7 4 tO os    ivtj~ '
Recent Economic Developments
and Prospects
H@i1 A W O R L D B A N K C O U N T R Y S T U D Y



A W O RLD B A N K C O UN TRY STUD Y
India
|~ ~~~                -- I  -,
Recent Economic Developments
and Prospects
The World Bank
Washington, D.C.



Copyright C 1995
The Intenational Bank for Reconstuction
and Development/ THE WORLD BANK
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First priting March 1995
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ISSN: 040253-21
Library of Congess Cataloging-in-Pubication Data
India, recent economic developments and prospects.
p. cm -(AWorld Bank country study)
'ISBN 048213-3156-6
1. India-Econonic policy-1980- 2. Economic stabilization-
India  3. Envimn  policy-India. L International Bank for
ReconstuctionandDevelopment. IM Series.
HC435.238 1995
338.954- dc2O                            94-46502
CIP



- ii -
CONTENTS
Abbbrvbos ...................... ix
Curreny ...      .... x
Admowledgments ...................... i
Ecnomic Development Data ...................... xi
Priority Poverty Indicators ....................... v
Resources & Expenditures            ............................ xv
Eeutive Summary ................. xvi
CHAPTER 1: RECENT ECONOMIC DEVELOPMENTS AND PROSPECTS ....... 1
Introduction  ............................................ 1
Stabilizing the Economy ................ 1
Intoduefion                                      .1................................. 
Demand                ..................................Mam t                         2
Fiscal                .........i.....l   ......................4
The Economy's Response.                                                                  7
Introduction.                                                                         7
Investme    ........        ................................... 8
Inflation ............................................ 17
Recent Developments in Money and Capital Markets  ................ 19
Balance of Payme t...................................... 22
The 1994-95 Budget .          ..................................... 28
Highlights ..............................                                            28
Fiscal Adjusm       ............................. 29
Adjustment in State Finance ..............................-.32
External Debt Management and Exteal Finncing Requirements  .......                ... 37
External Debt Management                                                             37
External Financing .39
CHAPTER 2: THREE YEARS OF REFORM; SHORT AND MEDIUM-TERM POLICY
ISSUES .41
Results of Three Years of Reform .............................    41
Introduction .............................                                           41
The Liberalizaton of Private Investment ......................... 41
The Liberantion of the Trade and Extema Payments Regime ....                  ...... 45
Reforming FinancialM i    ................................ 47
Tax Reform  .... .      .................................... 50
Progress and Sho        n in Public   teprise Refom............... 52
Short- and Medim-Term Poficy Isu e . .........................  57



- iv -
CHAPTER 3: MANAGING INDIA'S ENVIRONMENT - SELECTED ASPECTS .... 66
na's Environment Today .................................. 66
Environmental Polution ................................... 67
Forests, Wildlife and Biodiversity   ............................ 71
TheCumotEnviromcntal M gmeFramework .................. 75
Overview .....................................                                                      75
Enviromnmenta  PoUutionContl .............................Co                                        76
Conservation of Forests, Wildlife, and Biodiversity ................. 78
Issues and Options .81.................................... 81
Are the Highest Priority Problems Being Addressed?   ................ 81
Are th Right Strategies Being Employed? ....................... 86
Is the Institutional Framework Adequate? ........................ 91
Is Eugh Being Done? .................................. 93
Concluding Observations ................................... 95
ENDNOTES ....................                                                                                   97
STATISTICAL APPENDIX ....................                                                                      102



v -
TABLES
.1   Central Government Finances   ................................. 3
1.2  Recent Evolution of the Public Deficit ................5 
1.3 Evolution of the Public Debt Stock ................                                  6
1.4  Interest Rates on Central Government Debt ........................ .                7
1.25   Growth Performance .      ................................... 8
L.6 Indusrial Growth by Industry of Use ................                                 8
1.7 Investment by Type of Institution .................                                  9
1.8   The Relative Size of India's Transfer Problem  ...................... 11
1.9   Trends in Capacity Utilization - Use-based Classification ................ 11
1.10  Financial Performance of the State Electricity Boards ..................  15
1.11  Evolution of the Wholesale Price Index  .......................... 18
1.12  Domestic and International Prices of Wheat and Rice .................. 19
1.13  IKeylnterest Rates..20
1.13  i:ylnerest   ........................................ 21
1.14  Issues by Public and Private Co ies.          ............................
1.15  Selected Monetary Indicators ................................. 22
1.16 Balance of Payments .                                                              23
1.17  Foreign Direct and Portfolio Investments  . ........................ 25
1.18  Portfolio Investment in Selected Counties ......................... 27
1.19  Real Exchange Rate of India's Main Trading Partners
and Competiors ..................... 27
1.20  Centrl Government Transfers to High and Low
Income States ........................................ 33
1.21   State Government Fimnces .       ................................. 35
1.22  Devolution of Resourc  from the Center to State
Governments  ........................................ 36
1.23  India's Extenal Debt ..................................... 37
2.1 GrossCapital FormationbyIndustry.................. 42
2.2   Foreign Investment Approvals  . ............................. 45
2.3   Tariffs and Colection Rates-Interational Comparisons ................. 46
2.4   Tariff Structu  ......................................... 47
2.5   Public Sector and Public Enterises in the Economy .................. 52
2.6   Finaming Centrl Govenment PEs' Plan Investm s   ................. 53
2.7   BIER Activities, Public Sector ................................ 54
2.8   Profitability Profie of non-Departmental Centrl
CJoverznent PEs . ...................................... 56



-vi -
TABLES (continued)
3.1    AmbientLead    .......................................... 69
3.2  Trends in Ambient Air Pollution  .............................. 69
3.3    ExcedencesofBOD  andTotal ColiformReference Lcels  ...............    71
3.4  Estimated Area Under Forest                      ............................ 73
3.5  MoEFBudgetedExpenditures ................................ 76
3.6   Cumulative Enforcement Activity Under the Water
andAirActs .......................................... 79
BOXES
1.1  Constrints to Privat Irnvestment in Agriculture ....................... 14
1.2  StatePowerSectorRestructuring .............................. 16
1.3  Institutional Constaints on Private Invs    ......................I.                                         17
1.4    Istruments Used by Foreign Direct and Portfolio
Investors  ............................................ 24
1.5 Fom thel994-95Budget Speech.2
1.6    Main Tax Reforms Introduced in the 1994-95 Budget ...30.. . ....                                 30
1.7    Transfers of Resources from  the Centrl to the
StateGovenments .............................4....... 34
1.8  Fiscal Adjustment in Selected States ............................ 36
1.9  Non-ResidentDeposits ............................                                                           38
2.1    T.  - U   eralization of India's Investment Regime in
- S .4 Key Sectors .44
2.2  Case Studies: Hmdustan Machine Tools (BMT), Mysore
Kirloskar Ltd (MKL), and the National Textile
Corporation(NTC) ...................................... 55
2.3  Recent Experiences in Dealn with Capital Inflows ................... 65
3.1- Some Indicators of Environmena Pollution ........................ 67
3.2  BiodiversityinIndia ...................................... 72
3.3 NTPC's Environmental AcionPln ............................P.                                                 78
3.4  EAPriorities .......................................... 82
3.5   Development Policies and Dfremstion in Brzil
andCostaRica ........................................ 83
3.6  Enviromnenta Health...................84................                                                    8
3.7  InflexibleStandardsandUnpalatableChoices ....................... 87
3.8  Conflicts Between Growth and EnvironmenW lQualty................. 88



-vii,-
BOXES (contined)
3.9    Effluent Chargesin Use  .................................... 89
3.10   Icrporating Ecnomic Considerations into Standard
Design                                         .90............................... 90
3.11   TheSr SaroS                            aPje c ....................... 92
3.12   Trading Off Alternative Developmen Interventions  ................... 94
FIGURES
3.1   Ambient Cocentrations of Air Pollution .......................... 68
3.2  Forestry and Logging-Changes in Output and Prices ..................                     74
3.3   Forestry Deflator/GDP Deflator ............................... 75
GRAPH
Graph 1        Agricudlural Prices in Real Terms: in the World,
at the Indian Border, and Domestic ........................ 13



A=EVIATIONS AND ACRONYMS
BIFR             Board of Industrial and Financial Restuctering
BOD              Biochemical Oxygen Demand
BRO              Build-OperaterTansfer
CD               Certificate of Deposit
CMIE             Centre for the Monitoring of te Indiak uicnmy
CP               Commercial Paper
CPCB             Central Pollution Control Board
CPI              Consumer Price Indes
CRR              Cash Reserve Requiremt
DALY             Disability-AdjusmnentLife Year
DEII             Deparmet of Heavy Industries
DOT              Department of Teleommunications
EAP              Enviromnmtal Action Programm
iCB              Euro-Convertible Bond
FERA             Foreign Exchange Regulation Act
FIn              Foreign Institutional Investor
FIPB             Foreign Investment Promotion Board
GDR              Global Depositoqy Receipt
GOI              Government of India
GOM              Govemment of Maharaua
HC               Hydrocos
HMT              Hindustan Machine Tools
HS               Harmonized System of classification
IRDP             Integrated Rurl Developme  Programme
JFM              loint Forest Managemet
JICA             Japan lmernational Coopero Agency
JRY              lawahar Rozgar Yahana
M1bAS            Minmum  National Saards
MKL              Mysore Kiidoskr Ltd
MLR              Minimum Lending Rate
MODVAT           Modified Value-Added Tax
MoEF             Ministry of Environment and Forests
MOU              Memorandum of Understnding
MW               Megawatt
NAEB             National Agricultural Extension Board
NEERI            National Environmental Engineering Institite
NGO              Non-Governmental Orgniation
NRF              National Renewal Fund
NRI              Non-ResidentIndian
NTC              National Textile Corporatin
NTPC             National Thermal Power Corporaion
ODA              Official Develpment Assstance
ODB              Overseas Depository Bank
OGL              Open General Licen
OSEB             Orissa State Elaricity Board
PA               Protected Area
PE               Public Enterprise
RBI              Reserve Bank of India
REER             Real Effective Exchange Rate
SBI              State Bank of India
SEB              State Electricity Board
SEBI             Sectuities and Excbange Board of India
SIA              Secretaiat of Indust  Approvals
SLR              Statry Liquidity Requirements
SPCB             Stare Pollution Control Board
SPM              Suspended Particulate Matter
UNEP             United Nations Enviroment Programme



- x -
CURRENCY
RsIUS
Currency                                    Official                  Marketl'
Prior to une, 1966                            4.76
June 6, 1966 to mid-December 1971             7.50
Mfid-December 1971 to end-June 1972           7.28
1971-72                             7.44
1972-73                             7.71
1973-74                             7.79
1974-75                             7.98
1975-76                             8.65
1976-77                             8.94
1977-78                             8.56
1978-79                             8.21
1979-80                             8.08
1980-81                             7.89
1981-82                             8.93
1982-83                             9.63
1983-84                             10.31
1984-85                             11.89
1985-86                             12.24
1986-87                             12.79
1987-88                             12.97
1988-89                             14.48
1989-90                            16.66
1990-91                            17.95
1991-92                            24.52
1992-93                            26.41                           30.65
1993-94                                                            31.36
January  1994                                                               31.37
Febnrry 1994                                                                31.37
March    1994                                                               31.37
-   Source: IM[F, Intrnational Fianial Stistics (IFS), line "rf, and Reserve Bank of India.
Note: lhe Indian fiscal year runs from April 1 dtrough March 31.
u A dual exchange rate system was created i Mrmch 1992, with a free markt for about 60 percent of foreign exchmage
tmnacdons. The exchange rae was reunified at the begnning of March 1993 at the free market rate.



- xi -
ACKNOWLEDGMENTS
Thizi Report was prepared by a tean led by Roberto Zagha. R. Anderson was responsible
for the chapter on envroment The Report was based on contributions by: D. Ahluwalia
(recent developments and policies in the agricultural sector), P. Auffret (recent economic
developments, selected fiscal iss), P. Bedcknan (financial sector reform), B. Blarel (recent
developments and policies in the agricultual sector), M. Haddad (developments in the
mamnfacuing sector), H. Hansen C nkastncre), D. Kantawala (Consultant, environment), S.
Kunte (inflation), K. Nyman (power sector issues and policies), P. Pflak (developmeats in the
hydrocarbon and coal sectors), V.J. Ravisbankar (public finance), C. Rees (enviromnent-forests,
wildlife, and biodiversity), S. Sengupta (small-scale industries), L. Serven (fiscal sustinabilit),
K. Siddique (selected public finance issues), H. Suzuld (public enterprises), W. Thirsk
(Consultant, tax reforms), and F. Yagci (industrial policy developmens). Statistical and
computational assisamce was provided by R KEaina, S. Kunte and E. Simel. Arrangements
for the missions were carried out by P. Gopalan in Delhi. The report was produced by E. Torre
with R Bessette, H.Y. Kim, L Chin and Z. Jagdeo. The repo twas prepared under the general
direction of Javad Khalil h-Sirazi. The assistance of the Ministzy of Finance, Reserve Bank
of India, the Minstzy of Eiroment and Forests, the Maharashtra State Pollution Control
Board, Ministries of Finance of  Ma    and Tamil Nadu, and other government and private
institutions n the- preparation of this Memorandum  is gratefully ackmowledged.  The
Memorandum was discussed with the Indian authorities in May 1994.



- xli -
ECONOMIC DEVELOPMENT DATA
GIP PER CAPITA IN 1991 US330 /a
GROSS DOMESTIC PRWUCT IN 1991/2                                    MUAL RATE GF   G        (X l180/81   tant Prices)
65&         70171- 75- Wa/1 8   55Lf    un      90/9-
LO Bln.        x
GDP at Market Prices                   248.2        100.0            3.0      2.1    3.6    5.6       6.1    5.7       1.2
Gross Do mstic lIwestment               59.7         24.5             1.8     5.0    4.9    2.5       8.2   1B.9   -18.9
Gross National Saving                   56.2         22.6              -       -       -      1.1     7.4   20.9   -10.4
Current Account Balance                  3.5           1.4                                          -           -
OUTPtUT. LADO  FORCE AND PRODUCTIVITY IN 1981
Vloue added (at factor cost)        Labor Force b/   V.A. Per Worker
U$ gin,        X                    Nil.      I       USS    X of Nat.
Averaae
AgricuLture                             58.9          38.0                  172.7   70.6    341        53.9
Industry                               40.1           25.9                   31.6   12.9   1Z68       200.3
Services                               55.9           36.1                   40.3   16.5   1387       219.1
Total/Average                          154.9         100.0                  244.6  100.0    633       100.0
GOVERNMENT FINMCE
General Goverment Ic                               Central Government
RU    .L           A O19f91  MP              Re. 192 W  Rln.        Z of GDP
19"1921991   im990t9  1985/8-1989190   19919       1991/92  199019195it8-19!990
Revenue Receipts               1226.5     20.2      19.6        20.7          660.5        10.9    10.4            11.1
Revenue Expenditures           1424.5     23.4      24.6        23.8          823.1        13.5    13.9            13.5
Revernue Surplus/Deficit       -198.0     -3.3      -4.9        -3.1         -167.0        -2.7    -3.5            -2.7
Capital Expenditures a          291.4      4.8       5.7        6.6           200.6        3.3       4.9            5.7
External Assistance tnet) fr    35.1       0.6       0.6        0.7
MONEY. CREDIT AND PRICES               70k71  75176   0BO81  85186  B6/87  8718   U/89   89/90  90/91   2JL2
(Rs. biLtion outstanding at end of period)
Honey and Quasi Money                   109.8  224.8  557.7  1193.9  1416.3  1642.B  2002.4  2309.5  2654.4  3150.8
Bank Credit to Government (net)         54.6  106.3  257.2   58.2  720.2  843.7  973.7  1171.5  1402.0  1582.9
Bank Credit to Commercial Sector        64.6  156.2  366.4   128.0  947.4  1074.9  1326.6  1567.7  1717.6  1910.7
(Percentage or Index NuWbers)
Morey ard Quasi Money a X of GDP        27.3   30.3   41.0   45.6   48.5   49.4  50.7    51.3   50.1   51.7
Wholesale Price Index C1981/3100)         -       -       -   125.4  132.7  143.6  154.3   165.7  182.7  207.6
Annual Percentage changes in:
Uholessle Price Data                      -       -       -      4.4    5.8    8.2   7.5        7.4   10.3   13.6
Bank Credit to Goverruent (net)          15.0   22.7   28.5   15.9   23.5   17.1  15.4    20.3   19.7   12.9
Bank Credit to Commrcial Sector         19.4   22.7   18.2   16.7   14.4   13.4  23.4    18.2    9.6   11.2
/a The per capita GNP estimate is at market prices, using World Bark Atlas methodology. Other conversions to doltars
in this table are at the prailing averap exchange rate for the period covered.
/b Total Labor Force and percentage breakdwn from 1981 Cens. Excludes data for Asmam.
Ic Transfers between Centre and States have been netted out.
id All loans and advances to third parties have been netted out.
le As recorded in the goverummnt budget.



- xiii -
BALANCE OF PAYMENTS          1988/89  19B9/9O  1990191  1991/921
CUSS miltion)               MERCHANDISE EPORTS (AVERAGE 1967/88-1991/92 la)
Export of Goods fa            14257    16850    1B491    18135                                           USS mitt   x
Imports of Goods _a           23618    24414    26427    Z0813
Trade BeLance                 -9361    -7564    -7936    -2678    Tea                                      500     3.2Z
Non Factor Services Cnet)       731      725      785      676    Iron Ore                                 521     3.3Z
Chemicats                              1434     9.11
Resource BoLance              -8630    -6841    -7151    -2002   Leather and Leather produets             1151     7.31
Textiles                               14JB     9.41
Garm ents                              1843    11.71
Interest Incoa  (net)  b      -2915    -3305    -3743    -4178   Grms md JeweLery                         275    17.63
Net Transfers /c               2654     2256    0Z05      2685    Engineering Goods                       1735    11.0X
Others                                 4353    Z7.5Z
BaLance an Current Account    -8961    -7890    -8894    -3495
TotaI                                 1580O   100.01
Direct Investount               287      350      112     2Z0
Official Grants & Aid           406      500      476      451
Net Medium & Long-term Capital 4351     3910     2764    4805
Grass Disbursements            6299     5892     5169     7468
PrincipaL Repayments           1948     1982     2405     25      E3
EXTERNAL DE3T_ MARCH 31- 1992           U0 # "tton
Other Capital Flout £d          904      878     1773     2174
Non-Resident Deposits          2650     2244      786    -1622
Net Transactions with INF     -1210    -1008     1214      780    Outstanding mnd Disbursed                  7100B
Errors and Omissims             141      167        0        0
Increase in Reserves           1432      851     1770   -3383
Gross Reserves (end of year)fe 4959     4108     2338      5721    DEBT SERVICE RATIO FOR 1991112  ff       25.9X
Fuel nnd Retated nMterials                                        IBRDOIDA LENDING. MMC31 31. 199Z         USSM tliltn
Imports (Petroleus) /a         2938    3766      5726     5326                                             iRm     U
of which: Crude               1891     2455     3238    3196
Products            1047    1311      2488     2130    outstanding mnd Disbursed                85    14203
Undisbursed                             7364     4243
Outstanding incLuding Undisbursed      15949    18446
RATE OF EXCHANGE
June 1966 to mid-Decanter 1971          USS1.00 = Rs. 7.50
Mid-Deceaber 1971 to end-June 1972      USS1.00 = ft. 7.2797
After end-June 1972                     FLoating Rate
Spot rate end-March 1992ja              US$1.00 = Rs. 31.30
a  Net of crude petroleti oil exports.
&  Figures given cover all investment income (net). Major payments are Interest an foreigp  loan and charges paid to IMF,
and major receipts is interest earned on foreign assets.
g  F;igures given include workers remittences but exLtude officiat grant assistance which is included within officiaL loans
and grants, and mon-resident deposits which are shon separatety.
Jd  Includes short-tern net capitat inflow, changes in reserve valuation and other item.
aS  Exctuding gold.
Af Amortization and interest payments an foreign tlons as a percentage of total current receipts.
L   A free msrket for foreign exchange was created in March 1992.



-ju -
RnIOnr POVERTY DMICATORS
M&m  Smmwp
Lra.f       ~21-jo      is-a       Fop"~h
uAir of          t        m-      -wftt        Seim&        Low-       im
Iadigafgf             inmw.               age        ~~~~     ~~~~~a"e  -ohuv  Asia   &Mmm         gvmlp
Uw-pp vmuy an                                                             -        .__96    _ _
Hemdmme2d_                             Io1p,.                 -         43          25           _          _           _
Lawhpouy in                             l      r.            _-                       -     _      _
H idc.mi.x%pap. _
GNP pwapkif                                WS                 90        Ka          330        320         350        .O0
sHo=rTMtNfCOMIKDICATORS
W             _jJjbun                     r .d                 _          _           -          _           _
Riuulm     ef a                                                - _4                  94          _
C        _m hinp                        1937100               19         45         l44          _ 
FoS                                                           _          _         147           _          _           _
SOAL 1ND1CATORS
-P'bri - UUa       am buic asci ysov    %oefD?                 .          -           -          -                       -
Pliwmy                     ~~~%acDmulappep          74          79         97          95         us          1ao
malt                                                         74         94         109        106         122          OS
Fun.                                                         57         62          33         32         106          93
bibmmncofy                           *M.. liv               in         13           go         92          70         -40
U        l                          '    _                                         124        123          93          53
Minim                       ~~~~~~~~%Sp UUp         -                      6          37         73         -70
OFF -r                                                        -          -          79        7n           31          74
Cblld ualn.uiou (Uodlr6S)                                      -                     49          -           -           -
To.                                                           7 -       532         60         59          63       ,67
3m_mMa                                    Wia               0.97       0.91       1.0         LOI         W95        LOS
TataIhz1ily me                       biimpwwan.              62          5.3                    4.2         3.7        3.
Ma.ual iuinmliiy r         100.000 five bkUu          .                                             - 



RESOURCES AND EX DIrURES
l~ Ni
Mew Sorgsmaim   Lamvp '.
I~~~~~~~~~~~~~~~~~2%                                   1-M        MM,                 f_A _,
mw                                  O.u~~a"am (wj)  Adaf    lucama    gras
UNRESOURCES
Psp~uU.m(a._sw.m991)           milU               437         633        16        1.1         312          774
Adaudrynlio o                             ugh               .73        0.77       0.70       0.73        066        0.71
tIb.n                                                       11.is      213        27.0       260         40.1       S9
Fqmliiaul  ewU sue                     Numu'A              2.3        2.3        2.0         2.1         L9         L7
1  '             312        17          2.0        23          5.2        3.1
L.besr*u 5).                                                207        243        329         420       1.3          36
Am, ioou                             %eAIkbfxmw              73         71          -           _          _
lamoy-1 '2                                                         13
FJ                                         -                 31         23         25          22         33          32
F_1per 100 ih
m                                                            -uU -w                            -             _ 
RXi                                       a                  -         94           _          _           _          _
NTMLRESDURCS:e
Arma                                  *XNL2- km           33          3,3        327        5.M33      33.2       23.990
POP,p=   r           143l0      1170       233        2130         77A0       31
ApimIIuamind                                 u % IUa       59.6       60          a"9         3          47.4       4*13
a,.ruiuaoa k i D  1Il-mud                    U;              3          0.5        0I         0Q0          .0        lOA
Ap1w1h_l   umde.ioigghui                                   15.0        I36        232        262         13W7       126
F-.r     wowaad                         m.sq.kn             612        656        67          tW        9,197      5.396
Debsuihm(jzL)                           1nl%                03          02   _      _2 _
INOOM  -
aS ui(?20%  %ui3af    k              %ef_ n                 49         49
SmsdhaUn40%X dl_ dI                                                17  36                                  _ 
Bmofbcm620%o1bovKbAb                                         7          6           -          -     _       _
Food                        ~~%afGDP                _        43 S       353        362__
stq"~~'                                                    2DAi        12.4___
M40     MilLdo" dweg                                                    ' _ 65    7.4
Cua 1..                             flrLMoDek  cmm        7.669                   447       5,.96      34LaaW     44.41
5                 -       Sz_13        436       2.403  C    .669       4.047
--lFiaz                               UWI'979-33-100         90        101         its        113         322        101
kWIm               5.0       21.0       50          57.3       47.         942
Sbs pribimsinGP %GDP                   %e2DP               40S6        36.6       2          2           23T7 
%ofdM                           4.4        7.1          _           _
AwnpbmmbaMsua                     pemsze  jhU~              _.  5                  _           _
fiindsiow eia  mog                     %catDP                           2 23       2.3                   -      -
FsdmuApou                              %ctGDP                 _         14         23           _             -        _
E      ,.Vrm ma,u^apw ta              kgEoil quiv.         1300        131        231         207        350        1.249
Udm.                                %doudmi&                 .          _          -           -                      _
Tuuupwt and cule      _n               %S<iDP                 -         4.7        51           _          _ 
Fixed i md    rpi-                                                     1A.4       23           _          _
Taslmdaslu  h                               km                -       1.215         -           _            
Ur*vFZrMAEMT RI4 EUKAM CAPrrAL
Awtmahecat %as                                                _          _          _           _
pqu1imer*pB ph                                            4330        4,900      2.479      2.459    _
p    pa_mlinpaU                            '              60         3.710          _           _          _           _
i"aoisplbp_wl                                                 -       1.700      1,37       1.64        1.043        506
Ammlosa&w3'                                 .                         31D         73.0       70.3        70.6
11AMo s                                                               110.0      32.0       763         793
Rust _                                    -                           Il.0       69.0       669         621 
atrubyd,satiasth/(u.is.S)    ~ ~ dn% f                        -          -         13          Is         32
S.oondmy                           %asmdappap.               27         26         44          39         44    %
Fu'n                                                        13         16         33          31         37           -
P3_dwj.oo; p=a7q                     paplbpgwnhw             42         42         61          59         39         25
aPa4eSdMi&WaiWa8swUdwy                                      22          11         23         23          20          _
Papilmtagpsd 4                                                -         51          _     -                -
Rlpct rnlps u                        %o auwll                20         17          4          4
lkury                              %opap. (sr(a 15+)                               5 _  2     54          39           _
Farnie                            %det(a.154F)               -          _         66         63          52
Ncwspsoa_drs'ial _b  pNIOrI pAp.                             13         15          _           _          _           _
Saouwa Wo   Bunmtau                Dumi. Apni 1993



