global economic crisis.  Over the review period, the share of 
manufactures in India's exports remained stable while  the share of primary products decreased slightly 
from 33.9% to 33%.  Fuel products and machinery and transport equipment are the main components 
of Indian exports, followed by chemicals (Table AI.1 and Chart I.1).  Food products, clothing, and 
textiles remain among the main exported commoditi es.  Diamonds and, in particular, jewellery 
products have emerged as significant exports. 
                                                      
30 Reserve Bank of India (2011d). 
31 Reserve Bank of India (2011d). India WT/TPR/S/249 
 Page 15 
 
 
 Chart I.1
Product composition of merchandi se trade, 2006/07 and 2009/10
2006/07 2009/10
(a)    Exports (f.o.b.)
Other consumer 
goods
8.0
Manufactures
65.0
Total:   US$126.4 billion Total:  US$178.8 billion  
(b)    Imports (c.i.f.)
Gold
7.8
Chemicals
9.0Transport  equipment  
5.6
Manufactures
46.1
Iron & steel
3.4Electrical machines  
9.1
Non-electrical 
machinery
7.8
Other mining
6.5Fuels
33.3
Non-electrical
machinery
6.9Other
2.2Iron & steel
3.5
Other semi-manuf.   
7.8Transport equipment  
4.7
Chemicals
10.0Manufactures
44.1
Total:   US$185.7 billion Total:   US$288.4 billion Per cent
Manufactures
63.9Textiles
5.7
Non-electrical machinery
83.6Clothing
7.5
Other consumer goods  
4.0Other
1.3Fuels
16.2
Non-electrical 
machinery
3.9Electrical machines 
2.9Other
3.1
Other semi-manufactures
14.6Other mining
6.3Agriculture
10.6
Other semi-manufactures
14.2
Source :  WTO calculations, based on Department of Co mmerce online information, "Export Import Data
Bank".  Viewed at:  http://commerce.nic.in/eidb/default.asp [24/02/2011].Other  consumer goods 
4.7
Iron & steel
2.8Other consumer
goods  
9.1
Transport equipment
5.8Textiles
7.1
Other semi-manuf.
6.4Other mining
8.4Fuels
14.9
Agriculture
5.7Agriculture
5.0
Electrical machines
8.0Gold
10.0Transport equip.
4.3
Electrical machines
3.7
Chemicals  
11.4Chemicals  
11.2Other 
1.2
Other mining
4.6Fuels
33.4Iron & steel
5.6Agriculture
10.6
Clothing
6.4
 WT/TPR/S/249 Trade Policy Review 
Page 16 
  
 42. In 2009/10, imports totalled US$288.4 bil lion, up from US$185.7 billion in 2006/07, 
expanding at an annual average rate of 18.9% duri ng the period.  However, there was a decline in 
imports in 2009/10 over 2008/09 (-5.1%) as domest ic demand slowed down under the effects of the 
global crisis.  Over the review period, crude oi l represented around one quarter of India's total 
imports, followed by machinery and transport equipmen t, chemicals, and gold (Table AI.2).  In 2008, 
the share of primary products in India's to tal imports exceeded the share of manufactures. 
43. India is intent in promoting export growth.  In  February 2011, the Ministry of Commerce and 
Industry released a "Strategy for doubling exports in the next three years", aimed at increasing merchandise exports from an estimated US$225 billion in 2010/11 to US$450 billion in 2013/14.  To 
achieve this, the Government in tends to intensify initiatives to diversify products and markets, 
particularly diversifying towards emerging economies.  The base of the strategy is to promote aggressively export growth of high value products that have a strong domestic manufacturing base, 
such as engineering, including machinery and transport equipment, and chemicals.
32 
(ii) Direction of trade in goods 
44. Over the review period, India's main export ma rkets were the EU 27 (20.5% of total exports 
in 2009/10), followed by the United Arab Emirates (13.4%), the United States (11.0%), and China 
(6.5%) (Table AI.3 and Chart I.2).  India's main sources of imports were the EU 27, China, and the 
United Arab Emirates (Table AI.4).  During the pe riod under review, exports continued to shift away 
in relative terms from Europe and the United States (22.5% and 16.9%, respectively, of total exports 
in 2005/06), while the share of the U.A.E. and As ia continued to increase.  The same trend is 
witnessed with respect to the origin of imports;  although the EU 27 (13.3% of the total) and the 
United States (5.9%) are still major exporters to Indi a, the shares of Asia (32.6%) and the Middle East 
(26.5%) have been increasing and they are now the main origins of imports (Chart I.2 and 
Table AI.5).  The diversification reflects the changing composition of India's trade. 
(iii) Trade in services 
45. India is a net exporter of services.  The ser vices trade surplus as a percentage of GDP 
increased from US$29.5 billion or 3.1% in 2006/07 to  US$54 billion or 4.7% in 2008/09 (Table I.4) 
as software and IT exports, as well as transportation,  travel and business services grew considerably.  
After peaking in 2008/09, however, exports of services declined, as they were strongly affected by the 
global financial crisis, while imports continued to in crease.  This led to a substantial reduction in the 
surplus, to US$35.7 billion, or 2.8% of GDP in 2009/ 10;  the surplus for 2010/11 is also estimated to 
be significantly lower than in 2008/09.  Most a ffected by the global crisis were business services and 
communications, while exports of software services continued to grow. 
 
