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IV. TRADE POLICIES BY SELECTED SECTOR 
(1) OVERVIEW  
1. The structure of India's economy has not changed significantly since 2007.  The services 
sector, which has been the most dynamic sector duri ng the period under review, continues to be the 
largest contributor to GDP (and employment) and ha s exhibited resilience to the negative effects of 
the global crisis.  The share of the manufacturing sect or in GDP has declined slightly, as has the share 
of agriculture.  Sustained growth in all sectors in India would require measures to deal with 
bottlenecks and investment in infrastructure and education. 
2. During the period under review, the share of agriculture in GDP fell from 18.1% to 16.6% 
and growth in the sector remained weak due to a prolonged drought, excessive reliance on 
monsoon-related crops, and low productivity.  Howeve r, despite the decline in its relative share, 
agriculture continues to be the mainstay of the majo rity 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 stab ility.  Reflecting its importance,  support to the 
sector through various trade measures remains consider able.  Average tariff protection on agriculture 
(33.2%) remains substantially higher than on manuf actured goods (8.9%).  In general, India's tariffs 
are higher for agricultural goods and processed goods th an for semi-manufactures.  This responds in 
part to the strategy of protecting agriculture while promoting the development of manufacturing 
activities, which require imports of intermediate goods.  It may also reflect India's policy of granting 
import duty concessions for intermediate goods unde r different export and investment promotion 
schemes. 
3. Manufacturing showed robust growth over 200 6/07 and 2007/08, but was subsequently 
affected by the global economic cris is, which led to a decline in foreign demand, particularly in areas 
such as textiles and clothing.  However, there wa s a resurgence of growth in 2009/10, mainly 
triggered by stronger domestic demand, particularly for consumer durables, capital goods, and 
industrial inputs.  In order to encourage investme nt in the manufacturing sector, the Government has 
offered a wide range of tax incentives, concessiona ry credit, and other types of assistance.   
4. The services sector, which accounts for 56% of GDP, has emerged as the main driver of 
economic growth, expanding by an average 10% be tween 2006/07 and 2009/10.  Growth in services 
continued to be led by the financial sector, and the trade, hotel, transport, and communications 
subsectors.  The importance of tourism, though not apparent from GDP figures, is considerable.  
Tourism has good growth potential and the capacity  to create backward and forward linkages and 
cross-sectoral synergies.  Foreign direct investme nt of up to 100% is allowed for most services 
activities, except for financial services, where fore ign ownership limits apply.  However, specific 
market-access conditions or permits apply, which in  some cases may be more  restrictive than an 
explicit investment cap. 
5. Inadequate infrastructure has become a critical constraint to India's economic development.  
To address this concern, the 11th Five Year Plan outlined a comprehensive strategy to improve both 
rural and urban infrastructure including electric power, roads, railways, ports, airports, telecommunications, irrigation, drinking water, sa nitation, storage, and warehousing.  However, 
public investment alone would lik ely be insufficient to address India's infrastructure needs, 
particularly considering India's quest for fiscal consolidation.  Hence, an increase in private 
investment in infrastructure would also be necessary.  Private sector investment, including from 
foreign sources, could play an important role not  only in developing infrastructure, but also in WT/TPR/S/249 Trade Policy Review 
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providing an opportunity for foreign investors.  This  would result in more stable, less volatile, capital 
inflows. 
(2) AGRICULTURE  
(i) General overview 
6. Agriculture and related activities contributed 16.6% to GDP in 2009/10, down from 18% in 
2006/07 (Table IV.1), but their economic, social, and political importance ar e considerably higher 
than their share of GDP.  Agriculture employs some 58% of the population1;  the productive structure 
is dominated by small-scale farmers working sm all to marginal landholdings, who account for more 
than one half of total Indian agricultural pr oduction.  The agriculture sector has long been 
characterized by underemployment2  Rural areas are still home to some 72% of India's population;  a 
large percentage of which lives under the poverty li ne.  Most farmers depend on rain-fed agriculture 
(55.7% of the area sown is dependent on rainfall) and forests for their livelihoods.3 
Table IV.1  
Selected indicators for agriculture, 2006-10  
 2006/07 2007/08 2008/09 2009/10a 
GDP in the agriculture sectorb, at constant 2004/05 prices (growth rate, %) 3.7 4.7 1.6 0.2 
Contribution of the agriculture sectorb to current GDP (%) 18.1 17.9 17.1 16.6 
Employmentb (% of total) .. .. .. 52.1 
Agricultural production (million tonnes)     
Oilseeds 24.3 29.8 27.7 24.9 
Pulses 14.2 14.8 14.6 14.6 
Maize 15.1 19.0 19.7 16.7 
Rice 93.4 96.7 99.2 89.1 
Wheat 75.8 78.6 80.7 80.7 
Sugarcane 355.5 348.2 285.0 277.8 
Cotton (million bales of 170 kg each) 22.6 25.9 22.3 23.9 
Exports     
Agricultural products (US$ milli on) 13,781.9 19,641. 6 18,718.9 18,880.0 
Leading products (% of total agricultural exports)     
Rice basmati 4.5 5.5 11.0 12.1 
Marine products 12.8 8.8 8.2 11.0 
Cotton raw, including waste 9.8 11.2 3.3 10.7 
Oil meals 8.8 10.3 11.9 8.8 
Meat and preparation 5.3 4.7 6.2 7.0 
Agricultural products (% of total exports) 10.9 12.1 10.2 10.6 
Agricultural products (growth rates based on exports in US$, %) 24.0 42.5 -4.7 0.9 
Agricultural products (growth rates based on exports in rupees, %) 26.8 26.6 8.7 4.2 
Imports     
Agricultural products (US$ milli on) 6,544.8 7,431. 8 8,097.9 12,520.4 
Leading products (% of total agricultural imports)     
Vegetable oils fixed (edible) 32.2 34.4 42.6 44.6 
Pulses 13.1 18.0 16.8 16.3 
Wood and wood products 15.8 18.2 16.2 12.6 
Sugar 0.0 0.0 1.6 10.0 
Cashews nuts 6.1 5.7 7.2 5.1 
Agricultural products (% of total imports) 3.5 3.0 2.7 4.4 
Agricultural products (growth rates based on imports in US$, %) 34.8 13.6 9.0 54.6 
Agricultural products (growth rates based on imports in rupees, %) 37.9 0.9 24.3 59.7 
Table IV.1 (cont'd)
                                                      
1 Employment in the agriculture sector as a share of total workers, as per Census 2001 (Ministry of 
Finance 2011a). 
2 Planning Commission (2008). 
3 World Bank online information, "India:  Priorities for Agriculture and Rural Development".  Viewed 
at:  http://web.worldbank.org/WBSITE/EXTERN AL/COUNTRIES/SOUTHASIAE XT/EXTSAREGTOPAGRI/ 
0,,contentMDK:20273764~menuPK:548214~pagePK:340 04173~piPK:34003707~theSitePK:452766,00.html. India WT/TPR/S/249 
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 2006/07 2007/08 2008/09 2009/10a 
Agricultural trade bala nce (US$ million) 7,237. 2 12,209.8 10, 621.0 6,359.6 
.. Not available. 
a  Estimates. 
b  Including agriculture, forestry, and fishing. 
Source :  Department of Agriculture and Co-operation (2010), Agricultural Statistics at a Glance 2010 , 24 September.  
 Viewed at:  http://dacnet.nic.in /eands/latest_2006.htm;  and data provi ded by the Indian authorities. 
7. Economic growth in India's farm sector has lagged significantly behind that of other sectors 
reaching only 0.4% in 2009/10 (compared to 3. 7% in 2006/07), far below India's overall annual 
economic growth rate of about 8% for the same year.  The authorities attribute the sector's lower-than-expected growth rates to:  fluctuati ng world prices for agricultural commodities and 
efforts to keep domestic prices lo w for consumers;  slow developm ent of new agricultural technology 
and inefficient use of available technology and inputs;  rapid and widespread decline in the 
groundwater table and lack of rain during 2009-10, with a particularly adverse impact on small and 
marginal farmers;  and lack of public  and private investment in agriculture. 
8. India places high priority on raising agricultural productivity as a means of  reducing poverty.  
However, raising productivity would require a policy shift away from the existing subsidy-based 
protected regime that no longer appears to be sustainable.
4  To meet production, as well as other 
agricultural policy objectives (e.g. poverty alleviation and self-sufficiency), the Government plans to 
increase public expenditure, while also encouraging pr ivate investment.  Increased expenditure will be 
focused on:  increasing productivity, improving irri gation infrastructure and management of water 
resource, and building the necessary infrastructure in rural area (e.g. roads, electricity) to support the 
agriculture sector;  promoting research and deve lopment and extension services;  and developing a 
modern marketing system.  Public sector funds a llocated to agriculture and related activities during 
the 11th Five Year Plan, increased by 124.7% over the amount allocated during the 10th Five Year 
Plan. 
9. India produces a wide variety of agricultural prod ucts and is a major global producer of grains 
(wheat, rice, and corn), dairy, fruits and vegetables, and livestock.  Food self-sufficiency has been 
India's main agricultural policy ob jective since the Green Revolution in the 1960s.  This objective has 
been largely met as India is, by and large, self-su fficient:  domestic agriculture supplies some 97% of 
agricultural consumption.  India's commodity pr oduction patterns focus on intensive farming with 
high-yield seeds, almost exclusively for food grains , specifically rice, wheat, corn (maize), and millet 
(a coarse grain). 
10. India is a net exporter of agricultural products.  Its agricultural support policies promote 
domestic production at the expense of imports.  Agri cultural imports are relatively low (4.4% of total 
merchandise trade) and are concentrated in a fe w commodities, including vegetable oils, pulses, and 
wood products.  In 2009/10, agricultural exports acc ounted for 10.6% of total merchandise exports;  
they increased from US$13.7 billion in 2006/07 to US$18.8 billion in 2009/10 (9.3% of the foreign 
exchange).5  Basmati rice has become India's leading agriculture export product, followed by marine 
products and cotton. 
                                                      
4 World Bank online information, "India:  Priorities for Agriculture and Rural Development".  Viewed 
at:  http://web.worldbank.org/WBSITE/EXTERN AL/COUNTRIES/SOUTHASIAE XT/EXTSAREGTOPAGRI/ 
0,,contentMDK:20273764~menuPK:548214~pagePK:340 04173~piPK:34003707~theSitePK:452766,00.html. 
5 Trade data on agriculture is different from trade data in Chapter I (Tables AI.1 and AI.2) because of 
difference in sources.   WT/TPR/S/249 Trade Policy Review 
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(ii) Agricultural policy objectives 
11. Agricultural policy is formulated and implemente d mainly by the Ministry of Agriculture at 
the central level with the assistance of other institu tions (Table IV.2).  India's current agricultural 
policy is outlined in the 11th Five Year Plan (2007–12), which identified three core policy objectives:  
food security, food self-sufficiency, and income support for farmers.6  In order to meet these 
objectives, India actively intervenes in the agricu lture sector, including in production, marketing, 
consumption, and international trade. 
Table IV.2 
Institutions involved in formulating a nd implementing agricultural policy, 2010  
Institution Function 2010 
Ministry of Agriculture Established in 1947 to form ulate and implement policies and programmes to increase 
agriculture production and improve  incomes of farm families 
Commission for Agricultural Costs and 
Prices (CACP) Established in 1965 to advise the Govern ment on setting minimum support prices (MSPs) 
for different commodities (cu rrently 25 essential commodities) and the mechanisms for 
implementing the MSPs 
Food Corporation of India (FCI) Set up in 1964 to implement th e food policy, including procuring and maintaining buffer 
stocks of food grains and fo r distributing food grains through the public distribution system 
(PDS) and various welfare sc hemes for poverty alleviation 
Central Warehousing Corporation Set up in 1965 to support the FCI 
National Agricultural Cooperative and 
Marketing Federation of India (NAFED) Set up in 1958 to implement the Government's price support scheme 
Cotton Corporation of India (CCI) Procurement of othe r crops, e.g. cotton to undertake price support operations 
Jute Corporation of India (JCI) Procurement of other crops , e.g. cotton and jute to undertake price support operations 
Ministry for Food Processing Industries Set up in 1988 to implemen t infrastructure development and technological upgrade, devel op 
backward linkages, enforce quality standards,  and expand domestic and export markets for 
processed food products  
Department of Animal Husbandry, Dairying, 
and Fisheries (Ministry of Agriculture) Set up in 1991 and responsible for livestock pr oduction, preservation, and protection, and 
improvement of stocks;  dairy development;  the Delhi Milk Scheme and the National Dairy 
Development Board;  and fishing;  advise s the state governments/union territories in 
policy/programme formulation for animal hus bandry, dairy development, and fisheries  
Plant Quarantine Division (Ministry of 
Agriculture) Implements the Plant Quarantin e (Regulation of Import into India) Order 2003 through 
Directorate of Plant Protection, Quarantine and Storage;  conducts pest risk analysis for 
imports and exports of agricultural  commodities  
Directorate of Vanaspati, Vegetable Oils, and 
Fats under the Department of Food and 
Public Distribution (Ministry of Consumer 
Affairs, Food, and Public Distribution) Set up in 1977 for the coordinated management of  distribution, pricing, internal trade and 
commerce, administration of industries, and po licy matters for vegetable oils, oilcakes and 
meals  
Directorate of Marketing and Inspection 
under the Department of Agriculture and 
Cooperation (Ministry of Agriculture) Set up in 1935 to implement agricultural mark eting programmes and to bring integrated 
development of marketing of agricultural and allied produce  
Source:  Government of India Web Directory online information.  Viewed at:  http://goidirectory.nic.in/index.php;  and 
 information provided by the Indian authorities. 
12. India's agricultural policies are consistent with  the Government's long-standing policies of 
protecting domestic producers from foreign competition and consumers from domestic and global price fluctuations for food stapl es such as wheat, rice, and vegetable oils.  The Government uses 
tariffs and non-tariff measures (NTMs) in its domestic  policies to meet these objectives.  The tension 
between the desire to raise food prices for the benefi t of farmers and to lower them for the benefit of 
consumers leads India to intervene heavily in th e farm sector with multiple policy instruments. 
                                                      
6 These objectives should be viewed in the cont ext of the significant challenges faced by India 
including:  a history of food shortages, a large segment of the population dependent on the agriculture sector for 
its livelihood, and hundreds of millions of poor Indians who spend most of their incomes on food.  More than 
one third of the population, mostly rural Indians, still li ves on less than US$1 per day.  Indian farmers are a 
politically powerful voting bloc that has a major influenc e on Indian domestic and international trade policies. India WT/TPR/S/249 
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13. Balancing these conflicting objectives presents a major problem;  this has been especially the 
case in the last few years when world food prices ha ve increased significantly.  Farmers would gain 
from higher prices and, to the extent to which low profitability is the cause of inadequate investment, 
the favourable shift in prices could boost domes tic production and rural incomes.  However, 
consumers are hurt by higher prices, and since most of the poor in India are net purchasers of food the 
authorities deem it necessary to protect them from any undue increases in food prices. 
(a) Measures affecting imports 
14. India's tariff policy focuses on supporting domestic  agricultural policy objectives.  Hence, 
average tariff protection for agricultural products (WTO definition) in 2010/11 was 33.2%, 
considerably above that of manufactured products at 8.9%.  Some 57% of agricultural goods bear 
tariffs of 30%, and 13% bear tariffs above 30%.  This contrasts with trade liberalization in 
manufacturing, which has been more noteworthy, with the reduction of "peak tariff " rates to 10% (with some exceptions), and the elimination of quantitative restrictions.
7 
15. Certain agricultural products that were previous ly subject to quantitative restrictions are now 
considered sensitive products a nd bear above-average tariffs.8  Others, such as sugar (HS 1701) and 
some cereals9, are considered sensitive because of employ ment and food security concerns and also 
bear high average applied tariff rates.   
16. Price stability considerations and the importan ce of some agricultural products to Indian 
consumers are factors that contribute to significan t differences in applied tariff rates for specific 
agricultural products within product groups.  For exam ple, among vegetable fats and oils, the tariff 
rate on crude palm oil is at 100%, while the tariff rate on edible margarine of vegetable oil is 7.5% 
and that on crude soybean was reduced to zero in 2009/10.  Similarly, vegetable oils (HS 1507-HS 1515) have traditionally been protected by high tariffs;  however, to fight inflation, 
tariff rates on some of these products have been re duced to an average of 9.7%.  The average tariff 
rate on animal products is 30.8%, with most products subject to a 30% tariff.  However, imported 
fresh and frozen chicken cuts, which compete with th e large domestic industry, are subject to a 100% 
applied tariff rate.  Applied tariff rates on specific gr ains also vary widely.  For example, tariff rates 
on oats and rye are zero, while rates on other cereal s, such as some types of rice and wheat (of seed 
quality), which are important for maintaining food self-sufficiency, are 80% and 50%, respectively. 
17. Bound tariff rates for agricultural products range  from 10%-300% and are substantially higher 
than those for manufactured goods (0%-150%).  For many agricultural products, there is a wide 
spread between bound (10%-300%) and applied tariff rates (0%-150%), which allows the 
Government to modify its tariffs substantially wh ile complying with its WTO commitments.  India 
tends to modify tariffs frequently on food staples,  such as wheat, pulses, rice, sugar, and vegetable 
oils.  This variability, as well as the complex process for the notification of tariff-rate changes, creates 
uncertainty and acts as an impediment to trade. 
18. Subsequent to Article XXVIII renegotiations in 2003, India introduced in its Schedule tariff 
rate quotas for four product groups (19 tariff lines at the HS eight-digit level according to the authorities):  milk and milk powder;  maize (corn);  rape, colza, and mustard oil;  and crude sunflower 
seed and safflower oil.
10  As of 2008/09, tariff quotas for crude sunflower-seed oil or safflower oil 
                                                      
7 Planning Commission (2008). 
8 Milk and milk products, fruits and vegetables, pou ltry, tea and coffee, spices , and some food grains. 
9 Durum wheat of seed quality (HS 1001.10.10):  50%;  jawar, raji, and bajua (HS 1008.20):  70%;  and 
broken rice (HS 1006.40):  80%.   
10 WTO document G/MA/TAR/RS/66, 1 May 2000. WT/TPR/S/249 Trade Policy Review 
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have ceased to operate as the applied tariff on t hose products was reduced to 0% (Table III.6).11  In 
2009, India introduced a tariff quota for sugar (HS 1701.9100 or 1701.99.90) of 1 million tonnes with 
an in quota tariff rate of 0%.12  Initially, sugar could only be imported through four companies but, 
according to the authorities, this restriction has been  removed.  In 2010, India increased the amount of 
milk that could be imported under the in-quota ta riff rate from the original 10,000 tonnes to 
30,000 tonnes, and introduced a tariff rate quota fo r butter (Table III.6).  Imports under TRQs are 
allowed only through elig ible entities or designated agencies.  These entities and agencies need to 
apply to the DGFT prior or by 1 March of each financial year proceeding the quota year.  The Exim Facilitation Committee in DGFT receives, evaluates and allots the TRQ.  Imports have to be 
completed before 31 March of the financia l year for which the quota is allocated. 
19. According to India's latest notification to th e WTO, submitted in Janua ry 2011, which covers 
the period up to 2007/08, tariff quotas continue to be allocated on a pro rata basis by the Directorate General Foreign Trade (DGFT), on request by designated agencies.
13  The authorities noted that the 
fill ratio of these quotas is low, apparently because of a lack of demand due to high international 
prices of these commodities (Table III.6).14  
20. The authorities may impose import (and export) restrictions on security, self-sufficiency, and 
balance-of-payments reasons, and on health and moral grounds.15  However, in practice, India links 
the use of import (and export) restrictions and licensing, and other non-tariff measures (NTMs) to 
domestic policies, for example, by relaxing NTMs when imports are required to alleviate food price 
inflation or food shortages.  Import restrictions ma y also be imposed depending upon the import price.  
For instance in the case of betel nuts (whole, split, a nd ground) imports are restricted when the c.i.f. 
price is higher than a predetermined minimum price (Table III.10).16 
21. Since the removal of most quantitative restric tions on imports in 2001, a mechanism has been 
set up to monitor imports of items considered to  be sensitive.  The number of sensitive items has 
increased since 2007, from 300 to some 415 items (Cha pter III(2)(vi)).  Monitored sensitive items 
include bamboos, cocoa, copra, cotton, milk and mi lk products, edible oils, food grains, fruits and 
vegetables, pulses, poultry, tea and coffee, spices, and sugar.17 
                                                      
11 WTO document G/AG/N/IND/5, 7 March 2011. 
12 Customs Notification No. 84/2009, 31 July 2009.  For Customs Notifications, see Central Board of 
Excise and Customs online information.  Viewed at:  http://cbec.gov.in/cae1-english.htm. 
13 The National Dairy Development Board (NDDB), the State Trading Corporation (STC), the National 
Cooperative Dairy Federation (NCDF), the National Agri cultural Cooperative Marketing Federation of India 
Ltd. (NAFED), the Minerals and Metals Trading Corporation (MMTC), the Projects and Equipment 
Corporation of India Ltd. (PEC), the Spices Trading Corporation Ltd. (STCL), the National Agricultural 
Cooperative Marketing Federation of India Ltd., the State Trading Corporation of India Ltd., PEC Ltd., and the National Dairy Development Board (WTO document G/AG/N/IND/6, 7 March 2011). 
14 WTO document G/AG/N/IND/5, 7 March 2011. 
15 Section 3 of the Foreign Trade (Development and Regulation) Act 1992 and through the issue of 
notifications under Section 11 of the Customs Act 1962. 
16 Betel nuts (HS 0802.90.11, HS 0802.90.12, and HS 0802.90.13). 
17 Department of Commerce online information, "Tra de Statistics:  Imports of Sensitive Items".  
Viewed at:  http://commerce.ni c.in/tradestats/import.asp. India WT/TPR/S/249 
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22. India maintains state trading for certain agri cultural goods (some cereals, copra, and coconut 
oil) to ensure, inter alia , a "fair" return to farmers as well as food security and the supply of fertilizer 
to farmers (Table III.11).18 
23. Imports of animal products into India requi re sanitary import permits issued by the 
Department of Animal Husbandry, Dairy and Fisheri es;  permits must be obtained prior to shipment 
from the country of origin.  The Department approv es or rejects the application based on an import 
risk analysis on a case-by-case basis.  Sanitary import permits are not import licences, they are 
certificates verifying that India's sanitary requirements are fulfilled.  Some imports of animal products also require an import licence issued by the Director  General of Foreign Trade (Chapter III(2)(vi)(b)).  
Imports of animal and fish products are only allowed through designate d ports where animal 
quarantine and certification services exist. 
24. Imports of plants and plant material must be accompanied by a phytosanitary certificate 
issued by the national plant protection organiza tion of the exporting country and an import permit 
issued by the officer in charge of the plant quaran tine station.  The Plant Quarantine (PQ) (Regulation 
of Import into India) Order 2003 lists in its Sc hedules the specific import requirements.  Products 
listed in Schedule VII can be im ported without import permit but ma y be required to fulfil other 
conditions such as fumigation.  Other phytosanita ry requirements covering some 980 products are 
listed in Schedules V, VI, and VII (Table III.14).  Schedule IV lists all the plant species that are 
prohibited for importation on phytosanitary grounds.  Imports of plant and plant products may only 
enter the Indian territory through designated ports. 
(b) Measures affecting exports 
25. The 11
th Five Year Plan placed special emphasis on promoting production and exports of 
commercial crops and agri-based processed prod ucts.  Plans to promote exports include, inter alia , the 
revitalization of plantations, and the provision of tax incentives.19  However, this would require the 
adoption of a less controlled, more long-term and stab le agriculture policy, instead of ad hoc reactions 
to short-term price fluctuations, such as export bans, which have often been at the cost of farmers.  
According to the authorities further development of India's new agricultural commodities futures 
markets would also allow for better transmissi on of price signals and management of risks.20 
26. India imposes export restrictions and prohibiti ons mainly for environmental, food security, 
marketing, pricing, and domestic supply reasons, and to comply with  international treaties.  Since 
2007, some agricultural products have been subject to export prohibitions, including non-basmati rice, 
wheat, pulses, edible oils, milk powder, casein a nd casein derivatives, and onions (Tables II.4 and 
AIII.5).  Goods subject to export restrictions and quotas must also be accompanied by licences from the DGFT and, when necessary, by other permits.  Fo r instance exports of cotton require in addition to 
an export licence an export authorization registration certificate (EARC).
21  Export quotas apply to 
organic non-basmati rice and organic wheat.  Export prohibitions and export quotas are notified 
annually;  they are usually in place for a specific period, during which they may be subject to changes 
(Chapter III(3)(v)).  These changes diminish the pred ictability of the regime.  Minimum export prices 
                                                      