- xvi -
EXECUTIVE SUMMARY
In July 1991, a new government started to liberalze India's economy with a reform
program focused on the investment regime, trade policies, the financial sector, taxation, and
public enterprises. The reforms' major objectives were to reduce the capital intensity of India's
growth process, lessen its reliance on the u tle expansion of the public sector, and thus
translate the country's relatively high investment rate into high and sustainable growth of output
and employment. Compounding the difficulties inherent in any liberalization process, the
government also faced serious fiscal and extenal imbalances which Lad generated double-digit
inlation and put the country on the verge of defaulting on its external debt obligations.
Over the last three years, notwitandg a sharp increase of the fiscal deficit in 1993-
94, the government has made considerable progress m stabiiing the economy. It has been
remarkably successful at improving Ihe country's current and capital extnal accounts. And it
has introduced sructural reforms which have significantly liberalized the economy. Carried to
their logical conclusion, these reforms could enable India to grow at the rates experienced by
its successful East Asianneighbors. Transforming this possibility into reality requires intensified
efforts to senghen public finances, miprove infrtuct, and enable private investment to
flow into key areas of the economy. In tur, this entails broadenmg the process of reform,
which has thus far been domnated by a few central ministries (Finance, Commerce, Ihdustry),
to sectoral ministries, public enterprises, and state govements. In this context, intensified
efforts at strengiening social safety nets are also needed.
T7he Economy's Reponse
The response of the economy to the stbition and reform measures implementd since
July 1991 has been generally positive, but macroeconomic stresses brought about by the reform
program pose new challenges for policy. Growth recovered fom 2 percent m 1991-92 to
around 4 percent in the last two years. Idustial production and investment have been slower
to recover from the deflationary effects of the initial stabilizadon measures. After declining to
negative 2 percent in 1991-92, manuficturing growth recovered to a modest 2 percent in 1992-93
and 1993-94. Whie this deceleration is modest compared to that experienced in other countries'
stabilization and reform experiences, the authorities have been justifiably concerned by declning
investment rates. The improvement in India's external accounts, both current and capital, has
exceeded the most optimistic forecasts. With exports rising by 20 percent in 1993-94, modest
growth of imports (pardy the result of slow growth in manufacturing), and an improvement in
the service account, the current account deficit declined to US$0.8 billion in 1993-94 (0.3
percent of GDP), from US$10 billion in 1990-91 (3.5 percent of GDP). At US$4.7 billion,
foreign invesment (largely portfolio investment) surged to unprecedentedly high levels. As a
rsult, reserves increased fom about US$1 billion in June 1991 to US$15 billion by end-March
1994. The monetization of reserves, however, has led to a sharp expasion in base money-25
percent in March 1994 in relation to March 1993. Together with significant increases in
administred prices, this has contributed to inflation. After declining from a peak of 17 percent



- xvii-
in August 1991 to around 7 percent in mid-1993, inflation has increased again, exceeding 10
percent in early April 1994.
Stabiizng the Economy
In July 1991, the government's highest short-term priority was to stabilize the economy
through expenditure switching and contraction of aggregate demand. The rupee was devalued
in July 1991, and floated in March 1992. It fell from Rs 211US$ in June 1991 to Rs 311US$
in March 1992, and has remained at about this level since then. Mostly though expenditure
cuts (on subsidies, defense, capital expenditre, and loans to states and public enterprises), the
cental govermment fiscal deficit was reduced from 8.4 percent of GDP in 1990-91, to 5.7
percent of GDP in 1992-93. Base money growth was maintained at 11-13 percent per year
against a nominal GDP growth of 15-16 percent. Much of this progress was lost in 1993-94.
The fiscal deficit escalated to an estimated 7.3 percent of GDP, against a target of 4.7 percent
of GDP, as a result of both revenue shortfalls (40 percent of the deviation) and expenditure
overruns (60 percent). Base money growth rose to 25 percent basically as a consequence of the
monetization of capital inflows which were particularly strong in the first few months of 1994.
To contain the inflationary impact of this increase in liquidity, the RBI increased in May 1994
reserve requirments by 1 perentage poin, but the build-up of pmary liquidity is likely to
contine putting pressure on prices in the near fuure.
About 1 of the 2.6 percentage points of GDP fiscal deviation in 1993-94 is estimated to
be the result of tax revenue shortfalls resting from a weak economic recovery. The remaiing
1.6 percentage points are accounted for by expenditure overruns, mostly on subsidies (0.5
percent of GDP), defense (0.3), loans to sates (0.3), and public enteprises (0.1). The deviation
in 1993-94 notwithstnding, total non-interest expenditure has fallen significantly, from 15.8
percent of GDP in 1990-91 to 13.3 percent of GDP in 1993-94. In addition, the 1993-94 fiscal
outcome accommodates the considerable fiscal cost of the strucural reform program underway
such as forgone revenues because of lower tariffs, higher iterest payments on the government
debt because of the liberalization of interest rates, and rerenchment costs associated with public
entrprise reform. In relation to 1992-93, these costs amount to 0.8 percent of GDP.
However, the worsened 1993-94 fiscal performance could undermine the credibility of
the fiscal adjustment process, unless fuure fiscal performance shows it to have been an
aberration. At 66 percent of GDP by end 1993-94, the central govermnent debt (90 percent of
the consolidated central and state governments debt) is relatively high. Interest payments already
claim over half of central govermnent fiscal revenues. The financial sector reforms underway
and the reduction in central government recourse to RBI credit over the next few years will
furer increase interest rates on the government debt and compound the problem. Taking into
account these higher real interest rates, stabilizing the central government debt in relation to
GDP at its March 1994 level-a mmimum objective for sound public finances-requr  the
primary deficit to be reduced by 1-2 percent of GDP beyond what is envisaged for 1994-95.
Unless the 1994-95 fiscal deficit target of 6 percent of GDP is met (a difficult objective since
the 1994-95 fiscal deficit target is based on the assumption of a recovery), and decisive steps are
taken to reduce it fiuther in 1995-96, the cental govenment fiscal deficit could endanger India's



- XViii -
economic prospects. Strong iInprovement in the finances of the cental government need to be
accompanied by improvement in the finances of public enterprises and the states. Over the last
few years, the states' deficit has remained at around 3 percent of GDP at the cost of expenditure
cuts. This has accentuated a trend started in the mid-1980s. Since then, the deterioration of the
states' finances has affected the provision of key social and economic services.
The 1994-95 Budget
The 1994-95 Budget presented to Parliament on Febuary 28, 1994 is this government's
fourth. While contimning the process of stuctral reform in several key areas, in particular
taxation, its major objective is to reactivate investment. First, to lower the user cost of capital,
the government has: (i) reduced tariffs on capital goods imports (as part of a new round of tariff
cuts); (ii) reduced the minimulm lending rate by one percentage point; (ini) allowed firms to take
credit for excises paid on purchases of equipmenLt, as part of a major reform of excises; and (iv)
unified and reduced the tax on corporate income to 46 percent, from 52 percent for "widely
held" companies and 58 percent for other companies. Second the Government indicated that
barriers to private sector entry in areas still reserved for public sector investment
(telecommunicatons, hydrocarbons, coal) would be reduced further. The government also
announced it would consider the recommendations of an expert committee to liberalize the
insurance industry, currently a public sector monopoly- The fiscal deficit taret for 1994-95 is
set at 6 percent of GDP, to be achieved entirely by a reducdon of expenditure m   relation to
GDP. Non-interest expenditure is projected to decline from 13.3 percent of GDP in 1993-94
to 117 percent of GDP in 1994-95 (i.e. about 4 percent of GDP in relation to 1990-91). The
decline in expenditure notvithstandig, the Budget has icreased by over 50 percent the
allocation for rural emloment and related uroms (which now account for 0.5 percent of
GDP) for areas with the highest incidence of poverty-the large volume of resources now
allocated to these programs makes it improving their cost effectiveness more urgent than ever
before. On the revenue side, a reactivation of the economy together with improvements in tax
policies which have made it possible to improve tax admiistration are expected to offset the
decline in rates of customs, income taxes and excises and so maintain revenue constant as a
percentage of GDP in relation to 1993-94. While the 1994-95 target is modest compared with
the 4.7 percent of GDP target for 1993-94, and implies only partial correction of the fiscal
overrun in that year, its achievement may require additional and timely expenditure and revenue
measures as the year unfolds (para 9). Finally, in presenting the budget, the government also
announced its intention to phase out the monetization of the fiscal deficit over a period of three
years.
The Govermment fully recognizes the necessity of t he     central government
finances. As indicated in the Ministry of Finance's most recent Economic Survey (February
1994) "it is vital to reassert control over the fiscal situation to curb inflation, reduce interest
rates, release resources for productve investment and sustan  confidence in the economy."
However, two considerations have led the government to limit the extent of fiscal deficit
reducton in 1994-95 and set a fiscal deficit target higher than that in the previous fiscal year.
Fs the cental government's discretion on controlimg its expenditue is increasingly limited
in the short run. Of total expenditure budgeted for 1994-95, 79 percent is accounted for by



- xix-
interest payments (31 percent), defense (15 percent), wages (10 percent) and grants and loans
to the states (most of which are mandated by the Constitution, 23 percent). On the revenue side,
the radical tax reforms being introduced, including significant tariff reductions, render it difficult
to increa  tax revenues beyond what is anticipated in the budget. Second, as indicated in the
Minister of Finance's Budget Speech, the goverment takes the view that the short-term
macroeconomic consequences of the fiscal slippage and of the partial correction envisaged for
1994-95 are unlikely to be severe and that a strnger recovery is needed to prevent a firther
deterioradon of public finances. In 1993-94, the current account deficit of the balance of
payments declined to 0.3 percent of GDP. At US$15 billion, reserves are at their highest level
ever. Significant capacity underudlizadon is widespread in manufactuing. A significant part
of inflation has been caused, on the supply side, by increases in administered prices and
agricultural prices catching up with their intnational equivalents and, on the demand side, by
the expansion in monetary aggregates resulting from the surge in capital inflows. The
goverment has ths given priority to stimulating investment through the introducdon of key
stucural reforms with the expectaton dtat with more income-elastic sources of taxaton now
in place, a recovery of growth would improve tax collections, and thus increases in tax revenues
would play a larger role in fiscal consolidation in the future. It should be clearly recognized,
however, that continued high fiscal deficits pose the most senous single threat to the attinment
of India's medium-term development objectives.
A key question about the 1994-95 budget is whether it will be successful in stimwlating
private investment While the budget has reduced the user cost of capital, what is holding
private investment back may not be so much high user cost of capital, as the significant idle
capacity in sectors where private investment can now most easily flow in (e.g., manufacturing);
meanwhile in sectors where there is an urgent need to expand capacity, a policy and insttional
framework supportve of private investment is not yet in place, and barriers to entry have not
yet been entirely removed. To reach its reactivation objectives, it is us urgent that the 1994-95
Budget be supported by cnnued sector-level refonrs addressing remaning policy cmstrain
deterring pnvate investment in key sectors of the economy. Even if these measures are
implemented rapidly, however, the recovery of the economy may take longer than anticipated
by the government and cause tax revenues to be below the levels projected in the Budget. In
addition, experiences from other counties suggest that the short-term revemne effect of a major
tax refoun such as the one introduced in the last budget is extremely difficult to predict; the
uncetinty associated to the tax projections in the Budget is consewquently greater than normal.
Thus, in the course of the current fiscal year, additional resource mobiztion measures (such
as acceleration of disinvestment) or furer expendiure cuts may become necessary to ensure
that the 1994-95 fiscal deficit target is met and inflationary expectations are dampened.
Refonning the Economy
The program of reforms has been carefully prepared. Since July 1991, the government
has appointed several high level committees of experts to formulate reform proposals in the
different reform areas, which it has generally accepted.  The commies' reports and
government policy papers have been made public and amply discussed with academics,
industialists, and unions. This approach has helped the government build consensus around the



- xx -
economic program, anticipate public reactions to reform measures, and avoid the reversals that
have sometimes derailed adjustment programs elsewhere m the world. Equally important, it also
enabled the govermnent to avoid errors in the sequencing of reforms. The liberalization of
product markets (through the dismantling of licensing which regulated investment and trade)
preceded the lhberaliztion of factor markets (achieved pardy through the liberalization of
finanial markets). A shar devaluation (in July 1991) preceded the liffing of quantitative
restrictions on imports of intermediates and capital goods which had in turn preceded reduction
in taiffs. In reforming the financial sector, the government has been aware of the need to
improve prudential regulation and banking supervision ahead of recapitalization of banks to
reduce the likelihood of further decapitization in the future. The deregulation of interest rates
has been introduced in steps that have avoided the problems that sudden financia decompression
has created in many Latin American counties. In short, while several more years will be
necessary to complete the process which has strted in July 1991, and difficult reforms are yet
to be intoduced, the skil with which reforms have been introduced thus far has few parallels
elsewhere and enhances the credibility of the reform process. Part of the government's success
in artculating and implemenig a coherent mix and sequencing of reforms stems, however,
from the fact that the process has thus far been driven by a few cental ministries (Finance,
Commerce, Industry) and the RBI. The fulll potential benefits of India's reform program will
only materialize if the process is extended to sectoral ministries, public enterprises, and state
governments-where the sheer number of players will make achievng consensus and coordinatng
policy reforms a muc-h more arduous task.
Liberalzeon of the lIvestnent Regbme.  Sectors previously reserved for publc
investment such as power, telecommunications, mining, ports, roads, river transport, air
transport, and banking are now open to private investors. In areas not previously reserved for
public investment (such as manufacuring) the government has also dismantled the previous
investment licensing regime. Similar measures have been. taken regarding foreign investment,
which has risen from less ftan US$200 million a year in the early 1990s to US$600 million in
1992-93, and to US$4.7 billion in 1993-94. However, sector level i ents to private
investment remain
Liberalization of the Trade Regine. Licensing requiemens on imports of intermediates
and capital goods have been elimiated. Several rounds of tariff cuts have reduced maxmum
tariffs from 400 percent in 1990-91 to 65 percent at present, and the import-weighted average
tariff from 87 percent to 33 percent. The goverrment has also indicated that over the next few
years remaining licensing resticdons on imports (of consumer goods) would be eliminated. As
a preliminary step, the most recent Export-Import Policy (April 1994) modestly expanded the
scope of a special license scheme for imports of consumer goods. However, restrictions on
consumer goods imports remain pervasive and a bolder approach is warranted to eliminate them.
Regarding ariffs, the government indicated that maximum tariffs would be reduced fiurter over
the next two years, to 30 percent on intermediates and 20 percent on other goods. Finally, the
government has hlberalized the foreign exchange market. The rupee was floated in March 1992
and near full current account convertibility established in March 1994.



- xX1 -
Refonr of the Financial Sector. With a financial savings rate over 13 percent of GDP
in 1990-91, India has been successful at developing a large financial sector, and one of the
largest capital markets in the developing world. However, India's financial system has been
weakened by inadequate incentives for allocating finacial resources efficiently, heavy regulation
of returns on financial assets, and restrictions on competition.
Over the last three years, the government has taken a number of measures which have
liberalized the financial sector and strengthened its institutions. First, financial institutions'
discretion over portfolio composition has increased and incentives for efficient use of funds
improved. Commercial banks' forced holdings of government debt have been reduced,
subsidized credit to pnriqo sectors has been rationalized and its cost to the financial system
reduced though an increase in rates; and controls over banks' lending decisions have been
relaxed. In April 1992, the RBI issued new prudential guidelines for income recognition, asset
classification, and provisioning requirements, and adopted the Basle Accrd capital adequacy
standards, to be reached by all Indian banks by March 1996. Bank supervision is being
strengthened. The new more exacting prudential stadards have forced the banks to increase
their provisions and show losses in 1992-93 fcr the first time in recent history. They also made
ft evident that commercial banks, the public banks in particular (which account for 94 percent
of banks' assets), needed to strengthen their capital base.
Second, interest rates controls have been relaxed and restrictions on firms' access to
capital markets removed. While a mininum lending rate and a maximum deposit rate remain,
interest rates in areas such as certificates of deposits, debentures, commercial paper and most
goverment securities are now market determined. The development of government securities
markets has been accelerated with the Government decision to phase out the monetization of the
fiscal deficit and the May 1994 RBI decision to establish a system of primary dealers. Since
September 1992, foreign institutional investors have been allowed to invest in all non-
government securities traded in India's primary and secondary markets, including debentures and
shares of private and public enterprises-up to 24 percent of issued share capital in any one
company. The tax rate on capital gains is 30 percent on gains reaized before one year, and 10
percent thereafter.
Third, public banks are being made more autonomous and their capital base is being
strengthened both through direct budgetary support and changes in legislation enabling them to
mobilize resources from the market. For example, the State Bank of India, which accounts for
one-third of public banks deposits has already raised US$700 million of fresh capital in
December 1993. Comvetition is increasing; nine new banks (tbree foreign) have been authorized
to set up operations (at present there are only 46 private banks, of which 23 are foreign).
Reforning the Tax System. At 16-17 percent of GDP for central and state governments
combined, and although it needs to be increased, India's tax effort is relatively highp Five taxes
account for 95 percent of total tax collections: customs, excises, sales taxes, and taxes on
corporate and personal income. The sales tax is administered by the states, but all others are
administered by the central govermnent. All these taxes suffered from the common problem of
high and higbly differentiated tx rates falling on a narrow base. For example, until the last



- xii -
budget, collection of excises was based on high and highly differentiated rates on maufacturing
products, numerous specific rates, very partial rebating of excises paid on inputs, and collections
based not on invoices, but on a notional price negotiated with the central goverment. Together
with several hundred exemptions, this opaque and higbly differentiated system complicated tax
administration, and encouraged litigation.
In addition, shanng of revenues with the states from the personal income tax (85 percent
of revenues), and excises (45 percent), has led to serious allocative inefficiencies. It has not
elicited responsible expenditure behavior on the part of the states because their expenditure
decisions did not have to be accompanied by resource mobilization efforts. It has led the cental
government to concentate on taxes which are not shared with the states, which also are those
with high efficiency costs. Revenmes from the corporate income tax (not shared with the states)
have doubled in relatLon to non-agricultural GDP over the last four decades, while revenues from
the tax on personal income (shared with the states) declined by about half. In relation to GDP,
revenues from tariffs on imports (not shared with the states) more than doubled between the
early 1970s and the late 1980s.
Based on the January 1993 recommendations of a high level Tax Reform Committee, the
govermnent has formulated and began implementng a comprehensive tax reforn progam to
rationalize the tax system, which has been accelerated in the last Budget. Since July 1991, there
have been dramatic reductions of tariffs. Significant furte cuts were introduced in the last
Budget which also sought to rationalize (by bringing triffs on inputs below those on outputs)
the tariff structure for major groups of goods (in particular capital goods; metals and metal
products; and petrochemicals); and eliminate about 350 of the existing 500 exemptions. The
1994-95 Budget has also reduced taxes on corporate income and implemented a major and
comprehensive reform of excises. As a major step towards a value-added tax, the government
has extended the coverage of MODVAT (a "modified" version of a value-added tax) to include
manufactring sectors thus far excluded and, for the first tme, some services. Of particular
importance also are the decisions to shift most excise rates from specific to ad-valorem to
increase buoyancy, reduce the number of rates, reduce the number of exemptions by about half,
and simplify the administation of the system by relying on invoices for value 3termintion.
These reforms have considerably simplified and modernized India's tax system and make it
possible for the central government now to focus its efforts on improving tax administrion and
enfornement-which will need to be the next priority. However, sharing of tax revemnes with
the states and the inefficiencies associated with the states' sales taxes are serious problems
remainig to be addressed. Unless the states also undertake a comprehensive reform of their
tax systems with a view to broadening the tax base and increasing revenues, their financi
difficulties are likely to persist.
Reforn of Public Enterpfises. India's public entewrises (PEs) manage 55 percent of the
economy's captal stock (excluding households') and generate one-fourth of the country's non-
agricultmral GDP. In July 1991 the central government announced a three-pronged strategy to
improve PEs' weak finances and economic performance consisting of: (i) elimintng PEs'
privileges such as protection from extn  and domestic competiton, and preerential access to
the budget and bank resources (through forced holding of government debt); (ii) restrxturng



- xxiii-
potentially viable PEs, liquidating the others, and establishing a safety net program to cushion
the social cost; and (iii) providing PEs greater autonomy and the mandate to become profit-
oriented. Although small blocks of shares were sold to the public to mobilize fiscal resources,
privatization was not part of the strategy to reform PEs.
While there have been improvements in the performance of some PEs, this approach, on
the whole, has not been successful. Partly because of the strength of labor unions, and
reflecting the perceived generally weak political support for PE reform, PEs' managers have not
been given the authority to intoduce necessary restructuring measures such as large scale
retrenchment, corporate reorganization, closure or selling of units, orjoint-ventures with private
investors. These actions have had to be approved one-by-one at the highest political level in a
time-consuming and often inconclusive process. In a large number of cases, large scale
disinvestment would appear to be the fastest and surest way to transform India's public
enterprises into profitable and financially sound commercial concerns. It would also help reduce
the fiscal deficit. However, the government has not yet accepted the recommendations of the
Rangarajan Committee (disinvesting up to 49 percent of equity for PEs in areas still reserved
for public investment and over 74 percent in the others).
It is essential that the government accelerate the pace of PE reform. Where restructuring
exercises mulst precede large scale disinvestment, Pes' managers need to be given the authority
to mobilize the resources necessary for financial restmctunng, undertake large scale
retrenchment, and associate interested private parties where possible. In April 1994, the
government decided to set up an "empowered" committee under the chairmanship of the Minister
of Finance to identify the most pressing cases for restructuring of chronically loss-making PEs
to which the limited budget resources available for this purpose should be applied, and to
accelerate closure of the remaimng chronically loss-making PEs. This welcome decision needs
to be extended to all PEs in need of restructuring or accelerated disinvestment. Unless such a
pragmatic approach is adopted quickly, the financial position of public enterprises will
deteriorate as domestic and external competition increases, and this will ultimately put pressure
on the budget. Because they are so important in the economy, any delay in improving the
performance of PEs will also seriously hamper the prospects of a recovery.
Short- and Medium-Term Policy Issues
The authorities have been remarkably successful at engineering a thorough transformation
of India's economic policies without the dismptions which have typically accompanied such
experiences elsewhere in the world. The process is obviously far from complete. The fiscal
deviation in 1993-94 has raised considerable concern about the extent and future path of the
fiscal adjustment process. Accordingly, there is a clear need for articulating a credible medium-
term fiscal adjustment path. In addition, remaining licensing restrictions on consumer goods
imports need to be eliminated and tariffs reduced further. Successful completion of fmnancial
sector reforms will require additional steps to increase the public banks' autonomy and
profitability, and the rehabilitation of the rural credit delivery system. Now that central
govermnent tax policies have been inproved, there is a need to strengthen tax administration and
enforcement. Tax reforms need to be extended to the states and the system of intergovermmental



- xxiv -
transfers needs to be reviewed. The restructuring-cum-disinvestment of public enterprises needs
to be accelerated. In the short term, however, in addition to restoring the credibility of the
1994-95 fiscal target, the major problem facing the authorties is how to maintain the dynamism
of an economy which has been historically driven by a fiscally unsustinable expansion of the
public sector.
To address this problem, the full implementation of the reform program needs to be
complemented by (i) an increase in public savings enabling the public sector deficit to decline
while expanding public investment in areas where it complements the private sector; (ii) as
recommended in the February 1993-94 Economic Survey, a reevaluation of all ongoing or
planned public investment projects to ensure that they are economically viable, are directed
towards the most urgent investment priorities, and camot be undertaken by the private sector;
(iii) the establishment of sector-level institutional and policy frameworks conducive to pnvate
investnent in the context of an overall incentive regine leading to efficient allocation and
utzion of resources; and (iv) measures to offset the impact of capital inflows on the
competitiveness of the real exchange rate to ensure the continued expansion of exports.
Restoring the Public Sector Capacity to Invest With investments at about 10 percent
of GDP in recent years, India's public sector has had a major role in allocating the country's
savings (22-24 percent of GDP). Public enterprises are responsible for three-fourths of public
investment, and the central and state governments for the remaining one-fourth. At around 2
percent of GDP, however, public savings have been insufficient to sustain such investment
levels. They reflect several adverse fiscal developments which became particularly severe
during the 1980s: high and growing current spending; low profits of PEs; and inadequate cost
recovery, particularly at the state level. The Eighth Plan document indicates that cost recovery
rates for economic and social services provided by the states have been declining steadily and
that the resulting fiscal drain amounts to several percentage points of GDP.
Improved public savings performance by the central government, public enterprises and
states is key to the success of India's economic program. It would not only help reduce fiscal
imbalances, but also help reverse the anti-investment bias of fiscal adjustment and thus the
declining trend in growth of public investment that started in 1991-92-a reversal that needs to
be accompanied by an improvement in the quality of public expenditre. For the central
govermnent, this implies mobilizing resources through a reduction in wasteful expenditure,
including poorly targeted subsidies, and better tax adminstration. Reducing public enterprises'
claims on the economy's savings requires accelerating their restructuring and disinvestment.
Improving public savings at the level of the states requires improved tax systems and cost
recovery. In addition, it may be necessary to establish a system of introvmental tansfers
which at the same time provides resources to the poorest states to accelerate their development,
and provides to poor and rich states alike incentives to mobilize and use fiscal resources
efficiently. Concerns about interstate "equity" may need to be replaced by a more pragmatic
focus on India's poorest states, while increasing the financial autonomy of the richer states where
there is a scope for increasing taxation, and mobilizing resources from domestic capital markets.
The current practice whereby the cental govemment plays the role of a development banker by
providing loans for states' infstucre projects may need to be reviewed.  Unlike a



