RESTRICTED  WORLD  TRADE  
ORGANIZATION  WT/TPR/S/182 
18 April 2007  
 
(07-1543) 
Trade Policy Review Body  
   
 
  
 
TRADE POLICY REVIEW 
 
Report by the Secretariat 
 
INDIA 
 
  
 
This report, prepared for the fourth Tr ade Policy Review of India, has been 
drawn up by the WTO Secretariat on its own responsibility.  The Secretariat has, 
as required by the Agreement establishing the Trade Policy Review Mechanism 
(Annex 3 of the Marrakesh Agreement Establishing the World Trade 
Organization), sought clarification from India on its trade policies and practices. 
 
Any technical questions arising from this report may be addressed to 
Ms. Rohini Acharya (tel:  022 739 5874). 
 
Document WT/TPR/G/182 contains the policy statement submitted by India. 
 
 
 
 
Note: This report is subject to restricted ci rculation and press embargo until the end of the 
first session of the meeting of the Trade Policy Review Body on India. India WT/TPR/S/182 
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CONTENTS 
    Page 
SUMMARY OBSERVATIONS vii 
 (1) E CONOMIC ENVIRONMENT  vii 
 (2) T RADE AND INVESTMENT POLICY FRAMEWORK  vii 
 (3) T RADE AND TRADE -RELATED REFORMS  viii 
 (4) O THER MEASURES AFFECTING TRADE  ix 
 (5) S ECTORAL POLICIES  xi 
 (i) Agriculture xi 
 (ii) Manufacturing xi 
 (iii) Services xi 
 (6) P ROPECTS  xii 
I. ECONOMIC ENVIRONMENT 1 
 (1) O VERVIEW  1 
 (2) R ECENT ECONOMIC DEVELOPMENTS  2 
 (i) Economic performance 2 
 (ii) Macroeconomic policies 7 
 (iii) Structural reform 11 
 (3) D EVELOPMENTS IN TRADE  14 
 (i) Composition of trade in goods and services 14 
 (ii) Direction of trade 14 
 (4) D EVELOPMENTS IN FOREIGN INVESTMENT  17 
 (5) O UTLOOK  17 
II. TRADE POLICY REGIME:  FRAMEWORK AND OBJECTIVES 19 
 (1) G ENERAL CONSTITUTIONAL AND LEGAL FRAMEWORK  19 
 (i) Institutional and legal framework 19 
 (ii) Trade policy formulation and implementation 21 
 (2) T RADE POLICY OBJECTIVES  22 
 (3) T RADE AGREEMENTS AND ARRANGEMENTS  23 
 (i) World Trade Organization 23 
 (ii) Regional trade agreements 24 
 (iii) Other trade arrangements 29 
 (4) F OREIGN INVESTMENT REGIME  29 
 (i) Overview 29 
 (ii) Legislation and approval procedures 30  (iii) Incentives 31 
 (iv) Investment agreements 31 
Annex II.1:  Trade related technical assistance 32 
III. TRADE POLICIES AND PRACTICES BY MEASURE 33 
 (1) O
VERVIEW  33 
 (2) M EASURES DIRECTLY AFFECTING IMPORTS  35 
 (i) Procedures 35 WT/TPR/S/182 Trade Policy Review 
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    Page 
 