18 Agricultural products subject to state trading ar e wheat, rye, oats, maize, rice, grain sorghum, 
buckwheat, millet, canary seed, jawar, bajra, ragi, other cereals, copra, crude oil (coconut oil and its fractions), 
and other (coconut oil and its fractions). 
19 Department of Commerce (2011);  and Planning Commission (2008). 
20 Department of Commerce (2011);  and Planning Commission (2008). 
21 EARCs are issued by the Textile Commissioner of I ndia/Directorate General of Foreign Trade (as of 
December 2010) only when the domestic supply of cotton is ensured. WT/TPR/S/249 Trade Policy Review 
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are also maintained under the Foreign Trade Polic y 2009–14 to control prices and availability in the 
domestic market (Chapter III(3)(iv)). 
27. In addition, to these measures, India im poses export taxes, which are used to, inter alia , 
ensure domestic supply of raw materials for hi gher-value-added industries;  promote further 
processing of natural resources, ensure an "adequate " domestic price, and preserve natural resources.  
Export taxes are sometimes used in combination with other measures to attain short-term goals.  For 
instance, in April 2010, India introduced export licensing/EARC requirements for six months on raw cotton and cotton waste, in addition to export tax es, with the purpose of ensuring adequate domestic 
supply and containing cotton price increases in  the domestic market (Chapter III(3)(v)). 
28. State trading is maintained on exports with the purpose of ensuring better marketing and 
prices of agricultural and minor forestry products gr own by small farmers or poor tribes, as well as to 
prevent fluctuations in domestic prices.  Since 2007, sugar under preferential quotas, and all varieties 
of onions have been exported through state trad ing, except during December 2010 to February 2011 
when exports were prohibited.
22  Exports of sugar (by state trading enterprises), and wheat products 
(HS 1001) were subject to export quotas during th e period under review;  these were set by the 
DGFT.23  Exports of onions by state trading enterpri ses are not subject to ceilings but to minimum 
export prices notified by the DGFT (Chapt er III(3)(iv) and Tables II.4 and III.17). 
29. India's last notification of export subsidies,  made to the WTO in 2002, covered 1996 to 
2001.24 
30. In addition to the agri-export zones (AEZs) and the duty drawback system, India has a 
number of export incentive schemes, some of whic h are contingent on va lue addition and export 
obligation.  The product coverage  and the level of concessions of  some of these schemes changed 
during the period under review.  India's exports concession schemes include:  (i) duty exemption 
schemes, which allow exporters to import inputs (incl uding fuel and oil) duty free;  (ii) duty remission 
schemes, entitling exporters to a refund of cust oms duty on the inputs used to produce exports 
(post-export replenishment/remissi on of duty paid on inputs);  (iii) reward schemes granting exporters 
duty credits;  (iv) Special Agricultural and Village Industry Scheme (Vishesh Krishi and Gram Udyog 
Yojana) to compensate freight cost and promote ex ports of agricultural and other forestry products;  
and (iv) an agri-infrastructure incentive scheme, whereby exporters are granted duty credits when 
importing, inter alia , storage, packing, and transportation e quipment for exports of live animals and 
animal products, fats and oils, prepared foods tuffs, beverages, and tobacco (Table AIII.6). 
(c) Internal measures 
31. Agriculture is under the purview of the state governments in India.  However, the Central 
Government supports the state governments in th eir efforts to increase agricultural production, 
enhance productivity, and explore the sector's untappe d potential.  This support is granted through the 
implementation of centrally funded genera l agricultural support schemes and programmes 
(Table IV.3).  India also supports the farm sect or through output price support programmes, input 
support programmes, and credit and insurance scheme s.  Output price support programmes consist of 
minimum support prices (MSPs) for certain staple crops produced in India.  Input support programmes focus primarily on fertilizers, rates for irri gation water, electricity rates, diesel prices, and 
                                                      
22 Exports of onions were prohib ited or restricted from 22 Decem ber 2010 to 18 February 2011 
(Table II.4). 
23 Exports of wheat are at present prohibited.  However, during July 2009 to March 2011 an export 
quota of 650,000 tonnes was established (information provided by the authorities). 
24 WTO document G/AG/N/IND/3, 1 March 2002. India WT/TPR/S/249 
 Page 133 
 
 
seeds.  Credit schemes comprise a number of govern ment programmes to improve the flow of credit 
to agriculture and to lower the cost of borrowing fo r farmers (via below-market loan rates or debt 
write-offs). 
Table IV.3 
Agriculture sector schemes/programmes, 2011 
Programme/Scheme Budget allocationa Purpose 
National Mission for Sustainable 
Agriculture No budget allocationb Seeks to address issues of "sustain able agriculture" in the context of 
climate change by devi sing appropriate strategies for ensuring food 
security, enhancing livelihood oppor tunities, and contributing to 
economic stability at national level 
Macro Management of Agriculture Rs 55 billion Launched in 2000-01:  seeks to supplement and complement the 
efforts of the states towards enhancement of agricultural production 
and productivity (through soil nutr ition, pest management, and 
watershed development); assistance pr ovided in the form of grants to 
the states/union territories on 90:10 basis, except for the north-eastern 
states/union territories where the Central share is 100% 
National Food Security Mission (NFSM) Rs  48.2 billion Launched in 2007-08:  seeks to increase production of rice, wheat, 
and pulses by 10 million tonnes, 8 million tonnes, and 2 million 
tonnes, respectively, by the end of the 11th Five-Year Plan;  assistance 
in the form of grants 
Rashtriya Krishi Vikas Yojana (RKVY) Rs 250 billion Launche d in 2007-08:  seeks to promote public investment by the 
State as to achieve a 4% growth ra te in agriculture and allied sectors 
during the 11th Five-Year Plan;  assistance in  the form of grants to the 
states 
Mahatma Gandhi National Rural 
Employment Guarantee Act 
(MGNREGA)  Rs 14.7 trillionc Implemented in 2006 to guarantee wage employment to rural 
households;  the programme, stipulated in the Act, is being 
implemented in 625 rural districts  
Integrated Scheme of Oilseeds, Pulses, 
Oil Palm, and Maize (ISOPOM) Rs 1.5 billion Launched in 2004-05:  seek s to promote crop diversification;  
assistance provided for purchase of seeds, plant protection chemicals 
and equipment, and other materials 
Drought management Financed through the 
National Calamity 
Relief Fundd Assistance provided in emergency situations such as droughts 
Centrally sponsored National Mission on 
Micro Irrigation (NMMI) Rs 34 billion Launched in 2010/11:  seeks to  enhance efficient use of water through 
drip and sprinkler irrigation systems in all states and union territories 
for horticulture and agricultural crops 
a Information provided by th e Indian authorities.   
b The programme has not been implemented.   
c For the 11th Five-Year Plan 2007/12. 
d Outlay from the 11th Five-Year Plan. 
Source:  Ministry of Finance (2011), Economic Survey 2010-2011 .  Viewed at:  http://india budget.nic.in;  and information 
 provided by the Indian authorities.   
32. India's latest notification to the WTO on do mestic support commitments in 2011, covered 
1998/99 to 2003/04.25 
33. Direct or explicit subsidies  to agriculture as reported in the Centra l Government's annual 
Budget amounted to Rs 1,413.5 billion (2.2% of GDP) in 2009/10, up from Rs 571.3 billion (1.3% of GDP) in 2006/07. 
34. The bulk of India's explicit subsidies are aimed mainly at promoting food security and 
reducing poverty.  As a result, most of the outlays are allocated to food and fertilizers (Chart III.6).  
Food subsidies are provided by the Department of F ood and Public Distribution to meet the difference 
between actual prices and the central issue prices fixe d under the Targeted Public Distribution System 
(TPDS) and other welfare schemes (Chapter III(4)(i v)).  The Central Government also provides a 
                                                      
25 WTO document G/AG/N/IND/7, 9 June 2011. WT/TPR/S/249 Trade Policy Review 
Page 134 
  
subsidy to the Food Corporation of India to keep  buffer stocks of wheat and rice as a food security 
measure.  "Other subsidies", which accounted for 3% of the total explicit subsidies in 2010/11, 
include market intervention and price support schemes for agricultural products. 
35. The Government maintains minimum suppor t prices (MSPs) for major agricultural 
commodities.  MSP levels and the products subject  to MSPs are reviewed annually.  MSPs are 
announced prior to each planting season.  In 2009/10, India maintained MSPs on 25 crops.26  MSPs 
are fixed by the Government following the reco mmendations of the Commission for Agricultural 
Costs and Prices (CACP), which takes into takes into account several factors to fix them.27  MSPs aim 
at covering the actual expenses incurred by the farmer  in cash and kind, including rent paid for leased 
land and imputed value of wages of family labour, rent for owned land and interest on fixed capital.  
Despite  differences in cost of production across states, MSPs are uniform throughout the country. 
36. Farmers are guaranteed the MSP through the Price Support Scheme (PSS):  when prices of 
the relevant commodities fall below the MSP, go vernment-designated agen cies intervene in the 
market to purchase at the MSP any amount of produ ce that farmers offer.  Designated agencies under 
the PSS purchase specific products.28  There is an additional scheme (the Market Intervention Scheme 
(MIS)) that covers perishables not under the MS Ps.  Under the MIS, the National Agricultural 
Cooperative Marketing Federation of India Ltd. (NAFED) and other State designated agencies 
purchase perishables at a market intervention pric e (MIP) when the prices decline because of a 
bumper crop, and distribute the products. 29 
37. In 2009, the statutory minimum price (SMP) for sugarcane was replaced by the fair and 
remunerative price (FRP)30;  a minimum price set at the central level, below which no sugar mill may 
purchase sugarcane from a farmer.31  State governments also set a state advisory price (SAP) for 
sugarcane.  If the SAP is higher than th e FRP, the state government bears the loss.32  In addition to the 
price intervention, a quota of th e sugar production (at present 10%), referred to as "levy sugar", is 
earmarked for distribution under the Target ed Public Distribution System (TPDS).33  The remaining 
                                                      
26 In 2009/10, India maintained MSPs on 25 crops, namely paddy, jowar, bajra, maize, ragi, arhar (tur), 
moong, urad, cotton, groundnut in shell, sunflower seed, soybean, sesamum, nigerseed, wheat, barley, gram, 
masur (lentils), rapeseed/mustard, safflower, toria,  copra, de husked coc onut, jute, and tobacco. 
27 These variables include:  the cost of production, changes in input prices, trends in market prices, 
inter-crop price parity, effect on industrial cost structure, effect on cost of living, effect on general price level, 
international prices, and parity between prices paid an d prices received by the farmers and the effect on issue 
prices and implications for subsidy.  
28 The Food Corporation of India (FCI) and the state agency under the TPDS ar e the designated agency 
to distribute wheat, rice and coarse grains, the National Agricultural Cooperative Marketing Federation of India (NAFED), Central Warehousing Corporation (CWC) and National Cooperative Consumer Federation of India 
Ltd. (NCCF) for pulses and oilseeds, the Cotton Corpor ation of India and NAFED for cotton, and the Jute 
Corporation of India for jute. 
29 Since the inception of the MIS there have been few interventions (Information provided by the 
authorities). 
30 Sugarcane Control (Amendment) Order 2009. 
31 Other factors taken into account to fix the FRP include:  the cost of production of sugarcane;  the 
return that growers would have if planting alternative crops;  the general trend of prices of agricultural commodities;  supply of sugar to consumers at a "fair" pr ice;  price of refined suga r (made with sugarcane) at 
the mill;  earnings made from selling by products (e.g. mo lasses, bagasse, and pressed mud);  and a "reasonable" 
profit margin for sugarcane produ cers to also account for risk. 
32 PRS Legislative Research (2009). 
33 Department of Food and Public Distribution online information, "Sugar:  sugar and edible oil:  
intimation of levy sugar".  Viewed at:  http://fcamin. nic.in/dfpd/EventListing.asp? Section=Sugar and Edible 
Oil&id_pk=100&ParentID=0. India WT/TPR/S/249 
 Page 135 
 
 
sugar may be sold under the monthly regulated rele ase system.  Exports of sugar are also controlled 
through a quota system. 
38. Under the Targeted Public Distribution Syst em (TPDS), which  focuses on reducing poverty, 
the consumer price of some essential commod ities, are controlled to subsidize consumers.34  These 
products are distributed by the state governments/ UTs through the fair price shops/kerosene oil 
depots.  Even though the market price of wheat and rice has increased, the price for rice and wheat 
under the TPDS has not been revised since 2002.35  As a result, the amount spent on subsidizing food 
has increased substantially from Rs 238 billi on in 2006/07 to Rs 698 billion in 20010/11.36 
39. India continues to subsidize indigenous and impor ted (urea) fertilizers through price controls.  
The scheme was introduced after the prices of phosphatic  and potassic fertilizers were decontrolled, to 
keep the price of fertilizers low, and to give produ cers a "reasonable" return on investment.  However, 
this policy has resulted in an excessive use of n itrogenous fertilizer which depletes the soil of other 
micronutrients reducing soil productivity over time.37 
40. The New Price Scheme (NPS) for urea, in place  since 2003, initially expected to be phased 
out by 31 March 2010, has been extended indefinitely.38  Although the price of urea continues to be 
controlled, price controls on other fertilizers were eliminated in 2010 and replaced by a 
"nutrient-based subsidy policy", implemented as of  1 April 2010, which applies to phosphatic and 
potassic fertilizers for agricultural use including im ports.  Under this new scheme , manufacturers fix 
prices and the Government provides a fix annual subsid y.  The subsidy granted to central public sector 
undertakings and to private firms producing fertilizers is equivalent. 
41. In addition to the subsidy on fertilizer, India' s farmers benefit from input support for irrigation 
water, electricity, diesel, and seeds.  These subsidies are financed by the central and state governments 
(water and electricity).  The diesel subsidy is fina nced mainly by the Central Government while the 
subsidy on seeds is shared by the central and state governments.  In general, during the period under 
review, budgetary support to input subsidies has incr eased.  Subsidies granted to marginal farmers in 
the form of, inter alia , price support and insurance support schemes have recorded the highest 
increase (Table IV.4 and Chart III.6). 
42. Electricity subsidies for farmers are paid from the state budgets.  Farmers pay a fixed charge 
for electricity, which in most states is a lump sum based on the declared horsepower of irrigation 
pumps.  As this does not reflect the actual cost of electricity there is overuse of electricity.39  No data 
are available on the actual amount of the electricity subsidy allocated to agriculture.  Irrigation water 
subsidies are the third largest component of budgetary support for agriculture inputs. 
                                                      
34 These commodities are:  wheat, rice,  coarse grains, sugar and kerosene. 
35 For wheat it remains at Rs 4.15/kg for consumers Below Poverty Line and Rs 2/kg for Antyodaya 
Anna Yojana (AAY) (i.e. the poorest of the poor);  and for rice, it is Rs 5.65/kg for BPL and Rs 3/kg for AAY 
(Information provided by the authorities). 
36 Ministry of Finance (2011a). 
37 Planning Commission (2008). 
38 The New Price Scheme (NPS) replaced the Retentions Price Scheme (RPS) in 2003. 
39 OECD (2009a), Chapter 5:  India. WT/TPR/S/249 Trade Policy Review 
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Table IV.4 
Subsidies in agriculture inputs, 2006-10 
(Rs billion) 
 2006/07 2007/08 2008/09 2009/10 
Public investment in agriculture a nd allied sector 229.78  230.40 244.52 .. 
Total subsidies 676.93 877.08 1,609.17 529.80 
Fertilizer 262.22 324. 90 766.03 529.80 
Electricitya 197.29 206.61 274.89 .. 
Irrigation 169.78 194. 57 236.65 .. 
Otherb 47.64 151.00 331.60 .. 
.. Not available. 
a Includes all subsidies to electricity boards and corporations.  Separate estimates of the elect ricity subsidy to the agricult ure sector 
are not available. 
b Subsidies to marginal farmers and to farm ers' cooperative societies in the form of seeds, development of oilseeds, pulses, co tton, 
rice, maize, and crop insurance sche mes, price support schemes, etc. 
Source:  Department of Agriculture and Cooperation (2010), Agricultural Statistics At a Glance 2010 , 24 September.  
Viewed at:  http://agricoop.nic.in/A gristatistics.htm;  and information provided by the Indian authorities. 
43. The Central Government has put in place pr ogrammes to address the use of low-quality seeds 
by farmers.  These include the Indian Seed Programme and Central-sector Development and 
Strengthening of Infrastructure Facilities for Producti on and Distribution of Quality Seeds scheme, to 
supply quality seeds at "affordable prices".  To promote seed production in the private sector, a 
credit-linked back-ended capital subsid y is granted to develop infrastructure to produce seeds.  Under 
this subsidy if the developer has taken a loan, once the project is finished 25% of the project cost 
(subject to a maximum of Rs 2.5 million per unit) do es not need to be repaid.  Assistance is also 
provided to the states/UTs and state seeds corpor ations for creation and operation of seed-processing 
plants. 
44. India sets targets for priority-sector lending to ensure that banks provide credit to specific 
priority sectors.  Domestic and foreign commercial ba nks are required to reserve a percentage of their 
adjusted net bank credit (ANBC) or credit equiva lent amount of off-balance-sheet exposure (OBSE), 
whichever is higher, for priority sectors.  Domes tic banks must reserve 40% of their ANBC/OBSE to 
lend to priority sectors, of which 18% must be ch annelled to agriculture, a nd foreign banks 32% of 
their ANBC/credit equivalent of OBSE to priority sectors, but with no requirement to lend to the 
agriculture sector (Table III.24). 
45. In addition to credit set-asides, India has impl emented programmes to ensure access to credit 
in agriculture and allied activities, including s ubsidizing commercial banks , including rural regional 
banks RBs, rehabilitation packages for distressed farmer s (e.g. debt write-offs for farmers in distress 
and farmers in arrears), and a One Time Settlement  (OTS) Scheme for smal l and marginal farmers 
and relief to farmers indebted to non-in stitutional lenders, such as money lenders. 
46. Rural cooperative banks play an important role in channelling credit to the rural sector, and 
are considered by the Government to be a key instru ment of financial inclusion in reaching out to the 
rural areas.  Therefore, subsidies are provided to regional rural banks, coopera tive banks, and public 
sector banks to provide short-term credit to farmers at preferential rates (section (3)(ii)(a)).  For example, in 2009/10, the Central Government provi ded a subsidy of 2 percentage points on its own 
loans to public sector banks, to provide short-term  production credit to farmers, of up to Rs 300,000 
per farmer, at an interest rate of 7%.
40  If farmers reimbursed their loans within one year, an 
"additional subsidy" was granted to public banks so  that they would reduce the interest rate by a 
                                                      
40 The nominal prime lending rate was 11%-12% for 2009/10 (Chapter I) (Reserve Bank of India, 
2010c). India WT/TPR/S/249 
 Page 137 
 
 
further 1 percentage point, bringing the interest  rate down to 6%.  In 2010/11, this "additional 
subsidy" was increased to 2 percentage points, loweri ng the effectively paid interest rate by farmer to 
5%.41  Apart from this subsidy granted by the Cent ral Government, farmers may benefit from other 
subsidized interest rate offered at the state level. 
47. The National Bank for Agriculture and Rural Development (NABARD) has been designated 
as the implementing agency for the Short-term Ru ral Cooperative Credit Structure package.  The 
purpose of the package is, inter alia , the recapitalization of the primary agricultural cooperative 
societies (PACS) and the central cooperative banks (CCBs).  States are required to sign 
memorandums of understanding (MoUs) with the Go vernment of India and NABARD, committing to 
implementation of the legal, institutional, and othe r reforms as envisaged in the package.  To date, 
25 states have signed such MoUs.  As of March 201 1, Rs 87 billion had been released by NABARD 
for recapitalization of 53,380 PACS.42 
48. NABARD also administers funds that  ensure the availability of cr edit to farmers.  In 2010/11, 
NABARD disbursed Rs 120.6 billion through the Rura l Infrastructure Development Fund (RIDF) to 
finance irrigation, rural roads and bridges, health  and education, soil conservation, drinking water 
schemes, flood protection and forest management projects.43  The RIDF was set up with contributions 
from commercial banks:  commercial banks deposit the shortfall in agriculture/priority sector lending 
with NABARD as part of their contribution to the RIDF.44 
49. In 2008, India implemented the Agricultural Debt Waiver and Debt Relief Scheme, under 
which some 36.9 million farmers have had their debt s waived or have been granted some kind of 
relief.45  According to the authorities this programme is not in force. 
50. The Agriculture Insurance Company of I ndia Ltd. (AICI) was established in 2002 to 
implement the Government's National Ag riculture Insurance Scheme (NAIS).46  The main objective 
of the NAIS is to protect farmers against crop lo sses due to natural calamities.  NAIS has been in 
operation since 1999/00 and is being im plemented by 23 states and 2 UTs.  The scheme is available to 
farmers irrespective of the size of their holding.  It covers all food crops, oilseeds, and annual 
commercial/horticultural crops in respect of which past  yield data are available for at least ten years, 
since premiums are based on these data.  Premium ra tes are high in the case of groundnut and cotton 
(risky crops) because of high variation in yield,  whereas the rates for sugarcane and wheat are 
comparatively low since these are stable crops.  The implementing agency must bear all normal losses 
for annual commercial/horticulture crops, i.e. claims up to 150% of premiums in the first three years 
and 200% of premiums thereafter.  Small and margin al farmers are entitled to a subsidy of 50% of the 
premium charged.  The scheme provides for compulso ry coverage in respect of farmers that have 
taken loans, whereas farmers with no debts may opt for insurance cover on a voluntary basis.  Other 
insurance schemes are under implementation, including the Pilot Modified NAIS (MNAIS), the Pilot Weather Based Crop Insurance Scheme (WBCIS), a nd the Pilot Coconut Palm, Insurance Scheme 
(CPIS). 
                                                      