- xxv -
development banker, the central government does not associate conditions to its lending to ensure
that projects it finances are undertaken within a fmancially sustainable framework. Existing
financial intermediaries could take over this development bank function and gradually become
responsible for financing infrastructure projects at the state level.
Priorifation of Public Expenditure. While the objective of the reforms underway is
to increase the role of private investment in the economy, public sector investment will remain
important when directed to productive projects that complement and stimulate private investment.
Enring this requires careful reexamination of ongoing expenditure programs. Valuable
expenditure programs such as road construction or rehabilitation of irrigation systems are
underfunded at present while programs that could be undertaken by the private sector, or
programs with negligible economic or social returns to the economy, continue. To address this
issue, the Eighth Plan document has recommended independent "zero-based" evaluations of
existing government agencies to eliminate those that are redundant, have outlined their
usefulness, or have tumed out ineffective in practice. The 1993-94 Economic Survey of the
Ministry of Finance has extended this recommendation to all expenditure pmgrams. This
extremely important recommendation should be implemented as soon as possible.
hIcreaing Private Investnent Declining private investment has been a frequent
response to stabilization and reform experiences elsewhere in the world; a natural pause follows
major changes in the incentive regime as old projects are reassessed and new projects are
formulated. HIowever, stuctural weaknesses inherited from the previous policy regime may
delay private investment recovery, and need to be addressed. Private investment in India has
historically been concentated in agriculture and manufacuring.  Private investment in
agriculture has been declining since the early 1980s as a result of (i) a policy framework which
fragments India's domestic agricultual markets and restricts private investment in wholesale
trade, storage and agro-processing; (ii) declines in public investment, which has been historically
important in stmulating private investment in agriculture; and (iii) implicit taxation of
agrculture through a mnmber of crude policy instruments such as external trade restrictions and
domestic price interventions. In manufacuring, large umtilized capacity may discourage new
investment in the short run.
Opening new sectors of the economy has not yet led to a surge of private invesunent.
In cases such as mining, the opening is too recent (February 1994). In the case of
telecommunications, the National Telecom Policy of May 13, 1994 represents a radical change
in that it aims at ending the monopoly of the Department of Telecmmunications (DOT) in the
provision of basic telecommunications services. But again in this case, the change is too recent
and it will take some time before the change in policy is implem     and translated into a
regulatory framework conducive to private investment in this sector. In other sectors,
particularly those related to infastracture, the sector level policy and instiutional frameworks
are not yet sufficiently supportive of private investment. In power, private investment has been
detered by low tariffs and uncetauity over fuure financial returns-indicative of the magniude
of the problem, the financial losses of state-owned electricity companies have been at amund
1.2-1.4 percent of GDP over the last few years. In woads, an institutional framework enabling
the private sector to acquire land and collect tolls is not yet in place. In urban areas where there



- xxvi -
is an urgent need to invest in infrastructure, existing institutional arrangements effectively
exclude private investnent. In hydrocarbons, in spite of several rounds of offering since June
1991 of offshore and onshore areas for exploration, few contracts have been signed.
The response of private investment to the liberalized policy framework will depend on
the speed with which appropriate sector-level policy and institutional frameworks are established
and complementary public investment is increased. In the short run, the recovery of private
investment requires decisive steps to provide a policy and regulatory framework conducive to
private investment in such sectors as telecommunications and hydrocarbons, where there is an
urgent need to expand capacity and strong private sector interest. In these sectors, private
investment could reach several points of GDP in a relatively short period of time, and contribute
to a rapid and sustainable recovery. There is also a need to improve the investment climate in
agriculture and agro-business. Private investment in agriculture has historically accounted for
as much as 15 percent of total private investment, and its revival could also contribute to a
sustainable recovery. In the medium term, the expansion of private investment will require
addressing fundamental issues such as de facto barriers to entry in sectors now open to private
investment such as power, urban infrastructure and roads; insufficient public investment in
infrastrucure; and the size of the public sector deficit (central government, states, and public
enterprises). Unless the public scrtor deficit is reduced significantly, India will remain
vulnerable to macroeconomic instability and high real interest rates, and private investment will
suffer.
Managing Capital Inflows. In response to the partial opening of the capital account in
1992 foreign investment increased to US$4.7 billion in 1993-94. Of this, only about US$0.6
billion consists of direct investment; about US$1.6 billion consists of investment in equity shares
by foreign institutional investors permitted to enter India's capital markets by a policy change
made in September 1992; and about US$2.5 billion consists of overseas issues of equity shares
(US$1.5 billion) and debentures (US$1 billion). The debentures are convertible, and carry
interest rates of about 3-4 percent. In theory, large capital inflows should enable India to
increase its investment rate, thus expanding the country's production base and increasing its
growth rate. In practice, these large inflows are not an unmitigated blessing. They pose
complex choices to the authorities, and threaten the competitiveness of the real exchange rate,
maintenance of which is essential for India to continue expanding its export base (from which
the capital inflows will be serviced) and to reap the full benefits of the reform program the
country has been implementing since July 1991.
As indicated in a recent IMF paper (S. Schadler et al., Recent Expeences with Sres
in Capital Inflows, IMF. December 1993), in the face of large and persisent inflows, a
tightening of fiscal policy can help contain inflation and avoid a real appreciation of the
exchange rate. However, fiscal adjustment has not figured significantly as a response in most
countries that have recently experienced a surge in capital inlows. Although fial positions
generally improved following the surge in inflows, this was less a response to the iMnlows han
a continuation of the fiscal consolidation that in part attacted the inflows in the first place.
Fiscal consolidation has nonetheless helped prevent a real exchange rate appreciation.



- xxvii-
In India, capital inflows have surged at a time when not only the fiscal deficit is still
relatively high, but also, reflecting low domestic investment, the current account of the balance
of payments is virtually in balance. Capital inflows have thus placed the nominal exchange rate
under pressure to appreciate. The RBI has thus far held the exchange rate constant in nominal
terms by purchasing all the excess supply of foreign exchange at that rate. This has caused rapid
reserve accumulation and expansion of base money, which has created inflationary pressure and
has meant a real appreciation of the rupee-which would be detrimental to continued strong
export performance. This highlights that seeldng to maintain a competitive real exchange rate
by merely targeting the nominal exchange rate could be an elusive goal in the presence of
condtied strong capital inflows.
In essence, widening the current account deficit of the balance of payments or
accumulating foreign exchange reserves are the two avenues trough which India could respond
to capital inflows. Whether the current account is widened through a reduction in domestic
savings (i.e. an increase in domestic consumption) or through an increase in domestic
investment, however, is of critical importance for the long run growth of the economy and its
future capacity to service the inflows. Typically, countres that entered a capital imflow episode
close to full capacity utlization and rapidly growing investment, have been able to translate
capitl inflows into higher investment and higher growth, with no appreciation of the real
exchange rate. In counties where capacity utilization was low and investment sluggish, the
widening of the current account deficit has been accompanied by increased domestic
consumption, exchange rate appreciation, and an erosion of the export base. Accumulation of
foreign exchange reserves can be costly. As lighlghted above, unless the monetization of the
inflows is sterlized, there is a loss of control over the money base, inflation and appreciation
of the real exchange rate. Sterilized intervention, however, implies rising domestic real interest
rates and can be the source of large losses to the central bank.
The challenge to the Indian authories is to formulate a policy response which protects
the competitiveness of the real exchange rate and translates the umtxpected surge in capital
inflows into higher investment. In the meium and long-term, as the fiscal deficit is reduced,
and real interest rates decline, economy-wide reforms will enable mvestment to recover. The
problem should then become more manageable-the current account deficit should widen and,
with the reduction in the fiscal deficit, the sterilization capacity of the RBI will also increase.
In the more immediate future, however, consistent with the lessons of experiences from other
countries, it could be costly to seek to absorb large volumes of potenally volatile capital inflows
not associated with investments while the fiscal deficit is still at a relatively high level, import
restrictions rmain significant, and the banking system is being restuctured. Under these
ciumstnces, the most prudent policy course would be to utilize market-based instruments to
slow capital inflows to a level that the economy can absorb without  mining macroeconomic
stability and external confidence. Guidelins were introduced in May 1994 restricting issues of
equity abroad to one per year per firm for firms with investment plans sufficient to absorb the
financil resources mobilized abroad. This step should help reduce the volume of capital iflows
and the pace of foreign exchange reserve accumulaton, but further actions may become
necessary. In the medium to long-term, the absorptive capacity for capital inflows will be



- xxviii -
determmed by the magnitude and quaity of fiscal adjustment, and the pace of strcnual reforms,
which in turn will impact on the speed of recovery of investment and the rate of growth.
Externa Financing Requirements
The remarkable improvement in India's external accounts in 1993-94 has eliminated the
need for fast-disbursing assistance much faster than expected, and no additional fst-disbursing
assistance needs are envisaged for the foreseeable future. However, contined access to high
quality long-term development assistance will remain critical for India to be successful in its
reform program, set the economy on a higher growth path and alleviate poverty. Public
investments in a number of strategic sectors have been lagging-notably in the power, transport,
agriculure and social sectors. While the private sector has indicated interest in investing in
some of these sectors, public sector investment will continue to play an important role for some
time and official development assisunce will remain vital to sustaining investment in these key
areas of the economy. In this context, the members of the Consortium should aim for highest
possible quality assistance both as regards the terms and the deployment of their assistance.
Support for the government's structural reform program for the social dimensions of the reforms
and for environmentally sustainable development should in the view of the Bank be the guiding
considerations in the deployment of the available assistance. The response of an economy,
particularly that of the balance of payments, to a comprehensive liberalization program of the
kind now being implemented in India is evidently very dfficult to predict. The members of the
Consortium should thus also stand ready to resume fast disbursement assistance should the need
arise.
Managing India's Environment-Sekected Aspects
The short-to-medium term policy initiatives oudined above, complemented by progress
on basic medium-to-long term sectoral development issues in population, health, education,
agriculture and in tre, hold forth the promise of sustained relatively rapid and equitable
per capita economic growth. With this growth, superimposed upon a rapidly growig and
urbanizing population, inevitably will come more potenial pressure on India's air, water, and
land resources.
The Government has long recognized the importance of environmental protection. India's
formal, national efforts to manage its enviromnent go back to the early 1970s, when former
Prime Minister Indira Gandhi established the National Committee of Environmental Planning.
Today, the Ministry of Environment and Forests (MoEF-the institutional descendent of this
committee) has wide ranging, rapidly expanding responsibilities as the apex Goverment body
responsible for the environment. It concentrates on the conservation of forests, wildlife and
biodiversity (which account for about 70 percent of total MoEF spendig), and enviromnental
pollution control (about 27 percent of MoEF spending). Its spending (plan and non-plan) has
grown at almost 16 percent anmually in nominal terms since 1986187. By way of comparison,
GOI total developmental spending increased at an annual nominal rate of only about 5.4 percent
over this same period.



-nxix -
The MoEF is backed up at the state level by state departments of environment and state
pollution control boards. Broadly, under the acts govering the activities of these agencies, the
central government is responsible for making policy, setting national standards, and oversight
of states activities; state governments are the front-line implementors and regulators. Over the
years, working together, the agencies have erected a comprehensive regulatory and strategic
framework for control of pollution and conservation of forests, wildlife, and biodiversity, and
implemented this framework-despite some severe insfitutional shortcomings-with increasing
effectiveness. In response, some dimensions of environmental quality seem to be improving
(e.g., biocbemical oxygen demand in India's rivers, area of forest cover).
This progress notwitstnding, the challenge of developing India's economy in an
environmentally susainable manner remais formidable. Certain eninmental pollutants (e.g.,
suspended particulate  ar in the air, and coliforn orasms in the water) have reached levels
that are well in excess of levels judgil to be bealthfil. While there are no clear trends in the
levels of these pollutants, others (e.g., nitrogen dioxide, lead) seem to be becoming more
serious. Health data broadly corroborate this pictre: roughly 30 percent of India's loss of
Disease Adjusted Life Years (DALYs-as reported in the 1993 World Development R ) are
attributed to environmental causes. The correspnding figure for China is about 25 percen; in
the developed world, the figure is about 10 percent. Trends with rpect to India's ecosystems
and biodiversity are less clear cut, but experts agree that forests and other ecosystems are in
danger.
The Government will thus have to accomplish even more in the futur tan it has in fthe
past, and do so in a tight fiscal environment in which it will not be possible to finance continued
growth of environmental budgets from ordiy budget resources at anything like the rates of
growth achieved over the last several years. Clear priorities and efficient and effecdve strategies
wil be essential to maximize the sustinable development impact of the budget resources
available. One of the main priorities will be to stengthen the ins ional capacity and
processes to improve compliance with the estig regulations and safeguads.
India has taken the first steps in this direction with the completion in late 1993 of an
Enviomnental Action Programme (EAP). The EAP sets out seven broad priority areas and a
set of corresponding programs. The Government has made it clear that it regards the EAP as
only a first step: priorities, programs and strgies will evolve based on experience and
continuing analysis, discussion, and debate in India. Several questions will undoubtedly be
raised repeatedly in this process: (i) Is India addressing the right enviromental problems? (ii)
Are these problems being addressed efficienly? (ii) Is the insdtiuional framework adequate? and
finally (iv) Is India doing enough to achieve environmentaily susLainable development?
These are difficult questions. There is no one "right' answer to any of then. There are,
however, some working hypotheses that emerge from an examination of the data and information
available. These are discussed briefly in the following paragraphs.
Pri9ty Pmblems. Among the priorities identified in the EAP, tbree areas appear to
merit spe'  emphasis.



- xxx -
Many of India's environmental problems can be traced to distortions in economic
plicies. Subsidized consuption of power, fertilizer, irrigation water, diesel fuel, and water
encourage wasteful consumption of these resources and thereby contnbute to environmental
degradation. Subsidies for livestock development, agricultural development, policies with
respwect to development of the road system, and policies intended to promote the development
of forest-based industries may inadvertetly be encouraging the degradation of forests and
protected areas, as has happened in other countries. Reforms to eliminate these distortions
would yield two kinds of benefits-reduced economic waste and reduced environmental damage-
and ths merit very high priority.
First, indicative calculations suggest that tbree environmental pollution problems should
receive high priority on the grounds that their "solution" could yield substantial health benefits
at relatively low incremental costs. Reducing suspended particulate air pollution and improving
basic water and sanitation services would lare net health benefits and ths ment priority
attenticn   Given the potential for senous harm to health from hazardous and toxic pollutants,
there is an urgent need to know more about the namture and quantities of materials being
generated today and the ways in which thery are collected transported, and diposed.
The calculus of priorities for conservation of forests, biodiversity, and wildlife is
inherently less clear cut. The task is doubly difficult in India today because of the scarcty of
hard, quantitative data and information about what is happening to India's ecosystems and why.
One clear prionty is tu  the development of more and better information and data.
Notwithstandig the lack of data, sensrible clear conservation priorites bave been laid out in a
plan for a wildlife protected area, and in the identification of protect  areas. High priority
should be accorded to canrying forward the implementation of these issues.
EJficit Approaches. One of the most interesting and exciting recent developments on
the Indian environmental scene is the use of economic incentives and participatory approaches
to encourage conservation of forests, wildldfe, and biodiversity. In conast to its conservation
strategies, India's present pollution control strategy basically combines a big stick (standards and
regulations enforced under threat of criminal penalties) with a small carrot (tax brealcs on the
purchase of pollution control equipment). Despite the progress made to date in containing air-
and water pollution, some modification of the present strategy to shift some of the burden of
securing pollution load reductions to economic inentives (e.g., pollution charges, pollution
tading schemes) could be both more effeaive and efficient than the present approach
Inshidons. India's institutional framework for envirnmental pollution control is well-
developed. The major challenges in this area are strntening monitoring and enforcemen.
Some legislatve guidance on objectives (e.g., how should the Governent weigh health and
other considerations in settg standards; what role should economic considerations play in
stadard setting?) and instruments (e.g., whatrole shouldpollutioncharges andpolliontrading
play in India's pollution control strategy?) would perihaps be useful.
Some additional legislation is needed (and under development) in the conservation area
to provide a firmer institutional foundation for new conservation approaches lime joint forest



- xxxi -
management and ecodevelopment. The law may also need to be made more flexible in terms
of the kdnds of land use arrangements it will allow on forest lands and protected areas.
There are also priority needs with respect to toning up front line environmental
management agencies.  State pollution control agencies are short of staff trained in
envirnmental engineering and in proper monitoring and enforcement procedures. There are
also severe equipment shortages. On the conservation side, training and reorganization are
needed to implement the new approaches now being used to manage forests and protected areas.
Is It Enough? The rapid growth of expenditure and the impressive achievements to date
notwithstanding, the general picture that emerges with respect to both pollution control and
conservation is that the resources currently available fall well short of what would be required
to implement fully the provisions of India's current laws and policies. The prospects for
contiuing rapid growth of budgets for the environment are not bright. Environment will have
to compete with other underfmded high priority sectors like education and health in the context
of confinuing fiscal adjustment.
India wil thus have to leverage the budgetary resources it can commit far more highly
in the future than it has in the past. Strategies employing pollution charges and/or pollution
trading could in addition to encouraging effective and efficient polution prevention and control,
also mobilize resources for enhanced monitoring and enforcement or investment in pollution
control programs. Imaginative incentive-based participatory approaches to conservation of
natual resources such as joint forest management and ecodevelopment new being pioneered in
India can, in addition to providing more effective protection, generate income, employmernt, and
budgetary revenue. The international community must also help. All of these sources will have
to be tapped.



CHAPTER 1: RECENT ECONOMIC DEVELOPMENTS AND PROSPECT
Introduction
In July 1991, a new govermnent started to liberalize the economy with a reform program
focused on the investment regime, trade policies, the financial sector, taxation, and public
enterprises. The reforms' major objectives were to reduce the capital intensity of India's growth
process, lessen its reliance on the unsustainable expansion of the public sector, and thus translate
the country's relatively high investment rate into high and susinmble growth of output and
employment.  Compoundig the difficulties iherent in any liberalizaton process, the
government also faced serious fiscal and external imbalances which had generated double-digit
inflaton and put the country on the verge of defaulting on its external debt obligations.
Over the last tbree years, notwithsting a sharp increase of the fiscal deficit in i993-
94, the government has made considerable progress in stabilizing the economy. It has been
remarkably successful at improving the country's currment and capital external accounts. And it
has itroduced strucntal reforms which have significantly liberalized the economy. Carried to
their logical conclusion, these reforms could enable India to grow at the rates experienced by
its successful East Asian neighbors. Transformig this possibility into reality requires intensifed
efforts to strengthen public finances, improve infastructure, and enable private investment to
flow into key areas of the economy. In trn, this entils broadening the process of reform,
which has thus far been domated by a few central ministries (Finance, Commerce, Industry),
to sectoral ministries, public enterprises, and state governments.
Chapter 1 reviews the achievements of three years of stabilization, includig fiscal
adjustment at the level of the states. Next, it examines the economy's response and prospects,
ncluding the response and prospects of private investment Finally it assesses India's medium-
term external financing requirements. Chapter 2 reviews progress in reforming the economy
over the last three years, and identifies the short and medium term policy issues facing the
government. Other important parts of the government medium term development agenda, such
as initiatives taken over the last three years to accelerate the development of India's human
resources, particularly those of the poor, have been discussed in last year's World Bank
economic report on India. Steps taken to address India's envirmental problems are discussed
in Chapter 3.
Stbilzing the Economy
bitroducion
In July 1991, the authorities were faced with a central government fiscal deficit which
had reached 8.4 percent of GDP in 1990-91 (9.8 percent of GDP for the central and states
govemments combined). If unorrected, it would have exceeded 10 percent of GDP in 1991-92.
India's historically low inflation had exceeded 10 percent in November 1990 (measured by the
wholesale price index, point-to-point) and contied to rise, peaking at 17 percent in August
1991. At US$10 billion in 1990-91 (3.5 percent of GDP), the current account deficit of the
balance of payments was unsustainable.   Notwithstnding significant assistance from



multilaterals, particularly the UIMF, and bilaterals, particularly Japan, foreign reserves had
declined to US$1 billion in June 1991, two weeks of imports; India was on the verge of
defaulting on its external debt obligations.
Demand Management
Expenditue Switching and Contracdon of Demand. In July 1991, the govermnent's
highest short-term priority was to stabilize the economy through expenditre switching and
contraction of aggregate demand. The rupee was devalued in July 1991, and floated in March
1992. It fell from Rs 211US$ in June 1991 to Rs 31/US$ in March 1992, and has remained at
around this level since then. To stabilize demand, the govermment tightened monetary policies
and made it a key objective to reduce the central government fiscal deficit. The June 1993
Ministry of Finance's Discussion Paper on the overall objectives of the stabilization and reform
program notes that 'RisingJfscal deficits [in the 1980s] had created mny problems. They had
led to high lvels of borrowing by the Govemmentfrom the Reserve Bant with an expansionry
impact on morney supply leading directl to high rates of inflation. High fiscal defcits
contributed directly to the large current accout deficits in the balance of payments and thus
aggravated the problem of external indebtedness. Large fiscal deficit also, pre-empted a
signiYcantproportion of the savngs of society w support the Budgez, with a consequent scarcty
of finds for productive investment. This was reflcted in very high interest rates facing the
commercial sector, which discouraged new investment and also reduced our international
competitveness."
The government succeeded in reducing the central government's fiscal deficit in the first
two years of the program, from 8.4 percent of GDP in 1990-91 to 6.0 perent of GDP in 1991-
92, and 5.7 percent of GDP in 1992-93 (Table 1.1). Broad money growth was maintined at
11-13 percent in 1991-92 and 1992-93, against a nominal GDP growth of 15-16 percent. Much
of this progress was lost in 1993-94, however. The fiscal deficit escalated to an estimated 7.3
percent of GDP, against a target of 4.7 percent of GDP, as a result of both revemne shortfalls
(40 percent of the deviation) and expenditure overuns (60 percent). Base money growth rose
to annual 25 percent as a consequence of the monetization of capital inflows (Table 1.14) which
were particularly strong in the first few months of 1994. To contain the inflationary impact of
this increase in liquidity, the RBI increased reserve requirements by 1 percentage point in May
1994, but the build-up of primary liquidity is likely to continue putting pressure on prices in the
near future.
Fiscal efforts at the level of the central government have not been replicated by the states
and public enterprises. As discussed in section E of this chapter, the fiscal deficit of the states
has remained relatively constant at 3 percent of GDP over the last three years. Similarly, profits
of profit-making public enterprises have not improved, and the losses of loss-making public
enterprises have not declined. In the next phase of reform, fiscal adjustment at the level of the
central government would need to be complemented by an improvement in the finances of the
states and public enterprises.



-3
Table 1.1: CersmCaGvemmnl flzunas 1550-
OUa bfimamtpercmgeaf GD!)
RS bUD..                                       Pmnnolpe of G
90-91   91-92   92-93   93  93- 94   94-9    3091 - 91-92    924            9344    9394   94.95
A.bvteoae                      550    66    -741        142     762      861    OA~ 10.7         10.5     10.6     9.6      9.6
Tax Revesie                 430    501    540        6Z7-    545-     62     3.1   - .1        7.7      7.9     6.8      7.0
Caqoram                    53       79     89       105    -105-.    125    LB0    1.3       -1.3      1.3     1.3-    1.4-
InoMe                    -54       -67     79        95      95      109    LO0     1.1       LI1      L2      LZ       12
ExcEss             ~~~~ ~~~245    2KV 306    338     318      367    4.6     4.6       4.4      42      4.0      4.!>
Ca                 ~~~~ ~~~~~206' -223    235  .277.   225    252    3.9     3.6       3.4      35-S   25        2.3
Oders                       IT 1   24      32       34         .      18    0.3     0.4               05 .4    03      02
usSzsahut         :  4-    173    206       *21    223.    244    2.7 -2.3              2.9      2.3     L3s     i
Non-ax eewnue               120     160    201-    215    217,    233    2.3         2.6      -2*       2.7     237      2.6.
(rMUsrecdpw                 37     109-   12S       145-   *15        6      L6      LS       LI        139     LI      1.1'
B Rw'avem peSnidmr             735    823    977    1.018   1.102    Liii   13.8    13.4         13.1     123      13.*   .13.2
Inunspaymensu               1      266    310-    380       375      460    4J0     4.3       4.4      439    4.7       5.1
Subsidiesn.    in                   i         :84     124      95    23       to0      1.7       LI1     14.    LI
FoDod                      25-   '29:    28-        30-    52         40    0-a     4.S      0.4       0.4     07      0.4
*  Feats  -              44     ~~~     ~~~      ~~~     ~~48  58  35    4.4  40    0.3  038  0Os   0.4     0.6      0.4
Clbxx                       53     46      35        19-    28        is    LO0    0.7       0.5       0.3     0.3     0.3
Defeat             ~~~~ ~~~~109  114   -124   137     149.    162    2.0      1.9      La        L.7     13-    139
- -GmOu wsmaues                 140    167    179       -196    206       196    2.6     2.7      2.5       2.4--  246.    2.2
Waps and mizzies            104     115    1.30     :141     142      155   2.0       139      13       L'v      LS3     Li
OUhr                         45      38      63    '-.0Dil06          12  003        0.6       0.9.    -1.0    _L3-    1.3
-; C.Capblexpezalimne    ~~~121: -115    123      128:   132        141    2.3     L.9      .L    -  LB       L-7      1.6
Defense              ~~~~~~         ~~46.-49- M   555  66       68    0.   -0           0.7-     0.7     06       0.8
Economc SWAM,              .6 7>               >     53t      53       59    L-3    039       .09       037   -0.7:    0.7
Otto   -   -        9    .10~~~~~~~~t  t1' 5.414    0                     M. 0       07        0       0.2     0.1
D. G,uslam                     197.  :179    161:       167   204        187    3.7     2.9      2L4       2.1     2.6      L1
in-Sates-           ~~~~ ~~136  12    2       11       4        3     2.5     2.0       LI        .5     i
slUr    - ~~~~~~~il~36:      35      O03            -            1    070                .4.   -.05.5  -0.6&      55:
Others               1       -21      17       13       11-    8 - 0-5    0.4          -02        0101           0.
LRqSyUemofUO                   57      60      G        6       67       67    Li1    LII'       05       0I0>             07
FNet [tuftg(-E               43        1       0        00    7          2     2.6:   1- S3                        1¶.7    L3 
G. Diksinmnieiu Pis              0--   30 --  20.-  3.V         ' 25.-    40    050   "-OS         3. C              3 
*Flail Dalef VAB-C-F+G)   ~ 47-37               AO        370.   58        59      .4M    6.0    -57.         .' 73           60
-- Tsallpudlue-(Bi.C+D9        1,053  1I11V     22      css:;.3    &     I.S16   193-8  ILI U>  17.3        15       1.     16*8
Kehtwsspemdht       - 831~~M..  '851"   913:    933   5.6        M106   15.8    1338     123      1-1 >-  13.3    ILi7
BE s kslereszhuam RE   m uvisedesinnt                      dsemeped tte bIIdZIDIuIUOl   forain= expediture
lfFThclddfckshi.u  m=repsymenu. A=*pdnYdeflirdicaa Ioztmeudabreniswnamia le                               d?if h at  "amn       aI-
lrama GD! routand ueis dBc&wnzlfdheealCmrsttr  isiwerdnu   Dp h lithe real imran tun oagveinMd.beias.allerd=red GD?
gout. Me debew GD? ras -m decline snai be pimuay detikh plusiivt-
-21 B4.C+D.imeuse. 
Cwu voeImucat Indis. Budptdoaaica.