 (ii) Customs valuation and clearance 36 
 (iii) Tariffs 38  (iv) Tariff exemptions 42 
 (v) Tariff rate quotas 44 
 (vi) Other charges affecting imports 44  (vii) Tariff preferences 44 
 (viii) Rules of origin 45 
 (ix) Import prohibitions, restrictions, and licensing 46  (x) Contingency measures 48 
 (xi) Standards and other technical requirements 50 
 (xii) Sanitary and phytosanitary measures 53  (xiii) Labelling 56 
 (xiv) Government procurement 56 
 (xv) State trading 59  (xvi) Other measures 60 
 (3) M
EASURES DIRECTLY AFFECTING EXPORTS  60 
 (i) Procedures 60 
 (ii) Quality control and preshipment inspection for exports 61 
 (iii) Export taxes 61  (iv) Minimum export prices 61 
 (v) Export prohibitions, restrictions, and licensing 62 
 (vi) Measures maintained by importing countries 63  (vii) Duty and tax concessions 64 
 (viii) Free-trade zones 65 
 (ix) State trading 66  (x) Export finance, insurance, and guarantees 68 
 (xi) Export promotion and marketing assistance 69 
 (4) M
EASURES AFFECTING PRODUCTION AND TRADE  69 
 (i) Industrial policy 69 
 (ii) Taxation and non-tax assistance 74 
 (iii) Price controls 80  (iv) Role of state-owned enterprises and privatization 81 
 (v) Intellectual property rights 84 
 (vi) Corporate governance 92  (vii) Competition policy 94 
Annex III.1:  The tariff and other import charges 98 
IV. TRADE POLICIES BY SECTOR 99 
 (1) I
NTRODUCTION  99 
 (2) A GRICULTURE  100 
 (i) Overview 100 
 (ii) Agricultural policies 103 
 (3) E NERGY   114 
 (i) Oil and gas 114 
 (ii) Electricity 116 
 (4) M ANUFACTURING  119 
 (i) Textiles and clothing 119 
 (ii) Steel 122 
 (iii) Automobiles 124  (iv) Information technology (IT) 125 India WT/TPR/S/182 
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    Page 
 (5) S ERVICES  126 
 (i) Overview 126 
 (ii) Commitments under the General Agreement on Trade in Services 127  (iii) Financial services 127 
 (iv) Telecommunications 133 
 (v) Transport 136  (vi) Professional services 145 
REFERENCES   150 
APPENDIX TABLES  157 
 
  
CHARTS 
   
I. ECONOMIC ENVIRONMENT 
 
I.1 Product composition of merchandise trade, 2000/01 and 2005/06 15 I.2 Direction of merchandise trade, 2000/01 and 2005/06 16 
 
III. TRADE POLICIES AND PRACTICES BY MEASURE  
 
III.1 Average standard and bound tariff rates, by HS section, 2006/07 40 III.2 Distribution of standard tariff rates, 2006/07 41 
III.3 Tariff escalation by 2-digit ISIC industry, 2001/02 and 2006/07 43 
III.4 Import restrictions/licensing by HS section, 2006/07 48 III.5 Anti-dumping measures, January 2002-December 2005 51 
 
IV. TRADE POLICIES BY SECTOR  
IV.1 Standard rates on agricultural products, 2001/02 and 2006/07 105 
  
 
TABLES 
 
I. ECONOMIC ENVIRONMENT 
 I.1 Selected macroeconomi c indicators, 2000-07 2 
I.2 Basic economic and soci al indicators, 2000-06 4 
I.3 Total factor productivity in India, 1978-04 6 
I.4 Central Government balance, 2000-07 9 
I.5 Central Government's tax revenue, 2000-07 10  
II. TRADE POLICY REGIME:  FRAMEWORK AND OBJECTIVES 
 II.1 India's commitments under regional trade agreements, 2007 24 
 
III. TRADE POLICIES AND PRACTICES BY MEASURE  
 
III.1 India's tariff structure 39 
III.2 Summary analysis of the Indian preferential tariff, 2006/07 45 III.3 Preferential rules of origin 45 WT/TPR/S/182 Trade Policy Review 
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    Page 
 
III.4 Import prohibitions, 2006 and 2001 46 
III.5 Principle SPS legislation and implementing agencies, 2006 54 III.6 Imports subject to state trading, 2001 and 2006 59 
III.7 Export prohibitions, 2002 and 2006 62 
III.8 Exports subject to state trading, 2001 and 2006 67 III.9 Industries for which indust rial licensing is compulsory 70 
III.10 Items reserved for the small-scale sector, 2001 and 2006 72 
III.11 Explicit subsidies, 2002/03-2006/07 80 III.12 The number of patents granted and in force, 2001-06 86 
III.13 Cases disposed of by MRTPC, 2002-05 96 
 IV. TRADE POLICIES BY SECTOR 
 