                                                      
32 Department of Commerce (2011). India WT/TPR/S/249 
 Page 17 
 
 
 Chart I.2
Direction of merchandise trade, 2006/07 and 2009/10
2006/07 2009/10
(a)    Exports (f.o.b.)
Asia
31.7
Total:   US$126.4 billion Total:  US$178.8 billion
(b)    Imports (c.i.f.)
Nigeria
3.8Switzerland
4.9EU27
16.1United States
6.3
EU27
13.3Kingdom of 
Saudi Arabia
5.9Other
4.6
Indonesia
3.0
United States
5.9
Total:   US$185.7 billion Total:   US$288.4 billionPer cent
Asia
31.9
United Arab 
Emirates
13.4Other Middle East
6.9
Indonesia
2.3
United Arab 
Emirates
6.8Kuwait  2.9Other
3.0
United States
14.9Singapore
4.2
Switzerland
5.1United States
11.0
Iran  4.0EU27
20.5Other Middle East
7.2
Other Africa
6.4Other Africa
4.1Iran   4.1 Other
3.1EU27
21.2Hong Kong, 
China  
3.7
Middle
East
20.3
Other America
4.1Hong Kong,
China
4.4
Kuwait   3.2China
6.6
Australia
4.3United Arab 
Emirates
9.5
Nigeria
2.5United Arab
Emirats
4.7Other Middle East
7.0Other Asia
16.8
Other America
4.3China
6.5
Africa 
7.5
Other America
4.3Other America
4.3Kingdom of
Saudi Arabia
7.2Other Middle East
6.5Middle
East
16.8
Africa
8.1Other Asia
16.6
Middle East
26.5Singapore
4.8
Other
3.3Other Asia
14.6Other Asia
16.3China
10.7China
9.4
Asia
31.7
Source :  WTO calculations, based on Department of Commerce online information, "Export Import Data
Bank".  Viewed at:  http://commerce.nic.in/eidb/default.asp [24/02/2011].Middle East
25.7Asia
32.6Australia
3.8
 WT/TPR/S/249 Trade Policy Review 
Page 18 
  