-4-
The Pattern of Central Government Fiscal Adjfsftent In the first two years of the
program revenues remained relatively constant at around 10.5 percent of GDP. The 2.7
percentage pout reduction in the fial deficit was achieved entirely through expenditure cuts,
mosdy of subsidies (0.6 percentage points of GDP), defense (0.4), loans to states (0.7), loans
to public enterprises and other entities (0.6), and non-defense capital expenditure (0.3).
According to the preliminary fiscal accounts for 1993-94 published at the time of the budget,
the 2.6 percentage points of GDP slippage in 1993-94 is the result of a 1 percentage point of
GDP tax revenue shortfall due to stagnant industria output, lower than expected imports and
thus lower tariff revenues. Expenditure ovenuns (on subsidies, defense, and loans to stes and
public enterprises) account for the remaining 1.6 percentage points of the slippage (Table 1.1).
In spite of the slippage in 1993-94, expenditure on subsidies, defense, and loans to states and
public enterprises remained below their corresponding GDP shares in 1990-91. In fact, the
cental governnent has reduced non-interest expenditure by 2.5 percentage points of GDP
between 1990-91 and 1993-94 and the primary deficit by 2.8 percent of GDP (Table 1.1). It
is important to note that the Rs 25 billion disinvestment expected to take place in March 1994
(Table 1.1) has in fact taken place in April. The government expects non-interest expendituem
underruns of a similar amount to have offset this decline in revenue but precisely in which
expenditr categories undernms have taken place will only be known in September 1994 when
the fiscal accounts for 1993-94 will be closed. This would suggest that non-interest expenditure
in 1993-94 has in fact been 13 percent of GDP (instead of the 13.3 percent indicated in Table
1.1), that the contraction of non-interest fisc  spending has been even more significant than
suggested in Table 1.1, and that increases in revenues will need to play a larger role in fiscal
retrenchments in the futme because the scope for significant firther expenditre reductions is
linite&t
The reduction in the cost of subsidies was achieved through the elimination of an export
subsidy in July 1991, and several rounds of increases in the subsidized prices of fertilizer and
commodities (mostly rice, wheat and kerosene) sold through the Public Distbution System.
In the case of rice, ftr example, the subsidized price was Rs 3.5/kg in June 1991; the
Government raised it to Rs 4.4/kg in December 1991, Rs 5/kg in January 1993, and Rs 6.2/kg
in February 1994-a cumulative 77 percent increase. The February 1994 increase, however, was
intduced with a significant delay; this was the main reason for expenditure overrun on
subsidies in 1993-94. Similar developments have taken place in the case of wheat and urea.
The decline in lending to the states has taken place mainly through reduction in relation to GDP
of Small Savings collecdons (savings accounts managed by the postal service), a consequece
of reductions in tax incentives on such instuments. While the decline is relatively modest, it
has created some fiancing constraints for the states. The decline of budgetary assistance to
public enterprises has been consistent with the objective of tansforming them into commercially
viable concerns, but has contributed to their financial difficulties.
Fiscal Satiability
Unless filture fiscal performance shows it to have been an aberration, the worsened fiscal
performance in 1993-94 could undermine the credibility of the fiscal adjustment process. At 66



-5 -
percent of GDP by
end  1993-94, the                   Table 1±  Re     da PuDd t94
central government   :                                  o G-P-
debt (90 percent of    _   -   -   :   .  - -__-   -  :-__-   ___-   -  - _
the   consolidated                                i9s.   1990-91  19-    -93   wn-o3"
central and  states
govemments d1eCebtG)ermen
governments debt)                 .............                                       -          .ov     -: 7.8   -.4  6.0  5.7  73
is relatively high.  G-:       Prim    k2 DeIc --.  4.0- -:4.4     L6        3      .2.6
Iantrs   payments    ~    ~ Q f
already claim over  -7Oen Deit                    9$      9.8      72    ..7.3       8.7
half  of  central          G-: P         D  -: o-                 2O
goverment  fiscal        3 . No-i- c i- a] - S c I t - - ---
revenues.      The         Ove-..Defic t          1.1                           .  e   -
financial  sector        4      -   ... n         .........-....:
reforms underway
::---:N-- Q            3.1     2.9s    0.-:8f  0.6       0.7-=-3
and the reduction in
central goverment        Notes V               a  Ibes
recourse  to                                   . .l  .. - - =...
_.   .   ; ~ ~~~~~~~                  ~   ~  ~  ~ ~~~~~~ .. ..    . .........  ...  . ....   ... f f . . f ...- '........  ..   ..  ...
credit  will  further                                                 .. ... .S     . .......
t~~~~~~~~~~~~~~ .                  .   .   ....   ..   ..   ...-ff.   f   .......-  -- 
increase   average      . .-..                 . ....... --  ....
interest rates on the   =
government debt and compound the problem. Takg into account these higher average real
interest rates, stabilizing the central government debt in relation to GDP at its March 1994 level-
-a minimun objective for sound public finances-requires the primary deficit to be reduced by
1-2 percent of GDP beyond what is envisaged for 1994-95. Unless the 1994-95 fiscal deficit
target of 6 percent of GDP is met (a difficult objecdve since the 1994-95 fiscal deficit target is
based on the assumption of a recovery), and decisive steps are taken to reduce it furter in 1995-
96, the central government fiscal deficit could endanger hdia's economic prospects. Strong
mprovement nm the finances of the central government need to be accompanied by improvement
in the finances of the states and public enterprises.
Historically, the central government has financed its deficit from four sources: (i) the
RBI, through the placement of so-called ad hoc Treasury biMls at a fixed interest rates of 4.6
percent (ii) the banking system, which must hold a fixed proportion of its deposits in "dated'
government securities (that is medium and long term securities) at below market rates as part
of its Statutory Liquidity Requirements (SLR); (iii) the private sector, tirough instruments such
as Small Savings accounts and Provident Funds; and (iv) abroad. The first two of these sources
used to provide low cost (forced) financing, and made it possible to keep the overall explicit
costs of financing the central government deficit (and thus over time the deficit itselt) relatively
low.
Such low cost fmance is ceasing to be available following: (i) the goverment's decision
to phase out forced SLR borrowmgs from banks at below market rates; and (ii) the 1994-95
Budget announcement of a rapid phasing out of the recourse to RBI deficit financing. The