IV.1 Public sector investment and subsidies in agriculture, 2000-05 108 IV.2 Deposit rates and lending rates, 2000-07 129 
  
 
 
APPENDIX TABLES 
  
 
I. ECONOMIC ENVIRONMENT  
AI.1 Balance of payments, 2000-05 159 
AI.2 Merchandise exports by group of products, 2000-06 161 AI.3 Merchandise imports by group of products, 2000-06 163  
AI.4 Merchandise exports by destination, 2000-06 165  
AI.5 Merchandise imports by origin, 2000-06 166  
AI.6 Foreign direct investment inflows/outflows by economic activity, 2000-06 167  
AI.7 Foreign direct investment inflows/outflows by country, 2000-06 168  
  
II. TRADE POLICY REGIME:  FRAMEWORK AND OBJECTIVES 
 AII.1 Status of notification requirements to the WTO, January 2002-18 January 2007 169 
AII.2 Disputes involving India, 2002-06 171 
AII.3 Foreign investment re quirements, December 2006 174 
 
 III. TRADE POLICIES AND PRACTICES BY MEASURE  
 
AIII.1 Agricultural products with a higher standard rate in 2006/07 than in 2001/02 177 AIII.2 Tariff rate quotas issued, 2002/03-2006/07 178 
AIII.3 Indian standards and harmonization with ISO/IEC, 2002-06 179 
AIII.4 Export incentives and performance requirements, 2005/06 180 AIII.5 Assistance to the micro and small enterprises (MSEs), 2006 183 
 
 IV. TRADE POLICIES BY SECTOR 
 
AIV.1 Additional capacity gr anted during bilateral air transport ta lks, January 2003 to  December 2006 185 
 