41 Ministry of Finance (2009) and (2010c). 
42 Ministry of Finance (2011a). 
43 Information provided by the authorities. 
44 NABARD online information, "Credit Functions:  Direct Credit".  Viewed at:  
http://www.nabard.org/creditfun ctions/directcredit.asp. 
45 Department of Agriculture (undated). 
46 The Agriculture Insurance Company of India Ltd. (A ICI) is registered with the Insurance Regulatory 
and Development Authority (IRDA). WT/TPR/S/249 Trade Policy Review 
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(3) SERVICES  
(i) Overview 
51. In 2009/10, the services sector accounted for a bout 56% of GDP, up from  53% in 2006/07.  
The sector grew at an average annual rate of 10% per year in 2006/07-2009/10, faster than average 
GDP growth, and contributed nearly 60% of the overall growth of the economy.  The leading 
subsectors in terms of contribution to total value added in 2009/10 were financial services, commerce, 
and communications. 
52. Inadequate infrastructure has become a critical c onstraint to India's development.  To address 
this concern, the 11th Five-Year Plan outlined a comprehensiv e strategy to improve both rural and 
urban infrastructure, including electric power, roads, railways, ports, airports, telecommunications, 
irrigation, drinking water, sanitation, storage, a nd warehousing.  However, public investment alone 
would probably be insufficient to address India's infra structure needs, particularly considering India's 
quest for fiscal consolidation.  Hence, an increa se in private investment in infrastructure would be 
necessary to attain India's goal.  Private sector i nvestment, including from foreign sources, could play 
an important role not only in developing infrastruct ure India, but would also provide an opportunity 
for foreign investors and would result in more stable, less volatile, capital inflows. 
53. Tourism is an important subsector, though this is not apparent from GDP figures.  It has a 
good growth potential and, this through its back ward and forward linkages can stimulate other 
economic sectors like agriculture, horticulture, handicrafts, transport, and construction. 
54. During the period under review, India's exports of services grew at over 13.5% per annum.  
India is a net exporter of services (Chart IV.1 );  its services balance showed a surplus of 
US$35,726 million in 2009/10 (equivalent to 2.7%  of GDP), US$6,257 million higher than in 
2006/07.  India is a leading exporter of computer and related services, including software installation 
and data processing, and a major supplier of back -office processing services, such as abstracting and 
indexing, data processing, legal transcripti on, telemarketing, and website design. 
55. India took part in the negotiations on financ ial services and telecommunications and accepted 
the Fifth and Fourth Protocols to the GATS.  India's Schedule of Specific Commitments under the 
GATS is limited to commitments in 6 of the 12 services categories.  India accepted specific commitments in the areas of business services, communications services, construction-related and engineering services, financial services, health-related and social services, and tourism services.
47  As 
regards horizontal commitments, India introduced a series of requirements on entry and temporary 
stays of natural persons such as business visitors a nd intra-corporate transferees.  India's Schedule of 
MFN horizontal exemptions include exempti ons on telecommunications services affecting 
neighbouring countries indefinitely;  audio-visual services;  shipping;  and recreational services. 
                                                      
47 WTO document S/DCS/W/IND, 2 April 2003. India WT/TPR/S/249 
 Page 139 
 
 
Chart IV.1
Trade in services, 2006/07 and 2009/10
2006/07 2009/10
(a)    Exports 
Communication
3.1
Total:   US$73,780 million Total:  US$95,759 million  
(b)    Imports
Insurance
1.4
Softwarea
5.1Communication
1.8
Financial
6.8Transportation
18.2Travel
15.1
Business
30.1Other
19.9
Communication
2.3Softwarea
51.9
Financial
7.7
Total:   US$44,311 million Total:   US$60,033 million Per cent
Travel
12.4
Transportation
10.8Other
5.3
Transportation
11.7
Softwarea
42.4
Source :  Reserve Bank of India (2011), Statistical Bulletin , February .Viewed at: http://www.rbi.org.in/.Other 
15.8Communication
1.3
Business
11.9
Business
35.8Travel
12.4
Travel
15.6
Insurance
2.1Business
19.7Insurance
1.6 Insurance
1.7Other 
5.8
Transportation
19.9Financial
3.9 Financial
4.2
Softwarea
2.4
a            Software services include computer services and information technology enabled services (ITES)/
business process outsourcing (BPO).
 WT/TPR/S/249 Trade Policy Review 
Page 140 
  
(ii) Financial services 
56. Financial services (including banking and insura nce) accounted for 7.9% of GDP in 2009/10, 
up from 6.7% in 2006/07.  In 2009/10, in contrast with  previous fiscal years, India ran a trade deficit 
in financial services, as imports increased substan tially faster than exports;  exports totalled 
US$3.74 billion and imports US$4.64 billion.  The author ities have noted that the increase in imports 
mainly reflects higher costs of imported financia l services as a consequence of the global financial 
crisis.48 
57. India's legal framework for the financial sector  has been updated and strengthened since its 
last Review;  however, part of this legislation has ye t to enter into force.  The sector is regulated by 
the Reserve Bank of India (RBI) (banks and relate d financial institutions), the Insurance Regulatory 
and Development Authority (IRDA) (insurance comp anies), and the Securities and Exchange Board 
of India (SEBI) (securities and stock exchange activities). 
58. Financial services, particularly banking and in surance, continue to be dominated by 
state-owned companies.  Measures have been a dopted to encourage competition from the private 
sector, and restrictions on foreign banks' ownership and establishment c onditions have been relaxed.  
Efforts have also been made to improve prudentia l regulations and, in ge neral, banks are soundly 
capitalized.  Plans to recapitalize rural regional banks have been devised, and their past poor 
performance has improved. 
(a) Banking 
Market structure and performance  
59. India's banking sector comprises a relatively small number of commercial banks compared 
with other types of financial institution.  Ap art from commercial banks and cooperative credit 
institutions, the financial system consists of a wide variety of non-banking financial institutions 
(NBFIs).  As at 31 March 2010, there were 81 sche duled commercial banks (e xcluding regional rural 
banks (RRBs)), 1,674 urban cooperative banks (UCBs ), 5 development finance institutions (DFIs), 
12,662 non-banking financial companies (NBFCs), and 18 primary dealers (PDs) (Table AIV.1).49  
All these institutions are supervised by the Reser ve Bank of India (RBI), through the Board for 
Financial Supervision.  In general, with the exception of primary dealers, there has been a 
consolidation of financial institutions since 2007, with  fewer institutions in all categories.  There are 
also 82 RRBs supervised by the National Bank fo r Agriculture and Rural Development (NABARD).50 
60. India's banking sector continues to be dominated by public sector banks (PSBs), which 
account for approximately 73.7% of the sector's tota l assets.  At end-March 2010, of the 81 scheduled 
commercial banks, there were 27 PSBs (19 nationalized  banks, the State Bank of India (SBI), 6 SBI 
associate banks and the Industrial Development Bank  of India (IDBI)), 22 private sector banks, and 
32 foreign banks (Table AIV.1).  An important  issue during the period under review was the 
recapitalization of PSBs, for which the 2010/11 Budget provided Rs 165 billion to help banks 
maintain a Tier I capital adequacy ratio in ex cess of 8%.  The authorities have noted that, though 
government shareholding in all public sector banks  remained above 51% during 2009/10, and the 
                                                      
48 The authorities have noted that, the rapid increase in imports of financial services in 2009/10 was 
particularly on account of higher payments for bank, collection and letter of credit charges, cancellation of 
forward contracts, commissions on financial leasing,  brokerage fees, underwriting commissions, charges on 
operation and regulatory fees, custodial se rvices, and depository services fees. 
49 Information provided by the Reserve Bank of India;  and Reserve Bank of India (2010a). 
50 Reserve Bank of India (2006). India WT/TPR/S/249 
 Page 141 
 
 
average was 58%, some PSBs had been very close to the 51% threshold.51  This raises the issue of the 
trade-off between recapitalization of PSBs, in orde r to ensure continued credit creation by public 
sector banks, and maintaining the statutory floor of 51% for government ownership. 
61. Foreign investment participati on is allowed in both public and private sector banks, up to a 
threshold of 74% for all forms of foreign investment  (i.e. FDI and FII) in private banks, and of 20% in 
public banks.  In March 2010, 9 PSBs had foreign capital of up to 10%, and 11 had foreign capital 
between 10% and 20%.  These public banks also have domestic private shareholding;  for 11 of them, 
total private sector participation (foreig n and domestic) was between 40% and 49%.52 
62. Commercial banks (domestic and foreign) are requi red to allocate a certain percentage of net 
lending (40% for domestic banks and 32% for foreign banks) to priority  sectors, including agriculture, 
micro and small enterprises, and exports (Table III.24).  Of the 40% to be allocated by domestic 
banks, 18 percentage points must be allocated to ag riculture;  10% of credit must be allocated to 
weaker sections.53  For foreign banks, of the 32% to be allocat ed to priority sectors, at least 10% must 
be for small-scale industries, a nd 12% for exports.  Although credit assignment to specified activities, 
as the authorities note, has social purposes and seeks fi nancial inclusion, it may also have an impact 
on the overall cost of financial intermediation, as it reduces the amount of credit allocated to the more 
profitable sectors, and hence increases overall interest  rates, as banks need to recover costs.  The 
policy of credit allocation for specified purposes may also result in increased financial risk, and lead 
in some cases to difficulties in recovering assets. 
63. During most of the period under review, and ag ainst the backdrop of fast economic growth, 
bank credit continued to expand rapidly;  as a result, its share of GDP increased, a sign of a rising 
degree of financial intermediation.  Bank credit more than doubled between 2005/06 and 2009/10 to 
reach Rs 35 trillion or 54.5% of GDP, up from 48% reported in the previous Review.  The total 
deposits of scheduled commercial banks more  than doubled, representing 74% of GDP in 
FY 2009/10.  Credit to manufacturing accounted for 37. 5% of total credit in 2009/10, followed by 
services (20.8%), real estate (16. 6%), and agriculture (11.9%). 
64. Scheduled commercial banks remained well capitali zed in the midst of the financial crisis.  
The minimum capital to risk-weighted assets ratio ( CRAR) requirement for banks regulated by the 
RBI is 9%.  At end-March 2010, the average CRAR for commercial banks was 14.5%, higher than in 
March 2009 and March 2008.  The quality of assets of Indian banks remained stable during the 
financial crisis and its aftermath.  During the crisis year 2008-09, the gross non-performing assets 
(NPAs) ratio remained unchanged for scheduled commercial banks, at some 2.25%, increasing only 
slightly to 2.39% in 2009-10.  The net NPAs ratio of scheduled commercial banks increased from 
1.05% at end-March 2009 to 1.12% at  end-March 2010 (Table IV.5). 
65. The RBI has paid particular attention to foster ing financial inclusion to overcome the still low 
levels of financial penetr ation and deepening in India.  To this  end, the RBI introduced a scheme to 
allow the opening of accounts with no pre-cond itions and a low minimum balance requirement 
(no-frills accounts).  Recent data show that progress has been made, and that the number of no-frills 
accounts opened has increased.  Micro-finance has b een an important component of the financial 
inclusion process in India.  To this end, th e RBI has promoted the Self-Help Group-Bank Linkage 
Programme (SBLP) as a source of micro-finance.   Although ATM penetration remains low, the 
authorities noted that banks are seeking to increase their number. 
                                                      
51 Reserve Bank of India (2010d). 
52 Reserve Bank of India (2010d). 
53 This 10% may be a part or not of th e 40% allocated to priority sectors. WT/TPR/S/249 Trade Policy Review 
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Table IV.5 
Trends in the banking sector's gross loans a nd deposits and prudential indicators, 2006-10 
(Rs million and %) 
 2006 2007 2008 2009 2010 
Assets 2,785,863 3,459,961 4,326,166 5,241,330 6,025,141 
Return on assets (%) 1.01 1.05 1.12 1.13 1.05 
CRAR (%) 12.32 12.28 13.01 13.98 14.58 
Net NPA ratio (%) 1.22 1.02 1.00 1.05 1.12 
Total loans 1,516,811 1,981,236 2,476,936 3,000,906 3,497,054 
US$ equivalent (m illion) 33,479 47,915 56,935 61,996 76,478 
Loans by economic sector (% of total loans)      
Agriculture 11.47 11.63 11.12 11.29 11.88 
Industry 36.29 35.20 35.00 35.14 37.45 
Services 21.11 21.24 22.33 21.55 20.76 
Real estate 17.28 18.82 18.44 17.50 16.58 
Total deposits 2,164,681 2,696,936 3,320,061 4,063,203 4,752,456 
US$ equivalent (m illion) 45,778 65,224 76,314 83,942 103,933 
Source : Information provided by the Indian authorities. 
Legal and regulatory framework 
Commercial banks 
66. The Reserve Bank of India (RBI) regulates the banking sector, in accordance with the 
Reserve Bank of India Act 1934.  The RBI perform s its financial supervis ory functions under the 
guidance of the Board for Financial Supervisi on (BFS), constituted in November 1994 as a committee 
of the Central Board of Directors and chaire d by the RBI Governor.  The BFS oversees the 
consolidated supervision of the financial sector, comprising commercial banks, financial institutions, 
and non-banking finance companies, and provides gui delines on regulatory and supervisory issues.  
The authorities have noted that the BFS' current fo cus is on strengthening the supervision of financial 
institutions, and improving consolidated accounting,  the assessment of non-performing assets, and the 
use of supervisory rating model for banks.54 
67. The banking sector legal framework comprises two "umbrella acts":  the Reserve Bank of 
India Act 1934, and the Banking Regulation Act 1949.  A number of other acts govern banking 
operations, specific functions, or in dividual financial institutions.55 
68. In recent years, a number of regulatory cha nges and legislative amendments have been 
introduced, but are still awaiting enactment.  In th e latest Budget Speech, the Minister of Finance 
proposed to enact a number of these laws, incl uding:  the Banking Laws Amendment Bill 2011;  the 
Bill on Factoring and Assignment of Receivables;  and the State Bank of India (Subsidiary Banks 
Laws) Amendment Bill 2009, among others.  In addition, as announced in the Budget 2010/11, the 
Government has set up a Financial Sector Legisl ative Reforms Commission to rewrite and streamline 
                                                      
54 Reserve Bank of India online information, "About us".  Viewed at:  http://www.rbi.org.in/scripts/ 
AboutusDisplay.aspx. 
55 Acts governing banking operations include:  the Companies Act 1956;  the Banking Companies 
(Acquisition and Transfer of Undertakings) Act 1970/1980;  the Bankers' Books Evidence Act;  and the Banking Secrecy Act.  Acts governing specific functions, include:  the Public Debt Act 1944/Government Securities Act 
(Proposed);  the Securities Contract (Regulation) Act 1956;  the Foreign Exchange Regulation Act 1973/Foreign 
Exchange Management Act 1999;  and the Payment and Settlement Systems Act 2007.  Specific legislation on individual institutions includes:  the State Bank of Indi a Act 1954;  the Industrial Development Bank (Transfer 
of Undertaking and Repeal) Act 2003;  the Industrial Finance Corporation (Transfer of Undertaking and Repeal) 
Act 1993;  the National Bank for Agri culture and Rural Development Act;  the National Housing Bank Act;  and 
the Deposit Insurance and Cred it Guarantee Corporation Act. India WT/TPR/S/249 
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the financial sector laws, rules, and regulations.  Th e Commission is expected to complete its work by 
2013. 
69. The RBI, as regulator and supervisor, prescr ibes broad parameters of banking operations 
within which India's banking system functions.  Th e RBI also acts as banker to the Government and 
lender of last resort, performing me rchant banking functions for the central and the state governments.  
The RBI has three fully owned subsidiaries:  the National Housing Bank (NHB), the Deposit 
Insurance and Credit Guarantee Corporation of Indi a (DICGC), and the Bharatiya Reserve Bank Note 
Mudran Private Ltd. (BRBNMPL).  The RBI has a majority stake in the National Bank for Agriculture and Rural Development (NABARD);  it h as recently divested its stake in the State Bank 
of India.
56 
70. Indian and foreign banks require a licence fro m the RBI to undertake banking operations in 
India.  An authorization is required for the openi ng of new branches by banks and for changes in the 
location of existing branches, in accordance wi th the Branch Authorization Policy.  Since 
1 December 2009 Indian banks no longer require a licence from the RBI to open a branch in areas with a population below 50,000, subject to reporting.  The RBI also regulates mergers, amalgamation, 
and winding up of banks. 
71. Scheduled commercial banks are required to ma intain a certain portion of their net demand 
and time liabilities (NDTL) in the form of cash with the RBI, i.e. cash reserve ratio (CRR), and in the 
form of investment in approved securities, i.e. st atutory liquidity ratio (SLR).  The RBI monitors 
compliance with these requirements in the banks' da y-to-day operations.  The CRR is fixed by the 
RBI and used as a tool to inject/subtract excess liquid ity.  In the wake of the financial crisis, both the 
CRR and the SLR were lowered, but as monetary cond itions changed, they were raised to 6% and 
24%, respectively, and were still at this level in March 2011.
57 
72. Interest rates on most categories of deposits and lending transactions are largely determined 
by banks.  However, the RBI regulates interest  rates on savings accounts held at scheduled 
commercial banks, deposits of non-resident Indians (NRI), and a few categories of advances.  During 
most of the period under review, the RBI used the benchmark prime lendi ng rate (BPLR) system, 
introduced in 2003 to regulate inte rest rates.  The BPLR was used as a benchmark rate for banks to 
price their loan products so as to reflect actual co sts but banks were allowed to lend below the BPLR.  
This meant that it was difficult to assess the transmission of RBI policy rates to actual bank lending rates.  Based on the recommendations of a working group, the RBI replaced the system by a base rate 
system in April 2010, which entered into effect on 1 July 2010.  The base rate is the minimum rate for 
all loans.  Banks are not allowed to lend below the base rate except for:  (a) differential rate of interest 
(DRI) advances;  (b) loans to banks' own employees;  (c) loans to banks' depositors against their own 
deposits;  and (d) restructured Working Capital Term Loans (WCTL), and Funded Interest Term 
Loans (FITL), granted for viability purposes.  Subsid ized interest rates on agricultural loans and for 
                                                      
56 Reserve Bank of India (undated). 
57 In terms of Section 42 (1) of the Reserve Bank of India Act 1934, the RBI having regard to the needs 
of securing monetary stability, prescribes the CRR for scheduled commercial banks without any floor or ceiling 
rate.  At present, the CRR is at 6% of a bank's total of net demand and time liabilities for SCBs.  Between 
end-April and end-August 2008, the CRR was increased in stages from 7.75% to 9%;  it was brought down in 
stages to 5% between then and January 2009 and raised in stages to the present rate effective 24 April 2010.  In 
terms of Section 24 of the Banking Regulation Act 1949, the RBI can prescr ibe the SLR for S CBs in specified 
assets;  this percentage must not exceed 40% of the bank' s total demand and time liabilities in India.  At present 
the SLR for scheduled commercial banks is 24% of their net demand and time liabilities NDTL. WT/TPR/S/249 Trade Policy Review 
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some export credits in rupees can al so be lower than the base rate.58  The base rate system applies to 
all new loans and to existing loans that come up for renewal.  Existing loans based on the BPLR 
system may run until their maturity.  The RBI also deregulated interest rates on small loans of up to 
Rs 200,000 and export credits in rupees, with effect  1 July 2010, and stipulated that these rates may 
now be set at or above the base rate.  The authoriti es expect the base rate system to facilitate better 
pricing of loans and enhance transparency in lending rates.59 
73. The RBI requires that banks maintain a capital to risk-weighted assets ratio (CRAR) of 9%.  
This includes capital for credit risk, market risk, operational risk, and other risks.  Also, in order to 
maintain the quality of loans and advances, the RB I requires banks to classify their loan assets as 
performing and non-performing assets (NPAs), primar ily based on the record of recovery from the 
borrowers.  NPAs are further categorized into s ub-standard, doubtful, and loss assets, depending upon 
the age of the NPAs, and value of available securiti es.  Banks are also required to make appropriate 
provisions against each category of NPA and to  disclose their exposure to the 20 largest 
depositors/borrowers, apart from disclosing informa tion on sector-wise NPAs (percentage of NPAs to 
total advances in that sector) and on the changes in NPAs.  Banks are required to have exposure 
limits, to prevent credit concentration risk and to limit exposure to sensitive sectors such as capital 
markets and real estate.  The RBI also requires banks  to classify their investment portfolios into three 
categories for valuation purposes:  held to matur ity (HTM), available for sale (AFS), and held for 
trading (HFT). 
74. During the period under review, and in the wake  of the global financial crisis, the RBI 
stepped up its prudential regulations, mainly  through the adoption of a roadmap for the 
implementation of the "advanced approaches" to  evaluate risk under Basel II in July 2009.60  This will 
require banks to upgrade their risk management fr amework, and undertake an internal assessment of 
their readiness to adopt the advanced approaches, in the light of the Basel II criteria.  Banks require 
prior RBI approval to adopt any of the advanced approaches.  In the meantime, the RBI issued 
guidelines in March 2010 on "Implementation of the Standardised Approach" (TSA) and "Alternative 
Standardised Approach" (ASA) for calculation of capital charges for operationa l risk, largely based on 
the Basel Committee on Banking Supervision (BCBS) guidelines.61  Guidelines on the Internal 
                                                      
58 In general, since the RBI deregulated the interest rate on rupee export credit, effective 1 July 2010, 
exporters must obtain export loans in ru pees at the market-determined interest  rates.  The exceptions to this are 
pre- and post-shipment export credits extended between 1 April 2010 and 31 March 2011 for seven employment-oriented export sectors (han dicrafts;  carpets;  handlooms;  leather and leather manufactures, jute 
manufacturing;  engineering goods;  and textiles) and fo r small and medium enterprises.  These credits have 
been granted with an interest rate subvention of 2 perc entage points, subject to th e condition that the interest 
rate, after subvention, does not fall below 7%, which is the ra te applicable to the agriculture sector under priority 
sector lending. 
59 Reserve Bank of India (2010d). 
60 Basel II offers a choice between two broad methodologies in measuring risks for the purpose of 
capital adequacy:  (i) a standardized approach, used by banks in India since 31 March 2008;  and (ii) an 
advanced approach, by which banks device their own internal risk measurement models.  In the latter case, 
credit risk may be calculated by using a foundation internal ratings based (IRB) approach, or an advanced IRB 
approach.  The standardized approach se ts out specific weights for certain types of credit risk.  Under both of the 
advanced approaches, three risk parameters must be used:  the probability of default (PD), the exposure at 
default (EAD), and the loss given default (LGD).  Under the foundation IRB, banks estimate only the PD and 
use supervisory values for the other parameters, while  under the advanced IRB, institutions estimate all 
parameters themselves.  Guidelines on the Internal Models  Approach for Market Risk were issued by the RBI in 
April 2010. 
61 Under Basel II, operational risk may be calculated using one of three approaches:  (a) a basic 
indicator approach (BIA);  (b) the st andardized approach (TSA );  and (c) an advanced measurement approach India WT/TPR/S/249 
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Models Approach for Market Risk were issued in  April 2010.  As the Basel II recommendations are 
phased in by the banking industry, it is expected th at banks will move from the standardized approach 
to advanced approaches for each risk  category by each individual bank.  In this respect, the RBI has a 
schedule for banks to phase in the Basel II recommendations.62  The benefit for banks to develop their 
own risk measurement systems is that they will  eventually be subject to lower risk capital 
requirements, and will no longer be forced to rely on the ratings generated by external agencies, as is 
the case with the standardized ratings approach. 
75. The RBI has set up a Deposit Insurance and Cr edit Guarantee Corporation, which provides 
insurance cover to all eligible bank deposito rs up to Rs 100,000 per depositor per bank. 
76. The RBI supervises banks in order to monitor a nd ensure their compliance with the regulatory 
policy framework through on-site inspection, off-site  surveillance, and periodic meetings with the 
banks' top management.  On-site inspection is undertaken annually to assess the banks' financial 
health and to evaluate their performance in term s of quality of management, capital adequacy, asset 
quality, earnings, liquidity position, as well as internal  control systems.  Based on the findings of the 
inspection, banks are assigned supervisory ratings and are required to address any weaknesses 
identified.  The RBI also requires banks to submit detailed and structured information, periodically, 
under its Off Site Surveillance and Monitoring Syst em (OSMOS).  Banks are allowed to undertake 
non-traditional banking activities, also known as para -banking, which include asset management, 
mutual funds business, insurance business, merchant  banking activities, factoring services, venture 
capital, card business, equity participa tion in venture funds, and leasing. 
77. In February 2005, the RBI formulated a Roadma p for Presence of Foreign Banks in India and 
the Guidelines on Ownership and Governance in Private Banks.  The Guidelines cover minimum 
capital requirements, provisions on ownership struct ure, procedures for acquisition and transfer of 
shares, and conditions for senior officials and large shareholders.63  Private-sector banks must 
maintain minimum capital, initially of Rs 2 billion, to be increased to Rs 3 billion in three years, while 
net worth must be Rs 3 billion at all times.  No entity may own or control more than 10% of the 
paid-up capital of a private sector bank.64  In addition, the voting rights of any individual, irrespective 
of their shareholding, are capped at 10%.  The road map was divided into two phases;  the first phase 
was implemented between Marc h 2005 and March 2009, and the second phase was scheduled to 
begin in April 2009 after a review of th e experience gained in the first phase. 
78. In the first phase, foreign banks willing to have  a presence in India for the first time could 
choose to operate through branch or to set up a 100% wholly owned subsidiary (WOS).65  Foreign 
banks already operating in India were also allo wed to convert their existing branches to a WOS, 
                                                                                                                                                                     