-6-
govremm ent    has   lready                                      .  . ..... .. ......... .- ...- .-.. ....--.---..
shifted  to  a  system  of               Ik--'   Ei  cs           e
auction for new issues Of
dated securities on which k
has been paying market
related im rest rates (Table    -L DcmescD'I.                    Ei     t:&A:>:a    u
GenotcrA Govcmmaim.
1.4).   Indicative of the                   .          .                 .6 ;  ...
attractiveness of new dated         sa'61                                62.6
~~~~~~~~~~~~~~~o iamdv of&    El rpws           . -:. : -.   :    9A .::--6 - 6 :-06
securities,   commercial                                                      ..u..... .-::  Nt.... ..  ..
ba~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~-                    - -   - - - -   g-   -   - -   - X- z- - -   - -     - -
banks are holding dated   n-.. E-.malDteb? "
securities beyond the SLRwa! Uo0nn-                                                      .
~~-   In  ~~~~~Non4fnancballsuic Entpdes-     .4.5    i    n.z 
111. :TonI (1-I-f).               RiO  5990    na.    a..
addition,  through   the           Gw!Gwmec7.    47 7..7.
f ---G0eza Govesament'           71l    7 4.7  72.6.  72.7
gadual  inroduction  of             .e..                         65.0 685   66.6  66.1
stales'.-           6.1   :~6.2  6.0*     6.6
regular   auctions   of             Lo.4 h.               ..          143       .    ILL
Treasury   Bills,   the
government has gadually                .          : -- ::        1    . -       -3--- - 3
Y                S = - . fGed: G o ~~~~~~~~~~ddstbdLy RBI (wO    16.7  -15.3  - 13.9-  - 13.1:
reduced its recourse toRBI        Car.B  ,                        16A   is.a  13.7:f39
fiancing (Table 1.2).             S.. as                        -:-     b      0.    0.1
These   changes                 'Gzussordbhldsby.hefML -
EcukSmut debt t Cent.
imply  that in  the  near              *     i        debt ConSute cx of peds.
future   the   central                   Eunl borzmip by .t sam  mu.
government's  marginal 
EEW  PM nd ll;rff ' '-
cost  of  borrowing
domestically   will   be  r,.- --__'___
dictated   by   financial
markets. They also imply that the cental governent will forgo revemnes from the implicit
taxation of financial intermediaries, as well as seignorage revenues collected by the RBI-tbat
used to be implicitly transferred to the goverment through low interest paid on RBI-held debt.
Thus, as indicated in para. 1.10, the average rate on the central goverment debt will gradually
approach the marginal rate. While estimates of precisely when this will occur are not available,
the difference between the average and the marginal intrest rate on the cental government debt
is already small and declning (Table 1.4) and this bas important consequences for the central
government sustainable fiscal stance.
Under reasonable assmptions on the speed of fture finanscial sector reform and the
future patten of fiscal adjustment (a fiscal adjusmen biased against public invesmet reduces
long-term growth and thus increases the debt to GDP rato), stablizig the cetal government
debt to GDP ratio at its end 1993-94 level requires a primary deficit between 0 and negative 1.
Thus, as indicated in para. 1.10, the primary deficit needs to be reduced by 1-2 percent of GDP
beyond what is envisaged for 1994-95. To the extent the adjusutent is delayed, the reqired
correction increases. From a short run perspectve, the extn of the correction is somewhat
overstated by the assumpton that iter   payments on the outstding stock of domestic debt



-7-
are  made  at  the
marginal   interest                  Table 1.4: --tre Ran on Central Gower flm , W199994-   :-'
rate, rather than at                                   ener)
the currently lower
average   rates.            -8- 9-90                  .90-91       91-92       92-93:    93-4-.
However, it does           Avegr -
highlight   the             rae             93         10.2        10.4        10.2      0      -
em          ~~~~~~9.3    937       11.4        11.3       .13.0::
narrow    limits            Dated          12.9-       12.3       12.4        13.4    -        4' -
within  which  the
:Smal      l     -  35.   :    3.5         4.4       4.0 :   --.:- -4.:
central government  3: -s                                          4           4           to
is operating and the        Provdet-:-
risks of flling into
a  domestic  debt                                                                             - - -----
trap.    To  avoid       :'Deb-
this, and establish                                                                         . -:.M-
the  credibility  of         -                         1.    *   1   -         1           1
fiscal  policies,  it     cm                8.6       -10.         19.5 --            4   '
would be essentia           New- issues               .                 - ...
to reach a primary -                .. .. . -  .             . . . ...:
surplus of 1 percent --    la-i:-
of GDP   ffie next
NYs   A      ofuniram .--in-
:--  .  :.:-:. :-::::.: ::.:.:-......   .......... . . ..::   :     E.:    : :..   -   .  ...........- . ....     
. . ..... ..  - .-.  -... . -.-   - :----:i- i::-    :--: -:   :  :: --  
. .-u-.:: Economic Smvc_ , RET and saff nati -  .W--  -.       
. V - -S- ~~~--:-gf- f--- i---f -  *g--
The Economy's Response
Introducdon
The response of the economy to the stabilization and reform measures implemented since
July 1991 has been generally positive, but macroeconomic stresses brought about by the reform
progrmn pose new challenges for policy. Growth recovered from 2 percent in 1991-92 to
around 4 percent in the last two years (Table 1.5). Industrial production and investment have
been slower to recover from the deflationary effects of the initial stabilization measures CTables
1.6 and 1.7). After declining to negative 2 percent in 1991-92, manufacturing growth recovered
to a modest 2 percent in 1992-93 and 1993-94. While this deceleration is modest compared to
that experienced in other countries' stabization and reform experiences, the authorites have
been justfibly concerned by declining investment rates. The improvement m India's external
accounts, both current and capital, has exceeded the most optimisc forecasts. With exports
growing at 20 percent in 1993-94, imports growing at only 6 percent (partly the result of slow
growth in mamlfacturing), and an improvement in the service account, the current account deficit



-8 -
declined to US$0.8 billion
in 1993-94 (0.3 percent of                              (apte 1.ca Grow Perfm)me. 19814
GDP), from US$10 billion                                             Wre)
in 1990-91 (3.5 percent of                                         __
GDP). At US$4.7 billion,                                       8        90.91     91-92      9W3        934
foreign investment (largely             PD at Facr Con         5.5       5.2       1.8        4.0        3.8
portfoiio    investment)               Agriculmte.   3.4                 4.8      -3A         5.0        2.3
surged   to  unprecedented             Indusay                 6.9       6.9       1.0        2.2        3.3
high levels.  As a result,              Mining & Quanying      7.4       4.9       9.3        3.8        3.4
Mamnncturing          7.2       7.5      -1.5        2.0        2.5
reserves   increased   from               Regisd               1.0       74        0.6        1.1        na.
less than US$1  billion in                Ungistered           6.1       7.5      -4.8        3.7        na.
June 1991 to US$15 billion   ~~Electricity           1.9       6.9       8.0       6.5        8.1
lime 1991 to US$15 billion              Constnion              4.4       4.9       5.3        0.1        3.8
by end-March  1994.  The                services               6.6       42        6.7        4.5        5.2
monetization of reserves,
Soumo:  Cenneat SiCRisi Orgaization, Natonal Accounts Staistics. Quick FStimates
however,  has  led  to   a                    for 1992-93. and Advanced Estimtes for 1993-94..
sharp  expansion  in  base
money-25 percent in
March 1994 in relation to March 1993. Together with significant increases in administered
prices, this has corributed to inflation. After declining from a peak of 17 percent in August
1991 to around 7 percent in mid-1993, inflation has increased again, exceeding 10 percent in
early April 1994. As a result, the real exchange rate has appreciated.
Table 1.6: Iultrial Growth by idmstr7 .f Use, MI-94
0;: 0 t~~~~~~~~anm                        cnt crase) 
-                 -em~ApA - Otobei
Weight     81-91      90-91       -921-     92-93       92-93       93-94
Index of ndusmal Pmducdon    100.0        7.9        82         0.1        2.4          3.8         2.2
Basi BInustries              39A         77         3.8=       6.2        3.5         3.7          2.9:-
Capitl Goods                 16.4       11.4       17A4      -12.8        2.8         9.0         -8.8
- mnrediats: 205                         6.6        6.0       -0.7        2.8         4.0       -110.4-
Consumer Goods               23.7        6.5     -10.4       :-0.3        0.0         0.0          1.41.4
:D)rables                    2.6        13.8       14.8      -12.5      -0.7         -3.8>:      14.3'
-Non-Duables                21.1        5.2        94         1.2        0.1 0.8 1-16
Not:m  Basic indusries hrbide capimi    industie suc as steel. fertlier, c-mentan e1lectricity.-
Source:  CentrAl Stauscal Ognizdon - Naiona Accounts Stistcs and Econic Survey., Varis a  ;sses
Investment
The central government has taken steps to increase investment by public enterprises and
the states-total budgetary and non-budgetary resources were maintaied at 7 percent of GDP
in 1991-92 and 1992-93, and increased to 8 percent of GDP in 1993-94 (Table 2.6). However,



-9-
these additional resources have not been translated into actual investment. National accounts
statistics indicate that growth of public investment declined from 4-5 percent during the 1980s
and 1990-91, to 3 percent in 1991-92, and negative 5 percent in 1992-93, the last year for which
data are available (Table 1.7); this decline has likely continued in 1993-94. Growth of private
investnent by households (in housing, agriculture, and unregistered and registered but
unincorporated manufacturing firns) declined from 9 percent in the 1980s and 11 percent in
1990-91 to negative 21 percent in 1991-92, before rising to a modest 3 percent in 1992-93.
Investment by the private corporate sector remained robust through 1992-93, but the sharp
decline in the production of the capital goods industry in the first half of 1993-94 (Table 1.6)
suggests that this trend may have reversed itself in 1993-94. In addition, imports of capital
goods have declined from US$5.8 billion in 1990-91 to around US$4.2-4.5 billion in 1991-92
and 1992-93 (the last year for which data are available). Together with a sharp decline in the
current account deficit in 1993-94, (hence in the savings-investment imbalance), these
developments are indicative of a sharp decline of investnent in the economy.
Table 1-.7: lIvW   by: Type4 of   -a  :1       =     -       -- 1-    ------
-        7-    -    -   -  D-- @~~~~~[CV= Of.GDP:.Itnp= .................--f-i ...$::- -:  
::-1-91     .   090-91         1991-.. .:           --
- GmapiFamiation                 24.0(6.7      263 (12; ;X.3) 2-.i  24.0 (-1  25.0(I)
Grm fiedC apiFonrmtion -       21.0 -(69)*            ...   ..            ..:.- .: 21.3 a..
Pudblic Sector  -                                         ..10.1. (:. 3)  9A, (  9  :- 8  (
Privanteo  Ser - :         E3.6(70)       :---t 3.8e 03      42 (9)          4.5 (
HouseboldSector      :.       -73(.-:)          91.4::       8.3 (-14    -;-8.0 (3.3)
Chu-ge -Stocks                  3.0            3              2.              3.7
-N:_::--e-: :Real gmrwt rates in paienthes.: Erms andonissions account fbr edifernce-inth fti foXr.1990-91in this wirani.
Taible 1.2.
Sournes: CentrAl StaisticaOrganization NatonalAccints Stiics, 1993; -Quick E   for992-93.    . ....  a
Inteationl Experiences.  Decling investment and growth has been a freqent
response to stabilization and reform elsewhere in the developing world, particularly in the 1980s.
At that time, the debt crisis and global shocks in most developing countries brought about a
protracted penod of macroeconomic istabiity and lack of extemal financing which led to the
adoption of stabilization programs accompanied by drastic polir-m reforms. Common featu
of these economic programs have been fiscal contraction, liberalization of extenmal trade, and
liberalization of domestic fmancial markets. A common objectht- has been to increase the role
of the private sector in the economy.
In most cases, hzowever, particularly in Latin America, there has been a drastic decline
in capital formation, as a result of a decline in both public and private investment. Privat;
investment fell in the initial phase of adjustment, and its response has been weak and slow to
appear even in countries that made substantial progress in correcting macroeconomic imbalances,



- 10-
reforming the policy framework, and improving firms' profitability through drastic real wage
cuts. Three factors help explain the slow recovery of private investment.
0     First, the adjustment to the interest shock of the 1980s required a large external transfer
which under conditions of limited access to extrnal financing led to contraction of
aggregate demand. Output being determined in the short run by the demand for it, this
contraction led to a decline in output growth and thus in private investment. One of the
most robust results of empirical studies of mvestment behavior is that, because of their
strong effect on expected returns, changes in output are one of the most important
determinants of private investment.
*     Second, in most countries, the implementation of stabilizadon and reform programs has
not been straightforward. Delays and reversals have been frequent. These eroded the
credibility of government policies and increased the uncertainty of returns on private
investment. In particular, empircal studies of private investment in Latn Amenca, East
Asia, and some African countries indicate that while the real exchange rate level has an
ambiguous and statistically insignificant impact on private imvestment, real exchange rate
variability (which is an indicator of macroeconomic instability) has a strong and
unambiguous negative effect on private investment.
*      d, in most cases, fiscal contraction has been carried out largely by reducing public
capital spending. This has had a short-term direct negative effect on aggregate demand
and thus private investment, and also an indirect long-term effect becmse of the
complementarity between public and private investment. In the 1980s in Latin America,
public investment accounted for about half of total investnent in Argentina and Chile,
and more than one-third in Brazil. Empirical evidence for a group of Latin American
counties (Argentina, Brazil, Chile, Colombia, Mexico and Venezuela) during 1970-85
suggests that a one percentage point decline in the share of public investment in GDP
reduces the share of private investment in GDP by more than half a percentage point.
In sharp contrast with Latin America's experiences, East Asian countries such as Korea,
Malaysia and Thailand have been able to adjust and reform their economies while maintaining
growth rates well in excess of 6-7 percent. Three factors have accounted for this performance.
Finst, stabilization and reforms have taken place without slippages or reversals. In particular,
the real exchange rate has remained competitive and stable throughout the adjustment period.
Second, exports accounted for a much larger share of GDP than in Latin America. The
maintnance of a competitive real exchange rate made it possible to switch aggregate demand
from domestic to external sources and thus contract domestic aggregate demand while expanding
total aggregate demand. Third, public finances were stronger, allowmg fiscal adjusunent to take
place without drastic cuts in public capital spending. Public capital spendig as a share of GDP
in Korea, Thailand and Malaysia only started to decline in the latter part of the 1980s when
private investment was rsing rapidly.



- 11 -
Tihe  Response  of------
Private   bIvestment  in    :            akit l-ThheRoSiakes of_ s
. f5 ff -.-:S :- - SS- -, S , ........................~~~~~~~~~~~~. .......  ;S-2
India. COnlPared to other  . *(icsoQR
developing  countries,.   .                                      =       a..
India's  tansfer  problem         .  . :                                    f
has been much less severe                                                         t f-S S.      -S
an in Latin Amerjca, and           .  . -   .           .    bless         .   Det      De.
even  East  Asia  (Table                   :. .a   Ba.                          %of-  Sersics.-
1.8).  Its reform  process                   ... . :- Debt   .                        as % .
has   proedd           widhout   :           '    .   ''  '',                 "     . ,        -
reversals.            The                                                 : .
. < .............. . . -- .......... . . '4;2  : ..  U.:  S 17 ... -W .
appreciation  of the  real        s                     ..66.   37    .314              44
-         raan te since March    chie             M.7                     :: -.1 3 8 38.
1993  non       din,  the   -                                    .1    -W      30.     49
real exchange rate ins niot      Mi
diEplayed   tbt   YC)law                       .       -1d6.   364):.--2366 .   -30.;
displayed  the   volatility       d  19;                         Jg     3      33       27
which has been a problem         hik Q93ss90)3                                 315      28
in   Latin   America.   . .                                     3.7    ,43/60Y.
Kaean               ...        3.2-    221    50    .25
However, while India has                   .._-. 5. -6 2S
made  remarkably  rapid          Tbd...T h.::-:.t .. . -: 3 .I  36    .100  I26
progress in liberalizing its    ~o:    m our  ~~gjaaag  itotex.e
pRogtess    libelaliiDg itS  N. :Iname payllt alld-debt unn= uB avant for dle pedok debt is aI df eld'
ivestment  regime,  the.               orp;i..
legacy  of   nias  past
. .        ~~Soum: EnoD PSdW= W          RkBm.-'''''
development policies could
delay  the  response  of
private investent.
Because it was discouraged
or prohibited  in  other secrs,           flblrl.V: Tree- a Capity dUmeU -      _     ranan >-
private investment in India has    : :.  .              -      [97M990:
historically been concentrated in    .  . .            .
housing,   agriculture,   and                      .  .      . .97040 .- oQ. -    7Gb::
mmufcuring.    Investment in            RBsicGOodS           s571(4)  -69.2 03J)   63.2  53)
housig  is unikely  to  lead  a             -             ..-  941(-t4) : 8.1(U)    90.7(4*
Capiu deS     .      65.2 (3!) .66-9(1      66) M(403)'
recovery becuse of dte absence of       COn... GM.  .743 (4.0) K76.1(O.Q..   i. (-03)
housmg finance and the obstacles         DuraUm..4.6(43) .  73.9 t3                 31.9 (-1.1)
Nou-uakbles   .     76.1(459)   75.6 gj.2)   76.2 (4A)-
created by the Land Ceiling Act of
1976, which makes any sale of           Ne:   Deae am                      uiahelo.u
.  SUbu .d inS.gof capac:.d ghprib: .od   :
urban   land subject  to  state ... .. ........
government   approval.          In       Dw. Rsn  D.-
agriculture, private investnt has                            :  :                   :.
been declining since the early
1980s as a result of (i) a policy   amework which fragments ndia's domestic agricultual
markets, and restricts private investment in wholesale trade, storage and agro-processimg; (ii)
declines in public invesn  in agnculture, which has a proven strong mducive effect on private



- 12 -
investment in this sector (Box 1.1); and (iii) implicit taxation of agricultre through a number
of crude policy instruments such as external trade restrictions and domestic price interventions.
Large implicit and explcit subsidies for fertilizer, power consumed by farmers, and irgation
have pardally offset the effect of this taxation at an extremely high fiscal cost exceeding several
percentage points of GDP. As indicated in the 1993-94 Economic Survey, this has crowded out,
however, more productive forms of public spending on agriculture. Unless steps are taken to
improve the policy framework and mcrease profitability, private investment in agriculture is
unlikely to recover. Regarding mafcring, Idia's past iustrial policies have left a legacy
of a capital stock which is undeutilized, and which should enable significant increases in
production without addition to capacity. Past industrial policies have led to the proliferation of
plants with less than economic scales of production (because the authorities have attempted to
avoid market concentation which could result from industrial licensing); chronic idle capacity
(because idle capacity was a key reason for denying lcenses, established firms had a built-in
incentive to maintain idle capacity to keep out potential entrants), and lack of specialization
(most Indian firms produce an unusually wide range of products because it was easier o obtain
a license for new products than for expansion within the same product line). These industial
policies have resulted in fragmenation of production, low capacity utilization (Table 1.9) and
slow growth of total factor producvity. In additon, high effective protection for capital
intensive manufachtuing sectors increased the capital intensity of manufacturing gradually but
persistently (Graph 1).
The reforms intoduced since June 1991 should lead manufactuaing firms to adjust to the
new economic enviroment by focusing prodution on fewer products, and merging and
acquiring existing plants to exploit economies of scale. Thus, while available data do not allow
definitive conclusions on the magnitude of this process, firms' mergers, acquisitions and spin-
offs seem to have increased significandy over the last two years. LI the medium-term, greater
specialization and better exploitation of economies of scale will increase firms' productvity, but
in the short run, they do not require significant investment. In addition, trade liberalization has
reduced protection to capital intensive activities and improved incentives for export-oriented,
labor intensive firms. Since by definon labor intensive firms require less investment to expand
capacity per unit of output than capital intensive ones, the reorientation in the stucture of
production resulting from the new policies should lead to lower capital intensity in the
manufacturing sector. This should increase growth in the long run, but the inmmediate effect will
be reduced growth in private investment demand.
Opening new sectors of the economy has not yet led to a surge of private investment.
In cases such as Ujggg  the opening is too recent (February 1994).  In the case of
telecommunications, the May 13, 1994 National Telecom Policy is a radical change in that it
ains at ending the monopoly of the Department of Telecommunications (DOT) in the provision
of basic services. But again in this case, the change is too recent and it will take some time
before the change in policy is implemented and translated into a regulatory framework conducive
to private investment in this sector.



- 13 -
GRAMH 1
TOAL FACTOR PRODUCIVITYl LABOR PRODUCTrITY
CAPITAL PRODUCTPIiTY AND CAPITALINTENSITY IN MANUFACTURNG
483
40-
470-
400 
480-                                                _
m                               ~~~~/
240
2w                     - -
260 -
2I   -                        _ -  -
240-                   ,- ' s                        \
220-
BD0-  _    ..........w-w
12-
ao 
40-
20-
a,.    ,,  ,  I .   I,   I .  I,-    .  I  I,  I, I  I p  I II
1960     1965      1970     1975     1960     1S5S'
Souie: LI. Ahtuvlia. 1991. Prodaczviy and Growh ian M _auiag, Oxfod Univcy Poesw, O0fo
Regarding hydrocarbons, the development of ndia's oil and gas resourc  would greatly
benefit from  a closer asociation with fincially strong and experienced iational oil
companies, which could help mobilize considerable resources for mvestment in India-thus
helping the country reduce its dependency on oil imports which now account for about one-
fourth of merchandise imports. Foreign ivestment plays a large role in the hydrocarbon sector
of other countries. The iational oil industry bas a vry active participation in offshore
exploration and production in the largest Souheast Asian nations, including China, Indonesia,
Malaysia, Thailand, Philppines and Vietnam. The major interational oil companies have a
substanil role in refiery and distrbution in Thailaid, Malaysia and the Philipines.



-14-
Grwthof privae       mi agdovulaes bhedeliningom2  peu              er_pereartin . 1970s, .l.9puemcryar
in the 1980. Fanu factors sem tOD accz  or dibs decline:
* Fh. dclin  in pmbic invepalem ion agdclte educes is promibW and dSos privam  nesuems in iis scar. Research
con&ucmd on the hbk or dam over bs 196O  san  tIs, singgess  nt public ives   in um! physi   i dmsKnucre (.os.
dtcr ifcation, cal itaouu,                 ntal rices (marten. agnuic    research and extmiowi0; annan resume
delcpmrhaven stong iwbcive effet on privan invsnemu   in agtlcums aw flanciai iemodiaDon'ru mrl an. and odns on
aDwl capita .caanilaion in ibe scar. ITe defct.of public  ese  on utpu is large. Pubic inetments in agam  explain
ab0  p ert of de observed shot-rm aggreateorpt gwt during   1970s. dug bao  direfects xlucd Ffes
-n investr ma inpq  ut   by dte privat secr. However. aSer inceasin by 7.9; per   per year duaf   fe- 197ts, public
rveae  in agria   bas dedined by 3. pernh per year ding Ue9 l9.-
Seod.-  H-itaxationof .cul         (pa   121 lowm  ins pmfmblht awlus privevesmns             cm shcar. Tr    usetch.
-mntdand aboealso uge   lit price etens on privae invesmnen m   aggrepe umrgmwt ba  iectos relativy smasl
in dia sbort sn, but lkw in the-longer run.                          -     .       - -                 -.
* Third, e arum policy regwdimuges domesc gal    tradea ibcs-piv  investm                   ensv   fom-
-die 1955Essentl Canodii Act cred to prevn.cmpectvcpFaes whenlndkwasvubnblemtfooddings.    i-- -
f.Acthbasbesaccessafusp  eveagun-competv pacices. tnas alssomvi Sheimcnaad    g1hsWeepig.
powersto isuenotificadnsor Orders. to conaol .a  regut die p Uctio. si .dhtbio  and pr   crssnl c
Virtally all agriculal canaditis ciLler m raw or procssed fonm, ide     p its pviw. fooduoffs ihding edibiloilseeds ad
oils,  -n, jute, s i as fod der icolusodin al aaoskeaatoe an s. Inadtotbe ECA..dimar                e  at mtrA
and Ogden such as the Ma_bauh  Raw Comao Act. ibe Coffee. Tea. Rbber ad Tobacco Acms, the -Forwad Cotcs ACt, te-
Agricultural PrducMarkets Act. dst reulae ft production. disribution. sine and markn  of agriculbual commodities Mm
legistiou pvide he cenml ad s0rC gvam i   the ddLsuomy pwers an tiinor kaiton  rean l                e equmaiy =
wl as  tme fr whicb e ial comms ca be saored: direc any pwdaaeor deiaer t sel stcks o govc            Ie  ad set de
a  . dn can be chargd for chil stnage. In paricular. dais legislatio impoes:
univallimjiq  requiumes for-wholesal cadr,  otrage anl ptoceg Or vLtaally .1 sgitamul coaxdtites;
*        nioveueurstrictos where, for example. official pent e rwquired to move paddy out of Tanl.Nado-nld hAdbmn
- .          ae, edible oil out of Gujztaid oan ou mof  aha .uh-u.t
*        statues restrictons whereby wboese dealers hav to obti storage-enses -nthspeciff c if e mt x in.quandry. ad
s mt  he perWd, for whichpaui dar comodiiesc  bc sord: Most sates le licensing ad strge limits for rice
(e.g  20simin Maliamah. 25lnsin Punishrd   AalxPrdesb; 50     m Miys Prudcsetc)., iesr(e.g.. 40wns
. ..Ein WesleteaL 75 aons in Madhya-Pmkss. sugar (e4g., 2.5 ions ir3nIs), puses ad edible oiL JIasme ins,. as
in UtV   Padesh anl Tami Nadud storge limit apply to all food comoiies;
*        xicolds       restrictions   tprventluedeokpmenofoldamp ciiyin majorfrits ad veamblesprducgsie
. ... a Uaies adr P      d WestBenl                                       ..:
. *      aeaenlb  on Iarms arl  wuad .tradig of -'rd alcomic
*    womiblic orWcu etrug levies of rc and spr wrbyrceand   ur  isaveto sli to tlhcgovermr   a-fixed
proporton(0prcent intecase ofsugar, a  anve fordiffeestaes of aboutS 0  peefor rioe  fdmirpmduwtion
at n priceenemaiy atleast 20 percent below the domesic maet pric.                         ..
.. .... In add.itin diet system though nuii-point ad.maki-agency naxation e.g...octroi, cens and she lee saes _s..
epxc  tax, rguld mrkes 'fee. tl dute) does nort fvor ie-regional ade, inhibiting regional spciim    according to
cp ;i         mu      g     high tsionaof pahginpi. ltalso discrinistes su  te dslptnenit ftie ugop _oes
.   ..   i n u s r   : &   t h   c o . c . m . a . t d v e u d f u d . n o m g r i c u u u . .'
.  lonbc       mepmogrms in seeing-up imeraradc irngnulalc mn dio     Zwmlvemcnt resictions tbrwbat.
* in   sofeorn ars wace liftd io 1993 however, the transpr of whet by nSil inoa the souduet strs was prhiited; In ie
yewr. themonpoly pddy procument scheme ind thfjavur distict of Tamil Xadu was also sspnde  . }fic ndisution
coals .on  wpr nolasses*        aboisbed by the  Center in lune 1993. but the   clpages produci  rtes  UJmr Pbah and'
Ilahnsha) have  uequnfreves              ca.ges.
*01*F  &pritii iion p-proceing eomes to depend on govenmetlieees ai mull sole resemonpolcies eti
de siflugof laje plm   for rice and pelic niffsg prcessn of bent pwodu  (bri; biSUi pasy)  confectoseym
pic&s,;j,.ezu,   d. i  loe oi     s                              : .-...:          .:



- 15 -
While there has been growing awareness of the need for greater reliance on international
oil companies in the areas of exploration, development, and downstream activities, the
government and the management of public enterprises have remained cautious. India is not a
highly promising country for hydrocarbon resources, and it needs to provide favorable terms to
compete with counties such as the Former Soviet Republics, China, and many others. Thus far,
in spite of several rounds of offerings since June 1991 of offshore and onshore areas for
exploration, few contracts have been signed because the terms offered were not interatinally
competitive.  The 1993-94 Economic Survey indicates that "The Oil and Natural Gas
Commission has now been converted into Oil and Natural Gas Corporaion Limited and has
commenced its operations wider the new fonn of a public limited company.  The disvestment
o 20 percent of its equity wiU be completed during 1994. Half of the disinvesmnt wilU be in
European capial markets and the other half will be sold domestically"- While this is a welcome
step, it needs to be accompanied by a famework conducive to a larger private participation in
the sector.
......' ::fff= -: f     ;'fIn                        power,
"   '  =  ;'   f::  ff  .'::'.iS-  :   -'-S    ;.'--  ':  ::   =:     .   ''' --  :'s   f      f:    '::-  :  f--- 'ff -::---: :ff-f....f  -'='.fR.':.: -------,-: ::.':--"-
c  -l1   Fand Ptrr.rae-t --                   hrlz nSm , 11-                          India now  allows full
Gins         on Sales          14  -  .       .fl               .26                          domestic.and foreign
.,-  i:f  -   f :: ,5  _Vy: -a  :S:9f E :  -: . ::........:.:  ....E.:   =    -.   .f: ...:':-- -;. ........ .  -=  - .-...   . ....  .-  ..:  ...    .......ff:    :|v :':'
: -cf :z,       .      -9                74             83              9-             piateR inveRR<,s=,,_ jtR fSi> R''f  ors; anu 1
,,,,,~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~. -,   . ,. ....,,,. ........ .. .. .    R" 
i.d-onmsdc -oaes            f    13-S                          :- 16  21                      exene    pRio             off  > >yi
,~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~... . ....-.,-~.-''  
licensei of 30oyears
S . Ubyto s.,. ;-a-tocked ' ' '                                                                - fR ,''   '   -f ' ' but  wit h  20-yes a r
,.  SA   L   E   A  ................  ..... ~ .. ......   . .... ..............
5tgggQyfl3gflA~  20          1.9            21              21             renewals; and  aor 16i
-.   i:',%0s -.:":f' f.-:  -::',   I    f .Rf::13.......... . .... ........... . ..................  ---   -   ----   ---  .. ...........f'ftR tR:*f  "nepocys
''~~~~~~~~~~~~~~- - -   - - &-   - .   -- - -a  e       ':- -  . ,..,. ,,,,,' cl  7
---                                         .....on.ass                              uara ....n......nte
.vf--.',f .'.:., ...................  .- . :........ .......  .............pri...i.rvestors   'S
"'''f'f<*f-59";'555''~~~~~--'----f- --  ---" -- -   ------ -------- -   ..................................................... -'.hafoIni'
by itheg  istated
undr fie Rigth  lal    Me-----o---ndi ----                  ......y b                      e    m sg ded     pbeseod        o
-----tors alS eEet.                     govenments.    This
goateSibSit powrc deudchas e agtren ewentmfs Cmigd wn ouldrgare enableir Sthe
ve s nsibito cs oe   the Sa....E.co.. and con...ca.y state .s        doesady ... d.e .sal   amournting
.... . .:.......x:pn  iude . aus .  94-Sz .m..ewd.tohR    20 bilio                                               afr
Saurcer  IWmhby of Fance~~~~...  .. .cmmu Su. ey ....... ..:...                      over 32,00.MW.o
capacityeand slightly more  than thee to txal increase in installedpoor pcaacy                 scthe dstt  of a         heved
nEgoticatn weie   poebr purhas   agree ments signed  and  c tepa fr gar van tee  establishig t.e
reposiiltis   fth   SBsan   cncredstte  aredyaprve   b                   bte   e trahoernmaent
However,further....  prges.asbe.cntriedb.heporfnaca  positinofmonst ofThes
SEG(e  Tbe11   adBx1.)                           hc   liit  thei  ability..     to.. pa.orpivt.owr.I h



- 16-
Boxl.?  Sk: Phw  Seemt Remftwacaadn
l!dtkro!!4. Tbe-sma  own the SEBs'and oduer-power generaig  p     which ogehergenm  75 percetnof bldi's
deecy supply and providc moast of the disbuion to fnal canran T.hek of au:k     amy and poicaly inspired tariffs:hves
weakenedmstSERs t the pointof operatoland financial cuiss. Co erallosses of theSEBsare ristand iready exced US1-
biDion per .nmm  as a resul the SEBs have bee 1accmuladig arreas to dhirsuppiers, incldn cerlgovermniellides.  he-
-cost of subsidies to consumers, when defind cousevadvelyas the ditrencebete  Xt    tat wol enble the P
.M:over its-vaiablecostsi adal taiffs, accoun dfr aboutl3pecntoflias GDP incetyeas aoutl-pecent -wa -fr
agriculr andthe bnce for resdenia cosume). Te cost of subdi would a                 perceztof GDP. if esimated-as the:- ;
diffeencbetweenvenefac  a s setto nable thescoroD opratc coum Cialy(i.e. earing reuses tservice debtrd it"- 
maised hum c      m-arkets) an the acuhli tu-iffs.:
:-:e-dismal: performance _ of Er SEIs is te rsultof po   int nce   ltr       g rn-         Aough.the Indian
tticlty Actgranzs ihestate:utmLries considerablemuoo_  in practic ey e mustobmak ssatgo e tap al oftshighest
hpdoicl lvel formost najordeisio  on ivsents, abrifsb      i. salaryandpenonnclpolicisF Moststae
To --                                                                                                   ..t ....i- -i- . .e. 
theirSEWEs to mainin tarifs wellbelow the cost ofsuppl.1  Une h EetiirAiersoniiiyfo  oe  Sihrdb    r
. S j - : a        -        a       =         f-~~~~~~~~~..a..  .,          _ .-.   -= .- =..=.=..~. ..... . .
centrl goveramentanl th st  ates admteefore tIme centrlgvrnes blt oifheesaoe sector poles, aidigthi
realtriffs, is imited. Since 1991dith central oveimenthas aftptentdtD pr iriereisrin Athesaepwrscorb-()lmn
discetionay- financing such as exteNalUnIting andeowurs ~frot  tePwrFnneCroaint  Eszet   roinnmus,
,,perforance eandat and,(),, allowing the ce,=tudl,d, ar operaae on an ngcrcati. gly cmmercia basisa ( ,.r. cu-i.,.we
supply yto s a:ues for which aarrear hadaexceeded a ceataie                       inteds         gu-
: pnval power.eelopuenzin thse -n mnnr. -However,  hfew cxcetico,i              ati:hesateflevelassofreenlimd
f.   ''   f   .:    f    .-  :   E  .  f  -  ::-   -;    - -  :-   :  =   -.   .:   -  s   S   :  -:-    f--ff   f  - f    ps   -sf. ..   ... ...    . ....'.  ---- ---    -  --  . .....
tosafii  rees h  rn  f poor operntoalatlnnaapetbrio ce
jo *vem       .  lid  aem-oennscncndi  coe  93   hgIvlcnrneali     odsu  oe
.. ... ...... ...                                        .: .... ...............
:~~~~~~~~~~~~~~~~~~~~~~~~~~~.            .   .. . . . . . .. . . .  .   . -.   . . . . . . .'-
setrrformns. The conferencem wa  mne  ysno  eta gocnnrLfficialsr  reprsentatrive  onvrull  l                -n
-~ ~ ~ ~ ~ ~~~ .  .. .. .. .  =.... _...f 
as. f    baenenu a reachedei pov  sthaestDrucDaturn aooe sectorwas retl  eeds mpoeoprtonlefiiny
-' oflre; rkassyineswilling n (a) eabrlish cmme        oattype   ne ofeeo taniiioandis-tulltcb)
recur efinne :or sh SEE iflizank  opybs -a reewbs (c  stbishaoiyrmwr prvidngfo?
re-stutrn ad itoduto  f coptto and trnprn_glto  V-a (0 ipeeutuffdutntloig ste :f,lftes::o
Iljsi  n .Ura Pes arid, intena  nr,pssibyBla- hs6 stie  cove itmS fatls    bvea   ela  h
xteeyufcuuan of teSiB,ba                    teir        digslat        wn'seSEBa;btas|te mgn  niwlz   ogaut
a -   stainalC           Mos sates, hwvr;aesiltuoigsw.iC triuini hoe awith hegeeal betretbnnSl
.. .-as. S-fi f= --fj5-*e- -5-6, l¢:t 2f2S'f~~~~~~~~~~~~~~~~~~~~~~............... ....
-f- . f - .- - .--: . f:'. ts :- ff - - S :s 5- - y -5f f 6 f : - S s s -f 5 ff f f....... ...... . :. :f-:..f.-....... .
.i.au n4 am i . -t                     .a                                              ...     ...  ..........  .....-.
Suckh a aaavsow flhna andsAridhia Pmads, sdzcal o not. pecev th)edfrhi m ssauey  r r   beroaeato
oneutedgenerton,tasmsin n iirrihuibncmanler rpac  heOismSue fecicy  oad OeB) ()iati asc   r
- E.-.. a a - -; =< <~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~.....
(ic-5}cveiofOE  int a- reuatr ag-    and--f ---.   elctict taif adutens
f  :   ::   -   -:    =:  f    -  :    ._  -  ::   -   -   -  -   -   -  ...:   :   .   ..   .::   .~~~~~~~~~~~~~~...    .    .. ..     .....    .....
absence of financially viable clients, developers are looking for central government counter-
guarantes  which te   latter has justifiably been unwilling to provride in the absence of clear
evidence that the state governments are prepared to take the difficult political decisions required
to make power generation  and distibuton financially viable. In the absence of such evidence,
the fiscal conseqences of providing guarantes are unpredictable and have potentially  large
destabilizing effect.  As a result, however, it is expected that only 1-2 of the more advanced
proposals will reach the implementation stage during 1994-95, and only a few more are likely



- 17 -
to follow in 1995-96.  Several states have shown concrete signs that they are determined to
reform the power sector and one bold program has already started in Orissa (Box 1.2).
However, untl this process gathers momenum, pnvate investment in the power sector is
unlikely to reach economically meaningfl volumes. A similar simation prevails in the case of
roads, where the urgent need to increase investment has led the government to open constucton
and operation of toll bridges and roads to private investment. The response has thus far been
limited, however, because the existng legal and institutional framework makes it difficult to
acquire land and charge tolls (Box 1.3). Finally, while its significance is difficult to assess, the
states' attitude towards private investment has probably acted as a deterrent which has had an
impact across sectors (Box 1.3).
f~ ~~~~~~o -1-: .nitaoa -oa  ic  -aes I-s'emoeng               0X
Pwtelmneagreent in Reads
Pens ai:e 1993-94 F naic Swr. Readso haie alws hem nes    owed by  b
:-Depemnu. fThe budgeuyaacodsfor idMieNowi l5hwsi 199-3wi-94 h5.5t7crore,mehganhzcrease f iespesrz-
aver 199293. The o re not adte o meeta        g asfed abt eNai          gas
in esate stabl eiy oijtfa afeeon selcted radian of Ntina liiny.- 'Dlir .11¢ per-u de pnaz seoto pwaae:r
caus&nodn. uzbarntere -and opeaudion of oads onBaKpeaendrisr 02bsnRwe,tckqleJumwl.
The Bal    . Sates hinzu&traeh Inestent
eu  the Jima 1993 DirIeassim lPaper -Severgovnnmrpoypnenhvehihlihtedtharbrnaddmestrivmeimitvmenr;
o f dergaldonx and debzweacdzdo u( the in ia iesa ytem: Cn eda.sfrawg poskive resusejtomonskpro*w 
.- .and conawne   -- E'evr wfilfaeonm   iiv&z and prodwcsnhae be shry redce sibek Ceztatom.
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~..     f. ..   .....p   .f.
th  ieadfca ei oinzab  nru  n zery=arnerabray*Oif rtse           n reoucsfra  uhmt s
tei r e-fos-  progam    S e Jlf y 19,        b     f r
the-r               ~           e      -- ecnoy th  cominaio  ofsector-leveinstitutiona and polic  frmwok  no sufficiently
..,'.,.,,.'.'~ ~ ~ ~ ~ ~~~~~~~~~~~~~~~P". ':
supportive of private investment, resistance of public enterprises to private sector entry, or
insufficient complementary public investment may delay the response of private investment to
the liberalization of the economy. Addressing this problem would requiire extending the reform
.process to sectoral misties, the states, andi public enterprises. It would also need to include
furter measures to deregulate factor markets, in particular urboan land markets.
Inflaton
After declini  to around 7 percent in mid-1993, inflation has been d         n  upwards in
the second half of 1993. It reached 9 percent in early 1994, and exceeded 10 percent in early



- 18 -
Table 1.11: Evo   et ot. dW ic Friex, 11-M93
Weight      June91       June92         Jun93   December93
WPI                            100410   100(112)   113.0(13.0)   '122.5 (84       126.2 0.Z)         26.2
Primary Articks                 32.30    100 (       13)   112.6 (M6)    116.9 (33)    123.2 (8. -)   7.5
Food                           17.39    100 (.6   119.4 (19A)    121.6 (L8)    1Z7.3 (6.2)          4.7
Food gEains                   7.92    100(18.6)   126.9(639)    124.9 &LG)    139A4(12.6)          31
Non-Fbod                       10.08   100 (10.1)   103.7 (3.7)    107.4 -(3.6    117.1            -,:9)1
Mn eas                         4.83    100 (6.4)   103.6 (3.6    122.5(153)    122.5(17.2)          0-9
Fucl, Power, LUbEcIS            10.66    100 (9.2)   112.C(12.6)    1332(182)    140.0(13.2)          4.2
Ma-nacturedpmducs      .        57.04    100 (.4)  -1133(133)    121.0 (6.        -125.6 (6.9)       145-
Foodprodcs                    -10.14   1002.0)  =11O5M(105)0   1215 -3)    123.5   0              -. 8)   2.4
Tiles                          11.55    100 (5.1) I1  9.44O A     116.7 (66      122.8. (PA        - 6- -
Chemicals                       7.36    100        115.89(253     129.1 ( -5)    132.3 (5.0).       2.4
Metal and Metat Produc         . 7.63  -: 100 0.7n  -110.9;       1162 (4.7)    1. (1 -1'             7     -
.ftacinery                      6-27      0 05 ): (P $   114.7.7)    1193(4..    119.8() i-
AdministedPrie                  15         1.....                                         ...110....... . 4.
P-:-.c -n    - gas              4.27.    100 .6 -.101.5             12324.--    -3:::  .             10
0 D 4= lZ S l0i3;~~:6-6 -                                                 12.A-4     :--S
Petokle iprodns                 6.  :     100:          09.3         129. '        129.9             2.0
-   Coal                            1.26  l100::_         127.4:        -146.9         1502-             0.
Electicity                      2.74-.   100W-         113)~        _1343-         153.3             IS
' Urea               -09                     10- 0       130.0         127.9          127-              03
ken and stel          :         2.4-:  --.100..   - -13.7            117.0           3.7    0.67.
-- 0~~~~~ N - - - f --- ~~~~~~~~.,  ........  .......                    -.                   . ...   ..  ..,_,
Th--asphacfiiz                   0        -100e-: 13- WA7                                       . -  0:
u       sh ;' '  '  - -''"    - '- - -- f  -     - '' -  -0.06  100  130"-    '-'453  292.3           -0 --.
-AUUDmOniU13phosphate            .2       10            3            315.4:_       -315.4             .3 
Lubricating oil  GAS     100          ilL         1~'60.-         .160D3            0
Notes:  T.welvem.1onth poinz. Uro.pct ae in prethees T6:he atcoliumn inicatesceadi etcnrbuint h
-~~~~vm   mm  ti                    -itemF  1P1,t_Cu         b.........................  .. ... .;. .. .
,  ., ..  .., -   ~ ~ ~ ~ ~ ~ ~ - -  --  ...... ..  ..-..0  
Source: M6inistry of Fu eiace 1993-94Ecanoiniesurvey.   ..
April 1994. Cost and demand factors have played a role in this acceleration of inflation. Close
to 40 percent of the 26.2 percent cumulative increase in the wholesale price between June 1991
and December 1993 (Table 1.11) is accounted for by increases in food prices (3.1 percent); the
lifting of controls over previously controled prices (1.2 percent for iron, steel and steel products
in January 1992; phosphatic ferdlizers in August 1992; lubricating oil in November 1993); and
increases in still administered prices (5.4 percent for petroleum products, power tariffs, sugar,
coal and  urea).   Increases in  several adm               istexed  prices in  February  1994  (rice, wheat,
petroleum  products) have added additional pressure.  Procurement pnces of food grams have
increased  as their international equivalents have risen  both because of the devaluation and
increases in the international prices of wheat and rice.  While increases in administered prices
strenhen  the public sector financial position and reduce inflation in the medium-term, in the
short-term  their immediate effect is to accelerate inflation further.



- 19 -
On the demand side, the monetization of capital inflows has led to a sharp increase in
base money (25 percent). This increase in liquidity was particularly rapid in the latter part of
1993 and the first few months of 1994. Together with the increase in adminisered prices of
February 1994, it contributed to the acceleration of inflation in early-April 1994; it has also
created the potntial for a significant further acceleration of inflation in the next few months.
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~.     .   . . ..   -... . -   -.        . . . ,   ...e.-es
:: PgcreetPs.                     ime-tioi-'os        -      Noia Peeco Coffcins
(R*) -              (     ~                ---------
. . . . . . ~~~~~~~~~~~~~~~~~~.   ..   ...   ..   ..  ..   . ,,,,,:-= =.:':
..  .'..  ......                                                 - :,,.
(finp)   6Ep         Ip        Ep
:-19991-.-  3.2(S9)   2.3 CLO6)     5.4       2.3   -0.4          051        0- B .1
* - Il-% : t 2 @ 7A~~~~~~~~~~~~~~~~~~~~~ .                   ..   3.. 3 .   o,.z i   A
K  199-fl  36(49) 2.50077    '7A4  -      3-      0.43       05         .9C3
1992 ;   4- (52)   3.3 CM        8.1       4.1         5        06        0      -s  0.8f-
: -19 W.  < 5.0 .O)-   3.501    . 10.0      4.3-       a. :                     -    -n:m:
Noe::  .No:rm pmmnw coeffcient efer lo [he raio or d-msic to intrational pncsa fircohmi (at id-te.-a i
.'--.'-':'.:'-:a' iu   ivlt is       assum    'commodiyis aetablel (ip titi 
:: . p--uese <pi  indsiscte diemtio.of dom  pocupmeitpies to inteaios ones. P cenrpubrdces   flue.
,.  , - n .  - -                                ,. -......
- 5IffI  MlIIi' '  ' of Ag*" tr and Ba'  Staf L  ' ' tima'tes.EE
Recent Developments in Money and Capita Markets
Since July 1991, there have been several important developments in India's money and
capital markets.
*      Eirst, as a result of some decline in inflation and relatively rapid growth of money
aggregates, nominal intest rates have been declining gradually but persistently since
mid-1992-93 (Table 1.13). For example, the upper range of (unregulated) interest rates
on certificates of deposits has declined from over 20 percent to around 16-17 percent
during the last quarter of 1992-93 and 1993-94. Call money rates declined from 11-13
percent to around 5 percent. Maximum (regulated) deposit rates declined from 13
percent to 10 percent, although in recent months actal rates have been about 2 percent
below the ceiling. Measured by the differece between 364-day Treasury bills and WPI
inflation, real interest rates have increased and then stabilized at around 4 percent.
Relatively high liqidity in money markets and slow growth in credit to the commercial
sector (Table 1.14) led the RBI to reduce minimum lending rates for working capital
from 20 percent in the last quarter of 1991-92 to 15 percent in the second half of 1993-
94.



.0- ~ ~    ~ ~ ~ ~ -0
. ..64da 1.-.1-dy                                   inins        Maxirnnt    Certificales    Inflaftion"
Rate             day                  Leading2DepositRate   offlcposi#
flbozbay?                                          az
1,99091
Tunic    13.5        .~~~~~~~. 10.0     4.            6010.0                 10.0- 16.3       -9.7
September   ~~15.2               L .  1.0  -4.6 -16.0: -                10.0     1.-1.              .
*  Dcetnbe          136         ..      LtO0       46           :i'6.0:       .11.0     10.0 - 13.1      1.
*  Niach.  Its      *..     10.1      ~~~~~~~~              ~~4.6  -16.0  11.0    .1.-14.91
1991-92
Jlune          *. .-24.3      ..     -10.0       4.6'.        -17.0          12.0     12.0-16.8        12
..WSepternber  ~121         .       10.0     -4.6           18.5           13-.0    11.5-16.0        15.9
Dccc be  127...   10.0~~~~~io          4.6'         20.0   .       13.0'  A125-17.         1...43
March   ~~~:'14.3         .       93         4.     .     19.0.        -13.0      12.0-1.7.0       136 
-1992-93 -
June  L.8      .11.4        .      ~~~     ~     ~~~~     ~~4.6-:: -     19.0  ':13.0  12.3-r-25.0 .13
Sqsanber   114      ~~~~11.3.   -         4.19013.0                            13.0 -20.0       10:.
December  11.2  112.:      .. ~~~~~~-4.6-    . It               12.0      12.3 -17.5
MatCh       ~~~~13;9    [I.. t                     .     17.0.          ito0. ... 12.5- 165-       ... ..:.....
December  53    11.2       -.  ~~~~~~~ ~~~..  L  .  50. .00                                     ......7..
Averagcforlbeinot.  . . . .  . ~   ~    ~    ~ ~ . ...... 
- 1iijidk~yiant ut-off paice (for-dir-lmasrion ahetab)io . 364-day Traur   i were Introdcd ia
P4f9fl .' agiw-i; inM  throughpuuodic uwdafl  No:fresh 1,ay .Treasuy BilS were issued~ af ...er
Apl16  99. -Sinuce amury-r1993;:91A-dayTrasuryBlls:m bein -peiodically -4   Earirerte
..     .   ....... were... soldcamps t6%                                                                   ........
.. ... . ..    Re..ers ltasecrtdpah   pc  prl19     were.fixed brdifferent           rtes s
3-7   rnmrmw(             -)f(3s of&iiMlnrddes .. issed-duriingfthe lastformighto die mnth.
..... .bo ....r..         .S  s*......,pon-r-oit
* ......... .. Seon    these rdcion    owtsadigtera    aleo   h                           iimmlnigrt
(MLR) has remained~~~.. reatvlyhih Th.mretpecptoni  tati.te.L.wr
removed......   m.   th.urethuz    od.o.l.d.                        aeswud.eln   t    run    21
aSeond atperepto thatctions artwificiallydighIXi thera maine resnfo the stagulnationg oft



- 21 -
Table 1.14; rssunes by Public and Private Compan, 199-"3
(Is billion)
1989-90         1990-91           1991-92           1992-93
Private                   79 (940)         64 (1.074)      123 (1.243)       209 (1.328)
Equity                    20051)          29 (841)          43 (868)        102(1,117)
Debentms                  59(189)         36 (233)          80 (375)         107 211)
Governmcnt                 42 (21)         62 (71)           71 (20)            4  (3)
Equties                    1 (5)           2  (14)           1 (3)             3 (2)
Bonds                     41 (6)          61 (17)           70 (17)            I  (1)
Total                     121(961)         26 (1.105)       194 (1.263)      212 (1,331)
Memo h=em
Toulas.%-of GDP -:    :                      2.4              3.2               3.0
Notes: Number of liesm in: pasb---s.
Sov -RB!.
bank credit to the commercial sector and firms inreased recourse to domestic and
iernational market (see below). The RBI has maintained a relatively high MLR for two
reasons. The first is to maintain a relatively high spread for banks, profits from which
contnrbute to recapitlition.  The second reason is that with the RBI committed to
reduce the CRR and SlR, and in the absence of a well developed secondary market for
government securities, the MLR becomes the RBI's principal monetary policy lever: by
keepmg the MLR high, the RBI limits credit expansion, and hence deposit creation.
Third, primary markets for government debt are developing rapidly; secondary markets
more slowly. As a result, instruments of monetary control which had traditionally
focused on the multiplier of base money are now gradually shifting to the control of the
money base itself.  Until July 1991, the main impediments to the development of a
govenmment securities market had been: (i) low yields on government obligations, which
meant that the demand for such obligations came almost entirely from entities forced to
hold them; (ii) auction procedures in prmary markets that failed to reflect market
conditions; (iii) a limited range of Treasury instruments, particularly short-term; (iv) lack
of a dealer network; and (v) inadequate transactions and custodial systems. While further
steps need to be taken to develop a dealer network and improve transactions and custodial
systems, the measures taken over the last two years have enabled the RBI to inrease
gradually primary issues of both treasury bills and "dated" securities (bonds with
maturities exceeding one year). In April 1992 the RBI introduced fortnightly auctions
of 364-day T-bilis, which have also been extended to 5 and 10 years dated securities.
In January 1993, it began auctions of 91-day T-bills. Auctions have also been extended
to 5 and 10 years dated securities. In January 1994, the government successfully



-22 -
auctioned Rs 30 billon in five-year zero-coupon bonds for the first time. Finally, in
May 1994, the RBI announced its intention to establish a system of prmary dealers.
i 0 00 L - = - ~~~~~~~~~~~~~~~~~.                          *.. -   ...   ..    .
Tabl 1.15: dcrMidr  nktn  919
-(~BPCU     -              ;                  ----- ---
* - - ~~~~~~~~~~~~E    -iri Of om  --***     ....
.Lre  .ggae          .909 .s-                                                    nua..n  . :....
. O CWOYrcadXsUYCq'                           17(1(I W)       995(100)        1.109(LW)  1,356(10) 
-- Nct cft1c d iGoVen-I                        888(149)         940 (44)        984 (39)     g6(0).
N ..   e. change asses(IW                     80 (19j         188 (93)        226 (33)   S14(10)
Other antse (aO       : -                     -91 (-)        -133 (-          -101 (8     -114(-4)
Scureesotrfd -bm-.                           2.658(100)      3.170 (100)      3.668 (100)  4.320(10r)
- -tutcmditzoov immcm                      1.402 (56)      1,53 (35)        1.762 (36) .2.041 (43)
Cxcdk-m-,o.m-.- = ....... = ,  . . -,nii cklscczor-  1.715 (58)  1.880  32)  2.201 (65)   259 (24)
.. u - ~ Net.fomignexchangcasets  ...............106 (11)    212 (21)        *250 ()    -537444)
Other asses n)   -.               .         -567 (-35)      -505 (12)         -54 (4)   417(-1)
MM=iase Money                                    3.03.          .3.19             331  -    -3.12
M31GDP'       0-30                                               05.1    0.5             :   :0.4
-rwt mit
ResezvenDney-                                   13.1      .       A              11.5       25.0-
-M3                                             15.1            19.3            .15.7       17.8-
Nominl GDP                             .        17.8            160              14.6       130
Not:   The flow as a percecage of m change in base maneyr the chane n boimoney sack-is in pavdies-e In1remsam
foig atss follwinga deval.auon am offset by dedines ic odter as. :.
Sourn:  RDL
*      Fourth, the role of capital markets has increased sharply. With the  itfing of restrictions
on firms' access to capital markets, private issues of equity and debentures in India's
domestic capital markets rose to Rs 210 billion in 1992-93, i.e. more than tripled in
relation to 1990-91 (Table 1.14). An addidonal Rs 75 billion was mobilized in
international capital markets (Table 1.17).  At the same time, however, reflecting a
decline in their creditworthiness, resources mobilized by PEs fell from over 1 percent
of GDP in 1990-91 and 1991-92 to a negligible amount in 1992-93.
Baklnce of Payments
The Curent Account.  The dmatic improvement in India's external accounts, both
current and capital, is one of the most remarkable results of fte stabilization and reform
measmures taken since July 1991. The current account deficit declined from US$10 billion in
1990-91 (3.5 percent of GDP, Table 1.16), to US$2.9 billion in 1991-9f, US$5.3 billion in
1992-93, and US$0.8 billion in 1993-94 (0.3 percent of GDP). After two years of stagnation,



-23 -
-.                       .      Table L16: nIBe      - hymmnts, 19509-
-(USS billion) 
' ::   '          ' '           -'  --  :  68~cials                 -P-mjecd''--:
90-91   9-92-  92-93    93-W4"          94-95-       9S9       :96-97
Exports, fob                             13.5-   18.2   :13.8.    .22.6      ,-:25.902,9 '    29.6         331.,
Imports, cif                            -27.9    20.3    22.9       24.4.. -      28.2.       32.2   . 36.5
ofw oCnudeO&PeOtmR        '              6.0     5.4.    6.1A  5-                7.0.'    7.R              8.7
o. w Capital Goods Imports               5.8    -4.2 -. 4.5 --   n.a.        '   n.a.- 'a. .ui.
.:  de Baac    -           - -.:           --9.4   -1--.1'   41' ':'   :;              : - ' ---.-2.60       -2 E .7
.Nouhfctor Services(net).0   0                      .-      0 .2      13 -                      13 84
-NeFactor1ncoe m:.:-3.8-4.1                                - .       -3.7  :;.                 -4: L.
CununtAccoontBalazc                       04    -2.9'   -5.3  ' 0.8              -2.6          27           29
' *P       --orciglnvcstrtb.l  .             ,02      0 :     04        4.                        3.0          3
Loans                                  14iN     3.0      1.7      2.1.- 1.714                            16 .........
' ':.-' -: iBi. --, ....................s- i.: =s -:f- s-:- :'.-- ....... '~'IS s' '- =Sip'' ........ s... ...,.:,....
*Disbirsemmns  S3.6              4.4: .    3s 4         0                                 41
'A- Ce.mouimtion                      L'      s "     sI .4:  .7 .2                                       .......s....
oj       M04        023          .1           05-06-
-Cu    id- 113   d  1W5                         -0e      19          0          0       .    0.        -
ccisinor apm,in<'  -ci            :       0.5     0:   X.0-.    9- 0n.5-:        .04'  04                   06.9:  - -.:39
BiaelArgenXt ..                  .       ...     ....     ...      ..s'- '  10  1.  10: s  -0  -0  -0s    -0---.78 -
NonesidFCnarleU                                    S        3        .21116-0
,~~~~~~~~~~...    .. .... ...                     ....-t '  : .    . :. .. .....  ..........sL'-:' : 
Not~~~~~~~~~~~~~~~~~~~~~~~~~~. -{:..-... .                -       =.... .......   ... .-- s- ........ sS-s :
CbangcinGmsv ~  .~......18                        34.      L. 46                   7 -04                    0
Eciernal Debtpes le ntonmn               28r shor.4cnr.3    3.9..  37d  376 3..9.    .  ..3:.....
d  Net Sfows ini non-residcu:ndian dposit sems, ep th non  aribN(NRD              me (Dox 1-9!.
ei Sewvicing of d:: R:ussia debt.
Soure .Goveruemrof India, RBey   ank of lndi,. Minisi  of Commece and Staff esnae.
. . . . . - - - - - . , - .~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~..... .. ...... ....... 
percent in 1993-94. This growt  is broadly based in trms of markets exports to OPEC
countries grw  by 34 percent to non-OPEC developing couties by 54 percent. and to East
Asia by  61  percent) and  commodities (agricultural products, ores and  minerals, gems and



- 24 -
jewelry, chemicals and garments). Several developments explain this export recovery. The
depreciation of the real exchange rate has significantly increased exports' competitiveness (Table
1.19); the reduction of tariffs, together with the slowdown in domestic demand and the
expectation of further tariff cuts have led firms to reonent production toward export markets;
and improvements in the administration of export promotion schemes have provided exporters
better access to intermediates and raw materials at international prices. On the other hand, non-
oil impcrts have declined from US$22 billion in 1990-91, to US$15 billion in 1991-92, and
US$17-18 billion in the subsequent two years. While the slow growth in manufcturing reduced
demand for imporled intermediate inputs, the 1993-94 Economic Survey of the Ministry of
Finance suggests that this decline also results from a lower import intensity of production in
response to the depreciation of the real exchange rate and the new economic policies.
Prospects  for  the   Current  -                                             . . . 
Account.  Provided the authorities are       Box 1.4:fm    6udE by p**  *ad
able to maintain the CompetitiveneSS of  ... ...
the real exchange rate, prospects for    aiDew r, Rr  (01)  eu ime
maintaining or even exceeding 1993-94    & o           s Do     Bank (ODB) autorid bY, the
export performanceare.issumgcompany toissueulsidekndiaGDRsrnon9-resdetmesrs.-:
export p    m arce aIEfuavorable.  The  -"       ::S-ts: deiived :1  a D ines&QioDdimn Bink who
external environment is expected  to .inst due ODBD a issue GDEs aainst dUeasitlds... Ah
improve compared to the 1980s. At 3.4 ==-               s     n      ui
shmpor iaermuiafndeDeneofcomc AffairMat:-
percent for the remainder of the decade,    t  i   of.Vnce  he shaes corupoad rote GDRsi a
the weighted GDP growth of India's            %dfzarnwbp1:)Ruan represent Sdsts). -he GDRs
wtading partners is slightly weaker ta    u      sed  maae-`- frmandaretp lstdn
counry tat oes or m api.. gDUain  ean be tradied- on
the 3.5 percent achieved during the                   ieid -Ou  GDscanberdedat
ueof th conrreponding ordinary shamorbes  i issuing company at.
1980s. However, at around one-tewth of    t        5=-po, T
one percen, India's import penetration    inm-ari dr st  company and are jec: to ibe ceiling on:
ratios ina major industrial country markets    --  e.uit .a.
are extremely small. Even in the clothing  -= -cbC ECru bosbWeann-eid
sector, India is not a major supplier; it    i fore  cumincyand    loodinaharsofthessunwgza
accounts  for  only   1  percent  of        T     bc    that ax,-esto O
consumption in the European Comunity   -ompa.                        i        a ..e-. .:
and in North America, and for a
considerably  smaler sare  in Jan.
China, though a relatively newcomer as a
major exporter, has notably larger shares than India. The expansion of India's exports to
industializd countries will thus be driven mostly by India's domestic policies. The shift in
composition of trade towards fast growing countries in East Asia should support an acceleration
of export-fast growing East Asian industriazg countries now account for 12 percent of
India's exports and Japan accounts for another 10 perent. in addition, the liberalization of
textile trade under the Uruguay Round of negotiations concluded in Geneva in December 1993
should provide some further support to the growth of India's exports in the second half of the
decade. Finally, the rescheduling of India's US$10 billion debt to Russia (repayable in upees)
has established a payments mechanism which should help restore exports to Russia. The future
evolution of the current account is expected also to benefit from relatively low interational real



-25 -
US$/I,BOR interest rates which, compared to the 1980s, the World Bank projects to be down
by 300 basis points. As of March 1994, 45 percent of India's estimated US$93 billion external
debt was at variable interest rates.
Based on these prospects, exportr are projected to increase in real terms by around 11-12
percert in the next three years, less than the 17 percent real growth achieved in 1993-94 (Table
1.16). Assuming a GDP growth rate of 4.5-5.5 percent in the next three years, import growth
is expected to accelerate from about 6 percent in 1993-94 to around 12-13 percent, as a result
of continued trade Liberalization and reactivation of the economy, implying a relatively high non-
oil import elasticity of around 2 for the next few years. Based on this, the trade deficit is
expected to rise to US$2.3 billion in 1994-95, and remain at about this level in the following two
years. As a result of these developments, India's current account deficit is expected to be
around 1 percent of GDP in the next few years. The external debt to GDP ratio is projected to
decline from 38 percent at present to 32 percent by 1996-97. Evidently, the dramatic changes
introduced in India's policies render more than ordinanly uncertai any projection of the balance
of payments made on the basis of historical parameters. Indicative of the difficulty of projecdng
the future in a rapidly changing environment, the stregthening of India's current and capital
accounts in 1993-94 has been far stronger hn had been anticipated a year ago.
Table  C .;7~. FOZI .... D .... ..=...
,~~~~~~ .... i. . .!g''.'  :..i!_            .  '  =' 
Forei;n Dkect.m n. . '-  - - - .  .  ...                          . :
Fnr'gunti  nh  Inv e'... acet  ...  .      ..  .....  ------  --- -:,-
:UO5OdD              -         .          0, .          0     I     4       9 1.51:..Q 3.: ^
... , . .  ...    .:. -:                              0 .  :   .::
T':' Pe'Fitifola  estment :  '    ' .    ' 1.......0.     0       24'''2      4,1: .. '. *
,' omtlDir lPorFoio Invesmnt  :.* ,:: :  :.. ' . 165  .  :148    .3544        .4.71S
I) a* 5 f:-2n:ityFrpivesus at thorr shamis best fan25-p cof ifie'equit3rcopib1 mud non .:. .'
~~~~~~~~~~~~~~~~se. to be clsile u.,e ,,.,,.K ,,. . e.s.......
:ouwc .f .M&inisteaiyMi of Fla. .................. ...:.D. .                    ..
'  f0  f-' '-f; f'f -fl" . . .:. .,. .   . . . .
. '. . . . . .   . . . . . . .   --<   - -       - D. . . . . . .   . .
The Sirengthening of the Capital Account. Foreign direct and portfolio investmeut
increased from less than US$200 million in 1990-91 and 1991-92 to US$600 million in 1992-93,
and US$4.7 billion in 1993-94, with a dramatic acceleration in the second half of 1993-94 (Table
1.17). These inflows are the result of the governent's February 1992 Budget decision to allow
private and public Indian firms in good financial standing to raise funds abroad through