 India WT/TPR/S/182 
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SUMMARY OBSERVATIONS 
(1) ECONOMIC ENVIRONMENT  
1. India's economic performance has 
been impressive, averaging over 7% between 
2001/02 and 2006/07 (fiscal year, 
April-March).  Growth has been particularly 
rapid since 2003/04, averaging over 8.5%, with over 9% expected  for 2006/07.  The 
Government is aiming to sustain growth at 
between 8% and 10% per year over the longer 
term.  Rapid economic growth has translated into an improvement in  social indicators, 
including a decline in infant mortality, a reduction in the percentage of the population living below the poverty line and 
improvements in literacy, sanitation and 
access to clean water.  This impressive performance is largely due to unilateral trade and structural reforms, which have been continued during the period.  Growth has been 
led by the services sector, where liberalization 
has been most rapid.  Manufacturing has also performed well, although further growth may be impeded by infrastructure and other constraints.  In contrast, agricultural growth continues to be slow and erratic and 
dependent on the weather, causing 
considerable distress, especially among small and marginal farmers. 
2. Recognizing the importance of 
continuing its economic reform and especially 
its trade aspects, Indi a has pushed ahead with 
further reductions in the tariff:  the overall applied MFN rate fell from 32.3% to 15.8% between 2001/02 and 2006/07.  There has also been simplification of the tariff, although it 
remains complex.  The Government is 
targeting higher export growth in order to sustain India's high levels of economic growth and has put in place a complex set of schemes to reduce the anti-export bias of the trade regime for exporters. 
3. Despite a gradual increase in total tax 
revenue since the previous Review, India's tax to GDP ratio is relatively low and seemingly insufficient to meet its  developmental needs.  
Further public spending on infrastructure and social services is constrained by the Fiscal 
Responsibility and Bu dget Management 
(FRBM) Act, 2003, which requires India to reduce its fiscal and revenue deficits and to 
eliminate the revenue deficit by 
31 March 2009.  Private investment is also deterred by high real rates of interest, while foreign direct investment (FDI) at around 1% of GDP has remained disappointing.  In order 
to meet its FRBM targets, the Government has 
introduced tax reform to improve collection and increase revenue.  Expenditure reductions include further reform of the targeted public distribution system (TPDS) and a partial dismantling of administered pricing for 
petroleum.  However, state-owned enterprises 
remain a considerable demand on government resources and the recent decision to "pause" privatization will have implications for future government support for these enterprises. 
(2) T
RADE  AND INVESTMENT  POLICY 
FRAMEWORK  
4. There have been no major changes to 
India's policy framework since its previous Review.  India has a Parliamentary system.  The Lower House is elected directly and sits 
for five years, while the Council of States 
includes representatives elected by the legislative assemblies of the states.  Executive power is vested in the President who appoints the Prime Minister and other members of the 
Cabinet.  The Cabinet must be composed of 
Members of Parliament.  
5. India's legal system is based on 
written law.  The judiciary is headed by the Supreme Court, which has jurisdiction over all 
disputes between the Central Government and 
states or between the states.  The Supreme Court is also the court of final appeal for cases heard by the High Court in each state, and by district and session courts at the local level.  The legal system is burdened by 
insufficient resources and procedural delays, 
resulting in a large and apparently growing backlog of cases before the high courts and the lower courts.  Measures are being taken to address the backlog of cases, including WT/TPR/S/182 Trade Policy Review 
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 through the establishment of fast-track courts 
and greater funding to the judicial system. 
6. While trade policy making and 
implementation is the responsibility of the 
Central Government, through the Department 
of Commerce in the Ministry of Commerce and Industry, the Constitution gives exclusive or overlapping jurisdiction on a number of related areas to the states.  This requires 
continuous interaction between the Central 
and state governments and in some cases, such as changes in the structure of indirect taxation and electricity tariffs and provision, has led to 
delays in reform.  The Government also consults with other stakeholders when 
formulating trade policy, in several cases 
through a period of public comment for new legislation or policy documents. 
7. Trade policy is articulated for a five-
year period, with annual updates, through the 
Foreign Trade Policy.  While the Foreign 
Trade Policy calls for a simplification of import procedures and reduction of import 
barriers, a major goal is to increase exports and use trade to generate employment.  Export growth is to be fac ilitated through a range of 
schemes to "neutralize" duty on imported 
inputs used in exports;  such schemes contribute to the complexity of India's trade regime.  Measures to attract foreign investment have also been taken, including by 
increasing the number of sectors in which FDI 
is permitted and reducing sectoral restrictions. 
8. While extending at least MFN 