(AMA).  Guidelines on the TSA and an Alternative Sta ndardised Approach (ASA) for operational risk largely 
based on the Basel Committee on Banking Supervision gu idelines were issued by the RBI in March 2010. 
62 The time schedule for the application to use the adva nce approaches is:  (a) in ternal models approach 
(IMA) for market risk, 1 April 2010 (approval 31 March 2011);  (b) TSA for operational risk, 1 April 2010 
(30 September 2010);  (c) advanced measurement approach (AMA) for operational risk, 1 April 2012 
(31 March 2014);  and (d) internal ratings based (IRB) approaches for credit risk (Foundation and Advanced 
IRB), 1 April 2012 (31 March 2014). 
63 The authorities indicate that ownership and governance of banks specified in the Banking Regulation 
Act 1949 are supplemented by RBI regulations from time to time. 
64 However, exceptions are allowed for the consolidation or restructuring of weak banks;  RBI approval 
is required. 
65 Under India's GATS commitments, foreign banks we re allowed to access the Indian market only 
through branches.  Restrictions were also imposed on th e number of banking licences (12 per year, both for new 
entrants and existing banks), and on the value of the banking system's assets in the hands of foreign banks (15% of total assets). WT/TPR/S/249 Trade Policy Review 
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which would be treated as existing branches of fo reign banks for branch expansion in India.  
However, during the first phase no foreign bank applied to establish itself as or to convert to a WOS.  
The initiation of the second phase in April 2009, dur ing which foreign banks would be permitted to 
enter into mergers and acquisitions with any privat e bank in India, subject to an overall investment 
limit of 74%, coincided with the global financial cris is.  The RBI decided to continue with the policy 
and procedures set out in the first phase, to review  the roadmap, and to start the second phase when 
there was more clarity on stability and recovery of the global financial system.  In January 2011, the 
RBI released the Discussion Paper on Presence of Foreign Banks in India66, seeking feedback from all 
stakeholders and the general public with respect to  the most convenient form of foreign bank presence 
in India.67  The authorities noted that the guidelines delineating the roadmap would be finalized after 
taking into account the feedback/suggestions received.  As at June 2011, all foreign banks in India are 
branches. 
79. Banks operating in India (inc luding public-sector banks, privately owned banks, and 
foreign-invested banks) authorized to deal with foreign exchange, are eligible to set up offshore 
banking units (OBUs) in special economic zones (SEZs ).  Eligible banks are allowed to establish only 
one OBU per SEZ, essentially for wholesale banking ope rations.  As a start-up contribution, the 
parent bank should provide a mini mum of US$10 million to the OBU.  OBUs are exempt from the 
cash reserve requirement (CRR);  and a statutory liq uidity ratio (SLR) exemption may be considered 
for a specified period, on request.  OBUs are exp ected to provide loans at international rates to 
companies located in SEZs;  they are also permitted to lend to corporations in the domestic tariff area 
(DTA), under External Commercial Borrowing (ECB) guidelines and subject to the Foreign Exchange 
Management Act (FEMA) regulations.  This latte r type of lending may not exceed 25% of total 
liabilities.  OBUs are not allowed to accept or solicit deposits or investments from Indian residents, or 
open accounts for them. 
Cooperative banks 80. Urban cooperative banks (UCBs) play a signifi cant role in providing banking services to 
middle and lower income groups in urban and sem i-urban areas.  UCBs, like other cooperative 
societies, are registered under the respective State Co-operative Societies Act or Multi-State 
Cooperative Societies Act 2002, and governed by the provisions of the respective acts for 
non-banking issues such as registration, management , administration, recruitment, and amalgamation 
and liquidation.  However, for their banking-rela ted activities, certain provisions of the Banking 
Regulation Act 1949 also apply.  These banks are hence under the dual control of their respective 
state and the Central Government, and by the RBI. 
81. At end-March 2010, there were 1,674 UCBs , of which only 53 were scheduled banks 
(Table AIV.1);  681 were unit banks (with no branch es).  UCBs are largely concentrated in a few 
states (Andhra Pradesh, Gujarat, Karnataka, Mahara shtra, and Tamil Nadu).  UCBs require a licence 
from the RBI for banking business, as well as prior au thorization from the RBI to open a new place of 
business.  UCBs that have applied for but not ye t been granted a licence, may carry on banking 
business unless and until they are refused the licence.  Once a licence has been refused or cancelled, 
they may no longer carry on banking activities.  U CBs are subject to prudential norms relating to 
income recognition, asset classification, provisioning  and capital adequacy ratio apply, as well as to 
on-site inspection and off-site surveillance.  UCBs  are awarded ratings by the RBI considering their 
performance under the CAMELS (Capital, Asset Qu ality, Management, Earnings, Liquidity and 
Systems and Control) model.  All scheduled UCBs are inspected annually.  Non-scheduled UCBs are 
                                                      
66 Reserve Bank of India (2011a). 
67 Reserve Bank of India (2011a).   India WT/TPR/S/249 
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inspected every year or every two years based  on the rating awarded to them under the CAMEL 
model. 
82. Rural cooperative banks play an important role in channelling credit to the rural sector, and 
are considered by the Government to be a key instru ment of financial inclusion in reaching out to the 
rural areas.  Cooperative banks are registered under the respective State Co-operative Societies Act or 
under the Multi-State Cooperative Societies Act 2002.   Short-term cooperative credit institutions 
(STCCIs) function at state, district, and village level and provide primarily short- and medium-term 
credit for production and marketing of agriculture  products:  they comprise state cooperative banks 
(StCBs), district central cooperative banks (DCCBs), and primary agricultural credit societies 
(PACS).  Long-term cooperative credit institutions (LTCCIs) comprise state cooperative agriculture 
and rural development banks (SCA RDBs), and primary cooperative ag riculture and rural development 
banks (PCARDBs) (district or block level).  At end-March 2009, there were 96,352 STCCIs, 
including 31 StCBs, 371 DCCBs, and 95,633 PACS.  There were 717 LTCCIs, comprising 20 SCARDBs and 697 PCARDBs. 
83. State cooperative banks and district central c ooperative banks are ultimately regulated by the 
RBI, but their supervision is carried out by the National Bank for Agriculture and Rural Development 
(NABARD).  The authorities have indicated that a large number of StCBs and DCCBs are unlicensed 
and are allowed to function as banks until they are e ither granted a licence or their application for 
licence is rejected.
68  The goal of the authorities is to en sure that only licensed cooperative banks 
operate;  it has been recommended that banks th at fail to obtain a licence by 2012, should not be 
allowed to operate, and a roadmap has been put in place to this end.  At present, CRAR norms are not 
applicable to StCBs and DCCBs.  However, since March 2008, they are required to disclose the level 
of CRAR annually. 
Other financial institutions 84. The RBI also supervises the so-called "financi al institutions", which provide medium- to 
long-term finance to specific sectors of the economy.   In early 2011, there were four financial 
institutions under full regulation and supervisio n of the RBI:  Exim Bank, the National Bank for 
Agriculture and Rural Development (NABARD), th e National Housing Bank (NHB), and the Small 
Industries Development Bank of India (SIDBI).  The same prudential norms that apply to commercial 
banks apply to these financial ins titutions, and they are subject to on-site inspection and off-site 
surveillance. 
85. Regional rural banks (RRBs), local instituti ons established under the Regional Rural Banks 
Act 1976, are aimed at developing the rural economy by providing credit, particularly to small and 
marginal farmers, agricultural labourers, artisan s, and small entrepreneurs.  RRBs must have a 
"sponsor bank".
69  The equity of the RRBs is contributed  by the Central Government (50%), the 
relevant state government (15%), and the sponsor bank (35%).  In  March 2011, there were 82 RRBs 
operating in 26 states and one union territory, with over 15,000 branches.  RRBs are regulated by the 
RBI and the supervisory powers have been vested with NABARD.70  RRBs must devote 60% of 
                                                      
68 Reserve Bank of India (2010d). 
69 Under Section 3 of the RRBs Act 1976, RRBs are es tablished in a State or union territory at the 
request of a sponsor bank, which is a stakeholder (35% of equity).  Establishment is through a notification in the 
Official Gazette ;  this or a subsequent notification will specify  the local limit within which the RRB will operate. 
70 NABARD has statutory responsibility for conducting inspections of the state cooperative banks 
(SCBs), district central cooperative banks (DCCBs), and regional rural banks (RRBs) under the provisions of 
the Banking Regulation Act 1949.  In addition, NABA RD conducts periodic inspections of state-level 
cooperative institutions.  NABARD conducts periodic on-site inspections of 31 SCBs, 371 DCCBs, WT/TPR/S/249 Trade Policy Review 
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outstanding advances to the private sector.  CRAR norms are not applicable to RRBs;  however, the 
RRBs are subject to the same income recognition,  asset classification, and provisioning norms as 
commercial banks. 
86. The financial situation of RRBs, reported as diffi cult in the last review, improved in 2009/10, 
partly as a result of their restructuring, amalgamation, and recapitalization, along with the application 
of the prudential regulat ory requirements to RRBs.  In 2009/10 , 79 of the 82 RRBs posted profits.  
The process of amalgamation of RRBs, initiated in  September 2005, brought their number down from 
196 to 82.  In September 2009, a Committee was es tablished to assess the CRAR of RRBs and to 
suggest a roadmap for achieving a CRAR of 9% by March 2012.  The Committee noted that to meet 
this goal, a recapitalization of Rs 22 billion was required for 40 of the 82 RRBs, and recommended 
that the amount be released in two instalments:  Rs 13.38 billion in 2010/11 and Rs 8.63 billion in 
2011/12;  and an additional Rs 7 billion be kept to meet the additional capitalization needs of the 
weaker RRBs of the north-eastern and eastern regions. 
87. The Local Area Bank scheme was introduced in 199 6 to create institutions that would provide 
financial intermediation with a specialized local focus in rural and semi-urban areas.  Four local area 
banks are functioning, although six licences have been granted.  Their performance has been 
satisfactory, and their profitability is higher than  that of scheduled commercial banks, but activity 
remains concentrated in one of the banks (Cap ital Local Area Bank), which accounts for over two 
thirds of total assets of these banks. 
88. Non-banking financial companies (NBFCs), which engage in lending, investment in shares 
and securities, hire purchase, chit fund, insurance or  collection of monies, are regulated by the RBI 
and are open to foreign investment up to 100% of  their capital.  NBFCs do not have any cap on 
exposure to the capital market.  They are classified  according to the operations they are allowed to 
undertake by the RBI.  As at March 2010 (latest available figures), there were 12,662 NBFCs, of 
which 311 were permitted to accept deposits and were classified as NBFC-Ds;  non-deposit taking 
companies are classified as NBFC-NDs. 
89. The RBI issues directives for NBFC-Ds setting the amount of public deposits that may be 
accepted, and the maximum rate of interest payable on such deposits (currently 12.5%).71  NBFC-Ds 
may only take time deposits rangi ng from 12 to 60 months;  brokerage  fees and other expenses may 
amount to a maximum of 2% and 0.5% of the de posits, respectively.  NBFC-Ds are required to 
comply with all the prudential norms on inco me recognition, asset classification, accounting 
standards, provisioning for bad and doubtful debts,  capital adequacy, and credit and investment 
concentration.  Some limitations to investment a pply:  NBFC-Ds may invest only up to 10% of their 
owned funds in real estate, and up to 20% in unquoted shares, of other than group/subsidiary 
companies.  NBFC-Ds are subject to a statutory liquidity ratio (SLR) of 15% of deposits, but not to any CRAR norms as they do not accept demand deposits. 
90. Initially, NBFC-NDs were not subject to prudential norms for capital adequacy and 
exposures.  However, their borrowings increase consid erably, partly due to the entry of some large 
companies in the industry, and since December 2006, NBFCs with assets of Rs 1 billion or more are classified as Systemically Important and are require d to comply with exposure and capital adequacy 
norms.  Further, to avoid risks in the NBFC sub sector affecting the banking sector, exposure of banks 
                                                                                                                                                                     
20 SCARDBs, and 82 RRBs (NABARD online informa tion, "Supervisory Functions".  Viewed at:  
http://www.nabard.org/rolefunctionssupervisory.asp. 
71 Currently (June 2011), an NBFC asset finance company (AFC), with minimum investment grade 
credit rating may accept deposits of up to four times its net owned funds (NOFs):  an unrated AFC may accept 
deposits of up to 1.5 times its NOFs. India WT/TPR/S/249 
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to the NBFCs, either in the form of credit faciliti es or of equity contribution, has been prudentially 
capped.  The exposure of a bank to a single NBFC must not exceed 10% of the bank's capital funds 
(15% for infrastructure lending);  the cap is 15% for NBFC-AFCs (20% for infrastructure lending).  
Currently, all NBFC-Ds and all large NBFC-NDs are subject to regular annual inspections to identify 
any possible concern. 
91. Since their establishment in 1995, primary dealer s (PDs) have played an active role in the 
government securities market by underwriting and bidding for new issuances and acting as market 
makers for these securities.  Banks are allowed,  since 2006/07, to undertake PD activities through 
specific departments, while stand-alone PDs are pe rmitted to diversify into other business activities.  
As of 2010, there were 7 stand-alone PDs a nd 11 banks authorized to undertake PD business 
(Table AIV.1).  Any change in the shareholding pa ttern or capital structure of a PD needs prior RBI 
approval.  Although primarily regulated by the RBI, to which they must report periodically, PDs must 
register with and are regulated by the Securiti es and Exchange Board of India (SEBI) for their 
stock-exchange activities or any other activity regu lated by SEBI.  They must join the Primary 
Dealers Association of India (PDAI) and the Fixed Income Money Market and Derivatives 
Association (FIMMDA) and abide by their code of conduct. 
92. The RBI also supervises conglomerates under th e Consolidated Supervision and Financial 
Conglomerate (FC) Monitoring Mechanism, in place since June 2004.  The FC monitoring framework 
has two main components:  (i) off-site surveillanc e through quarterly reporting requirements;  and 
(ii) half-yearly discussions with the CEOs of the major entities of the FCs in association with other 
regulators.  A group is listed as an identified FC if  it has significant presence in at least two financial 
market segments. 
(b) Insurance 
Market structure and performance  
93. The insurance sector is regulated by the In surance Regulatory and Development Authority 
(IRDA), established in 2000.  Its functions include supervising the development of the sector, granting 
licences to insurance intermediaries, and specifyin g the percentage of insurance business to be 
undertaken in rural areas and the social sector.72 
94. At end-December 2010, there were a total of 48 insurance companies, including 23 life 
insurance companies, 15 general private and four general public insurers, two specialized government 
insurers (ECGC and AIC), and a reinsurance company (Table IV.6).73  Total equity in the industry 
reached Rs 293.9 billion, of which Rs 230.6 bill ion correspond to the life insurance business.  
Increased competition has resulted in rapid growth  in the industry, and larger private sector 
participation.  Foreign participation as at 31 Decemb er 2010 was 24.1% of total private equity, not far 
off the legal limit of 26%. 
95. Despite the large number of private insurance co mpanies, the insurance industry continues to 
be dominated by state-owned enterprises.  The mark et share of Life Insurance Corporation (LIC) of 
India, although somewhat lower than reported in th e last review (73.5%), was of 68.7% of the life 
insurance subsector in 2010/11, while the four non-specialized public non-life insurance companies 
                                                      
72 The "social sector" includes the "unorganized" s ector, informal sector, eco nomically vulnerable or 
backward classes, and other categories of persons both in rural and urban areas. 
73 Under the provisions of the Insurance Act 1938, the General Insurance Corporation of India has been 
designated as the "Indian Reinsurer" which entitles it to receive obligatory cessions of 10% from all the direct 
non-life insurers. WT/TPR/S/249 Trade Policy Review 
Page 150 
  
(National, New India, Oriental, and United), acc ounted for 53.2% of gross premium income.  The 
market share of private insurers increased from 26.5% in 2005/06 to 31.3% in 2010/11 for life 
insurers, and from 26.3% to 46.7% for general in surers.  Competition in the industry is still 
constrained by the relatively high entry barriers:   the minimum capital requirement to set up an 
insurance company is Rs 1 billion, and Rs 2 billio n for a reinsurance comp any, and the share of 
foreign investment is restricted to a maximu m of 26%.  Competition is also constrained by 
requirements to place a certain percentage of policies with the rural and social sectors. 
Table IV.6 
Insurance and reinsurance market, end-December 2010 
Insurer Private Public Total 
FDI 
(Rs billion) % of FDI 
to total 
equity No. Equity 
(Rs billion) No. Equity 
(Rs billion) No. Equity 
(Rs billion) 
Life 22 230.59 1 0.05 23 230.64 55.70 24.16 
General 15 36.62 4 5.5 19 42.12 8.61 20.44 
Special Govt insurance 0 0 2 11 2 11.00 0 -- 
Health insurer 3 5.86 0 0 3 5.86 1.41 24.08 
Re-insurer 0 0 1 4.3 1 4.30 0 -- 
Total 40 273.07 8 20.85 48 293.92 65.72 22.36 
Pending applications 3    3    
Source:    Information provided by the Indian authorities. 
96. Insurance companies must maintain a required solv ency margin which, for life insurers, is the 
higher of Rs 500 million (Rs 1 billion for the reinsurer) or a sum based on a formula.74  The required 
solvency margin for non-life in surers is the maximum of Rs  500 million (Rs 1 billion for the 
reinsurer), or 20% of net premium income, or 30% of net incurred claims.  Insurance companies are 
required to maintain a solvency margin at a ratio  of 1.5 (ratio of actual to the required solvency 
margin) at all times.  At end-December 2010, all the 23 life insu rance firms were in compliance with 
the requirement (including LIC).  Among the 21 non-life insurers who were in operation during 
2009/10, 19 insurers complied with the mandated solv ency requirements, and two public-sector firms, 
did not comply.75  The authorities indicated that the situation improved in 2010/11, when 23 out of 
24 non-life insurers complied with the mandated solvency requirements. 
97. During the period under review, the insurance penetration rate as a percentage of GDP 
increased substantially for life insu rance rising from 2.5% in 2005 to  4.6% in 2009, while density 
increased from US$18 in 2005 to US$47 in 2009.76  Growth in the general insurance sector has been 
more moderate;  penetration has remained stab le at around 0.6%, while density increased from 
US$4.4 in 2005 to US$6.7 in 2009.  Penetration in ru ral areas has remained lo w.  The Government is 
promoting rural insurance coverage through the use of micro-insurance schemes and quantitative 
targets for premiums to be directed to the rural and social sectors (see below).  Other measures to 
increase rural insurance coverage include a Nationa l Agriculture Insurance Scheme, operated by the 
Agriculture Insurance Company of India (see section (2)). 
                                                      
74 The formula is given in the IRDA (Assets, Liabilities and Solvency Margin of Insurers) Regulations 
2000. 
75 The specialized insurers, AIC and ECGC reported solvency ratios of  2.07 and 14.17 respectively in 
March 2010, as against 4.58 and 16.42 on 31 March 2009.  The national re-insurer, the General Insurance Corporation of India, reported a solvency ratio of 3.71, slightly above that reported in March 2010 (Insurance 
Regulatory and Development Authority, 2011). 
76 Insurance penetration is measured as the ratio of premiums (in US$) to GDP (also in US$).  
Insurance density is calculated by dividing total premiums (in US$) by total population. India WT/TPR/S/249 
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98. The Micro Insurance Regulations 2005 were impl emented to promote the use of insurance by 
people in the lower income brackets.  As a r esult, premium income under micro-insurance has 
increased substantially, doubling to Rs 4 billion in  2009/10;  some 28 micro-insurance products had 
been launched as at September 2010 and some 20 million individuals had been insured.  The 
micro-insurance market is dominated by the LIC,  which contributed 94% of total micro-insurance 
premiums in 2009/10.  The development of the micro- insurance market has resu lted in an increase in 
the number of micro insurance agents:  there were 8,676 in March 2010. 
Regulatory framework 
99. Insurance and re-insurance in India are regulated by the Insurance Act 1938, as amended by 
the Insurance (Amendment) Act 2002;  the Insu rance Regulatory and Development Authority Act 
1999, which amended the Insurance Act 1938;  the Life Insurance Corporation Act 1956;  and the 
General Insurance Business (Nati onalisation) Act 1972.  A number of  bills were drafted during the 
period under review and are awaiting implementa tion, including the Insurance Laws (Amendment) 
Bill, 2008;  the Life Insurance Corporation (Amendment) Bill 2009;  and the Pension Fund 
Regulatory and Development Authority Bill,  revised, and first introduced in 2005. 
100. The IRDA, the sector's regulator, has the authorit y to specify the percentage of life insurance 
business and general insurance business to be undertaken  by the insurer in the rural or social sectors.77  
The IRDA is also responsible for supervision of the Tariff Advisory Committee, the body responsible 
for setting premiums (see below). 
101. In accordance with the 1938 Insurance Act, as amended, insurance services may only be 
carried on by an Indian insurance company, meani ng any insurer formed and registered in India under 
the Companies Act 1956, whose sole purpose is to carry on life insurance business or general 
insurance business or re-insurance business.  In 1999,  the Insurance Regulatory and Development Act 
opened India's insurance market to private particip ation, including foreign capital, and thus changed 
the definition of an Indian insura nce company.  Under this law, foreign participation in the Indian 
insurance sector is allowed, but th e aggregate holdings of equity shares by a foreign company, either 
by itself or through its subsidiary companies or its  nominees, may not exceed 26% of paid-up equity 
capital.  In recent years, the Government has attempted to raise the limit on foreign equity 
participation to 49%, but this has not yet happened. 
102. The Tariff Advisory Committee (TAC) under the IRDA  was, until 2007, in charge of  
determining premiums for fire, motor vehicle, engi neering, and workmen's compensation insurance;  
the insurance companies themselves set premiums for all other general insurance categories.  Tariff 
control for all classes of non-life insurance business,  except motor third-party cover, was eliminated 
effective 1 January 2007 and, as consequen ce, the role of TAC has been diluted.78  Proposed 
legislation included in the Insurance (Amend ment) Bill 2009, envisages dissolving the TAC. 
103. In accordance with the Insurance Regulatory and Development Authority (Obligations of 
Insurers to Rural Social Sectors) Regulations 2002,  insurers must place a certain percentage of their 
policies with the rural and social sectors (Table IV.7).79  The Regulations mandate that every insurer, 
                                                      