- 26 -
convertible debentures and equity issues, and the govermnent's September 1992 decision to
permit Foreign Institutional Investors (FIls) to operate in Tndia's capital markets. The total
investment volume by Fils is not restricted. They are allowed to invest in all non-government
securities traded in India's primary and secondary markets, including deber','.s and shares of
private and public enterprises. No more than 24 percent of issued share capital in any one
company may be held cumulatively by FlIs, and no more than 5 percent may be held by any
single FRI. No more than 30 percent of FIs' portfolio can be held in debt instruments. The tax
rate on dividend and interest income is 20 percent; the tax rate on capital gains is 30 percent on
gains realized before one year, and 10 percent thereafter.
About US$0.6 billion of the US$4.7 billion of foreign investment in 1993-94 consists of
direct investment. About US$1.6 billion consists of investment in equity shares exclusively by
FIIs attracted to India by the prosects of dividends and capital appreciation; and about US$2.5
billion consists of investments by foreign investors in equity shares (UJS$1.5 billion) and
debentures (US$1 billion) issued by Indian firms interested in raising capital abroad at a lower
cost than what is available from domestic sources  The debentes are convertible, and carry
interest rates of about 3-4 percent.
Such inflows could contiue over the next two-to-hree years. First, the pipeline of
foreign diet ivesunent continues to build up rapidly. Com ents are at about US$2 billion
a, year (and nsing); under stable macroeconomic conditions and no policy reversals, actal
foreign direct investment should gradually increase towards that level. Second, India is at
present under-represented in the portfolio of FIs so that the growth of portfolio investment flows
to India could exceed the growth of these portfolios for some years to come. With a market
capitalization of US$87 billion, India's capital market is among the largest in the world. In
theory, FHIs could own up to 24 percent of this market. In addition, while ths far FHs'
investments have been exclusively on equity shares, the potenal for investing in debt
instruments is considerable. Third, to the extnt domestic rates remain above international ones,
Indian firms will coninue to have incentives to mobilize resources abroad.
Compared to Latin American and East Asian countries, the inflows in India have three
ditctive feaures. First, contrary to its East Asian neighbors, where a large share of the
inflows consisted of foreign direct investment, inflows in India are mostly portfolio investment.
Second, unlike Latin American countries where short-term capital and bank deposits were
predominant, India's consist of investment in equity and debentures which are costlier to reverse-
-both because of the differential taxation on short and long term capital gais and because
significant sudden market reversals could imply capital losses. Tbird, because of its portfolio
nature, the capital inflows in India have no direct effect on the banks' deposit base. Monetary
effects take place through increases in base money resulting from the RBI monetization of the
inflows.
However, capital inflows have surged at a time when the current account deficit is low
and are putting downward pressure on the exchange rate. The RBI has thus far maintained the
exchange rate constant in nominal terms by purchasig all the excess supply of foreign exchange



-27 -
Petd 198gm  f~~~~~~~~~ar.tgmgoof  tR.nL   3..~~~~~~~~~~~. f..a.... ..  
Pbripolb-   ~   ~    ~     4~.I~US5IhoiWtFV*
. .   . .......~~C               a b a f r i o            i n-9 9 2
flee.            107                    23~~~~~~~~~~~~~~~~~»~~~~~~K  2.1..... ...  ... .......
ibawas  ~~~~.  . ...10...                                                .s.   
Maidys                                                                     ---4 -.----  ..  ......
--2 ...jg:~~~~~~~~~~~~~~~~~~~~~~~~~~. S'.
'--Soun,et Portfoliokvesmaeairi Developing Cmnre- World. Dank Dinsmion Papers December1993. MFS
Tlll1:Real Pzdmngr Rote-of Jwb*PgolJ TradlniafhsdCmpkr  9119
owdpedod):
193
Expowt    29xi      1959      ins9      1 11592m                        Bri      i
- MIS:                     ~~~~~      ~~~~      ~~~~~~~~~0.93  LOS  tOO  1.26  1.30  :1.39  1.30    1L.31
lltManMarket
... USA  :.  .       ~~~~~~~~~~.20.0  1.20    1.0LOS  1.00 -  1.02      LOt1      0399      1.00   :L.00
lopm               .~~~12.2    :1L46    1 .LO     tOO       0.95    .0.97       0.91~    0.84  .0.90.
*Cerm sy..                   t        1.69      us1      i.0o      0.99       LOS       LOS,    I-Os . 
''UN                 7~~~2    1.56      1.2R      1 00      0.99      1.19,  .:1.17       1.15     ILL.
p               5-4      J .76~Oi   ID9      1.00      14935     1.02      1.1       .1.04   1....a
Muiayuja       :    ~ ~~~~~~           ~~~.8  1.03  1.03  1-00  0.97  :.028     0.17      0.8      1..
Pbih.pprnea           1.17      0.93     .~~~~~~~~~~         ~~~~~~~~~1.00:    0.98  10.8  10.3  1.1  .s
0-1  LOG       1.00      1.04      1.06      106       10 .1.0     7 LR
Mwapove                          .   .04      LI0S      iw        0436     10.09       143       LOS      na.
IIoigIC*ui                          LW4       Lii1       1.00    . 0.91      0.82-     UZ        0.77.   n-a.
-yr      Index o acanurys  niim1 tango .,vis-a.vis iUSd ivass     dbyndcmu.nykw  ikalice idex ur*if
Sp  irn rAzjbt B -thffestomnne pc be



- 28 -
at that rate. With inflation at 8-9 percent during 1993-94 and over 10 percent since April 1994,
this has produced a real appreciation of the rupee which may undermie continued strong export
performance (Table 1.19).
The 1994-95 Budget
Highlight
Box 1.5: Frmn te 1994-95Bdge! Speech
Opening New Sectors to Prieataes tmnnq et .Int m dfl          The  1994-95  Budget  presented  to
sech latf yerr I had anowwed the extWlmau of a   h-   Parliament on  February  28, 1994  is this
Powerd COmnDuiee to    they insewmte usay  anad ma    government's fourth.  While continuing the
recowwenatons on direcions for iS developmenn Phar.
Vhe Commiee on Refnas in the fInsuance Secaor -s      process of sructual reforms in several key
wapied wnadr Ae Cawanhip of Sini JN. Malhoa           areas, in particular taxation  (Box  1.6), its
Jbrnzer Governnorof the Reserve Rak of IndA  The C -nu -e
fiasr Govemosr of the RserE nw mkof Ar&es-  rany      major objective is to reactivate investment.
lao recemfy submhredkis reposs, which nd ecores the ,zeedfr
pro gressiedregadtonofLtesurnceseorio createa more
cometid  .and ftaCa*  tsag  irct               y,             fkwt. the investment climate has been
-uefn' w-R l an- odaUf ragsJcory- owwdgad Zne
rep Dir isnoudea    c     rw                     -     I       mproved by the decision to establish
--   aen ion  ew&lve a broadnat    csesu abo  thie            nea ful curren account convertibility
fiat,re dhwh azdcongawfrqerformt i1   iyos clr-
-ktare dire-tion and contenr a  -n thistor         and reduce tariffs, thus signalling the
--  steps have been tan ch oilff a             government's commitment to continue
e-pl on devslopment. refining andinah   We proposeliberalizing  the  trade  regime  and
-  ioatfa development. -own and wakmg - -Wc PrIDMC -- -
to deepe   nd zazsty- thse unnae.  To -r me                    integrating   India  into  the   world
modeinisain ad investsent inth coald ndu, GoveDnmen           economy-a  signal  of  considerable
irewigM &paMyfr=eoAJr-bi_:pMMaX    and. -
is revcew ng Ste pokey frahla%rkfbr mv-sonz  -    ~           imlportance to foregn investors.
distrlibton  -New bzinitatve are antler cosiertin ttth
TelcomuitonsSectors...   -;:
--::- *  Second, a series of measures were
1mpreviug the; Funacomg -aof Cap1i Markets ... The
Govermme  ates high pnrori*to rjns of hecaiftal. intended to reduce the user cost of
m a       deaimd at reanmgan  4r  an.d coi caa                capital.    In  particular:  (i)  tariff
maiic2*sXj  ikediv     rpai   byAe  -Secuari6mcisd
m-  s subjcto eaive Segulationby the: Securitesi and ---reductions    were    particularly
Ewchange Board of Inda OMEBI which villesra aet
investorp otedtio  Atfferaateoraymak     llowin                pronounced  for  capital goods;  (ii)
t-eseaniies J scam the cq*d-pariitre!-ve:und                  banks'  minimum   lending  rate  for
- -... : MT"c    a     is conM2cd e   o.gkioo 
:  Wp : Mmark drdnpa*s          ordr ngpic                   investment pmrposes was reduced by
-h a view to eming tranwroenaiquand speed. of-- s eone percentage point to  14 percent;
The mode! Natnal Stock xchangewihsrebadtadg
is   e      et-                                                (hi) as part of a major tax  reform
establsm    of. a Depositoty SWsn of scrjta ing iti           (Box 1.6), particularly of excises, the
anodueruwnarobieciive =ovenmm        dstobrbbej =              cost  of  capital  was  reduced  by
-Parian .t  l.hc            for toe    . i6       a-llowig finns to credit excises paid
-mendments to the SEBI -Acf-and theF Secri-ies Cor seon purchases of equipment against tax
-- . -  kPO.Acf in oto 8Zf:ed--oSEI.i- 
-Regal       -.-o Acts ode-t give additional poe  .-          liabilities;  and   (iv)  the   tax   on
BauLgesl994-95.-  Minser of FianccsSpeech.                     corporate income has been unified and
-- =-:: -: -       _______::__-_________:                        reduced  to  46  percent,  from   52
percent for widely held companies and
58 percent for other companies.