treatment to all its trading partners, India has also signed a number of regional trade 
agreements (RTAs) to increase market access 
for its exports.  Thus far, RTAs have been signed only with other developing countries, but India is also examining the possibility of signing economic cooperation agreements with some developed countries.  Since its 
previous Review, India has signed an RTA 
with Singapore, an "early harvest" arrangement with Thailand and a preferential agreement with Afghanistan.  In addition, previous arrangements, including the Asia Pacific Trade Agreement (APTA), the South 
Asia Free Trade Area and the Bay of Bengal Initiative for Multisectoral, Technical and Economic Cooperation, have been amended or 
have come into force. 
9. Foreign investment policy continues to 
be liberalized.  Besides the measures noted above, efforts have also been made to streamline the approval and investment 
process, which was identified in a government 
report as a possible barrier to investment.  Nevertheless, FDI remains far below its potential, at around 1% of GDP, suggesting that policy and infrastructural constraints need to be addressed. 
(3) T
RADE  AND TRADE -RELATED 
REFORMS  
10. The tariff is India's main trade 
instrument as well as an important source of tax revenues, at around 16% of Central 
Government tax revenue (net of states' share).  
Applied MFN tariffs, especially for non-agricultural products, have continued to fall steadily, with the overall average currently at 15.8%.  At 12.1% (14.1% including ad valorem equivalents), the average for 
non-agricultural products is considerably 
lower than the average for agricultural products, which is 40.8%.  The growing gap between agricultural and non-agricultural tariffs has also raised dispersion in the tariff 
and the escalation pattern shows increasing 
de-escalation between unprocessed and semi-processed and in some cases between semi-processed and final products.  With the exception of a few applied tariffs, which are at 
their corresponding bound rates, the 
difference between the bound and applied tariff rates is considerable.  This difference gives the Government considerable scope to raise applied tariffs, scope that was used to raise tariffs for some agricultural products in 
recent years.  Nonetheless, the overall trend in 
tariff rates continues to be downward;  in its 2007/08 Budget, the Government announced a further reduction of the "peak rate" from 12.5% to 10%.  Despite gradual reform over India WT/TPR/S/182 
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the years, the tariff remains complex:  tariff 
changes are announced throughout the year and with numerous exemptions, a number of which are based on industrial use.  The policy 
regarding tariff rate quotas remains 
unchanged since the previous Review. 
11. India also offers tariff preferences 
under its regional trade agreements.  However, apart from the agreement with 
Sri Lanka and preferences to LDC members of 
SAFTA, the preferences do not appear to be significant.  The use of import restrictions has declined, with around 3.5% of tariff lines subject to such measures.  Another 300 sensitive imports are monitored, while the 
policy with regard to state trading remains 
essentially unchanged since the previous Review. 
12. India continues to be a major user of 
anti-dumping measures, although the number 
of investigations and measures in force have 
been in decline.  The majority of initiations were targeted at chemicals, plastics, and rubber products;  base metals;  and textiles and clothing, and were aimed mainly at China, the EC, Chinese Taipei, and Korea.  Safeguard 
measures were taken against one product, in 
addition to one taken specifically against products from China;  no countervailing measures were taken during the review period.  Steps are being taken to align national 
standards increasingly with international 
norms;  currently, some 73% of national standards for which corresponding international standards exist, are aligned with these international norms.  In general, 
national standards are subject to review every 
five years to ensure that they keep up with international trends.  SPS procedures are also being streamlined, notably with the passage of the Food Safety and Standards Act in 2006 to consolidate 13 separate laws relating to SPS 
issues;  in addition, a risk analysis process has 
been put in place since 2004.  India is not a member of the WTO Agreement on Government Procurement.  Its procurement policies have undergone reform, especially at 
the Central Government level, although 
preferences continue to be extended to certain items from the small-scale industry and from 
state-owned enterprises. 
13. While import barriers have been 
falling, India's export regime continues to be 
complex.  Export prohibitions and restrictions 
are largely unchanged since India's last Review.  However, in order to reduce the anti-export bias inherent in India's import and indirect tax regime, a number of duty 
remission and exemption schemes are in place 
to facilitate exports.  While a number of these schemes are open to all exporters who use imported inputs, several schemes are targeted at sectors such as electronics (hardware and software), agricultural products and services.  
Export processing zones, export-oriented units 
(which are now special economic zones (SEZs)) also offer tax ho lidays to investors.  
According to Ministry of Finance estimates, revenue forgone from such schemes was 
Rs 538 billion in 2006/07, with an additional 