77 Section 14 of IRDA Act 1999 lays down the duties, powers, and functions of the IRDA. 
78 For motor third party cover, which is a statutory insurance cover required under the provisions of 
Motor Vehicles Act the IRDA has retained the pow ers to determine the rates, terms and conditions. 
79 For the purpose of the Regulations, the rural sector  is defined as any place with a population of less 
than 5,000, a density of population of less than 400/km2, and where more than 25%  of the male working 
population is engaged in agriculture.  The social sector includes the unorganized sector (self-employed 
workers), the informal sector, economi cally vulnerable or backward classes (living below the poverty line), and 
persons with disabilities and who may not be gainfully employed, both in rural and urban areas. WT/TPR/S/249 Trade Policy Review 
Page 152 
  
beginning to carry on insurance business after the entry into force of the Insurance Regulatory and 
Development Authority Act 1999, underwrite with persons in the rural sector, 7% of total life 
insurance policies in the first financial year;  9%  in the second financial year;  12% in the third 
financial year;  14% in the fourth financial year;  and 16% in the fifth financial year.  The Insurance 
Regulatory and Development Authority (Obligati ons of Insurers to Rural Social Sectors) 
(Amendment) Regulations 2005 and the Insura nce Regulatory and Development Authority 
(Obligations of Insurers to Rural Social Sect ors) (Third Amendment)  Regulations 2008 extended 
these percentages to 18% in the sixth and seventh  financial years, 19% in the eighth and ninth 
financial years, and 20% in the tenth financial year .  Thus, 20% is set for 2010/11 and for the financial 
years thereafter.  The percentages for general insura nce are:  2% for the first year, 3% for the second 
year, and 5% thereafter;  the latter percentage was changed in 2008, to 6% in the eighth year and 7% 
in the ninth and tenth years. 
Table IV.7 
Insurance set asides for social and rural sectors, 2011 
Legislation Rural sector Social sector 
Life insurance General insurance Life and general insurance 
Insurance Regulatory and Development 
Authority (Obligations of Insurers to Rural Social Sectors) Regulations 2002 7% in the 1
st financial year (FY);
9% in the 2nd FY; 
12% in the 3rd FY; 
14% in the 4th FY; 
16% in the 5th FY   
Insurance Regulatory and Development 
Authority (Obligations of Insurers to Rural Social Sectors) (Amendment) Regulations 2005 18% in the 6
th and 7th FYs 
19% in the 8th and 9th FYs; 
20% in the 10th FY.  Thus, 20% 
is the percentage for 2010/11 2% in the 1st year; 
3% in the 2nd year; 
5% in the 3rd-7th years; 
6% in the 8th year; 
7% in the 9th and 10th years 5,000 in the 1st FY; 
7,000 in the 2nd FY; 
10,000 in the 3rd FY; 
15,000 in the 4th FY; 
20,000 in the 5th-7th FYs; 
35,000 in the 8th FY; 
45,000 in the 9th FY; 
55,000 in the 10th FY and 
thereafter Insurance Regulatory and Development 
Authority (Obligations of Insurers to Rural Social Sectors) (Third Amendment) Regulations 2008 
Source:   Insurance Regulatory and Developmen t Authority (Obligations of Insurers to Rural Social Sectors) Regulations 
 2002;  Insurance Regulatory and Devel opment Authority (Obligations of In surers to Rural Social Sectors) 
 (Amendment) Regulations 2005;  and In surance Regulatory and Development Au thority (Obligations of Insurers 
 to Rural Social Sectors) (Thi rd Amendment) Regulations 2008. 
104. The obligations of insurers in existence in 1999 were defined separately, and are, as of 
2009-10, of 25% of premiums for the rural sector in  the case of the Life Insurance Corporation (LIC) 
of India, and 7% for general insurers;  these obliga tions are applicable also in the financial years 
thereafter.  Non-compliance with these obligations ma y lead to penal action on the part of the IRDA, 
under Section 105B of the Insurance Act 1938. 
105. According to an IRDA report, all 22 life insu rance companies in the private sector fulfilled 
their rural sector obligations, while the LIC was also compliant with its obligations, underwriting a 
percentage of policies in the rural sector above  its prescribed 25% for 2009/10.  Out of 22 life 
insurance companies in the privat e sector, 21 fulfilled their social sector obligations during 2009/10, 
and the IRDA initiated penal action against the non-compliant insurer.80  The LIC also complied with 
its social-sector requirements in 2009/10.  All non-lif e private insurance companies and all except one 
public sector insurer complied with their rural and social sector obligations in 2009/10;  the IRDA 
initiated penal action against the non-complier. 
106. The Micro Insurance Regulations 2005 provide a platform to promote insurance penetration 
among the rural and urban populations.  The Regulati ons define micro-insurance as policies of up to 
Rs 30,000 or Rs 50,000, depending on the type of insurance contract.  The Regulations promote the 
                                                      
80 Insurance Regulatory and Development Authority (2011). India WT/TPR/S/249 
 Page 153 
 
 
creation of specific micro-insurance products and allow non-governmental organizations and self-help 
groups to act as agents to insura nce companies in marketing these mi cro-insurance products.  Agents 
may charge a commission of 10% of the premiu m for single-premium life insurance policies, and 
20% for non-single-premium policies;  for non-lif e insurance business, ag ents may charge a 
commission of 15% of the premium. 
107. Grievances with respect to insurance issues may be addressed to the Insurance Ombudsman, 
established in 1998.  There are 12 Ombudsmen acro ss India.  The Insurance Ombudsman may engage 
in conciliation, and award-making;  the Ombudsman's pow ers are restricted to insurance contracts of a 
value not exceeding Rs 2 million.  Insurance compan ies are required to honour  awards passed by an 
Insurance Ombudsman within three months. 
108. The authorities have indicated that a number of regulatory changes are in the pipeline, 
including (a) raising the foreign equity limit in  an Indian insurance company from 26% to 49%;  
(b) allowing foreign re-insurers to open branches onl y for re-insurance business in India;  (c) making 
the underwriting of third-party risks of motor vehi cles obligatory;  (d) shifting the responsibility of 
appointing insurance agents from the IRDA to the insu rers;  and (e) introducing flexibility to raise 
capital through other forms instead of through equity alone. 
(c) Securities 
109. The securities sector is regulated by the Secu rities and Exchange Board of India (SEBI) 
established in 1992, through the Securities and Exch ange Board of India Act 1992, as amended.  The 
SEBI's mandate is to regulate and promote the deve lopment of the securities market, and protect the 
interests of investors in securities.  The other main  laws that regulate the securities sector include the 
Securities Contract (Regulations) Act 1956, as ame nded, the Depositories Act 1996, and the relevant 
provisions of the Companies Act 1956.  The Secur ities Contract (Regulati ons) Act 1956 was amended 
in 2007 to broaden its coverage to include mortgage debt, and added a section on the public issue and listing of these securities.
81 
110. The securities sector was developing fast until th e global financial crisis, when it was severely 
hit by the developments in the rest of the world.  As a result, capital raised in the primary securities 
market declined from US$72.7 billion in FY 2007/08, to US$59.2 billion in 2008/09 (Table IV.8).  
Moreover, the capitalization of the secondary securities market halved, and the equity market turnover 
declined by a third.  However, the securities s ector has been expanding again since 2009/10, largely 
due to the dynamism of the Indian economy. 
111. At end-March 2011, there were 21 stock excha nges in India, all regulated by the SEBI under 
the Securities Contract (Regulation) Act 1956, and the SEBI Act 1992.  Of these, two were dealing 
with derivatives and four with currency derivatives.  The two largest stock exchanges are the National 
Stock Exchange (NSE), and the Bombay/Mumbai Stock Exchange (BSE).  The NSE and the BSE 
operate electronic markets offering trading in equ ities, derivatives and currency derivatives (including 
equity-based derivatives), exchange traded f unds (EFTs), currency futures and options, and 
government securities.82  Almost all companies listed in the NSE are also listed in the BSE.  In 
March 2011, there were 1,574 companies listed in the NSE and 5,067 in the BSE with a market 
capitalization of US$1.53 trillion (some 93% of GDP).  Some 1,722 foreign institutional investors (FIIs, see below), had investments valued at US $245 billion, and there were 51 mutual funds. 
                                                      
81 Securities and Exchange Board of  India online information.  View ed at:  http://www.sebi.gov.in. 
82 For further information on each stock excha nge, see Bombay Stock Exchange Ltd. online 
information, "Introduction".  Viewed  at:  http://bseindia.co m/about/introbse.asp;  and the National Stock 
Exchange of India Ltd. online information.   Viewed at:  http://www.nseindia.com/. WT/TPR/S/249 Trade Policy Review 
Page 154 
  
Table IV.8 
Securities market, 2008-11 
Registered market participants  2008a 2009a 2010a 2011a 
Stock exchanges     
Cash market 19 20 20 19 
Derivatives market 2 2 2 2 
Currency derivatives 0 3 3 4 
Foreign institutional investor s 1,319 1,635 1,713 1,722 
Custodians 15 16 17 17 
Venture capital funds 106 132 158 184 
Foreign venture capital investors 97 129 143 153 
Mutual funds 40 44 47 51 
 2007/08 2008/09 2009/10 2010/11b 
Primary securities market     
Capital raised (US$ billion)     
Equity securities      
Public and rights issues 21.23 3.21 11.61 15.12 
Qualified institutions placements (QIPs) 6.34 0. 04 9.01 5.42 
Preferential allotments 15.31 10.49 4.35 6.38 
Debt securities     
Public issues 0.40 0.33 0.53 1.98 
Private placements 29.44 45.12 44.84 45.86 
Total  72.72  59.19  70.34  47.84  
Secondary securities market     
Number of listed companies 4,887 4,929 4,975 5,067 
Equity market capitalization (US$ billion) 1,284.99 605.77 1,366.04 1,530.00 
Equity market turnover US($ billion) (NSE + BSE Ltd.)c 1,274.79 838.93 1,163.48 981.64 
Number of trades (million) (NSE + BSE Ltd.)c 1,703 1,906 2,287 2,079 
Daily average turnover (US$ billion) (NSE + BSE Ltd.)c 5.08 3.45 4.77 4.12 
Derivatives market     
Turnover (US$ billion)     
Equity derivatives 3,313.21 2,400.74 3,725.29 6,543.00 
Currency derivatives n.a. 64.16 786.08 1,650.78 
Interest rate futures n.a. n.a. 0.64 0.01 
Average daily turnover (US$ billion)     
Equity derivatives 13.20 9.88 15.27 25.76 
Currency derivatives .. 0.46 3.28 6.75 
Investment by foreign institutional investors (FIIs) .. .. .. .. 
Investment during the year (US$ billion) 16.44 -9 .84 30.25  32.22 
Cumulative net investment by the FIIs (US$ billion) 68.92 59.08 89.33 121.55 
Market value of assets (US$ billion) 184.26 76. 94 199.59 244.92d 
% of equity market capitalization held by the FIIs 13.94 .. 13.64 .. 
Investments by venture capital funds and foreign venture 
capital investors (cumulative investments (US$ billion))     
Venture capital funds 4.99 4.47 4.05 5.13a 
Foreign venture capital investors 4.18 4.52 6.40 7.41a 
.. Not available. 
n.a. Not applicable. 
a 31 March. 
b Up to 28 February 2011. 
c NSE:  National Stock Exchange.  BS E:  Bombay/Mumbai Stock Exchange. 
d On 31 December 2010. 
Note:   Financial year (April–March). 
Source:   Securities and Exchange Board of India;  and information provide d by the Indian authorities.   
112. The authorities have noted that a policy initiative since India's last Review in 2007, and in 
particular in the wake of the global financial cris is, has been to promote the use of the Investor 
Protection and Education Fund (IPEF), created by  a 1999 amendment to the Companies Act 1956 for India WT/TPR/S/249 
 Page 155 
 
 
the promotion of investors' awareness and protection of the interests of investors.  The Fund is 
financed by contributions from unpaid dividend account s of companies, and the interest accrued on 
matured debentures and deposits.83  Other policy initiatives include changes to the regulatory 
environment, such as a reduction of the timelines fo r public issue;  simplified listing requirements for 
Indian depository receipts (IDRs) issued by companies from IOSCO MMoU signatories84;  a 
liberalization of the overseas investment regime for mutual funds, and the abolition of an entry load 
for all mutual fund schemes;  and promotion of an  initiative to develop the still incipient Corporate 
Bond Market.  In addition, the regulatory framework w as modified to enable participation of FIIs and 
mutual funds in IDRs. 
113. SEBI also issued notified regulations (SEBI (I ssue of Capital and Disclosure Requirements) 
Regulations 2009 (ICDR Regulations )) to strengthen the enforceability of the regulatory framework 
relating to issue of capital by companies and to st reamline the disclosures to be made by companies 
coming out with public offerings.  The Securitie s and Exchange Board of India (Mutual Funds) 
(Amendment) Regulations 2008, introduced the concep t of Real Estate Mutual Funds (REMFs), to 
which the same regulations are applied as to ordinary mutual funds. 
114. An additional important regulatory step, has b een the devising of a roadmap for the adoption 
of International Financial Reporting Standards (IFRS).  In terms of this roadmap, India has adopted a 
convergence route for the adoption of IFRS-INDAS (Indian Accounting Standards), but the effective dates of implementation are yet to be announced, as th e tax implications of adopting the IFRS need to 
be ironed out.
85 
115. Foreign investment is allowed, either under the FDI route or the portfolio investment scheme.  
Foreign investment under the latter is allowed su bject to registration as a foreign institutional 
investors (FII) or its sub-account.  Investments by  individual FIIs or broad-based sub-accounts may 
not exceed 10% of the issued capita l of a company.  All FIIs and their sub-accounts taken together 
may not acquire more than 24% of the paid-up cap ital of an Indian company (Table IV.9).  This 
restriction may be increased to the sectoral limit.86  The combined limit for investment in the stock 
                                                      
83 For more information, see Investor Education and Protection Fund online information.  Viewed at:  
http://www.iepf.gov.in/faq.asp. 
84 The International Organization of Securitie s Commission's (IOSCO) Multilateral Memorandum of 
Understanding Concerning Consultation and Cooperation and the Exchange Of Information (MMoU) sets an 
international benchmark for cross-border cooperation to combat violations of securities and derivatives laws.  
Securities regulators may, under the MMo U, provide information and assistance.   For the text of the MMoU, see 
IOSCO's online information, "IOSCO Public Docume nts".  Viewed at:  http://www.iosco.org/library/ 
index.cfm?section=pubdocs&year=2002&publicDocID=126. 
85 In accordance with Phase I of the ro admap, companies that:  are part of the NSE – Nifty 50;  are part 
of BSE – Sensex 30;  whose shares or other securities are listed on stock exchanges outside India;  and whether 
listed or unlisted, whose net worth exceeds Rs 10 billion,  would have adopted IFRS standards by 1 April 2011.  
Companies whether listed or unlisted whose net worth ranges  from Rs 5 billion to Rs 10 billion, were to apply 
IFRS standards as of 1 April 2013 (Phase II), and liste d companies with a maximum net worth of Rs 5 billion, as 
of 1 April 2014 (Phase III).  IFRS standards would not apply to unlisted companies (in India and abroad) with 
maximum net worth of Rs 5 billion.  These dates are now being reviewed. 
86 The sectoral limit is the aggregate amount of forei gn investment (including FDI and FII) permitted in 
a particular sector, as specified in India's  foreign investment policy.  Under RBI regulations, FIIs are allowed to 
invest in the primary and secondary capital markets in India through the portfolio investment scheme, and may 
acquire shares/debentures of Indian companies through the stock exchanges in India.  The ceiling for overall 
investment for FIIs is 24% of the paid-up capital of the Indian company and can be raised up to the sectoral 
cap/statutory ceiling, subject to RBI and company approval.  In the case of investment in the stock exchange, the 
FII limit is actually 23%, since the combined limit of FDI (26%) and FII is 49%.  The RBI monitors the ceilings on investments in Indian companies on a daily basis.  The RBI has fixed cut-off points that are two percentage WT/TPR/S/249 Trade Policy Review 
Page 156 
  
exchange is 49%.  Furthermore, FII investment in  debt is limited to US$10 billion in government debt 
securities, of which US$5 billion must be invested  in securities having a residual maturity of over 
five years.  FII investment in corporate debt  securities is limited to  US$40 billion, of which 
US$25 billion must be invested in corporate bonds  having a residual maturity of over five years 
issued by companies in the infrastructure sector.  The Union Budget 2011/12 opened up the 
possibility for mutual funds to accept subscriptions fr om foreign investors in equity-oriented schemes, 
increasing investment possibilities for foreigners. 
Table IV.9 
Market-access and national-treatment conditions for foreign investment  in the securities market, 2011  
Sector/sub-sector Limitation on market access Limitation on national 
treatment 
Venture capital Domestic venture capital f unds and foreign venture capital investors 
are regulated by SEBI.  A venture capital fund may raise moneys 
from any investor, Indian, foreign or NRI, by way of issue of units. Subject to SEBI 
regulations 
Asset management (mutual funds) Re striction on cross-border flows by RBI.  Overseas investors may 
invest through offshore funds. Subject to SEBI 
regulations and RBI 
norms 
Portfolio management FIIs and sub-accounts ma y avail portfolio management service.  
Portfolio management may offer advi ce to foreigners via a subsidiary 
opened in the jurisdiction. Subject to SEBI 
regulations and RBI 
norms 
Custodial, depository, and trust 
services Foreign banks may carry out activitie s, subject to RBI approval and 
SEBI Regulations.  Foreign banks  are allowed to register as 
Custodian with SEBI. Only banks are permitted 
subject to SEBI 
regulations 
Participation in issues of all kinds of 
securities, includi ng underwriting and 
placement as agent Foreign entities may subscribe to issu es as FIIs.  Foreign companies 
may issue IDR to raise money.  May act as intermediaries subject to 
setting up a company in India. Subject to SEBI 
regulations 
Investment in stock exchange Composite ceiling of  49% for foreign investment (FDI 26% and FII 
23%). - 
Source :   Securities and Exchange Board of India. 
116. The Securities Transaction Tax (STT), regulated  by the Securities Transaction Act 2004 is 
applied on the sale and purchase of various securities.  The present rates are 0.017%, 0.025%, 
0.125%, and 0.25% of the value of th e transaction, depending on its nature. 
117. Takeovers in the securities sector are regulated  by SEBI (Substantial Acquisition of Shares 
and Takeovers) Regulations 1997.  The regulations provide for disclosure obligations for each 
acquisition that leads to the acquirer owning 5%, 10%, 14%, 54% or 74% of the shares of the 
company.  An investor who owns between 15% a nd 55% of the shares, must disclose the purchase or 
sale of any further stock representing at least 2% of the total shares, and must submit yearly 
declarations stating the amount of ownership both in terms of number of shares and as a percentage of 
the total voting capital of the company.  There are al so regulations with respect to trigger points for 
making an open offer by an acquirer:  acquirers who intend to acquire shares that, along with their 
existing shareholding, would entitle them to exercise  15% or more of the voting rights, may acquire 
such additional shares only after making a public announ cement of an open offer to acquire at least an 
additional 20% of the voting capital of the target  company from shareholders.  Acquirers who hold 
between 15% and 55% of shares may not acquire more  than 5% shares in any financial year without 
triggering an open offer.  Acquirers holding 55% or mo re but less than 75%, may acquire up to 5% of 
                                                                                                                                                                     
points lower than the actual FII ceilings, e.g., the cut-off limit for companies with a 24% FII ceiling is 22%.  
Once the aggregate net purchases of eq uity shares of the company by FIIs  reach the cut-off point, the RBI 
cautions all designated bank branches so as not to purch ase any more equity shares  of the respective company 
on behalf of FIIs without prior RBI approval.  Once the aggregate ceiling limit ha s been reached, the RBI 
advises all designated bank branches to stop purchases on behalf of their FIIs. India WT/TPR/S/249 
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the voting rights in the target company via an open market transaction or as a passive increase 
pursuant to a buy-back offer by the target company without triggering an open offer.87 
(iii) Telecommunications 
118. The telecommunications sector is regulated by the Indian Telegraph Act 1885 (as amended), 
the Indian Wireless Telegraphy Act 1933, the Indian Telegraph Rules 1951 (as amended), the 
Telecom Regulatory Authority of India Act 1997, and th e directions, orders and regulations issued by 
Telecom Regulatory Authority of India.  The I ndian Telegraph Rules 1951 were amended in 2008.88  
119. The Department of Telecommunications (DoT),  at the Ministry of Communications and 
Information Technology, is in charge of formul ating the telecommunications policy and of granting 
licences.  The DoT also controls four central public  sector undertakings, including India's main fixed 
lines operators, Bharat Sanchar Nigam Ltd. (BSNL), and Mahanagar Telephone Nigam Ltd. 
(MTNL).89  The Telecom Regulatory Authority of India (TRAI), created in 1997 as an independent 
body, regulates tariffs, inter-connectivity, and quality standards, and ensures that the universal service 
obligation is met.  TRAI also makes recommendati ons regarding the procedures to grant licences.  
The Telecom Disputes Settlement and Appellate Tribunal (TDSAT) resolves disputes between the 
Government and licensees, service providers, and se rvice providers and consumers; and deals with 
appeals against TRAI's decisions.90  Court fees for filing petitions and appeals with TDSAT are set at 
Rs 5,000 and Rs 10,000, respectively.91  Over 2007-10, 1,325 disputes  and 46 appeals were filed.92 
120. The New Telecom Policy 1999, the Broadband Policy 2004, and their amendments, continue 
to establish the main guidelines for the deve lopment of the telecom sector in India.93  India is in the 
process of drafting the New Telecom Policy 2011.  
121. Since 2007, development in the telecommunications  market has been driven by an impressive 
growth in the wireless segment, which has led to  a significant improvement in overall teledensity.  
However, major gaps remain between urban and rura l teledensity (Table IV.10).  In addition, the 
goals set in the Broadband Policy 2004 of reaching 40 million internet subscribers and 20 million broadband subscribers by 2010, have not been met (Table IV.10).
94  Constraints to the development of 
the broadband system include inadequate wireline in frastructure, power cuts, high cost of computers 
and low PC penetration, and high broadband tariffs.95 
                                                      
87 Securities and Exchange Board of India (2010). 
88 Department of Telecommunications online information, "Telecom related Acts and Legislations in 
India".  Viewed at:  http://www.dot.gov.in/Acts/acts.htm. 
89 Department of Telecommunications (2010);  and Telecom Regulatory Authority of India, Press 
Release No. 11/2011, 9 February 2011. 
90 ARCEP (2008);  and KPMG (2010b). 
91 Department of Telecommunications (2010). 
92 Telecom Disputes Settlement and Appellate Tribunal online information, "Statement the showing the 
institution disposal and pendency of cases filed/reserv ed on transfer in TDSAT inception till 27 May 2011."  
Viewed at:  http://www.tdsat.nic .in/Statement_of_Disposal.htm. 
93 Under the National Telecom Policy 1999, providers may share infrastructure in the same area of 
operation, and national and international long-distance services have been open to competition.  The Broadband 
Policy 2004 allows prov iders to access mutually agreed commercial arrangements in order to use available 
copper-loop for the expansion of broadband.  For details, see WTO (2002) and (2007);  and Department of Telecommunications online information.  Viewed at:  http://www.dot.gov.in. 
94 Department of Telecommunications online information, "Licensing of Internet Services".  Viewed at:  
http://www.dot.gov.in/internet%20services/internetservices.htm. 
95 KPMG (2010b). WT/TPR/S/249 Trade Policy Review 
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Table IV.10 
Selected telecom indicators, 2007-10  
(Calendar year) 
 2007 2008 2009 2010 
Total telephone subscribers (milli on) 272.87 384.79 562.16 787.28 
Fixed lines 39.25 37.90 37.06 35.09 
Wireless 233.62 346.89 525.09 752.19 
Teledensity 23.87 33.23 47.88 66.16 
Urban 61.25 82.15 110.96 147.88 
Rural 8.35 12.72 21.16 31.18 
Internet subscribers (million)  10.36 12.85 15.24 18.69 
Broadband subscribers (million)  3.13 5.52 7.82 10.99 
Local fixed telephony providers 7 7 7 7 
Mobile telephony providers 9 15 15 15 
National long-distance telephony providers 20 26 29 30 
International long-distance tele phony providers 13 21 24 25 
Internet service providers 128 164 162 164 
Infrastructure service providers 175 236 288 351 
Fixed telephony ratesa (Rs)       
Cost of local call per minute 1 1 1 1 
Cost of national long distance call per minute 1.2 1.2 1.2 1.2 
Cost per minute of international long distan ce call to the United States 7.2 7.2 7.2 7.2 
Mobile telephony rateb (Rs)     
Cost of local call per minute 1.2 1 1 1
Cost of national long distance call per minute 2.75 1.5 1.5 1.5
Cost per minute of international long distance call to the United States 6.4 6.4 6.4 6.4
a Per BSLN (leading fixed-line te lephony provider) general plans. 
b Per Airtel (leading service provider of mobile telephony) general plans. 
Source: Telecom Authority of India (various issues), The Indian Telecom Services Performance Indicators , ending 
December.  Viewed at:  http://www.trai.gov.in/Reports_list_ year.asp;  Telecom Authority of India, Press Release 
No. 11/2011, 9 February 2011;  and information provided by the Indian authorities. 
122. The liberalization of India's fixed and mobile telecom markets started in 2000.96  Telecom 
services operators may provide all telecommunications  services.  Private operators (mobile and fixed 
telephony) held 85% of the total telecom market  in 2010.  Despite competition, BSNL and MTNL 
still hold 83% of the fixed telephony market.97  MTNL provides telecom services in Mumbai and 
Delhi, and BSNL covers the rest of India.  In th e mobile segment, 173 licences have been issued since 
2004, including to BSNL and MTNL.  However, in December 2010, four companies (three private plus BSNL) held 65% of the market.
98  Despite the market concentration, tariffs for telecom services 
decreased over 2000-09.99  There are 164 internet service providers in India but BNSL and MTNL 
account for 70% of subscriptions (December 2010).100 
                                                      
