Country Commercial Guide: India

India’s economic reforms since 1991 have led to reasonable economic growth, higher investment flows, and growth in trade. Real gross domestic product (GDP) grew by 5.9 percent in Indian fiscal year (IFY) 1999-2000, down from 6.8 percent in the previous year, primarily due to slower agricultural growth. Agriculture accounts for 26.5 percent of India’s GDP and employs 62 percent of the work force. Agricultural production declined by 3.1 percent in IFY 1999-2000, compared to growth of 8.2 percent in 1998-99. In the same period, industrial production grew 8.2 percent, double the rate of the previous year, while growth in services was buoyant at more than 8 percent.

Portfolio and foreign direct investment (FDI) was USD 3.7 billion in IFY 1999-2000, up from USD 1.7 billion in the previous year. The increase was due to higher foreign equity issues and increased portfolio investment even as FDI registered a slowdown. Institutional investors appeared extremely optimistic about India, as they brought in fresh inflows of USD 2.1 billion during IFY 1999-2000 versus outflows of USD 390 million during the previous year. Foreign exchange reserves of USD 38 billion in May 2000 were sufficient to cover 7.7 months of imports.

President Clinton visited India in March 2000, and signed a vision statement with Indian Prime Minister Vajpayee to further strengthen the relationship between the two countries in the 21st century. Both countries agreed to institutionalize an ongoing dialogue to intensify and regularize bilateral exchanges on issues ranging from trade, finance, investment, energy, and environment to foreign policy, regional and international security, and non-proliferation concerns. Business agreements valued at more than USD 4 billion were signed between the two countries during the President’s visit. During the visit, the U.S. Export-Import (ExIm) Bank agreed to guarantee up to USD 1 billion in rupee-denominated trade financing. U.S. companies operating in India continue to use the goodwill generated by the President’s visit to pursue project approvals and development in India.

The following are 15 best prospect industry sectors in India for U.S. firms: Computer software and services; telecommunications services; telecommunications equipment; computers and peripherals; pollution control equipment; oil and gas machinery; medical equipment; chemicals and petrochemicals; food processing and packaging equipment; biotechnology; power transmission and distribution systems; airport and ground support equipment; water resources; air-conditioning and refrigeration equipment; agricultural chemicals.

India’s economy is fundamentally sound, and has recently experienced the emergence of “new economy” sectors, such as information technology, communications and entertainment. On balance, India continues to develop an attractive business environment for foreign investment. However, high interest rates, a large government fiscal deficit and inadequate infrastructure have hampered economic growth and dampened the appetite of foreign investors from time to time.