Rs 21 billion estimated for the SEZs.  The cost effectiveness of the schemes in generating incremental investment and employment is open to question.  As many of the industries attracted, especially by the SEZs, appear to be 
capital intensive, it is not clear that this is the 
most effective way to create employment opportunities, especially for the less-skilled labour force.  India also provides export assistance through export insurance and 
financing schemes by the Export-Import Bank 
of India. 
(4) O
THER  MEASURES  AFFECTING 
TRADE  
14. Along with trade policy reforms, 
internal reforms have concentrated on 
increasing competition and efficiency in the economy.  Industrial policy reforms have concentrated on simplifying and reducing restrictions.  Thus, the number of industries requiring compulsory industrial licensing for 
safety, environmental, and strategic reasons 
has been reduced from six to five, while the number of items reserved for production only by the small-scale sector has declined further, from 799 in 2001 to 326 in May 2006.  The WT/TPR/S/182 Trade Policy Review 
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 number of industries reserved for the public 
sector is unchanged.   
15. Measures have been taken to simplify 
the tax structure, especi ally for indirect taxes, 
resulting in a substantial increase in revenue 
collection.  Tax reforms have also been pursued to meet the fiscal deficit targets set by the FRBMA and include the introduction of a new value-added tax and an increase in the 
number of services subject to a service tax.  
The introduction of the VAT by all but one state opens the way for an eventual goods and services tax.  India maintains an "excise" tax (CENVAT), which is a tax on manufacturing, but appears to have elements of a value-added 
tax as well:  currently providing around 25% 
of Central Government tax revenue, the CENVAT remains the largest source of indirect tax revenue. In the longer run, further streamlining of India's various indirect taxes 
are planned so that the VAT, the CENVAT, 
and the services tax will be replaced by a broad-based goods and services tax. 
16. Less progress has been made on 
reducing direct and indirect assistance to various sectors of the economy.  Direct 
subsidies, it is estimated, accounted for around 
1.4% of GDP in 2005/06, although a recent study for the Ministry of Finance suggested that explicit and implicit subsidies accounted for around 4.2% of GDP in 2003/04.  The 
study also suggested that "merit" subsidies, 
including for education, health care, and research and development, were about 42% of this total.  Most centr al government subsidies 
are destined for food, wh ile other key subsidies 
include those for petroleum and fertilizer.  The 
states also provide additional subsidies, especially for basic services such as education and health.  Another element of subsidy is contained in price controls, which are basically unchanged since the previous 
Review, although the removal of the 
administered price mechanism has reduced the subsidy provided for petroleum products.  Current price controls include minimum support prices for 25 major crops, fertilizers, 
and 74 bulk drugs and related formulations that remain controlled under the Drugs Price 
Control Order, 1995.  Price controls also exist under the targeted public distribution system.  In addition, the prices of certain services, such 
as electricity and water, may be fixed by state 
governments.  
17. Efforts to increase competition have 
been aided by the introduction of new legislation to encourage competition and to 
ease the closure of unviable companies.  This 
includes the passage of a new Competition Law, and a Micro, Small and Medium Enterprises Act, passed in 2006 to encourage the development of these businesses.   To tackle the problem of "industrial sickness" 
especially in the public sector, a Bill, 
introduced in Parliament in 2003, was passed but not yet implemented due to delays in setting up a National Comany Law Tribunal to replace the Board for Industrial and Financial 
Restructuring (BIFR).  Progress has been 
made in improving corporate governance, notably through improved listing requirements for listed companies and banks;  in addition, efforts are under way to amend the Companies Act, 1956, to increase transparency and 
accountability. 
18. Public sector reform, on the other 
hand, has been delayed by a decision in July 2006 to keep all decisions on disinvestment in state-owned enterprises on 
hold pending a review; consequently, the 
privatization programme has effectively stopped.  The policy of the current Government before this decision was to list large profitable SOEs on domestic stock 
exchanges, while retaining a majority 
shareholding. 
19. The main changes in protection of 
intellectual property rights include the passage of new legislation on patents, aimed at bringing Indian legislation in line with the 
TRIPS Agreement, and the establishment of a 
new Geographical Indications Registry in 2003.  Steps are also continuing to improve enforcement of intellectual property rights including through increased seizures of India WT/TPR/S/182 
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infringing materials, and fines, although apart 
from copyright infringement, there are few data available on enforcement. 
(5) S
ECTORAL POLICIES  
(i) Agriculture 
20. The share of agriculture and allied 
activities in India's GDP continued to decline during the period under review, from some 23% in 2000/01 to 18% in 2005/06.  However, 
the sector employs around 60% of the working 
population, suggesting that labour productivity is only arou nd one-sixth of its 