96 National and international long-distance services were opened to competition in 2000 and 2004, 
respectively (Department of Telecommunications, "Telecom at a glance".  Viewed a t:  http://www.dot.gov.in). 
97 There are seven fixed-line telecom operators in India. 
98 The private operators are Reliance Te lecommunications, Bharti, and Vodafone. 
99 The price of national long-distance calls decreased from US$0.67/minute to US$0.02/minute and 
international long-distance calls (to Canada, the Un ited States, and the United Kingdom) decreased from 
US$1.36/minute to US$0.16.  The price of local mob ile calls decreased from US$0.36/minute in 1999 to 
US$0.04/minute in 2009 (Department of Telecommun ications, "Telecom at a glance".  Viewed at:  
http://www.dot.gov.in.). 
100 Telecom Regulatory Authority of India, Press Release No. 11/2011, 9 February 2011;  Telecom 
Authority of India (2011);  and Comptroller and Auditor General of India (2009). India WT/TPR/S/249 
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123. Under the Telecom Regulatory Authority of In dia Act 1997, TRAI is in charge of setting 
tariffs for all telecom services.101  TRAI consults with all stakeholders102, including consumer 
associations on all issues related to the devel opment of telecom regulations including tariffs.103  The 
Telecommunications Tariff Order 1999, which, by February 2011, had been amended 49 times104, 
stipulates that telecom service providers should charge  all subscribers with a standard tariff package 
(i.e. monthly rental and call charges) but may of fer an alternative tariff package to different 
subscribers on a non-discriminatory basis.  Tariffs for the same service may vary according to area of 
service (i.e. rural and urban) and TRAI fixes floor and ceiling rates for both standard and alternative 
packages.105 
124. Competition in the wireless market has incr eased the number of options and hence the 
number of tariffs offered (tariff plans).106  Each operator is allowed to offer up to 25 different tariff 
plans per telecom service area, rendering the tariff structure complex and raising customers' concerns.  As a result, since November 2010, TRAI has been holding consultations with all stakeholders to 
increase transparency in the provision of mobile telephony tariff plans.
107 
125. As present, India is divided into 22  telecom service areas, divided into four categories (metro, 
A, B, and C) according to demographic density.  To  deliver services in each telecom/internet area, 
domestic and foreign operators must be license d by the Department of Telecommunications 
(Table AIV.2).  To apply for a licence, operators mu st register as an Indian company under the Indian 
Companies Act 1956 and have a maximum of 74% of foreign equity (Table AII.4).  No single company (or legal person) may have substantial equity (i.e. 10% or more equity) holdings in more 
than one licence company per service area for access services (i.e. basic, cellular and unified access 
service).
108 
126. India introduced the unified access service regime (UAS) to licence fixed and mobile telecom 
operators in 2003.  Providers who were licensed fo r basic fixed telecom and cellular mobile telephone 
services prior to the introduction of the UAS, we re invited to migrate to the new regime. 
127. In 2007, India introduced new licensing guideli nes for internet services, which led to the 
consolidation of two internet service areas, i.e. cat egory A, which covers all of India, and category B, 
which would cover one or more of India's telecom service areas.109  Internet services providers 
licensed for category C internet area prior to 2007, we re invited to migrate to category A or B internet 
areas (Table AIV.2).  According to the authorities, all "serious" telecom operators have migrated and 
                                                      
101 Fixed, mobile, and internet services, and radio paging services, leased circuit, integrated digital 
services network, value-added services, telex and tele graph services, and global mobile personal communication 
by satellite. 
102 To undertake these consultations TRAI holds public meetings or invites written comments. 
103 For details, see Telecom Regulatory Authority of India online information, "Consultation Papers".  
Viewed at:  http://www.t rai.gov.in/Default.asp. 
104 Five amendments were notified during the period under review.  For details, see Telecom 
Regulatory of India online information, "Tariff Orders ".  Viewed at:  http://www .trai.gov.in/Default.asp. 
105 Telecommunication Tariff Order 1999. 
106 Typical tariff plans have several components, e.g. rental and call charges, processing fee, talk time, 
and value-added services. 
107 Telecom Regulatory Authority of India online in formation, "Consultation Paper on Certain Issues 
relating to Telecom Tariffs", 13 October 2010.  Vi ewed at:  http://www.trai. gov.in/ConsultationPapers_ 
list_year.asp?offset=0. 
108 Information provided by the authorities. 
109 Department of Telecommunications online information, "Information and Guidelines".  Viewed at:  
http://www.dot.gov.in. WT/TPR/S/249 Trade Policy Review 
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continued to provide services.110  The operators that have not migrated may continue as per the 
existing licence until it expires. 
128. Wireless spectrum fees range from 3% to 8%  of the operator's adjusted gross revenue.111  
Spectrum availability is expected to improve with the allocation of 3G spectrum and spectrum for 
broadband wireless access (BWA).  Both spect rums were auctioned during April-June 2010112, 
subject to eligibility criteria and "reserve prices" (i.e. minimum prices) (Table AIV.3).  Throughout India's telecom service areas, a total of 71 freque ncy blocks of 3G spectru m and 44 frequency blocks 
of BWA spectrum were auctioned.
113  Prior to the auction, one fre quency block of each spectrum was 
reserved to MTNL in the Delhi and Mumbai teleco m service areas, and to BSNL in the remaining 
areas to ensure prompt provision of these services in India.  MTNL and BSNL launched 3G spectrum 
services in December 2008 and February 2009, respectively.114  Although they did not participate in 
the auction, they were required to match the price determined at the auction.  BWA spectrum has also 
been allotted to successful bidders and some of them  have already started providing service.  All 3G 
and BWA frequency blocks were sold.115  The Government approved seven bidders (out of nine) for 
allocation of 3G spectrum and six bidders (out of eleven) for allocation of BWA spectrum.116  
Commercial use of 3G spectrum started in September 2010.117 
129. TRAI issued the Mobile Number Portability Regulations 2009 to implement the Mobile 
Number Portability (MNP) Policy, which was launched on a trial basis only in one telecom service area in November 2010, and across India in January 2011.
118  India is divided into two areas for 
"clearing houses" to provide mob ile number portability;  one licen ce per area is awarded by the 
Department of Telecommunications, but clearing houses may bid to service both areas.  Clearing 
houses must pay an entry fee (Rs 10 million) a nd deposit a financial gua rantee and a performance 
bank guarantee, to bid for a licence.  According to the authorities, licences, which were awarded in 
April 2009119, have been operational since November 2010.  Licences are granted for five years, 
subject to an annual fee (1% of the adjusted gro ss revenue).  Over this five-year period, other 
operators may be licensed so that there is a bac kup if the primary licence holder fails to deliver MNP 
services.120  Subscribers who swap network operators may face service disruption and will be charged 
Rs 19;  however, the new operator may waive the fe e or grant subscribers a discount.  The procedure 
to switch from one operator to anot her may take up to seven days.121 
                                                      
110 Department of Telecommunications (2010). 
111 Wireless Planning and Coordination Wing, Order No. P-11014/18/2008-PP, 25 February 2010. 
112 Auctions were initially scheduled to start by January 2009, but were delayed upon stakeholders' 
request for more time to study the offers. 
113 Department of Telecommunications online information, "3G and BWA Auction".  Viewed at:  
http://www.dot.gov.in/as/Auction%20of%20Sp ectrum%20for3G%20&%20BWA/new/index.htm. 
114 Department of Telecommunications, "Telecom at a glance".  Viewed at:  http://www.dot.gov.in. 
115 Department of Telecommunications online information, "3G and BWA Auction".  Viewed at:  
http://www.dot.gov.in/as/Auction%20of%20Sp ectrum%20for3G%20&%20BWA/new/index.htm. 
116 Department of Telecommunications online information, "3G and BWA Auction".  Viewed at:  
http://www.dot.gov.in/as/Auction%20of%20Sp ectrum%20for3G%20&%20BWA/new/index.htm. 
117 KPMG (2010b). 
118 Ministry of Finance (2011a). 
119 Department of Telecommunications (2010). 
120 Department of Telecommunications online information, "Mobile Number Portability (MNP) 
Service".  Viewed at:  http://www.dot.gov.in/as/MNP/MNPindex.htm. 
121 Business Standard , "PM flags off pan-India MNP rollout", 21 January 2011.  Viewed at:  
http://www.business-standard.com/india/news/p m-flags-off-pan-india-mnp-rollout/422511/. India WT/TPR/S/249 
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130. Development and maintenance of rural fixed- line and mobile telecom and broadband services 
are subsidized to allow affordable prices for customers.122  All service providers, except providers of 
value-added services (e.g. internet, voice-mail, and e- mail services), are subject to a universal service 
levy of 5% of the adjusted gross revenue.123  Funds from the USOF ar e allocated to "eligible 
operators" from the public and the private sectors124, through a bidding process, for telecom and 
broadband infrastructure development projects in rural areas (e.g. provisions of village public 
telephones, household telephones, and infrastru cture for mobile and broadband services).125 
131. Until end-March 2008, a subsidy was also provi ded to BNSL (India's incumbent fixed-line 
operator) to compensate for the cost of maintaini ng fixed-line telecom services in rural areas and to 
provide telecom services at affordable prices to customers.126  To finance this subsidy, private telecom 
operators had to pay an access deficit charge (ADC) to BSNL.  The ADC was a fixed charge on incoming and outgoing international long-distance calls.
127  The ADC was not levied on revenue 
generated from rural wireline subscribers.128  Based on TRAI recommendations, in 2008, the ADC 
was replaced by an annual subsidy.129  The annual subsidy (Rs 20 billion) is in place for three years 
and may only be used to maintain the infrastru cture to supply fixed-line services installed in 
households prior to April 2002.  Co nsultations will be held in 20 11 to assess the continuation of the 
subsidy.130  The annual subsidy is paid to BSNL from th e funds available with USOF, based on TRAI 
recommendations.131 
132. It is reported that some 98% of Indian villages are covered by at least one operator via a 
public telephone.132 
133. In addition to the Competition Act 2002, the Department of Telecommunications issued 
guidelines, in 2008, for mergers and acquisitions in the telecom subsector.  Mergers and acquisitions 
are restricted to the same area of operation.  They are not authorized if less than four providers operate per service area.  Combined market shar es of merged entities must not exceed 40%.
133 
                                                      
122 Department of Telecommunications (2010). 
123 Department of Telecommunications, Notification No. 20-100/2007-AS-I, 1 October 2008. 
124 Basic service operators, cellula r mobile service providers, an d unified access services licence 
holders or any entities that may be specified by the Cent ral Government from time to time (Indian Telegraph 
(Amendment) Rules 2004).   
125 Department of Telecommunications (2010);  and Indian Telegraph (Amendment) Rules 2004. 
126 Telecom Regulatory Authority of India online information, "Consultation Paper on Access Deficit 
Charge", 21 January 2008.  Viewed at:  http://www .trai.gov.in/ConsultationPapers_list_year.asp?offset=0. 
127 In January 2008, the ADC amounted to Rs 1.60/minute on incoming international long-distance 
calls and Rs 0.80/minute on outgoing international long-distance calls. 
128 Telecom Regulatory Authority of India online information, "Consultation Paper on Access Deficit 
Charge", 21 January 2008.  Viewed at:  http://www .trai.gov.in/ConsultationPapers_list_year.asp?offset=0. 
129 Indian Telegraph (Amendment) Rules 2008. 
130 Information provided by the authorities. 
131 Department of Telecommunications (2009). 
132 Information provided by the authorities. 
133 Department of Telecommunications, "Access Services :  Guidelines for Intra- service Area Merger of 
Cellular Mobile Telephone Service (CMTS)/Unified Access Services (UAS) Licences".  Viewed at:  
http://dot.gov.in/as/asindex.htm. WT/TPR/S/249 Trade Policy Review 
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(iv) Transport 
(a) Maritime transport 
Shipping 
134. Some 95% of India's merchandise trade by volume  and 65% in terms of value is transported 
by sea.134  Over 110 domestic shipping companie s are engaged in maritime trade.135  India's fleet 
comprises 1,071 commercial Indian flag vessels with a gross tonnage of 10.5 million tonnes;  around a third of the tonnage is held by the state-owne d national flag-carrier, the Shipping Corporation of 
India (SCI) (March 2011).
136  However, India is short of vessels, and hence foreign-flag vessels 
dominate maritime transport, accounting for the transport (excluding coastal shipping) of 92% of 
India's merchandise trade.  The dominance of foreign -flag vessel is even larger in foreign trade:  
Indian flag vessels carry only 4.8% of India's merchandise exports and 10.7% of merchandise imports 
(2008/09) (latest available data).137  The Ministry of Shipping cont rols eight shipping enterprises, 
including the SCI.  According to the authorities, there is no reservation policy for SCI.  Bids are 
awarded to match the lowest price and the technical  requirements.  The Government also has a strong 
presence in ship building:  it owns three shipyards138 which hold approximately 10% of the 
commercial ship-building market.139 
135. India started implementing the National Mariti me Development Programme (NMDP) in 2005  
to develop maritime and coastal shipping, and inland  water transport system.  The NMDP aims to 
expand India's fleet t onnage, train personnel140, develop infrastructure for coastal and inland water 
transport, improve ports infrastructure, and modernize state-owned shipyards for the construction of 
new vessels, since Indian vessels average 18.3 years.141  As a result of the NMDP, SCI's gross tonnage 
increased from 2.73 million in 2007 to 3.6 million tonnes at end 2010, shipbuilding facilities have improved and so has infrastructure for inland water transport.
142 
136. Several other guidelines and agendas have been  drafted but not implemented.  The Draft 
Policy (Revised) for the Maritime Sector 2005 outli ned guidelines to develop maritime transport up to 
2025.143  This policy sought to modernize and develop ports;  promote hinterland connectivity to ease 
transport;  promote port specialization and inter-por t complementarity;  increase private (domestic and 
foreign) investment;  and strengthen the shipbuildin g sector.  However, according to the Ministry of 
Shipping (for unspecified reasons), the Policy could not be implemented.144  The Draft Policy was 
thereafter reshaped into the Indi a Maritime Agenda 2010-20 issued by the Ministry of Shipping in 
                                                      
134 Ministry of Finance (2011a). 
135 Major players are the Shipping Corporation of India Ltd., Great Eastern Shipping Company Ltd., 
Essar Shipping and Logistics Ltd., Mercator Line Ltd., and Varun Shipping Company Ltd. 
136 Ministry of Shipping online information, "Statistics ".  Viewed at:  http://shipping.gov.in/ 
index1.asp?linkid=147&langid=1. 
137 KPMG (2008);  Ministry of Finance (2011a);  and information provided by the authorities. 
138 One was transferred to the Ministry of Defence. 
139 Ministry of Shipping (2010);  and Ministry of Shipping online information, "Parliament Related 
Matter:  Rajya Sabha Dated 24 Nov 2009".  Viewed at:  http://shipping.gov.in/index1.asp?linkid=175&langid 
=1. 
140 India is reported to be facing a shortage in qualified officers/crew.  About two third of India's 
officers/crew serve on foreign-flag vessels due to better ta x treatment.  A shortage of 25,000 qualified officers is 
forecast by 2015 (KPMG, 2008). 
141 Ministry of Shipping (undated);  and Ministry of Finance (2011a). 
142 Ministry of Shipping (2010). 
143 Department of Shipping (2005). 
144 Ministry of Shipping (2011). India WT/TPR/S/249 
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2011.145  This document proposes a series of policies and programmes that have to be considered by 
the different stakeholders prior to their implementation. 
137. There appears to have been no major change in the legal framework for maritime transport 
since India's last TPR, as the Shipping Trade Practices Bill 2010 is still under discussion.146  The Bill, 
if enacted, would regulate the provision of mariti me transport services.  Providers would be required 
to register with the Directorate General of Shipping (DGS) and notify their tariffs.147 
138. The registration of Indian vessels is governed by the Merchant Shipping Act 1958 (Part V) 
and the Merchant Shipping (Registration of Ships)  Rules 1960, as amended.  Indian vessels must 
register at designated port registries, subject to fees.148  A central register is kept by the DGS.  Foreign 
ships may not be registered in India.  Under th e Act, vessels must be licensed by the DGS.  The 
Director General of Shipping has been empowered to issue licences for Indian ships as well as for 
foreign ships.  The DGS issues general licences  (for Indian vessels and vessels chartered by a citizen 
of India or a company, or a cooperative society), licences for the whole or any part of the coastal 
trade, and licences for a specified period/voyage (i.e. specified period licence (SPL)), granted to 
foreign flag vessels for coastal trade subject to no objection certificate issued by the Indian National 
Shipowners' Association (INSA).149  According to the authorities, th e procedure for issuing licences is 
similar for Indian and foreign flag vessels, except that in the case of the latter a certificate of no 
objection from INSA is required and they are for a limited period – specific to the contract tenure 
involved.150  In addition, there are some differences in the fee structure for licen ces granted to foreign 
and Indian flag vessels.151 
139. The Merchant Shipping Act 1958 reserves cabot age to Indian flag vessels (Part XIV).  
However, foreign flag vessels may be chartered and granted an SPL if no suitable Indian flag vessel 
operates on the route.  In that case, permission is granted by the DGS upon no objection from the Indian National Shipowners Association (INSA).  A ccording to the authorities, a foreign flag carrier 
is allowed to deliver cargo to several Indian ports. 
140. Service tax (10%) is charged on the transport of goods on inland waterways and on coastal 
shipping.
152  The change in taxation introduced in 2005, through which shipping companies were 
                                                      
145 Ministry of Shipping (2011). 
146 Ministry of Shipping online information, "Acts and Rules".  Viewed at:http://shipping.gov.in/ 
writereaddata/linkimages/shipping%20trade%20bill8312790621.pdf 
147 Ministry of Shipping online information, "Acts and Rules".  Viewed at:  http://shipping.gov.in/ 
index1.asp?linkid=164&langid=1. 
148 Mumbai, Kolkatta, Chennai, Cochin, and Mormugao (Directorate General of Shipping online 
information, "Shipping Manual".  Viewed at:  http://www.dgshipping.com/).  For fees, see the Merchant Shipping (Registration of Ships) Rules 1960, and the Merchant Shipping (Registration of Indian Ships) 
Amendment Rules 1994. 
149 These licences are granted under Sections 406 and 407 of the Merchant Shipping Act 1958 and are 
subject to the conditions specified by the Director Gene ral of Shipping, as per guidelines issued in Shipping 
Department Circular Nos. 2/2002 and 2/2007, as amended from time to time. 
150 Licences for foreign flag vessels are issued with a time limit taking into account statutory 
certificates such as Registry Certif icate, International Load Line Certificate, International Oil Pollution 
Certificate and Cargo Sea Safety Construction Cer tificate (information provided by the authorities). 
151 Information provided by the authorities. 
152 An education cess (2%) and a secondary and hi gher education cess (1%) apply on the payable 
service tax.  For details, see Central Board of Excise and Customs online information, "Service Tax:  Service Profile".  Viewed a t:  http://www.cbec.gov.in/cae1-english.htm. WT/TPR/S/249 Trade Policy Review 
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given the option of applying a tax based on total tonna ge (tonnage tax) instead of the corporate tax, is 
estimated to have reduced the tax burden on the shipping sector and encouraged investment.153 
141. Imports of repair materials by ship-repair un its registered with the DGS, are exempt from 
customs duties, and domestic goods are exempt from excise duties.154  The recent Budget extended 
some of the incentives, including duty-free imports of  spare parts and other items used for repairs, 
provided for ocean going vessels owned by ship-owners registered in India.155 
142. In an attempt to develop coastal shipping, cer tain concessions are granted to operators, e.g. 
relaxation in customs procedures156, and lower charges at ports.157  Coastal vessels enjoy a 40% 
reductions on various tariffs and in cargo handling fees (except for vessels transporting thermal coal, 
crude oil, and petroleum/oil/lubricants).158 
Ports 
143. India has 189 ports.159  The designated major ports (currently 13) handle some 70% of total 
cargo160;  the rest is handled at 66 operating minor ports.161  Bulk accounts for some 80% of the cargo 
at the major ports.  The average pre-berthing wa iting period, which decreased from 10.05 hours in 
2006/07 to 9.55 hours in 2008/09, was estimated at over 11.50 hours in 2009/10162;  there is also a 
substantial disparity in pre-berthi ng waiting periods between major ports.163 
144. All ports are owned by the Government, but may be publicly or privately administered and 
operated.  Foreign investment is allowed in port administration subject to conditions, which may be 
modified.  The Government has announced guidelines to allow joint ventures164;  and FDI is allowed 
up to 100% in construction and maintenance of infr astructure for water and maritime transports, as 
well as in construction of ports and harbours, under the automatic route.165 
145. Major ports are administered by the Central Government through the Ministry of Shipping, 
Road Transport, and Highways and managed by "por t trusts" under the Indian Ports Act 1908 and the 
Major Port Trust Act 1963.  The exception, Ennore port, is managed under a "landlord" port model, 
                                                      
153 The Income Tax Act 1961, as amended on 1 April 2005. 
154 Press note 1990 series No. SY-22013/7/89-SBR, 10 October 1990. 
155 Ministry of Finance (2011b).   
156 Notification of 7 October 1997 and Public Notice No. 190/97 of 20 October 1997 exempt coastal 
ships from the provisions of Sections 92, 94, 97, and 98(1) of the Customs Act 1962.  Hence coastal ships are 
not required to file a bill of entry when loading at ports or a bill of entry at discharg e ports, or to obtain written 
permission before leaving a port. 
157 Planning Commission (2008). 
158 Information provided by the authorities. 
159 Ministry of Shipping (2011). 
160 Kolkata, Hadia, Paradip, Visakhapatnam, Ennore, Chennai, Tuticorin, Cochin, New Mangalore, 
Mormugao, Mumbai, Jawaharlal Nehru, and Kandla. 
161 A major port is any port the Central Government declares (by notification in the Official Gazette ) or 
has declared (under any law in force), to be a major port (Indian Ports Act 1908). 
162 The authorities attribute this increase to a rise in  the number of vessels, the weather, and breakdown 
and maintenance of equipment. 
163 Ministry of Finance (2010b) and (2011a). 
164 For details, see Indian Ports Association online info rmation, "Private sector participation".  Viewed 
at:  http://www.ipa.nic.in/#. 
165 Department of Industrial Policy and Promotion, Circular No. 1 of 2011 (Consolidated FDI Policy 
(effective 1 April 2011)), paragraph 5.22, 31 March 2011. India WT/TPR/S/249 
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which separates port ownership from port operations.166  India is in the process of revising its ports 
regulatory framework.  The Indian Ports (Consolid ated) Act 2011 or Indian Ports Bill 2010, which is 
under discussion, should replace the Indian Port Ac t 1908, which currently governs ports, and the 
Major Trusts Act 1963.  Under the proposed Act, wh ich deals with the administration of ports, major 
and non-major ports are to be governed by Central Government and state governments, respectively, 
through port authorities.  The Port Regulatory Auth ority Bill 2011, which deals with ports regulation, 
covers both types of ports.  This Bill proposes a tw o tier "regulatory-cum-appellate model" with the 
Major Port Regulatory Authority (MPRA)  covering major ports and the State Port Regulatory 
Authority the other ports in the respective states. 
146. Tariffs for services and facilities at major ports  are regulated by the Tariff Authority for 
Major Ports (TAMP)167, constituted in April 1997 as an inde pendent authority.  However, the 
Government may invalidate TAMP tariff rulings, through a decision of a High Court.168  The Ministry 
of Shipping drafted the Major Ports Regulatory Authority Bill 2011 to establish the Major Ports Regulatory Authority (MPRA).  If this Bill is enacte d, the MPRA will replace the TAMP, but not with 
regard to tariff fixation.  The Bill proposes that tari ff fixation would be undertaken by the respective 
port authorities under guidelines issued by MPRA.  The MPRA would also be responsible for 
monitoring performance of port authorities/privat e operators, and resolving disputes between port 
authorities, private operators, and users.
169 
147. Minor ports are regulated by states' maritime board s/departments.  Minor ports are allowed to 
fix their own tariffs, and in order to attract cargo from major ports, they often fix their tariffs at levels 
lower than the regulated tariffs.170 
148. According to the authorities, port services, with  the exception of pilotage," conservancy", and 
security, may be delivered by private companies, foreign or domestic. 
149. The National Maritime Development Progra mme (NMDP) is aimed at modernizing 
infrastructure both at major and minor ports.171  The NMDP is aimed at increasing overall capacity at 
major ports by 2012.  The Government has subsidized  up to 30% of the cost of one project per coastal 
State.172  Infrastructure at major and minor ports is de veloped through public and private partnerships.  
Private (domestic) partners are fully exempt from income tax for ten years. 
150. Despite the Government's efforts, port developm ent continues to face two major challenges:  
insufficient hinterland connectivity, and shortage in inland cargo handling infrastructure.  India's 
major ports are linked by rail and road to the hint erland.  However, further capacity needs to be 
developed and the quality of roads and rail connectivity  needs to be improved to enhance the flow of 
merchandise in the ports.  Current developments  in overland transport support this objective 
                                                      
