1 www.efc.ov.au Overcominfnancial barriers or exporters cOUNTRY PROFILE Doual Craword, Senior Economistdcraword@ec.gov.au OVERVIEW Since the early 1990s, the Indian economy has become more market-oriented and open to trade and oreign investment. This has helped raise economic growth and lower poverty. Overall, India is the 11th largest economy at market exchange rates, but a high growth rate and large population means that it is likely to INDIA APRIL 2013 Analyst contact: move quickly up the league tables. Nonetheless, despite recent progress, India still aces signicant challenges, including large scal and external decits, high infation, weak inrastructure, burdensome bureaucracy and still high levels opoverty. Economic growth has averaged 8% over the past 15 years. Correspondingly, poverty has allen; while still low, per capita income has risen rom around US$300 in the 1980s to almost US$1600. However, it is still well below the regional average and gains have been unequally distributed across India. Chart 2 summarises the key risks aced by exporters and investors in India. A signicant impediment is the business climate — particularly contract enorceability. The business climate varies considerably by state and industry. Rupee volatility and, more recently, slowing growth are other challen ges or expor ters and investors.
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volatility is quite acceptable, and presents little
risk. But where a country has a weak balance o
payments or is prone to wide swings in capital
fows, it can suer sudden and dramatic currency
moves that can bankrupt large swathes o its
corporate and banking sectors.
Currency inconvertibility risk. I the country
suers rom a weak balance o payments, not
only is it prone to steep currency depreciation,but there is a temptation or the government
to impose exchange controls that prevent
importers rom converting local currency
into oreign currency in order to make trade
payments.
Systemic bankin risk. Weak balance sheets
and poor lending practices can sometimes trigger
sector-wide banking crises.
Soverein deault risk. Fiscal mismanagement
can put governments under nancial strainto which they respond by delaying or halting
payments to overseas suppliers and creditors.
With the government cut o rom credit, a
sovereign deault also increases the likelihood
o a sharp downswing in the economy, currency
inconvertibility and a systemic banking crisis.
Difculty/cost o enorcin contracts. I you get
into a contractual dispute, will the country’s legal
and judicial system help or hinder you in pursuing
a claim? Drawing upon World Bank data on the
cost and time involved in enorcing contracts
(at www.doinbusiness.org) we seek to measure
the degree o help or hindrance
The scale runs rom negligible to extreme.
INDIA - SELECTED INDICATORS*
People
Population (bn) 1.21
Ocial language Hindi,English
UN Human Development Index** Medium
Economic***GDP ($US bn) 1,947
GDP per capita ($US) 1,592
Real GDP growth (15 year average, %) 7.0
Fiscal balance -8.1
Public debt 65.0
Foreign direct investment 1.7
Current account -4.2
External debt (2010) 18.1
Foreign reserves 290.0
S&P oreign currency debt rating BBB-/negative
OECD country risk rating 3
Governance
World Bank - Ease o doing business 132/185
Freedom House - Political rights and civil liberties Free
Transparency International - Corruption Perception Index 94/176
*All gures are 2012 unless specied
**The HDI is composite measure o human development: long & healthy lie (lie expectancy),
education (literacy & education enrolment) and income (GDP per capita)
***Expressed as % o GDP unless specied
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