level in the rest of the economy.  Low productivity is due in part to fragmented landholdings, low mechanization levels, and 
dependence on rainfall, but also because 
public investment in infrastructure and research has been inadequate due to crowding out by spending on direct and indirect subsidies to the sector.  Food security remains 
a major concern and a cause for much of the 
continued government intervention in the sector.  This includes minimum support prices for 25 essential commodities, minimum intervention prices for other crops, subsidies for inputs, such as fertilizers, water, 
electricity, and seeds, and high import tariffs, 
averaging 40.8%.  The Government also ensures distribution of certain foods at subsidized prices to poorer households through the "targeted public distribution 
system". 
(ii) Manufacturing 
21. In 2005/06, manufacturing accounted 
for 16% of GDP.  Its share has remained at 15% to 16% since 2000/01.  Growth in the 
sector has been rapid, on average almost 7% 
per year since 2000/01;  this can be attributed, in part, to continued structural reforms and a relaxation in licensing and FDI restrictions.  The sector, however, continues to be protected by relatively high tariff barriers, especially in 
textiles and clothing (22.5%, including AVEs), 
and automobiles (33.6%).  In addition, imports of second-hand motor vehicles are subject to licensing requirements.  Further growth in manufacturing is hampered also by a lack of 
infrastructure and labour market rigidities. 
(iii) Services 
22. Services have been the main engine of 
growth in recent years.  Average annual 
growth over the last four years has been 9.8%, largely due to greater progress in reform, especially for certain services.  Reforms in banking include further relaxation of foreign 
investment limits and steps to align prudential 
requirements with international practice.  Measures have also been adopted to improve governance in banks and to prepare the sector for implementing the Basel II capital adequacy framework.  As a result, there has been a 
decline in the ratio of non-performing loans 
(NPLs) for most segment s, although rural 
banks and rural cooperatives continue to suffer from high exposure to NPLs.  Efforts to create a well-functioning capital market are 
being pursued by the Securities and Exchange 
Board of India, the regulator of the securities market. 
23. Infrastructure remains a major 
bottleneck.  In sectors such as telecommunications, where the market has 
been exposed to comp etition, there have been 
significant benefits to consumers, including through increased penetration, especially of mobile telephony, and a decline in tariffs.  
Progress has also been made in improving the 
transport infrastructure, especially road 
transport, where the network of national highways is being expanded.  Although rail transport is one of three activities reserved for 
the public sector, private-public partnerships 
are being encouraged in some areas, for 
example, such as freight transport and railway infrastructure development.  Liberalization has also taken place in air transport, resulting in an expansion in the number of airline operators and a decline in prices;  foreign 
investment restrictions have also been relaxed 
(up to 49% of total equity is permitted), although foreign airlines are forbidden from investing in the sector.  In contrast, maritime transport and port services continue to suffer 
from inefficiencies and constitute a major WT/TPR/S/182 Trade Policy Review 
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 impediment to trade.  Another major 
constraint on economic activity is the energy 
sector, where there are frequent shortages of supply and little progress appears to have 
been made in tackling the losses of state 
electricity boards, and transmission and distribution losses. 
(6) P
ROSPECTS  
24. India's high rates of economic growth 
in recent years are th e result of significant 
structural reform including trade liberalization.  If this fast growth is to be sustained, however, further reform will be required.   
25. Such reform would need to address, 
inter alia, infrastruc ture bottlenecks, which 
continue to constrain gr owth.  In particular, 
urgent attention is required for transport, and especially electricity, where supply continues 
to be deficient and loss-making public sector 
suppliers remain a drain on public finances.  
Deeper reforms are also required in agriculture, where, despite increased public sector spending in recent years and reduced controls on agricultural markets, further 
efforts are needed to  address the sector's 
relatively low productivity and the problems of marginal farmers, reflected in social 
indicators, such as poverty and infant 
mortality. 
26. Structural reforms will need to be 
accompanied by appropriate macroeconomic policies, i.e. a monetary policy that contains 
inflationary pressures and fiscal policies that 
ensure that the public finances are sufficient to meet India's developmental needs.  As regards the latter, India's fiscal deficit, while declining, remains significant, and public expenditure on infrastructure and human 
capital development is constrained by the 
relatively low level of taxes to GDP as well as by spending on subsidies. 
27. Continued structural reform, together 
with greater investment in physical and human 
capital would assist in generating productive 
employment for new entrants to the labour force.  This would help India to reap the "demographic dividend", with one third of its population currently below the age of 18.