166 Ennore port is a corporatized port registered under the Companies Act 1956. 
167 The Major Ports Trust Act 1963 was amended by the Port Laws (Amendment) Act 1997 to 
constitute the TAMP (Tariff Au thority for Major Ports online information.  Viewed at:  
http://www.tariffauthority.gov.in/). 
168 Energy and Resources Institute (2009). 
169 Ministry of Shipping online information, "Act and Rules".  Viewed at:  http://shipping.gov.in. 
170 KPMG (2008). 
171 Ministry of Shipping online information, "Parliament Related Matter:  Rajya Sabha Dated 
7 Dec 2010".  Viewed at:  http://shipping.gov.in/index1 .asp?linkid=175&langid=1;  and Ministry of Shipping 
(undated). 
172 Ministry of Shipping (undated). WT/TPR/S/249 Trade Policy Review 
Page 166 
  
(section (c) below).  The lack of adequate land for the construction of container freight stations in 
ports increases the cost of freight operations.173 
151. The Policy for Preventing Private Sector Monopol y in Major Ports was issued in 2010 by the 
Ministry of Shipping.  The policy aims at promoting competition in the award of contracts.  Thus, if 
there is one private terminal/berth operator in a major port for a specific cargo, the operator is not 
allowed to bid for the next terminal/berth  for handling the same cargo in the same port.174 
(b) Air transport 
152. The Ministry of Civil Aviation is in charge of  policy formulation for and regulation of civil 
aviation in India.  It supervises the Directorate Ge neral of Civil Aviation (DGCA) and the Bureau of 
Civil Aviation Security (BCAS).  The DGCA regulat es air transport services to/from India;  enforces 
civil air regulations and standards;  registers aircraft;  and licenses pilots, air engineers, and traffic controllers.
175  The BCAS is in charge of formulating secur ity standards.  The Ministry controls Air 
India Ltd., which operates Air India flights176;  the Airports Authority of India (AAI), which manages 
and operates some of India's civil airports (see  below);  and Pawan Hans  Helicopters Ltd., which 
operates helicopter services for the oil and tourism industries.177  The AAI surveys India's airspace. 
153. The AAI manages 115 of India's 454 airports, including the 17 international airports.178  The 
remaining airports are managed by private operato rs.  At AAI-managed airports, the Authority is 
responsible for slot allocation.  At private airports , slots are allocated in coordination with the AAI.  
All domestic airlines must file for slots with the DGCA and the respective airport operators.  Slots are 
allocated twice a year, based on grandfathered rights or a "use it or lose it" rule.179  After allocation of 
slots, new airlines are allotted 50% of the left-over sl ots.  No charge is levied for peak and non-peak 
slots.180 
154. Passenger and cargo traffic is operated by 12 scheduled and 127 non-scheduled airlines 
(January 2011).181  Air India operates international flights through direct services or under code-share 
or joint-venture agreements to  57 destinations.  Scheduled air services are available to/from 
82 airports.182  Permits to operate schedul ed and non-scheduled flights are granted by the DGCA upon 
                                                      
173 KPMG (2010c). 
174 Ministry of Shipping online information, "Policy".  Viewed at:  http://shipping.nic.in. 
175 For details, see Directorate General of Civil Aviation online information, "Licensing" and 
"Aircraft".  Viewed at:  http://www.dgca.gov.in/. 
176 Air India Ltd. (the National Aviation Company of India Ltd. until November 2010), owns Air India 
Charter Ltd., which operates low-cost Air India Expres s flights, Airline Allied Se rvice Ltd., which operates 
Alliance Air flights, and Air India Transport Services Ltd., which operates ground  handling services for Air 
India, Air India Express, and for some foreign airlines (Ministry of Civil Aviation, 2010a;  and Ministry of 
Finance, 2011a). 
177 Business Portal of India, "Infrastructure:  Aviation".  Viewed at:  http://business.gov.in/ 
infrastructure/aviation.php. 
178 Delhi, Mumbai, and Nagpur  international airports are operated under joint ventures (Ministry of 
Civil Aviation, 2010a). 
179 Under grandfathered rights, slots revert to air carriers that made significant use of their allocations 
during the previous season.  The "use it or lose it" rule  applies to mergers.  An airline that is merging with 
another airline, takes control of the slot rights of the la tter.  If the slots are not used, the airline loses its user 
rights. 
180 Kacker (undated). 
181 For details, see Directorate General of Civil Aviati on online information, "Operators".  Viewed at:  
http://www.dgca.gov.in/. 
182 Ministry of Civil Aviation (2010a). India WT/TPR/S/249 
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a no objection certificate from the Ministry of Civil Aviation183;  permits may be renewed within 
60 days after expiry.184  Under the Aircraft Rules 1937, passenge r air carriers must publish airfares for 
customers' information.  In order to increase tr ansparency, since November 2010, carriers must notify 
their airfares to the DGCA on the first day of every month and any significant changes within 
24 hours.185  FDI is allowed in scheduled air tran sport services and domestic scheduled passenger 
airlines up to 49% (automatic route), and in non- scheduled air transport service, non-scheduled 
airlines, chartered airlines, and cargo airlines up to 74% (subject to governmental approval beyond 
49%) (Table AII.4). 
155. Average traffic over the review period was 1.1 million passengers and 1.7 million tonnes of 
cargo.  A slowdown in air traffic was registered in 2008/09 due to the world economic downturn.186  
However, in 2010, 1.5 million passengers and 4.7 mi llion tonnes of cargo were transported by air, 
19% and 30% more than in 2009, respectively.187 
156. In 2008, the Government promulgated a Policy for Greenfield Airports (e.g. new projects).  
To date, two have started operations, 14 projects have been given "in principle" approval, and 
construction work has started.  Projects to upgrad e and expand metro airports are scheduled to be 
completed by 2011 (Chennai and Kolkat a), 2012 (Mumbai), and 2026 (Delhi).188  T h e  A A I  i n  
collaboration with private entities which hold 74% of  the airports equity, are in charge of the 
renovations at the Delhi and Mumbai airports.189  AAI is also in the process of upgrading 35 
non-metro airports (12 have already been up graded) under public private partnerships.190 
157. FDI in airport projects is allowed up to 100%  under the automatic route for Greenfield 
projects;  and up to 100% for existing projects, subject to governmental approval beyond 74% and to 
sectoral regulations notified by the Ministry of Civi l Aviation and Security clearance (Table AII.4).  
Private domestic partners in airport projects are granted full tax exemption for ten years.191 
158. Civil aviation construction projects are subject  to a 1% cess under the Building and Other 
Construction Workers' Welfare Cess Act 1996. 
159. Tariffs on aeronautical services account fo r 70%-80% of Indian airports revenues.192  Until 
2008, the AAI operated airports and regulated tariffs for aeronautical services, which led to a conflict 
of interest, and users complained about the disparity between tariffs and services provided.193  T o  
address these concerns, the Airports Economic Regul atory Authority (AERA), an independent body, 
was created in 2009.194  AERA, which started operations in Sept ember 2009, is in charge of regulating 
airports with annual traffic of at least 1.5 m illion passengers;  13 airports in India exceed this 
                                                      
183 For details, see DGCA Air Transport Circular No. 1 of 2009, 14 March 200 (Directorate General of 
Civil Aviation online information, "Rules:  Circulars:  Air Transport".  Viewed at:  http://www.dgca.gov.in/). 
184 DGCA Air Transport Circular No. 2 of 2009, 23 April 2009. 
185 DGCA Air Transport Circular No. 2 of 2010, 19 November 2010. 
186 Ministry of Civil Aviation (2010a). 
187 Ministry of Finance (2011a). 
188 The expansion of the Delhi international airport is a 20-year project aimed at serving a 100 million 
passengers by 2026 (Ministry of Civil Aviation, 2010a). 
189 Ministry of Civil Aviation (2010b). 
190 Ministry of Civil Aviation (2010a);  and Ministry of Finance (2011a). 
191 Kacker (undated). 
192 Centre for Asia Pacific Aviation (2009). 
193 Government of India, Press Information Bure au, Press Release, "AERA Bill introduced in 
Parliament today", 5 September 2007. 
194 Airports Economic Regulatory Authority of India Act 2008. WT/TPR/S/249 Trade Policy Review 
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threshold and account for 85% of passenger traffic.195  The Central Government is in charge of 
regulating airports with annual traffic less than 1. 5 million passengers.  The AERA is also responsible 
for, inter alia , fixing aeronautical services charges, the passenger service tax, and the airport and the 
user development fees for major airports;  and monitoring the quality and reliability of services 
rendered at airports.196  Airport operators collect the aeronau tical charges and the taxes fixed by 
AERA. 
160. Ground-handling services are open to FDI up to 74%, subject to sectoral regulations notified 
by the Ministry of Civil Aviation and to security clearance.  However,  FDI is only allowed up to 49% 
under the automatic route.  Beyond 49%, approval from the Foreign Investment Promotion Board is 
required.  In addition, non-resident Indians are allowed to invest up to 100% in ground-handling 
services (Table AII.4).   
161. The foreign travel tax (FTT) is levied at appr oximately Rs 500 for international journeys and 
Rs 150 on journeys to Afghanistan, Bangladesh, Bhutan, Myanmar, Nepal, Pakistan, Sri Lanka, and the Maldives;  the inland air travel tax (IATT), at 10% of the basic fare, is levied on domestic 
journeys.  The IATT is levied if the airfare is paid in foreign currency. 
162. A passenger service tax, charged on all air tickets, is set at 10% of the gross fare or Rs 100 
per journey, whichever is less, for domestic flights (any class)
197;  and at 10% of the gross fare or 
Rs 500 per journey, whichever is less, for international economy class flights.198  Since July 2010, 
passengers in transit in India or embarking/di sembarking in the north-eastern region have been 
exempt from the service tax.199 
163. Since 2008/09, an airport development fee and a user development fee have been levied at 
some of India's major airports on an ad hoc basis to finance projects for the construction and use of 
upgraded or new infrastructure (Greenfield airports  included).  This is a temporary measure while 
airports are being upgraded.  Currently, the fees are levied at 13 major airports including Delhi.  They 
are levied on all (international and domestic) departing flights and thei r rates vary from one airport to 
another.200 
164. Aviation routes in India are divi ded into category I (metro), cat egory II (north-eastern region, 
Jammu and Kashmir, Andaman and Nikobar and Lakshd eep Islands), and category III (other routes).  
To ensure at least minimum air service throughout India, air carriers operating a route in category I, are required to deploy at least 10% of their capacity in category II and 50% in category III.
201  India 
has signed bilateral air services agreements wi th 108 countries to enhance international air 
connectivity.  There are 74 foreign airlines from 51 countries flying to/from India;  and 1,486 weekly 
                                                      
195 Centre for Asia Pacific Aviation (2009). 
196 Airports Economic Regulatory Authority of India Act 2008. 
197 Journeys to/from airports in the states of Assam, Meghalaya, Manipur, Mizoram, Tripura, Nagaland, 
Arunachal Pradesh, Sikkim and Bagdo gra in West Bengal are exempt. 
198 An education cess (2%) and a secondary and hi gher education cess (1%) apply on the payable 
service tax.  For details, see Central Board of Excise and Customs online information, "Service Tax:  Service 
Profile".  Viewed at:  http://www.cbec.gov.in/cae1-english.htm.  See also Department of Revenue, D.O.F.  
No. 334/03/2010-TRU, 1 July 2010. 
199 Service Tax Notification Nos. 25/2010, 22 June 2010;  and 27/2010, 22 June 2010.  For Service Tax 
Notifications, see Central Board of Excise an d Customs online information.  Viewed at:  
http://cbec.g ov.in/cae1-english.htm. 
200 Business Line , "User development fee in Hyderabad airport hiked", 29 September 2010;  and British 
Airways online information, "British Airways in India" .  Viewed at:  http://www .britishairways.com/travel/ 
lcinfo/public/en_in#4. 
201 Kacker (undated). India WT/TPR/S/249 
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international flights are operated.202  India maintains a limited open sky policy.203  In 2008, in order to 
promote tourism, India liberalized the operation of charter flights to/from India allowing all "inclusive 
tour packages" and eliminating existing restrictions.204 
165. India acceded to the ICAO 2001 Cape Town Conve ntion and Protocol, and the 1999 Montreal 
Convention in 2009.205 
(c) Overland transport 
Road transport 
166. Road transport remains the main means of tr ansportation in India, accounting for 60% of 
freight traffic and 87% of passengers transported.  National highways (2% of the network) continue to 
carry over 40% of the traffic.  The Ministry of Road Transport and Highways (MRTH) is responsible 
for formulating and implementing road transport po licies, and the construction and maintenance of 
national highways.  Development of other roads is under the responsibility of the state or local authorities.
206 
167. Improving road infrastructure is one of India's challenges in its quest to sustained economic 
growth and development.  India's roads are h eavily congested and have maintenance problems.207  
Infrastructure deficiencies result in a loss of effici ency and higher costs.  Annual revenue forgone due 
to trucks delayed at inter-state check points, is estimated to range  from Rs 9 billion to Rs 23 billion.208  
India has been making efforts to improve its infrastru cture through the formulation of policies, plans, 
and projects.209  However, while some of these initiatives have  not been implemente d, and others have 
been delayed, India introduced a new national pe rmit system in 2010 to render inter-state freight 
traffic more efficient.  The permit, which may be obtained from the "home" state, upon payment of 
fees (i.e. Rs 15,000/per annum per truck and Rs 1, 000 as a "home" state authorization fee), authorizes 
the holder to operate throughout the country. 
168. The National Highways Authority of India (NHAI) is in charge of implementing the 
seven-phase National Highways Development Project (NHDP) launched in 1998.   Around 55,000 km 
of national highways are to be upgraded/built at an estimated total cost of US$60 billion.210  One of 
the NHDP's major goals is to improve access to India' s major ports and thus ease freight traffic.  The 
NHDP was scheduled to be completed by 2015 but there have been delays reportedly because of, inter 
alia, difficulties in acquiring land and contractors' poor performance.211  As a response, the 
Government has taken measures to accelerate co mpletion of the NHDP goals, including by regular 
monitoring of contracts and simplification of pr ocedures for land acquisition.  India is also 
implementing the National Highways Interconnec tivity Improvement Programme, which seeks to 
                                                      
202 Ministry of Civil Aviation (2010a). 
203 Ministry of Civil Aviation (2009). 
204 An inclusive tour package is a round trip for whic h a consolidated price is charged for airfare, hotel 
accommodation, and other ground arrangement services (D irectorate General of Civ il Aviation, Aeronautical 
Information Circular No. 12/2008, 6 October 2008). 
205 The Montreal Convention is incorporated into the Carriage by Air (Amendment) Act 2009 (Ministry 
of Civil Aviation, 2009). 
206 Ministry of Road Transport and Highways online information, "Roads and highways:  an overview".  
Viewed at:  http://www.morth.nic.in/writereaddata/sublinkimages/overview_NH3244795788.htm. 
207 Alexander (2008). 
208 Planning Commission (2008). 
209 Ministry of Road Transport and Highways (2009). 
210 National Highways Authority of India (2010). 
211 Ministry of Road Transport and Highways (2009). WT/TPR/S/249 Trade Policy Review 
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improve the entire national highways network by upgr ading it to a minimum two-lane standard by 
December 2014.212  Several initiatives have been launched to  improve the road system at the state 
level.213 
169. The development of the road system in India is  funded with public resources, the proceedings 
of the fuel cess, collection of tolls, loans from inte rnational institutions, and the private sector.  The 
Government is counting on increased private sector  participation in the funding:  it expects 
public-private partnerships with private domestic and foreign investors to provide 60% of funds 
required to finance the projects envisaged under the NHDP.214 FDI in road construction and 
maintenance is allowed up to 100% under the automatic route. 
170. Domestic and foreign investors may bid for "concession contracts" (Table IV.11).  
Contractors must pay an annual nominal fee (Rs 1) to the NHAI throughout the concession period;  
they may benefit from a number of incentives (Table IV.12), and assistance is granted for, inter alia , 
acquiring land and obtaining clearances (e.g . environmental or pollution clearances).215  
Concessionaires recover the cost of projects by coll ecting tolls (see below).  Private investors may 
also obtain engineering, procurement, and constructi on contracts.  Foreign participation in contracts 
awarded under the NHDP is estimated at over US$2.4 billion.216 
Table IV.11 
Road concession contracts, 2011 
Concession contracts Description 
Build, operate, and 
transfer (BOT)  
BOT toll Concessionaires are required to meet the construc tion, maintenance, and operation costs.  They recover all 
expenses by collecting toll revenues.  Concessions ar e granted for 15 years to 30 years (not renewable) 
Concessions are granted through intern ational competitive bidding (ICB), as per the rules established by the 
Government, with the bidder quoting the lowest VGF (Gra nt) winning the concession in BOT toll projects, or in 
BOT annuity projects, the bidder quo ting the lowest annuity stream. 
BOT annuity Concessionaires bid for an annuity payment from  NHAI that would cover cons truction, maintenance, and 
operation costs.  The bidder quoting the lowest annuity  is awarded the project.  The annuities are paid 
semi-annually by NHAI and linked to performance require ments.  Concessions are granted for 15 years to 
30 years (not renewable). 
Design, build, finance, and operate Concessionaires are required to meet the cost of design,  construction, and annual ma intenance.  They recover 
expenses along with the interest by collecting toll reve nues.  Concessions are granted through international 
competitive bidding as per the rules established the Government.  The period of concession can extend up to 
30 years in BOT toll projects, and is determined on the basis of feasibility study re port (FSR), which includes a 
traffic survey.  The period of concession is determined as  the year in which the stre tch of highway achieves the 
required capacity on the basis of (i) amount of traffic and (ii) 5% CAGR traffic growth.  The toll rates or user 
fee charges are laid down in the statutory rules, which includes a provision for annual adjustment to offset the 
impact of inflation.  A BOT annuity c oncession is usually limited to 17 years. 
Operate, maintain, and 
transfer (OMT ) Under the OMT system concessionaires are granted the ri ght to charge a toll on an y given highway stretch and 
are responsible for the operation and maintenance of that  stretch.  Concessionaires  must pay a monthly fixed 
concession fee to the Government.  The concession is granted until the cost of operation and maintenance is 
recovered. 
Table IV.11 (cont'd) 
                                                      
212 Ministry of Finance (2011a). 
213 For example, the Special Accelerated Road Deve lopment Programme for the North Eastern Region;  
schemes for the development of interstate roads and roads of economic importance;  and the Pradham Mantri 
Gram Sadak Yojna initiative, which seeks to expand all- weather rural roads (Ministry of Road Transport and 
Highways, 2009;  and Ministry of Finance, 2011a). 
214 National Highways Authority of India (2010). 
215 National Highways Authority of India (2010). 
216 National Highways Authority of India (2010);  and Ministry of Finance (2011a). India WT/TPR/S/249 
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Concession contracts Description 
Special purpose vehicle For port connectivity projects:  NHAI fina nces up to 30% of the project;  the remaining funds should co me from 
the trust ports or state governments.  Tolls are collect ed to repay any debts and to finance the operation and 
maintenance. 
Source:  National Highways Authority of India (2010), Guidelines for Investment in Road Sector , 22 July.  Viewed at:  
 http://www.nhai.org/doc/22July10/nhai. pdf;  and Ministry of Road and Hi ghways online information, "National 
 Highways Development Projects (NHDP)".  Viewed at:  http://morth.nic.in/index3. asp?langid=2&sublink2id=173. 
Table IV.12 
Selected incentives to r oad concessionaires, 2011 
Grants of up to 40% of the cost of the project (including for projects of high economic importan ce but not commercially viable)  
100% tax holiday in any ten-year period out of 20 years in operation 
Exemption from the service tax for certai n activities related to road constructiona 
Exemption from import duties on imports of high capacity equipment to be used in the construction of roads 
Basic customs duty of 0% for imports of goods to be used in specific projects 
a Commercial or industrial construction services;  site formation and clearance,  excavation, earthmoving, and demolition 
 services;  work contract services;  and ma nagement, maintenance, and repair services. 
Source:  National Highways Authority of India (2010), Guidelines for Investment in Road Sector , 22 July.  Viewed at:  
http://www.nhai.org/doc/22July10/nhai.pdf ;  and Ministry of Road and Highw ays online  information, "National 
ghways Development Projects (NHDP)".  Viewed at:  http://morth.nic.in/index3.asp?langid=2&sublink2id=173. 
171. High speed diesel oil and petrol (i.e. motor sp irits) are subject to a fuel cess (previously 
additional excise duty or road cess) at Rs 2 per litre,  to finance the Central Road Fund.  According to 
the authorities, this cess is charged as part  of the additional duty (AD) on imports. 
172. Construction projects, including road construc tion and maintenance, exceeding Rs 1 million 
are subject to a cess ranging from 1% to 2% of the road construction/maintenance cost.217 
173. Goods transport agencies are liable for the service tax (10%).218  However, road transport of 
fruits, vegetables, eggs, milk, f ood grains, and pulses is exempt.219  Exemptions also apply to 
individual consignments not exceeding a value ra nging from Rs 750 to Rs 1,500;  and to specific 
taxable services when provided by a Goods Transport Agency (GTA). 
Rail transport 
174. India's railway network is managed and operate d by Indian Railways, an enterprise fully 
owned by the Ministry of Railways.  Indian Railways, the largest employer in India (1.4 million 
workers), controls 14 public sector undertakings ( PSUs) that perform railway-related works and 
5 production units.220  Although the railways are still reserved for the public sector (Chapter II(4)), 
private domestic participation has been enc ouraged in non-core activities, e.g. wagon 
ownership/leasing, and infrastructure projects.221 
                                                      