 (7) DEVELOPMENTS IN FOREIGN DIRECT INVESTMENT  
46. India has benefited from large inflows of capital during the period under review, both in the 
form of portfolio investment and as foreign direct  investment (FDI).  Annual FDI inflows grew from 
US$22.86 billion in 2006/07 to US$37.76 billion in 2009/10. 
47. FDI inflows have been strong in telecommunica tions (reflecting partly large auctions of 
licences) and in other services.  Inflows have also  been robust in housing and real estate, and 
construction, as well as power-related activities and the automobile sector (Table I.5).  Increased FDI 
inflows during the period reflect to a large exte nt the increase in FDI limits in various sectors 
(Chapter II(4)(ii)), but also the attractiveness of India's large domestic market and solid economic 
growth. 
Table I.5 
Foreign direct investment inflows/outflows, by economic activity, 2006-11a 
(US$ million) 
 2006/07 2007/08 2008/09 2009/10 2010/11b 
Total inflows, net 22,826 34,835 37,838 37,763 25,949 
Total inflows, based only on equity capita l components 12,492 24,575 27,330 25,834 18,355 
Services, other than telecommunicati ons 4,698 6,614 6,150 4,324 3,274 
Computer software and hardware 2,618 1,425 1,724 919 766 
Telecommunications 478 1,261 2,558 2,554 1,410 
Housing and real estate 467 2,233 2,801 2,939 1,109 
Construction 985 1,743 2,028 2,862 1,072 
Automobile industry 276 675 1,152 1,208 1,320 
Power 157 974 999 1,437 1,237 
Metallurgical industries 173 1,177 961 407 1,044 
Petroleum and natural gas 89 1,405 350 271 562 
Chemicals (other than fer tilizers) 205 229  749 362 384 
Other 2,346 6,842 7,858 8,551 6,177 
Total outflows, net 10,447 18,442 16,325 12,270 14,246 
a Financial years. 
b Data until February 2011. 
Source :   RBI monthly data (February 2011) ;  and Ministry of Finance (2011), Economic Survey 2010-11 .  Viewed at:  
http://indiabudget.nic.i n/.  Data based only on e quity capital components are ta ken from the Department of 
Industrial Policy and Promotion online information,  "FDI in India:  Statistics".  Viewed at:  
http://www.dipp.nic.in/fdi_sta tistics/india_fdi_index.htm;  and informa tion provided by the Indian authorities. 
48. Mauritius remains the largest source of FDI, accounting for approximately 40.2% of inward 
FDI flows in 2009/10 (Table I.6).  Part of these large flows may result from the advantages of the tax treaty between Mauritius and India, which may make  it attractive for investors to route their 
investment through Mauritius to take advantag e of the preferential provisions, which include 
exemption from the capital gains tax.  Other major sources during the period under review were 
Singapore, the United States, Cyprus, and Japan. 
Table I.6 
Foreign direct investment inflows/outflows, by origin, 2006-11a 
(US$ million) 
 2006/07 2007/08 2008/09 2009/10 2010/11b 
Total inflows, net 22,826 34,835 37,838 37,763 25,949 
Total inflows, based only on equity capita l components 12,492 24,575 27,330 25,834 18,355 
Mauritius 6,363 11,096 11,229 10,376 5,746 
Singapore 578 3,073 3,454 2,379 1,449 
United States 856 1,089 1,802 1,943 1,055 
Table I.6 (cont'd)India WT/TPR/S/249 
 Page 19 
 
 
  2006/07 2007/08 2008/09 2009/10 2010/11b 
United Kingdom 1,878 1,177 864 657 475 
Netherlands 644 695 883 899 1,016 
Japan 85 815 405 1,183 1,192 
Cyprus 58 834 1,287 1,627 633 
Germany 120 514 629 626 111 
France 117 145 467 303 685 
United Arab Emirates 260 258 257 629 321 
Other 1,533 4,879 6,053 5,212 5,672 
Total outflows, net 10,447 18,442 16,325 12,270 14,246 
a Financial years.   
b Data until February 2011. 
Source :   RBI monthly data (February 2011) ;  and Ministry of Finance (2011), Economic Survey 2010-11 .  Viewed at:  
http://indiabudget.nic.i n/.  Data based only on e quity capital components are ta ken from the Department of 
Industrial Policy and Promotion online information,  "FDI in India:  Statistics".  Viewed at:  
http://www.dipp.nic.in/fdi_sta tistics/india_fdi_index.htm;  and informa tion provided by the Indian authorities. 
49. India's total FDI outflows increased from US$10,447 million in 2006/07 to a peak of 
US$18,442 million in 2007/08.  Outflows began to rise again in 2010/11.