- 29 -
*    Thir, the govement announced it woild consider the recommendations of an expert
committee to reform the insmance industry, cumently a public sector monopoly, and
indicated that barriers to prvate sector entry in this and other areas thus far reserved for
public sector investment would be reduced as well (Box 1.5).
*    Fourth, the government indicated that measures would be taken to improve India's stock
markets' tading and settlement practices-whose weakesses had consained the
development of the country's dynamic stock markets (Box 1.5).
*    Fifth. the government annnced its intention to begn refomig the rural finan
system. Although small in relation to India's overall financial system, the rral financial
system has been decwapitalized over the 1980s, and its ability to lend to agiculture
seriously eroded.
*    Sixth, the govermment has taken further steps to redirect expenditure towards social
sectors. Cuts made in budgetary fnding for important social programs in 1991 were
restored in 1992-93, and the 1993-94 budget inchlded sbsntia increases in fni&g for
primary education, endemic disease control, and maternal and child health programs.
The 1994-95 Budget has further inmeased the allocation for such progams with a view
to expanding the provison of key social services in areas with a high incidence of
poverty; in the same vein, the allocatin for rural employment and related programs has
been increased by over 50 percent and now accounts for 0.5 percent of GDP.
liscal A4usnent
Tbe fiscal deficit target for 1994-95 is 6 percent of GDP. The 1.3 percentage points of
GDP fiscal coreton for 1994-95 is to come entirely through cxpenditur contaction which is
to be achieved mainly thrugh reduced spending on subsidies, defnse, loans and grant to
states, and loans to public enterprise (Table 1.1). Decisions taken early in February 1994 to
raise the price at which nce and wheat are sold through the Public Distribution System should
help contain the cost of subsidies within the budget amount-delay in taking such decisions was
the main cause for the 1993-94 budget overrun on account of subsidies. However, no decision
has yet been taken to raise the price of fertilizers, and without sch an increase it would not be
possible to contain the cost of the subsidy wihin the budget limit Together with a recovery of
manufauing growth and imports, improvements in tax policies which have made it possible
to improve tax administration are expected to offset the decline in customs, income taxes and
excise rates and so maintain revenue in terms of GDP constnt in relation to 1993-94. While
the target of 6 percent of GDP for 1994-95 is modest compared with the 4.7 percent of GDP
target for 1993-94, and implies only partial correction of the fiscal overrun in that year, its
achievement may requie additional and timely expendtre and revenue measure as the year
unfolds.
The Government fully recognizes te necessity of strengthenig centrl governme
finances, both quantiatively and qualatively. The RBl's most recent amnal report expresses



I~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 



- 31 -
productve investment and sustain confidence in the economy"; highlghts the need to reduce
subsidies and improve their targeting; and reiterates a recommendation already in the Eighth
Plan to prioritize public expendictre through zero-based budgeting procedures. Yet, with
revenues unlikely to increase (because fiurther reductions of tariffs on imports are envisaged) and
government discretion over its expenditure limited to a small proportion of that expenditure, a
concrete and pragmatic medium-tenn strategy to reduce the cental government fiscal deficit has
yet to evolve-and will have to involve rethinking of the current system of intergovernmental
transfers.
Three considerations have led the govemment to limit the extent of fiscal deficit reduction
in 1994-95 and set a fiscal deficit target higher than in the previous fiscal year.
First, more than their two predecessors, the last two budgets accommodate the
considerable fiscal cost of the reform process underway. For example, on the expenditure side,
the liberalization of interest raies has increased interest costs on the central govenment debt
from 4 percent of GDP in 1990-91 to 5.1 percent of GDP anticipated in 1994-95 (even thugh
the stock of central government debt in relation to GDP has remained relatively constant,
Table 1.3). On the revenue side, tariff reductions have brought customs collections down from
3.9 percent of GDP in 1990-91 to 2.8 percent of GDP in 1993-94 (15 percent of this decline is
accounted for by a decline in imports and 85 percent by the decline in tariffs). The decision
taken in June 1993 to shift from the RBI to the Cental Government the costs of the exchange
rate guarantees extended on foreign currency deposits (NRIs) has eliminated the major source
of the RBI quasi-fiscal deficit, but has correspondingly added half of 0.1 percent of GDP to the
1994-95 fiscal deficit. The cost of the National Renewal Fund (NRF) has amounted to 0.1
percent of GDP in 1993-94 and an equivalent amount is budgeted for 1994-95. The devaluation
has considerably increased the cost of subsidies-in spite of increases in prices their cost has
continued to escalate.
Second, the 1994-95 budget highlights the central government's limited discretion in
controlling its expenditure in the short run  Of total expenditre of 16.8 percent of GDP
budgeted for 1994-95, 79 percent is accounted by interest payments (31 percent), defense (15
percent), wages (10 percent), and grants and loans to the states (23 percent, most of which are
mandated by the Constituion, Box 1.7). It also highlights the need to shift to the states a larger
proportion of the burden of the fiscal adjustment-the states' deficit has remained constant over
the last three years at about 3 percent of GDP.
Third, as indicated in the Minister of Finance's Budget Speech, the government takes the
view that the short-term macroeconomic consequences of the fiscal slippage in 1993-94 and of
the partal correction envisaged for 1994-95 are unlkely to be severe and that a stronger
recovery is needed to prevent a further deterioration of public finanes. In 1993-94, the current
account deficit of the balance of payments declined to 0.3 percent of GDP. At US$15 billion,
reserves are at their highest level ever. Food stocks account for another US$5 billion.
Significant capacity underudlization is widespread in manufacturing. A significant part of
inflation has been caused, on the supply side, by increases in administered prices and agricultural



- 32 -
prices catching up with their international equivalents and, on the demand side, by the surge in
capital inflows resulting in an expansion in monetary aggregates which has put pressure on
commodity prices. T.he government has thus given priority to stimulating investment through
the introduction of key structural reforms. This has been done with the expectation that, with
more income-elastic sources of taxation now in place, a recovery of growth would improve tax
collections, and thus increases in tax revenues would play a larger role in fiscal consolidation
in the future. It should be clearly recognized, however, that continued high fiscal deficits pose
the most single threat to the attainment of India's development objectives.
A key question about the 1994-95 budget is whether it will be successful in stimulating
private investment. While the budget has reduced the user cost of capital, what is holding
private investment back may not be so much high user cost of capital, as the significant idle
capacity in sectors where private investment can now most easily flow in (e.g., manufacring);
meanwhile in sectors where there is an urgent need to expand capacity, a policy and institutional
famework supportive of private investment is not yet in place, and barriers to entry have not
yet been entirely removed. To reach its reactivation objectives, it is thus urgent that the 1994-95
Budget be complemented by sector-level reforms addressing remaming policy constraints
detering private investment in key sectors of the economy. EveL if these measures are
implemented rapidly, however, the recovery of the economy may take longer than anticipated
by the govemment. Thus, in the course of the current fiscal year, additional resource
mobilization measures (such as acceleration of pnvatization) or further expenditure cuts may
become necessary to ensure that the 1994-95 fiscal deficit target is met and inflationary
expectations are dampened.
Adjustment in State Finance
At around 16 percent of GDP in recent years, India's 25 state governments are
responsible for a large share of the country's public spending. Wheeas the states speciize in
the provision of a variety of social (education, health, welfare programs such as employment
schemes or social secunty) and economic services (irrigation, agricultral research and
extension, rural development, urban development, urban transport, and water supply), the cental
government specializes in the provision of pure public goods (defense, public aministration),
basic infrastructure (railways, telecommunications, wads), special social programs (for
education, health and poverty), subsidies, and lending to public enterprises.
In most federated counties such as Brazil or Canada, the central government channels
relatvely large amounts of resources to the states to (i) ensure some equity in the provision of
key economic and social services across states; and (ii) compensate for mismatches between the
revenue-raising ability and fiscal needs of different states. However, while in Brazil and
Canada, the states mobilize resources accounting for about 80 percent of their expenditure, the
corresponding figure in India is 45 percent. This transfer of resources which takes place through
several channels (Box 1.7), has been particularly important for the poorest states; it accounted
for 62 percent of their spending in 1992-93 (46 percent in the case of the richest states, Table
1.20). However, transfers to the poorest states account for 55 percen of total cental



- 33 -
Table 1.20: CmtrGovumeat:Taster to W& and Jw lucme Seta, 1-93
Own Henna        MaRecares o ScCtenr
Tax    Nn-Tmx  Dev.ote    Ga       Louum    O----    T
DTo'f Ta
H bighIcme Sta. .. ...s.
% oflta           : expendite  44 - 10 -13            11     1S       6      - 100-.
% ofte%-ox  :nif- X w:- -                   67--     55      42      -         45
Lwinicome Sans
:    %Eofstaut. n expcxdin    . : 25  13      21        21:   14         6       101
:-%iofCnl.GvLtr-:s. =       -    .-           ::.3Z   : S:      51-:   6    :-: -. 55f -='.
% f -: : .Gr  -.fe                -       :      .         6-                      .  . ...   ,
Note:   Higholacuts amta                     ir hierdtwthe average per capiXa iome a    st
They atc Goa. Pnjab.Haya    ah    G   Sildcki, AnachjPIal P HImaSb nbaI  ..d..h. T ...
-ad. NKamaNka. NagandWesengL             Them 13;b t.are a.c-,uf hae- of
' t  ; ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~-      -   -'-   .   . . .   . . . .,
Ba , k l S Bank aaa
=,~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ -  - -, - i ,    -- --      
goverment resources chanmelled to the states-the remaing 45 percent wa channelled to the
richest stes which, in theory, should be able to increase their tax effort or resort to domestic
capitl markets without the intemediation of the cetal government.
Fiscal problems at the level of the  as started in the early 1980s, with an unsusinable
increase in current speiding (which m terms of GDP has nsen from  11 percent in the early
1980s to 13-14 percent in recent years) without a corresponding effort to mobilize additional
resources. ih addition, over the 1970s and 1980s the states have invested vast resources in the
development of state level ifsuctu  in rnual and urban areas (irrigation, bus tansport,
power facilities, schools and health facilites) without putting in place the financial mechanis
that would permit cost recovery sufficient to maintain the assets and help finance furte
accumulation. As indicated earlier, the cost of subsidies provided by the State Electicity Boards
has exceeded 1 percent of GDP in recent years. Losses of the State Transport Boards have been
at around 0.5 percent of GDP. The Eighth Plan documents estimate that the cost of low user
charges for the economic services provided by the states (irrigation, urban services, water
supply, bus transport) amounts to several percentage points of GDP.
Since the mid-1980s, the deterioration of the states' fiances has affected the provision
of key social and economic services (Table 1.21). Spending on water supply and sanitation has
declined in real terms starting in 1988-89; spending on irrigation has declined in real terms
starting in 1989-90; growth of spending on transort and housing was already negative in the
mid-1980s. Some of this contraction in sending has had beneficial effects. In the case of bus
transport, it has led to an increasingly favorable attitude towards licensing private bus operators,
with the result that, at the national level, the share of public buses in the total declined from 46
percent of the national fleet in 1980-81 to 33 percent of the fleet in 1989-90. In the case of



art    if iii [iJiIiii'ii WIIII lit III 111111~~~~~~~~~~~~~~~~XX
A                                         NaJ 
S,~~~~~~ Or                            4411
JS~ ~ h  11i"u
FA~~~~~131                       #
IiL1u!du                            d       icrut
iii  1    1111;!  NI!1iIIII:                            II~
~ ~~~~~~                  flIi!~~~~~~~~~~~~~~~~~~~~~~~~~~~~~i
10~   liawe            - E
C.  I~~~~~~~~~~~~~~II  I   UK~~~~~~~~~~~~~~~1
Ol~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~H
If
ItE M         uflk    ~~~~~~~~~~~~~~~~~~~~~~~  S till  I~~~~~~~~~~~~~~. .i ..... ..L i..  ..........



-35 -
Tabl 1.21:  ltGvae 
DirectTaxe           .SE                                  0. :.6                          0.              0.6-0   
Sin  s'  in  cluu                                          .               .    t-.      29; '           '2 3
:o-ztvnel  . .   --.               .                     44              4-        j      .              4f:-.3p   X  
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~-------- ---i: 
. T s . . .. f 's 5':S< f'- S V f ..... -f :&f ffS 5 f - 6- < - f-<f f'f 2~~~~~~~~. . ..... . 
Gnatsfrom Cen.e:         :       -        ff= 2.6                    27         .     25  .           2.6 2 6.
. .nmtccp               .                  .       .       -.....                    ,     ,  .  0.5  0.°9-  0.°6  0 5
0d. m..  fff -                                          1.3          1.21               1.2           .it.2
:~~~~~~~~~~~~~~~~~~~~~~~~~~ .  ..   ..                  .   ..    ....
*   3TdaExedli  (C+ID+F 1X          .  .:{ -~.<            16.3-           16              16.1   .   : 15.3
*  C. RevanXxpadtreE      .                              133            *14i:            115             130
Socti Services 5c3-                                                     0    .         .O  :4.8
Nconmic Sevnts                                         3.9             4.4            43.9            34S
.    Adndnisnation                          ..               .4 ..   . 2.5.                2.7              2.8
: Iurers.tR its       .                 .          .   1.6             1.9             2.0             2
of%Whicto Cenr         *                             i.i             LI              LI               17.
.  Oder Epzdmin                         :             0.3             0.2             0.0      :       0
iet    ml Befi" (CDA-C)             . .  .        .       0.7 1:                         1.6      .     .41.3
D. C.aptEa_-                                              1.71   .      :1V-L         .1.6   -            1
Socil  esezzs                                          S.3 -03   .                     50            4.32
EcnommCServices                                       .915             :13             1.3             3.5
E             rLe .st ei)                                0. 03 -2.5.                     2.7             2.8
.                       *r pa.c  1.6                                      1.                    .         2..
oF. Ia  wbhhto &                       -                              :1  L0              1.0            L1
GOderyof loam *di03                                                 Q      5                     .  . : 32.
PbtiDiledt (H~-AG)                                         3.2:         . 2.S   :          Z-     .  .    2;7S:
. P!rDohnarrDufklz                         .         ..    1.6              0:9   -   . : 5.9           :  .0.6-
--.  CMaaomns Blm=/                       .               -0.5          -0.3  .       . 0.3       -: 0.3
lntwmall:ebr(net)4/                                       0.1~                      0      .23 .  U.      0.2
LonasiiumCenier(eSIl4'.                      .           .0.6    .:   0.7    :   .         :    --  . OR0.8
Small&Vil45 (net)                         . .       *I.12                 0.8      0:.                    0.3
lEnet(+)or decrea'.ins ca:lh                              b 4     .1    4.1     :      :1.3              1.3
OdE.I Loms.:   0.7                                                 :0;6                 13.0              07
N.es: tA    Grants Lo                                                                     1.s reporedbkmCSPIWnUJIEoneslr e  reeiptowursaes. 
G. R eocwyo s ulter a  sz. :,                                     ..    .:
*  1 Lending t:a Swie as reported by Se-CaeDr ecladhngloau qaga' .small nvh ngs ton..''        ...'
...4' Bornuw s against funds depsied with 8_ gscrnr tas a              wlaesua proisltmns, an t om
.F ..    Diidtuc M -G                 '3 .            : .2 2'                               ZJ              2.7'  .  ' ' ''   
iFiunacncedpniby
.-BE: Busdget cadrnets.   .- ..                                .. .  
.. lg Der  (eet ) snd budge0.d.  -.3                                                             :0.
While preliminary data for 1992-93 suggest thiat a large part of these declines has been reversed,
it is evident that, ihort of a major reform  in the way the  states fin e                     their exp ure, their
ability to  continue providing kley socal and economi                     services such as they are will be i



-36 -
Thbtel.22 Denislan ofR boanania fro  liCaser to starnGovenmasta
(percntageof GDP) 
1990-91  1991.92      1992-93      1993.94       1994.95
RE          :E-
A.1Sties'hazeinCenlwTaxes.                           27          .2.8          2.9:         2.8          237
B.--Plan Grain sal Lomn faom the Corer,
1.SsarPlaachms                                      .           222.2                     2.5          2.
Grain                           ~~~~~~~ ~~~~~~~0.9.  12    .  1.2       1.3.         II
*  Loans                               ~~~~~~~~~~~~~~~~~~~1.1 a1.1  1L01.                   0.9
2.Cemz1ratand CenbUltSponsored.Schemes            1D .0101-                                            .
Garants.                                  i1.0          :0.9.         1.0          1.00.
::-C.:NOa-PqLanants'aadLoans fmazthCenter             2.31                      _12;11               -      .
Grants                       (LB .        ~~~~~~~~~~~~~~~~~~0.6.  .  0.    0.3 0.
Loans'                                     0.30.                      0.0201
*        ~~LoansAgainstSmallSaving                    13p.                      0.6          0.6           .
D.Torn Grants and-Loans (B+C)                      5.3   .        4.9       :4.4           4.6          3.9
*        ~~~~~Grams.. 2.                                                        2.5          26.6  :. 2.2:
Loans                           ~~~~~~~~~~                           ~~~~~~237  2219201.7.'
E. RsUrce fomM Centr to Stat CA+D). -            .    .           '.            .3746.
' F. Rtesurces from Srntcs to Center                  L2.                  -     B       c:1.7.':         18
Loan Repayments                       *.0.01                         0.6        .o&..::
Loan RepaymmentapinsLSauil Savings011                                 01011
Inmrsw  Center -                             01                       1.... .1......            12
TG.'efoCeemwe(.)                                                   5            5. .7.48
Source:  Goverunimbfofndia B u dge t D ootwmni  s. R E  resvmised'C    . es matrE U.m etfNlnu ....
:Box 1:RS*J4U iBIn&JICI .S.u...
lidmtutus re a way iffeent lvelsof'eonmi ad social devlpmn;thi ax-effort varies considerably (from
.- al-u-gbikl2 pecentof die stiate aional product n'Ta!nsl:Naduto saoIw 6: perfaltin.Uer Padesh and S'pecent-in Eba:u),and they
aewy differemt administratveccapacitiesL. Reqioses o hsertf... tredshave thus varied fom tteto star..Tanil Nada or
* in el uiism id1991-92 andiMhe2pwein 191293)ilakiag  s:tqsicreasusercharges: and putting a cap on theagricultut
* poer ibdd.AOism  oneof ie easteveope:sWaeti hidia and one estrinly dependent on cenhal govenmezntassistance (it.
* .:accou nfr)60 prcnt oDf ie suer fo:l reveusecotnpandrbo ony'25 percentd TamlNadu) hslong suiffered fton weak: publi
filiominestids a,growag wage bilL and nmcutig -usde othe pwr neclo  A~ sopewernd&Un  -inmall saings collectitons
* in .wz,-ncxmua serious fisalpabtenf'wlchdthstae ddressedby: (I)ctingau  pnig m (ii)xantigits borrwing
-po1Ceariallzum,saarcCs such as.thoSLR A LilamneCmaq.at   nrvdetFu.Ra pedn  ndetial!scas
* h  hus ar  roteted aldoug ibi na be neWlr rsul ofwage increases. kAnsimlar problem-azrse in West Bengal, a:
mate tere financessufferedlrom die lan  easantono   cnm.Since West Bengl ha  ledyrahdthe limits of 
... . . ......
U   .  ...                    .   . ~~~~~~~~~~~~~~~~~~~~~~.. ...    
jeopardy. hndicative of the states' deteriorating financial position, the RBI stopped payments on
behalf of six states which coeld not clear overdrafts withi the REEI within the stipulated fifteen
dayS during 1992-93, in contrast to 1991-92 when all states cleared on time their overdrafts.



- 37 -
It is clear that unless the states improve their financial condition, the center will find it
difficult to continue reducing its transfers to the states. The 1994-95 Budget envisages a 0.9
percent of GDP reduction in net transfers to the states, twice as much as has been achieved in
the first three years of the fiscal adjustment pi cess. This reduction is desirable to the extent
it could induce the states to improve tax policies and administration, and take more decisive
action to increase user charges-as has been the case in Orissa. However, in the short run,
unless preventive steps are taken, it may create financial constraints for the states.
External Debt Management and External inancng Requirements
External Debt Management
Over   the
last  three  years,                        T.bl- 1..23:. iTEat'-sE .Md, .  0
there   have   been                                - -  --- --  ... . . .. .. .i -  ... -
three   important
developments                                         --091   :  19               ss 1....... -
regarding   India's       MDiutamt              21    .    23.          .2.           26
external   debt.           C .- - . nal 8                    14          15
. . . ..... . is a      8            9           10          lei
jst, in   January      ilat14                             15          16           16
1993,  agreement           CoDSoInal          . 12   .       13 .  . .    14          14:
was reached  with          N- -Cona    l. .      2                        2         . 2:
Russia on the terms DF-                          3           .. 3.5  .    ..
of conversion  of                    ... . . 4..   4   .                             . 4Of
the   previously
Ruble denominated    -CoiZIBouwWiEJ              10      .  12 .       . 12           12
'.-Commerciallunb     7          .7           -6 
debt.    Theface   .          d                 .3    .5
value  of  India's    :                    .     -           . .          1:.
debt was reduced          NRis (above one year)  lo     .   1 b.         11.          Ii
from US$13 billion                          .10.
to  about  US$11          :                                                 .
billion.    Of this        NRs (up. u o ycu)     4           3        .:3- 3:5
amount,  about             Odem (tiade lated)   :     :    4              3          . 2
US$4 billion is to                               9 .  8 4  :  3 . .  .    0           90
be   serviced   on       7.
..Asof.septen*.1993 .        ..
highly concessional        r      ndudes USA1.6 blhInof In.di Dveapmtmond isnued iL 1991-92..
terms-zero iterest  .
. _ . = ... . . . . .. . . ...~.. .....   .... . ....
and   45   years                -. ;1993-944miSr..S:       .... .. .7
amorzation.                .'The
remaining   US$7            .     . 
billion is to be paid
over 12 years at 2.4 percent annual interest. The servicing burden is estimated at about US$850



- 38 -
minion over the next few years. These payments are to be effected through Rupee credits
against which Russia can import Indian goods. Second, the  rovement in the extenal
accounts enabled the authorities to reduce short-term debt signifiay, from US$8.5 billion in
March 1991 to US$5.2 billion in September 1993. Third, the authonties have sought to reduce
their reliace on foreign currency deposits from Non-Resdent Indians (NRIs), which had
reached 17 percent of India's external debt in March 1991, and contain their growth. In addition
to the volatile nature of NRI deposits, they also imposed a high quasi-fiscal cost to the RBI since
most of these deposits were in the FCNR(A) account (Box 1.9)-covered by an exchange rate
guarantee whereby the PRBI sold to the commercial banks holding the NRI accounts the foreign
exchange at the rate prevailing when the deposit was first made. The sharp devaluation of the
Rupee since July 1991 produced a large loss to the RBI. The RBI's 1992 Annual Report
indicated that this loss (an implicit subsidy to banuks) reached a cumulative US$3.4 billion during
1990-93-1.3 percent of the GDP in 1993-94.
Box 1.9; Nbn4-RAidaDqposif
Non-wesirdendeno!:rn inctues nin inflowsunderdie six saints in place and lc  minatedFCBOD scheme..
.. . . .... .    .. . .*. : .. .. .. ..  , : ................................... : ..-   :.: ...   ..     ..
.         :   .                                 .......  Il  ..... . . ...N.... s
FC,,,(D)            My9                 N ,                                    .                    ..........c,
FCON  Juno 1991          No~~~~~~W.;                                       ...(.. ..,
..',   }.. *-'..' f ' .:.:N"..5:  :. <.. ':. Y S   '  ' ' .-f''. Y  .'- :.'"'.s'. "'-"' .f'Y ' ' '~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~........ .   .. ...
-  B   ::  .  . -  eb; lWO   . -- . <:  Ne   -    .... ...... . .. : -Y s::N -f   f  f - ..   f .:   s 3.f: s-.
.~~~~~~~~~~~~~~.                       .   ,. .... .   s .  s*|:....   . ................,;sUfffU,,, Sy i  f. 
-ZEf '..X1C.      ':        ':    " :          ..F  N      e               Na               () 
Fc    A)        aC       c.Noo.: ..,d.. :zmn is U: ' fl Uflf Sssss. Yn oDis.    . : s
... <:: w Z R..-:;.. N    X -}::-   ...  .-.; - * - f- :: R f :f fs: - . f ff fsU''"5 '' . .. s .. >.......... ..... ........... . %
',,, S.'.. >''~~~~~~~~~~~~~~~~~~~~~~~~~~. .. ,.......,,,... ......                          .... .........Uf    '...sfysyff:
NRE) Noaxesdn~zrnl IbWe e . spee.do,,.aamzsed,,
FCNR(B) -..     ezgnCuneny (Naa.resdmt)           '                               's:mmm{Db)S n  fs V5 lIKE, Yef o......D. ..
~~~~~~~~~~~~~~~~~~~~. ;s..... ::... .                     ..  . .. . <. ..v;.T :',_ ...'''':' ::::....  . .:.:: .  
FCON-    FomWkz-Cumecy (Gaz   '9-pml)Ppa   ae-n15
IC.3UC .s    ReSidm.tFoDg  CurrncyAcsatsA('or cmnzmrthnflml.frwong;u.tm0s a' ancy 
^,  fD''  'sff '.'.&^e )'it' - 'UDj fs }*'s'~.                    .        f      '. . .    '. . ..s
Three sets of measur  have enabled the authoities to stabilize the stock of NRIs at
around US$14 billion and reduce tfie cost of guaramntees. First, interest rates have been gradually
reduced. For US$ denominated deposits of less tban one year they were redced from 6.5
percent in December 1991, to 4.3 percent in February 1994, and from 8 percent to 5.5 percen
for three years deposits. Second, new kinds of accounts were created in June 1992 and October
1993 (Box 1.9), for which the commercial banks bear the foreign exchange risk. These have
been increasing relative to the FCNR(A). These accounts are attractive to commercial banks