217 Building and Other Construction Workers' Welfare Cess Act 1996;  and National Highways 
Authority of India, Policy Matter No. 11041/217/2007/Admn., 26 February 2009. 
218 An education cess (2%) and a secondary and hi gher education cess (1%) apply on the payable 
service tax.  For details, see Central Board of Excise and Customs online information, "Service Tax:  Service 
Profile".  Viewed a t:  http://www.cbec.gov.in/cae1-english.htm. 
219 Service Tax Notifications Nos. 4/2010, 27 February 2010;  and 33 /2004, 3 December 2004.   
220 For details, see National Portal of India online information, "Sectors:  transport:  railways:  public 
undertaking".  Viewed at:  http://india.gov.in/sectors/transport/index.php. 
221 Energy and Resources Institute (2009). WT/TPR/S/249 Trade Policy Review 
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175. Passenger and freight traffic have increased si nce 2006/07.  In 2009/10, 888 million tonnes of 
freight (up from 728 million tonnes) and 7.25 billio n passengers (up from 6.3 billion) were moved by 
rail.  Trains move over 35% of India's total freight.  Rail is used mainly to transport bulk commodities 
including coal, grains, iron and steel, iron ore, ceme nt, mineral oils (POL), fertilizers, and limestone, 
which accounted for 89% of the total volume and total value of rail freight in 2009/10.  Some 58% of 
passenger and cargo use 16% of the existing rout es;  this has led to serious congestion.222  Moreover, 
since passenger traffic is given priority over freight , this has implications for trade, as containers 
reportedly miss their vessels at ports.223  As a result, Indian Railways is constructing dedicated freight 
corridors along the western and eastern trunk routes to create additional capacity. 
176. To deal with the infrastructure bottleneck, in  2009, the Government launched Vision 2020 to 
expand and modernize fixed railway infrastructure and the rolling stock;  improve freight and 
passenger services (e.g. dedicated freight corri dors, and high-speed corridors);  and enhance 
equipment reliability to achieve zero accidents and failure .224  Vision 2020 is to be financed through 
public and private funds.225  Indian Railways is expected to pr ovide 64% of the total funds, supported 
by public private partnerships to  build the fixed infrastructure.  An Accelerated Rail Development 
Fund is being considered by the Government to fund the remaining 36%.226  The Vision 2020 aims to 
improve the connection between the railway system and India's major ports, so that by 2020 some 
50% of India's total freight will be transported by rail.  This objective is also supported by the 
Railways Infrastructure for Industry Initiative Po licy 2010 and the Railways Policy for Connectivity 
to Coal and Iron Ore Mines 2011, which are aimed at  developing better rail connection to coal and 
iron ore mines.227 
177. Rail freight tariffs in India are among the highest in the world.228  In addition, a series of taxes 
are levied on rail freight traffic:  a 5% surcharge tax (10% on coal);  a 7% busy season charge (5% on 
coal and coke group);  a 20% congestion ch arge on traffic to Bangladesh and Pakistan229;  a 2% 
development charge;  and a the terminal charge of Rs 40/tonne (Rs 20 for coal and grain, and 
Rs 45/tonne on iron ore).230  Freight rebates are granted on certain commodities loaded in privately 
owned wagons231, or under the Freight Incentives Schemes a nd the Special Freight Train Operators 
Scheme.  Freight traffic of fruit, vegetables, and salt are subsidized to arrest inflation.  The authorities 
noted that freight tariffs are kept high in or der to subsidize the loss-making passenger segment. 
                                                      
222 Ministry of Railways (2009a). 
223 Ministry of Railways (2009b);  and KPMG (2010c). 
224 Safety has improved during th e review period (162 accidents in 2 009/10 down from 195 in 2006/07) 
(Government of India, Press Info rmation Bureau, Press Release, "E conomic Editor's Conference 2010", 
26-27 October 2010). 
225 Ministry of Railways (2009a). 
226 Ministry of Railways (2009a). 
227 Railway Board Circular No. 2008/PL/9/16, 20 July 2010;  and Government of India, Press 
Information Bureau, Press Releases "Railways' New R3i po licy aims at attracting private sector participation in 
rail connectivity", 30 August 2010;  and "Railways Ann ounce New Policy for Connectivity to Coal and Iron Ore 
Mines", 22 February 2011. 
228 For details, see Indian Railways online information, "Freight info:  Freight Rates".  Viewed at:  
http://www.indianrailways.gov.in/vie w_section.jsp?lang=0&id=0,6,338. 
229 This ranged from 21% to 100% for iron ore over 2006-08. 
230 Ministry of Railways (2009b). 
231 Caustic soda, alumina, furnace oil, ammonia, phosphoric acid, and bulk cement (Indian Railways, 
Freight Rate Circular Nos. 27 of 2010, 30 September 2010;  and 60 of 2009, 29 October 2009.  For Freight Rate 
Circulars, see  Indian Railways online information, "Frei ght Info:  Freight Rates:  Freight Rate Circulars".  
Viewed at:  http://www.indianrailways.gov. in/view_section.jsp?id=0,1,304,366,555). India WT/TPR/S/249 
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178. To increase freight volume and revenue, Indian  Railways launched the Policy Guidelines for 
Freight Incentives Schemes in 2006, which has been since modified.  Incentives are in the form of 
tariff freight discounts under four schemes;  discount s are based on the type of commodity, distance, 
volume or weight, according to the scheme.232  These discounts may unintentionally result in 
incentives for the production and/or exportation of certain commodities.  Bulk  commodities (e.g. coal, 
coke, and iron ore) and containerized traffic are excluded from the schemes.233 
179. Since 2007, India has allowed "eligible" operato rs to use the Indian Railways network to 
provide merchandise transport services.  This is in accordance with the I ndian Railways (permission 
for operators to move container trains on Indian  Railways) Rules 2006, which allow licensed private 
operators to run container trains on the networ k for both domestic and import/export traffic.  
Operators must be registered as Indian co mpanies under the Companies Act 1956 and have a 
minimum annual turnover (Rs 1 billion) prior to appl ying for a licence.  For licensing purposes, rail 
corridors are divided into four categories based on th e expected traffic volume;  most operators hold a 
Category I licence, which covers all routes.  Re gistration fees for licensing range from Rs 100 million 
to Rs 500 million.  Licences are valid for 20 years, renewable for ten years.  There are 16 container 
train operators in India;  the state-owned Contai ner Corporation of India held around 75% of the 
market share in 2009/10.234  Containerized rail traffic has increased by more than 50% since private 
operators entered into the market.235 
180. Private operators of containerized rail transport may carry all goods except for iron ore, 
minerals, coal, and coke, which are restricted commodities.236  However, these commodities represent 
the bulk of freight moved by rail.  Private operato rs are free to set tariffs, and face a number of 
charges by Indian Railways, including haul age charges for the use of infrastructure237, a 2% 
development surcharge on haulage, daily parking a nd stabling charges, inspec tion/supervision fees for 
track maintenance at terminals, and maintenance charges for rolling stock.238  Haulage charges are 
based on weight and distance and apply irrespec tive of the commodity transported, except for 
"notified" commodities.239  Haulage charges for "notified commodities" range from Rs 2,553 to 
Rs 82,242 per container.  These rates are valid  from 1 March 2011 to 31 August 2011;  a 15% 
concession rebate will apply as from 31 August 2011.240  Private operators are allowed to handle 
                                                      
232 The basis for determining the di scount varies according to the in centive scheme:  under the scheme 
for loading bagged consignments in open and flat wagons, the discount varies according to commodity;  under 
the scheme for traditional empty flow direction, the discount is based on distance;  under the scheme for freight 
forwarders, it is based on the number of commodities loaded  per wagon;  and under the scheme for incremental 
traffic, it is based on weight (for details, see Indian Railways, Freight Rate Circular No. 62 of 2009, 
10 November 2009). 
233 Indian Railways, Rates Circular No. 62 of 2009, 10 November 2009. 
234 Despite investment in infrastructure, private operators do not yet compete efficiently against 
CONCOR's infrastructure (Gangwar and Raghuram, 2010). 
235 Ministry of Railways (2009a). 
236 These commodities should not be transported in containers because of their nature. 
237 Haulage charges are notified in Indian Railways Fr eight Rate Circulars:  Freight Rate Circular 
No. 32 of 2010 (16 December 2010)  set the haulage charges effec tive as from 1 January 2011. 
238 Gangwar and Raghuram (2010). 
239 Notified commodities are:  cement (other than wh ite cement), food grains (other than flours and 
pulses), chemical manures, iron and steel, bricks and ston es (other than marble and ceramic tiles), sugar, oil 
cakes and seeds, alumina, and petroleum products and gases.  For details, see Indian Railways, Freight Rate 
Circular No. 5 of 2011, 14 February 2011. 
240 For details, see Indian Railways, Freight Rate Circular No. 5 of 2011, 14 February 2011. WT/TPR/S/249 Trade Policy Review 
Page 174 
  
container trains at terminals owned by Indian Ra ilways up to October 2011, subject to terminal access 
and ground usage charges.241  The service tax (10%) is levied on goods transported by rail.242 
181. India has continued to open up railways services sector to private investors.  In 2010, the 
Ministry of Railways implemented the Private Freight Terminal Scheme, which allows private 
operators to build freight term inals and handle third-party cargo243;  the Special Freight Train 
Operators Scheme, which allows private operators  to run special freight trains for commodities 
requiring special wagons244;  and Automobile Freight Train Operator Scheme to allow private 
operators to transport automobiles.245 
(v) Tourism 
182. In 2007/08, the tourism subsector accounted for 5.9% of GDP and provided direct and 
indirect employment to some 50 million people.  In  2009, 5.1 million foreign tourists visited India, a 
slight increase over 2007 (5.08 million) .  Foreign arrivals fell by 3.3% in 2009, due to external shocks 
such as the 2008 terrorist attacks,  the influenza pandemic, and the world economic crisis.  Over 
2007-09, domestic tourism increased significantl y, from 526 million to 650 million visitors.246 
183. There is no specific legislation to regulate the tourism sector and other related activities in 
India. 
184. The Ministry of Tourism (MoT) is responsible fo r the development and promotion of tourism.  
In 2002, the MoT launched the National Tourism Polic y to make tourism a major engine of economic 
growth.  The key objectives of the policy are to increase India's competitiveness  in the world tourism 
market;  improve, expand, and mark et tourism products effectively;  and develop world-class tourism 
infrastructure.247  To support these objectives, the MoT launched 14 schemes, in particular the 
Product/Infrastructure Development for Destinations  and Circuits, to develop tourism products and 
infrastructure for mega projects and rural tourism248;  and the Market Development Assistance 
Scheme, to promote India as a tourism destinati on.  These two schemes accounted for 76% of the 
Ministry's total outlays in 2010/11.  Other schemes are aimed at capacity building in tourism-related 
activities (Table IV.13).249 
                                                      
241 Indian Railways, Freight Rate Circular Nos. 59 of 2009, 23 October 2009;  and 29 of 2010, 
28 October 2010.   
242 An education cess (2%) and a secondary and hi gher education cess (1%) apply on the payable 
service tax.  For details, see Central Board of Excise and Customs online information, "Service Tax:  Service 
Profile".  Viewed a t:  http://www.cbec.gov.in/cae1-english.htm. 
243 Coal, coke, and iron cargo are excluded. 
244 For example, bulk cement, bulk fertilizers, fly ash,  selected chemicals/petrochemicals, bulk alumina, 
steel products, vegetable oil, molasses, and caustic soda (Government of India, Press Information Bureau, Press 
Releases, "Indian Railways Finalize Policy on Private Freight Terminal", 9 June 2010;  and "Indian Railways 
Finalize Policy on Special Freight Train Operator Scheme", 10 June 2010). 
245 Government of India, Press Information Bureau, Press Release, "Railways' Policy on Automobile 
Freight Train Operator Scheme", 11 August 2010. 
246 Ministry of Tourism (2010a). 
247 Ministry of Tourism online information, "Policy and Schemes".  Viewed at:  http://tourism.gov.in/. 
248 Mega projects refer to "the development of destinations/circuits of national importance in a holistic 
and integrated manner" (Ministry of Tourism, 2010a). 
249 For details, see Ministry of Tourism online information, "Policy and Scheme".  Viewed at:  
http://tourism.gov.in/.  See also Ministry of Tourism (2010b). India WT/TPR/S/249 
 Page 175 
 
 
Table IV.13 
Selected support schemes for tourism, 2011 
(Rs million) 
 
Objective Assistance Outlay 
2010/11 
Scheme for Product/Infrastructure Development for Destinations and Circuits  
Major destinations and circuits development  
 Develop new tourism products to the world 
standard Ministry of Tourism bears 100% of the project cost or a maximum of 
Rs 250 million for destination development and Rs 500 million for circuit 
development 5,450 
Rural Tourism Infrastructure Development 
 Develop rural tourisma Maximum of Rs 5 million 70 
Scheme of Assistance for Large Revenue Generating Projects (revised)  
 Large projects with a tourism impactb Grant to prepare the detailed project report, up to 50% of the actual cost, 
subject to a maximum of Rs 2.5 million per project; 
Amount of subsidy for private sector /public private partnership projects 
determined through a competitive biddi ng process by the concerned state 
governments/union territory administrations; 
Subsidy capped at Rs 500 million, subject to a maximum of 25% of total project cost or 50% of equity contribution of the promoters, whichever is 
lower 150 
Scheme for Support to Public Private Partnershi ps in Infrastructure (Viability Gap Funding)  
 Promote public-private partnerships in 
infrastructure developmen t, to deal with the 
lack of availability of physical infrastructure 
across different sectors, which is hindering economic development Government support capped at 20% of total project cost; 
Rs 1 billion for each project may be sanctioned by the empowered 
institution, subject to budgetary ceilings indicated by the Finance Ministry;  proposals up to Rs 2 billion may be sanctioned by the empowered committee;  and amounts exceeding Rs 2 billion may be sanctioned by the 
empowered committee with the approval of Finance Minister .. 
Market Development Assistance Scheme for Promotion of Domestic Tourism  
 Unexploited potential for domestic tourists Approved t ourism service providers w ould be provided financial 
assistance on travel expenses by air onl y, subject to a ceiling of Rs 30,000 
per trip.  Trips must be with Air India or alliance partner  .. 
Financial Assistance to the IHM/FCIS/IITTM/ITIS/polytec hnic institutes/universities/govt. colleges/govt. vocational 
schools/public sector undertakingsc 
 Create institutional infrastructure that may 
foster and facilitate professional education 
and training specific to tourism, travel, and 
hospitality industry Assistance varies, according to project, from Rs 5 million (minor civil 
works at universities and other colleges, and polytechnics) to a maximum 
of Rs 20 million (expenditure on civil works, equipment, furniture, and 
fixtures in industrial training institutes) 95 
Market Research:  Professional Services  
 Use of professional services from 
consultants/agencies for:  tourism-related surveys, studies, plans, and market research 
for making available relevant 
data/information/report/inputs to the Ministry of Tourism for policy making and 
planning purposes;  and feasibility studies 
and detailed project reports (DPRs) for specific tourism projects Maximum assistance of Rs 1 million pr ovided for preparation of feasibility 
studies and DPRs for projects under th e Scheme of Product/Infrastructure 
Development for Destination and Circuits  5 
.. Not available. 
a The following activities may be taken up under the Scheme:  improvement of village surroundings and access roads;  
illumination in villages;  improvement in solid-waste manage ment and sewerage managemen t;  procurement of equipment 
directly related to tourism (e.g. water sports, adventure sports , and eco-friendly modes of transport for moving within the tou rism 
zone);  refurbishment of the monuments;  reception centres;  and tourist accommodation. 
b Tourist trains, cruise vessels, cruise terminals, convention centres, golf courses open for dome stic and international touris ts, 
health and rejuvenation facilities, last-mile  connectivity to tourist destinations (a ir and cruise including heli-tourism) etc. , would 
qualify for assistance. 
c IHM:  Institute of Hotel Management;  FCIs:  Food Craft Institut es;  IITTM:  Indian Institu te of Tourism and Travel 
Management;  and ITIs:  I ndustrial Training Institutes. 
Source: Ministry of Tourism online information,  "Policy and Schemes".  Viewed at:  http://tourism.gov.in;  and Ministry of 
Tourism (2010), India Tourism Statistics 2009 , November.  Viewed at:  http://tourism.gov.in/. WT/TPR/S/249 Trade Policy Review 
Page 176 
  
185. In order to promote India as a tourism destin ation, the MoT has launched a series of overseas 
initiatives (e.g. the Incredible India and the Visit India 2009 campaigns), and has started to exploit 
India's potential in other types of tourism, e.g. rural, adventure, and healthcare tourism as well as 
eco-tourism.250  India has emerged as a world destination for healthcare tourism.251  In 2006, it started 
to deliver long-term tourist visa (for five years) with multi-entry facilities (for a minimum 90-day 
visit) for nationals of 18 countries.252  In January 2009, India implemented the Visa-on-Arrival 
Scheme for nationals of 11 countries.253  Also, new and revised air services agreements, and a new 
policy for foreign charter flights (section (iv)(b)) ha ve boosted tourism.  The Directorate General of 
Tourism, under the MoT, which has offices throughout  India to assist tourists, has opened overseas 
offices to assist MoT in promoting India abroad.254 
186. The MoT in cooperation with the UN Environment Programme and the UN World Tourism 
Organization, has developed and issued 37 quality st andards to be applied by tourism operators in 
order to ensure sustainable development tourism.255 
187. The MoT licenses travel agents, tour operators256, and tourist transport operators, on a 
voluntary basis.  To be licensed, operators must comp ly with a series of eligibility criteria stipulated 
by the MoT.257  Licences are granted by the MoT upon recommendation of a committee comprising 
the regional tourism director and a memb er of the relevant business association.258  In 2011 (May), 
there were 601 licensed operators, including 336 travel agents.259  All types of licences are valid for 
five years (renewable) and fees amount to Rs 3,000.  A foreigner may not operate as a travel agent, 
tour operator or tourist transport operator.260  However, foreigners are allowed to provide 
interpretation services to tourists, within  the annual limit of 500 interpreters. 
188. The service tax (10%) is levied on travel agen ts, tour operators, and on tourist transport 
operators.261 
189. There are regional, state, and local tourist guides in India.  Regional guides are licensed by the 
MoT;  state and local guides are licensed by the state and local tourism agencies.262  Regional guides 
                                                      
250 Ministry of Tourism (2010a). 
251 Swain and Sahu (2008). 
252 Argentina, Brazil, Chile, Belgium, Finland, Fran ce, Germany, Iceland, Ja pan, Korea (Rep. of), 
Luxembourg, Mexico, Netherlands, New Zealand, Norway, Spain, Switzerland, and Viet Nam (Ministry of 
Tourism, 2010a). 
253 Finland, Japan, Luxembourg, New Zealand, and Singapore (January 2010);  and Cambodia, 
Indonesia, Laos, Myanmar, the Philippines, and Viet  Nam (January 2011) (Ministry of Tourism online 
information, "Statistics".  Viewed at:  http://www.tourism .gov.in/).  Visas are for a single entry and a maximum 
30-day stay.  They are deliver ed only at Delhi, Mumbai, Kolkata, and Chennai international airports, subject to a 
fee (US$60) (Incredible India online information, "Visa Info".  Viewed at:  http://www.incredibleindia.org/ 
newsite/cms_page.asp?pageid=798). 
254 Ministry of Tourism (2010a). 
255 Ministry of Tourism (2010a). 
256 Inbound tour operators, adventure tour operators, and domestic tour operators. 
257 For details, please see Ministry of Tourism online information, "Guidelines:  Travel Trade".  
Viewed at:  http://tourism.gov.in/. 
258 Travel Agents Association of India, Indian Association of Tour Operators, Adventure Tour Operator 
Association, Association of Domestic Tour Operators of India, and Indian Tourist Transporters Association. 
259 Ministry of Tourism (2010a);  and information provided by the authorities. 
260 Information provided by the authorities. 
261 In addition, an education cess (2%) and a seconda ry and higher education cess (1%) apply on the 
payable service tax.  For details, see Central Board of Excise and Customs online information, "Service Tax:  
Service Tax Profiles ".  Viewed at:  http://www.cbec.gov.in/cae1-english.htm. 
262 Chowdhary and Prakash (2008). India WT/TPR/S/249 
 Page 177 
 
 
must live in the region where they will provide services.  Licences issued by the regional tourism 
offices, are valid for three years (renewable).263  The Tourist Guide Federation of India fixes the 
prices charged by guides in consultation with the Indi an Association of Tour Operators and the Travel 
Agents Association of India.264  Foreigners may not register as regional/state/local guides.  Tourist 
guides are exempt from the service tax.265 
190. The MoT classifies accommodation establishments on a voluntary basis.266  Classification is 
valid for five years (two years for B&Bs).  Fe es range from Rs 3,000 (silver category B&B) to 
Rs 25,000 (5-star deluxe hotel).267  At end 2010, India had 2,483 hotels with 117,815 rooms.268  Hotel 
accommodation is dominated by five Indian-owned chains.  The state-owned India Tourism 
Development Corporation Ltd. runs a chain of hotels.   Most major international hotel chains operate 
under management or franchise contracts.269 
191. In 2010, India estimated a shortage of some 150, 000 hotel rooms, in particular in the budget 
category.270  As a result, the MoT has advised "land- owning agencies" and state governments to put 
land aside for the construction of hotels and to  allow construction contracts on public-private 
partnerships or revenue-sharing basis.  Since 200 1, subsidized loans have been available for 
construction of budget accommodation hotels under the Incentive to Accommodation Infrastructure 
Scheme;  in 2010-11, Rs 100 billion were allocated under the scheme.271  Access to credit for the 
development of hotels has been increased and offered at reduced interest rates272;  and the MoT has 
eased the procedure to obtain B&B classification to encourage applications.273  Tax incentives are 
available for hotel development under the Income Tax Act:  a five-year tax holiday is granted to new 
2- to 4-star hotels located in the National Capital Territory of Delhi (and some neighbouring 
districts274) which started operations between 1 April 2007 and 1 July 2010275;  and to 2- to 4-star 
hotels starting operation in UNE SCO World Heritage sites276 between 1 April 2008 and 
31 March 2013.277  In addition, as of 2010, capital expenditure in new hotels is fully deductable for 
income tax purposes.278 
                                                      
263 Ministry of Tourism online information, "Guidelin es:  Others".  Viewed at:  http://tourism.gov.in/. 
264 Chowdhary and Prakash (2008). 
265 Central Board of Excise and Customs online information, "Service Tax:  Service Tax Profiles ".  
Viewed at:  http://www.cb ec.gov.in/cae1-english.htm. 
266 Hotels, B&Bs, guesthouses, resorts, and tented accommodation. 
267 Ministry of Tourism online information, "Guidelines:  Accommodation".  Viewed at:  
http://tourism.gov.in/. 
268 Ministry of Tourism (2010b). 
269 Investment Commission of India online information, "Services:  Tourism".  Viewed at:  
http://www.investmentcommission.in/tourism.htm. 
270 Ministry of Finance (2011a). 
271 Ministry of Tourism (2010b). 
272 Ministry of Tourism (2010a). 
273 Ministry of Tourism (2009). 
274 Faridabad, Gurgaon, Gautam Budh Nagar, and Ghaziabad (Ministry of Tourism, 2009). 
275 Originally the incentive was granted for hotels developed up to 31 March 2010.  An extension to 
31 July 2010 was granted to sp eed up the construction of the accomm odation needed for the Commonwealth 
Games in October 2010 ( The Financial Express , "Tourism ministry seeks 5-yrs tax holiday extension for Games 
hotels till July 31", 20 January 2010). 
276 Excluding Delhi and Mumbai districts. 
277 Ministry of Tourism (2010a). 
278 Ministry of Finance (2011a). WT/TPR/S/249 Trade Policy Review 
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192. Foreign presence is not allowed in travel agencies,  tour operator or tourist transport operator.  
FDI inflows remain low (1.81% of the overall FDI inflows over April 2000-December 2010279) due 
to, inter alia , multiple taxes on tourism services at central and state level280;  and high service tax on 
tourism services providers (see above).281 
193. India has signed 46 bilateral ag reements on tourism cooperation.282 
 
                                                      
279 Ministry of Commerce and Industry online informa tion, "FDI in India Statistics".  Viewed at:  
http://dipp.nic.in/fdi_statistics/india_fdi_index.htm. 
280 For instance, daily hotel rates of at least Rs 3,000 are subject to a 10% expenditure tax levied by the 
Government and a luxury tax of 5%-25% levied by state governments (Srinivas Subbarao, 2008). 
281 Srinivas Subbarao (2008). 
282 Ministry of Tourism (2010a). India WT/TPR/S/249 
 Page 179 
 
 
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