- 39 -
since deposits are not subject to SLR or CRR requirements. In addition, the guarantee on
FCNR(A) accounts has been discontinued since May 1993 for deposits with less than one year
maurity; this was further extended to matunties up to three years in October 1993. Third, since
July 1993, the cost of the foreign exchange risk on FCNR(A) accounts has been shifted from
the RBI to the central government-the cost of the guarantees is now an explicit budget item.
The strength of direct and portfolio foreign investment is expected to enable India to
reduce its reliauce on commercial debt and NRIs in the years to come. As a result, in the
projecdons in Table 1.16, net commercial borrowings are expeted to be negative over the next
three years, and the stock of NRI accounts is expected to stabilize. Greater reliance on non-debt
inflows and the stabilization of the current account at around 1 percent of GDP should enable
the stock of extenal debt to decline from 39 percent of GDP at present, to 32 percent of GDP
by end 1996-97. Ultimately, however, India's success at managing its external debt will depend
on the country's success at mainaning a continued strong export performance.
Externia flwcing
The last thre economic reports presented to the Consortium highlighted the need for
continmed strong bilateral and multilateral support to help India meet its external financing
requirements. They indicated that repayments of official creditors' debt would increase
gradually to reach a peak in the second half of the 1990s when large repayments to the IMF
would coincide with obligations to other creditors. They also emphasized the need for fast
hisbursing financing to help India tide over the balance of payments crisis which erupted in
1990-91.  The members of the India Consortium  have responded positively to these
recommendations by maintaining their pledges in the US$6.7-7.4 bilion range which included
fast disbursig assistance critically needed for the consolidation of India's external accounts over
the last three years. In addition, with net disbursements of US$3.5 billion during 1990-94, the
IMF has been the major source of balance of payments support.
The remarkable improvement in India's external ;ocounts in 1993-94 has eliminated the
need for fast-disbursing assistance much faster than expected, and no adcdtional fast-disbursing
assistance needs are envisaged for the foreseeable fuure. However, continued access to high
quality long-term development assistnce will remain critical for India to be successful in its
reform program, set the economy on a higher growth path and alleviate poverty. Public
investments in a number of strategic sectors have been lagging-notably in the power, transport,
agriculture and social sectors. While the private sector has indicated interest in investing in
some of these sectors, public sector investment will continue to play an important role for some
time and official development assistance will remain vital to suining investment in these key
areas of the economy. In this context, the members of the Consortium should aim for highest
possible quality assistance bodt as regards the terms and t4@ deployment of their assistance.
Support for the government's structural reform program for the social dimensions of the reforms
and for environmentally sustinable development should in the view of the Bank be the guiding
considerations in the deployment of the available assistance. The response of an economy,
particularly that of the balance of payments, to a comprehensive liberaliztion program of the



- 40 -
kind now being implemented in India is evidendy very difficult to predict. The members of the
Consortium should thus also stand ready to resume fast disbursement assistance should the need
arise.
While there is no doubt about the significance of continuing ODA flows to India, the
actual aid utilization had drawn criticism from the Consortium members. Available data suggest
that not all of the Consortium pledges are formalized into development assistance agreements.
Moreover, once committed, ODA. would tend to disburse only partially and slowly. For
example, the cmnulative Consortium pledges for 1987-91 amounted to slightly over US$24
billion; of this, by 1992, some US$20.6 billion or about 85 percent were actually committed and
US$13.9 billion or about 58 percent had actually been disbursed. In 1993, the Governent
introduced several measures to streamline and accelerate ODA utilization, including a variety
of incentives to the states and public enterprises implementing ODA-supported projects.
Adequate data are not yet available to ascertain the impact of these measures, although evidence
emerging in connecdon with supervision of Bank-supported projects suggests that the measures
are havmg a positive impact. Given inreased budgetary allocations from the center to the states
for 1994-95 for externally aided projects, it is expected that from now on the ODA utilization
will improve substantially.



- 41 -
CHAPTER 2: THREE YEARS OF REFORM: SHORT- AND MEDIUM-ERM POLICY
ISSUES
Results of Three Years of Reform
Insroductior
The program of reforms has been carefully prepared. Since July 1991, t  gover
has appointed several high level committees of experts to formulate reform proposals in the
different reform areas-the Narasinham Committee on the financial sector; the Chelliah
Committee on taxation; the Goswami Committee on exit policies; the Rangarajan Commitee on
disinvestment of government equity holdings in public enterprises; the Malhotra Commitee on
the insurance industry-followed by other committ  to examine the more technical aspects of
reforms. The government has generally accepted these commttees' recommendations, which
have become part of important government policy papers such as the Eighth Plan, the June 1993
Discussion Paper on the overall content and sequencing of the stailion and reform process,
and the December 1993 Discussion Paper on banking refoxm. The committees' reports and
government policy papers have been made public and amply discussed with academics,
industialists, and unions. This approach has helped the government build consensus around the
economic program, anticipate public reacdons to reform measures, and avoid the reversals that
have sometimes derailed adjustment programs elswhere in the world-
Equaly important, it also enabled the goverment to avoid errors in the sequencing of
reforms. The liberalization of product markets (tbrough the dismanding of licensing which
regulated investment and trade) preceded the liberaliion of factor markets (achieved pardy
thmugh the liberaliation of financial markets). A sharp devaluation (in July 1991) preceded the
ifting of quantitative restictions on imports of intermediates and capitl goods which bad in tun
preceded reduction in tariffs. In reforming the financial sector, the government has been aware
of the need to improve prudential regulaton and banking supervision ahead of recapitalization
of banks to reduce the likelihood of furher decapitalization in the future. The deregulation of
interest rates has been introduced in steps that have avoided the problems that sudden finania
decompression bas created in many Latin American countries. In short, while several more
years will be necessary to complete the process which has started in July 1991, and difficult
reforms are yet to be introdauced, the skill with which reforms have been inroduced thus far has
few parallels elsewhere and enhances the credibility of the reform process.
The Lier     on of Private Investme
T7he Past Impediments to Prvate Investment. Before July, not only was large scale
private investent not permitted in key areas of the economy, but the government regulated it
direy or indirectly even in inusial sectors where it was pemitted. There were two basic
instrmnents of control.
*    First, several regulations and laws empowered the government to make it the exclusive
privilege of the public sector to invest in key sectors of the economy such as miing,



-42 -
hydrocarbons; power; important
Table2.1:  ras CpitalFonnaion  ~~        manfacturing  sectors  such  as
Table 2. 1: Gross CptlForndo  yluma bly Me0ftI  ha
(pewentof n                               iron  and  steel,  shipbuilig,
P__c  Private l/   Pena                aircraft   production,   and
of GDP               telecommunications  equipment;
telecommunications;   surface
A.kWmm  30  70   2.4               irrigation; air transport; ports;
Mining            10          O  .     1s      :          roads; river tansport; banking
Manufactudug       25        72        6.0                and insurance  These restrictions
Regiszead        40         60                           had been relaxed in the 1980s,
Unistnd           o- 100              1.8-when  the, private  sector  was
allowed to enter armas such as
-Elctc4 Cms,Watcf  .94 .             -  2.7
Eleczuicity. =a:, Wa-r =4     6        2.7. production   of   steel   and
Co.sf-u-i-on       15-  -a -                              telecommunications  equipment
--   n-lodc-: --  >k-  -- -2Z  78:    i-.                 However, this was allowed on a
-- -. :: -  :- -0.6:                   case  by  case  basis,  at  the
----- Odi6fiiin  -:-:23-  .00- ;   - n- -0 -i;  -1.6- -  discretion of the authorities; the
-tberThnsport    .2317                ..                  polcy   framework   restricting
tort               0        10o0--    -                   pnvate  investment   remained
ioCommunicatios--  1          0         Os                virtually intact.  As a reslt of
Bningai l .   -im   673-      3                           these   restrictions,   private
investment was concentrated in
:e.Jtateand  _-    7          3        2-         :         -housing,   agriculture,   and
-P    -- u    -- rices  100:: -:- o~:-    -  - w    - 0 Lmanufacturing--the   latter
-1        4-              0              - f = - - - accunting for about one-half of
::OdaSer       ::-k 51-       -49- :--..   :-.--  
total  non-housing   private
-TAL.             47       -      -53_                   investwent (Table 2.1).
- ore  etrlrtsa Organizain. Nafi dACc;ou  ,193
*      Second, private investment was regulated even in sectors wbere it was permitted. Pnvate
investment in housing in urban areas has been affected by the Urban Land Ceiling Act
of 1976, which subjects all sale of urban land to state government approval. In
agriculture, private investment in storage has been controlled indirectly by ceilings on
the amount (and in some states the period) for which commodities can be stored, bans
on future and forward trading of agricultural commodities, and direcdy by licensing
restrictions on investment in agro-processing. In mamnfacturing, prior to July 1991, any
investment in a registered industrial firm (responsible for over three-fourths of India's
manufacturing output) for expansion or diversification of production required prior
government approval.
Additional restrctions applied to foreign investors. Until it was amended in January
1993, the Foreign Exchange Regulation Act (FERA) of 1973 prevented companies with more



- 43 -
than 40 percent of foreign equity, the so-called FERA compaies, from borrowig flids or
raising deposits in hndia, from taking over any business interest from an Indian resident, from
acquiiing or disposing of any physical assets (including land) within India, from appointing
technicians or managers without RBI clearance, and from using their trademark without RBI
clearance. FERA and non-FERA companies ale could not hire foreigners without RBI's
permission. It is indicative of the restrictiveness of the foreign investment regime that as
recently as early 1993 there were only about 80 firms in India with foreign equity exceeding 40
percent
The Liberaization of India's investnent Regine. Over the last tbree years, the
government has taken numerous measures which have efibctively dismantled the previous system
of controls (Box 2.1) and opened most areas of the economy to the private sector. Even in
sectors still rserved for the public sector (telecommunications, hydrocarbons, coal, and postal
services) the government has taken a more liberal stance towards private investment-private
courier services have been allowed to compete with the govermnent postal service; private
operators have been allowed to participat  n the provision of the so-called "value-added"
telecommmuications services such as cellular phones, radio paging, and electronic and voice
mail; the government has sought to atact private investment in hydrocarbons; restrictions on
investment on coal minin have been lfted when the output is used in sjA ("captive" mines);
container depots and container stations have been opened to the private sector, in December
1993 the inland waterway system was opened to private vessels when the government began
leasing out vessels of ihe loss-makng central govennwnd Centa ITnland Water
Corporation; and the May 1994 National Telecommunications Policy proposes to end the
monopoly of the Deparment of Telecommunications in the provision of basic services.
Long the domain of the public sector, pnrvat imvestment m power is now umesticed
with up to 100 percent of foreign equity; the baning sector is being gradually opened as part
of the fiancial sector reforms underway; the lifting of restrictions on prvate sector participation
in the insurance industry is under consideration; and prvate airlines have already captured one-
third of the domestic airline industry. In manufacturing, sectors for which licenses are sfill
. requed account for less than 15 percent of manufacurng value added for domestic investors
and 50 percent for foreign investors. However, since July 1991 the goverment has grnted
approvals liberally and in practical terms investment lcensing has ceased to be a constraint both
for domestic and foreign investors-except for private investment in agro-processimg. In
addition, the January 1993 mendment of the FERA Act has eliminLated virtually all differences
between foreign and private investors. Indicative of the authorties' lhberal stance, of the Rs 110
billion (close to US$4 billion) of foreign investment approved since the new policies came into
effect (Table 2.2), Rs 17 billion has been in oil refinig-in which foreign investment is not
enttled to the "automatic approval procedure" (Box 2.1).
India's foreign investment regime now compares well with those prevailing in Asian
countries successful at atetrcting foreign investment (China, Indonesia, Malaysia, Singapore,
Taiwan, and Thilaid). India allows foreign investment in the mining sector up to 50 percent
of equity, with higher picipion being allowed on a case-by-case basis, while mining is
reserved to domestic investors in most East Asian countries. In addition, after the FERA



X   S  g : j     1ti il';,i  !j   8t.NL  I   191
:                                                                                                                                                                    :   :  :   -  S   :  C:  :   :  : :    :: ::: :   :-: ,j ::: :: : :|: :: . | :: . * ........ . : : | l::: ........ - * *:|l l;|: :: -|l :l | :: , ............... . ....... . ..:j. . ..
:                                                                                                                                         |:: ::: i:: ::  :.^   u  i:: j.  j   :   *;i: j i ... ji. , ... : ; -: :l * j::: - i: :|:R:|: :::i::. l; :~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~... ... ...
:. h :::  :S:; S:    X    :s   :: :.::: ::  j .:,, .::::: :,. . ,::'  :   j   |   |  l:~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~~~~~~~~~~ .                            .......
: :   .                                                                                                                i  .:  ... ......    i.   :   . .  : .:-; - :::: ; --,---:--j: .-,::,::~~~~~~~~~~~~~~~~~~~~~~~~~~~~.. .     . ... ..
lii  'I i                                                     IJ                        1h'  I:   jdi. *-.* Is:l.  -- ll
S    j aj                                                                                                                                    ii! 11   if                                                                  ii
: a . :.:.:- :: .: ; ...~~~~~~~~~~~~~~~~~~~~.......                        ... .. ......;
65~                ~                  N 1                                                                                                                                  CIi*; t||. 00               [        1    0  #  10   
.   .....  .  .  .  ... . ........ ...............:.sKm::tKj...                                                                                                       . 
.i               . -......                                                                                                              . .. ... : . . ... - .. i . . : . .. . ...
V  0    0                                                                         0                         8          Co               C    U    C~~~~~~~~~~~~~~~~~~~t



- 45 -
amendment of January 1993, companies with foreign equity investment of any size are treated
essentially at par with domestic investors-while in several of the counties reviewed restrictions
remain, for example, regarding borrowing in domesdti markets. This implies that domestic compies
in India with foreign equity participation (majority or minority) now can ivest in any sector (except
agriculture) open to domestic companies if they are able to mobilize domestic financmg. Finally,
without pnor government approval, foreign investors can own up to 24 percent of equty of any Indian
firm, private or publi-up to 20 percent in the case of private new banks.
The Task Ahead. Over the last three
years, the government has introduced radical  flde   Foeg    u  Apu       l-
changes in the incentive regime which have              .   bi
opened to private investment new areas of the
economy, and has removed restictions in             1990   199
other areas. However, the legacy of India's    SlIA   12                    l:.6 .* .4.2. -15.
331   -.    ~~1.4   7.8  . 4.
past development policies is embedded in   F                 0.3   26.9  59.6-
sector  level  policy  and  instutonal    :11:2   5.3   38.
frameworks which do not support pnvate-
investment.    Unless  completed  with    Snuive: SIA
appropriate sector level policy reforms, the
measures taken over the last three years will
fail to produce their full potental results. In addition, the orentation of public investment will
need to change, from the leading role it has had over the last few decades, to one which is
supportive and complementary of private investment. This is a complex transion which will
require a reexaminaton of ongoing public expedture programs, and the formuaion of new
ones more adapted to India's new policy regime. However, this process has yet to start.
The Liberalzation of the Trade and Enal Paymens Regime
Background. Three years ago, India's trade regime was caactize by an extremely
complex import licensing system based on twenty-six lists of commodities that classified all
importables; different approval procedures for each list; and 10 different types of licenses
applied to over 4,000 of the approimately 5,000 codes of the Harmonized System of
classification (HS) used in the Indian tariff schedule. There were export controls over 440 item
(agricultural commodites accounting for about half of the restricted items, minerls and metals
for another fourth, and chemicals for about 10 percent); and the exchange rate was a crawling
peg fixed periodically by the RBI.
Reforms since June 1991. In February-March 1992, in one step the goveent
eliminated the restrictive and complex licenng system for imports of intermediates and capital
goods which bad been one of the building blocks of the inward-oriented industrialiation policies
pursued since Independence. Several rounds of tariff cuts, the last one in the 1994-95 budget,
have reduced maimum tariffs from 400 percent in 1990-91 to 65 percent at prsent (Table 2.3).
Together with large reductions of tariffs below the maxinum, this reduced the inport-weighted
tariff from 87 percent in 199-91 to 33 percent at preset (Table 2.4). Export controls have
been reduced. In addition, the government has hleralized the foreign exchange regime. The
rupee was floated in March 1992 and near full current account convertibility established in
March 1994.



46 -
Future  Prioriies.   -    g                                                    . . ...... .....
The June 1993 Discussion                                                             ...... ...........
Paper  states  that  "Thze                                .... ..
P ~~~~~~~~~~~~~~-          rn    --. 4  :-    -   ---   ....   .....
proramof customs tariff                              4          vng  hf    CletinRt
reform over the net three
years  ought to  include:       Ei-         f           - ...... ff.  W
elimination  Of  end-user                            1(12          S199-)           8(1
exempions, with the main                            0499)           7:19)4(90
erception of inport used in                          5(t(969)           na --1989)
=eport  prodcion;,  and                             115(IIS)           -            9(19Y7)
rationalizaon of customs                             35 (1993)     14 CwM- 
dies and import polcy    -  --   -199n -o
for consme-r goods.  By         --0(1991)   - ID910(1990   ---    51989)-
1996-97,  all  consmr                                60(1918        i5s (19  --)   5(19M
-~~~~~~M :-9                    2-19         -----zt4 -  nsw  . 4LSs)-:-
goods ought to be on a    --             -.             (            (              4(.- -:
tarzff-cum-OGL   import         K        -:          30 (1)          (192) .        6()
regime/-  Measures taen    - M-              -       20(1991)       12.: 991)          -&a
in the contet of the last        -.                  20(19-0-       10(1990 s(1990)
two Export-Import Policies   -    usi        -       so (19)t      17 (1%92)       10(1992)
(April  1993  and  April               . . : -      -     5        28(198-)        180985)
1994)   granting   large                             fi --.  . 6098 .  V M'1909)   13(1965)-
exports feely maiketable                            1-0-1:o1:      31(961)         11(1981)
licenses  for  imports  of    - 1         -    -.0(19-.            17(198 .3(1919) -.
consumer goods designated  .- .                 .o refersdmuc d  excpt w              -:
on  a  positive  list are   '  --  ..    ,   %  e  ,t. e arue a        . :
welcome steps. However,                        s,             ss-s4. mini Dank &affeuimazea-  -  -
dii currc  retctions on ..-.- --.----_ 
imports of consumer goods             -       .   : 
still imply that of the 5,000
HS positions, about 1,350 continue to be subject to import licenses. Bolder steps to eliminate
import restictions on imports of consumer goods are warranted. Regarding tariffs, the
government has indicated that the process of tariff reduction will continue to reach, over the next
two years, the tariff schedule r      ed  by the Tax Reform Committee (a 40-50 percent
maximum tariff rate for consumer goods except for a few uxury items, 30 percent for
intermdiates, 20 percent for capital goods, and a 5-10 percent minimun tariff). With the
reforms intduced in the last budget, India's tariffs now are at levels comparable to those of
major Lain American and East Asian counties before they began to liberalize their trade e
in the mid and late 1980s (Table 2-3).  Once the measures envisaged for 1996 97 are
implemented, India's tariffs would decline to levels close to those now prevailig in other
develping counties in a relatively short period of 4-5 years. This would be a remarkable
achievement considering that India began to reduce tariffs much Later than other developing
countries, started from a much higher level, and tariffls accounted for a much larger share of
government tax revenues than in other countries.



4-                                     4?~~~~~~~~~~~~~~~~~~~~W
0 5 50 i ;f |  | 1 1 v;   z t. ,X... 1m1                                 a | 5 4t fl S .t a, \.;
.    , .'  , .,.k.<. , .,       . ..  :,,.,4:. ',               ''               "          g    S S    
, 1E W uS WAG ¢ St ~~~~~~~~~~~~Il p!a i
..   ......    .......                                                 H
F s I                              S                           /    3X t ,gi, si~~~~~~ I 
1~ ~                          : 1.               ..[4. ,g . ,.
WO~~~~~~~~~~~~~~~~~~~~~'            4
/4  ,"  4.      -  4.4~~~~~~~~~~~~~ .*.~~c



- 48 -
as 63.5 percent of increases in deposits in 1991-92-25 percent to be deposited with the
RBI as reserve requirement (CRR, Cash Reserve Requirement) and 38.5 percent had to
be invested in eligible government securities issued by the central government, the states,
and public enterprises, as part of the Statutory Liquidity Ratio (SLR). In addition, they
had to extend 40 percent of their credit to priority sectors such as agriculture, small-scale
industries, small-scale transport enterprises, housing, and village artisans with sub-targets
for each at subsidized rates differentiated by purpose, size of loan, and borrower (there
were 50 such rates in 1989). Even the free portion of banks' resources was subject to
"credit norms" which set inflexible limits to loans according to sector, purpose, firm
financial ratios, and security. Insurance companies had to hold over half their portfolio
in the form of eligible securities. With so much emphasis on allocating assets according
to government guidelines, income recognition rules and asset classification norms were
of secondary importance. While the RBI had introduced in 1985 a Health Code System
to classify banks' loans according to their performance, income recognition rules were
inadequate. They were highly subjective so that large amounts of income were accrued
on non-performing assets, and reduced incentives for maintaining a high quality portfolio
and provisioning for non-performing assets.
S     Second, except for interest rates in the interbank market, the government regulated the
use of financial instruments and access to financial markets, as well as all interest rates
on deposits and loans-lending rates were fixed for both priority and non-priority sectors.
Banks could only issue certificates of deposits (on which interest rates were unregulated)
up to 5 percent of their deposits and there were strict eligibility norms for firms issuing
commercial papers (CPs) and limits on the maturity and outstanding amounts of such
securities. Issues of shares or debentue in the capital markets, as well as their terms,
required prior approval by the Controller of Capital Issues.
*     Third, competition was limited. Since nationalization of the commercial banks starting
in the late i970s, India's bankdng system has been dominaed by 28 public banks (now
27 with the merger of two banks) which account for 87 percent of deposits and 84
percent of bank branches; the number of private banks has remained the same (currently
23 domestic and 23 foreign), and their branch expansion has been restricted. Before the
mutual funds industrv was opened to the pnrvate sector in 1992, the central government-
owned Unit Trust of India monopolized the industry, managing about 50 different funds.
The insurance industry was, and still is, dominated by two public sector corporations,
the Life Insurance Corporation of India and the General Insurance Corporation of India
and their four subsidiaries.
Reforming the Financial Sector. Based on the recommendations of the Narasimbham
Committee, over the last three years, the government has taken numerous measures to liberalize
the financial sector and strengthen its institutions.
*     First, fmancial instutions' discretion over portfolio composition has increased and
incentives for the efficient use of funds improved. The CRR on incremental deposits has



-49 -
been reduced to 14 percent and the SLR to 25 percent; priority sector lending has been
rationalized and its cost reduced through an across-the-board increase in rates and a
reduction in the number of lending rates (now only three according to loan size); and
credit nonns have been relaxed. In April 1992, the RBI issued new prudential guidelines
for income recognition, asset classification, and provisioning requirements, and adopted
the Basle Accord capital adequacy standards, to be reached by alt Indian banks by March
1996. Bank supervision is being strengthened and modernized with an autonomous
Board for Financial Supervision to be established within the RBI. The new, more
exacting prudential stanards have forced the banks to increase their provisions; show
losses in 1992-93 for the first time in recent history; and made it evident that commercial
banks, the public banks in particular, needed to strengthen their capital base. Relaxing
controls over insurance companies' use of fimds is part of the recommendations of the
Malhotra Committee on the refonn of the insurance industry.
*    Second, controls on interest rates have been relaxed and firms' access to capital markets
improved. The RBI has removed restnctions on banks' issuance of cerificates of
deposits (on which interest rates are market determined) in October 1993, and relaxed
norms for firms' issuance of commercial paper. In addition, the Controller of Capital
Issues was abolished in February 1992 and finns are now free to access capital markets
and price their securities, subject to the prudential regulations of the Securities and
Exchange Board of India (SEBI), whose powers have been enhanced. These measures
iWly that interest rates on certificates of deposit, debenures, and commercial paper are
now market determined. The key restrictions remaing are the ceiling on time deposits
for matuities of 46 days and beyond (although in current conditions of high liquidity all
deposit rates are below the maximum and thus market determined as well); and three
lending rates-of which one is a subsidized rate on loans for priority sectors below a
certain amount; one is minimum lending rate (MLR) on loans for priority sectors up to
Rs 200,000; and the third lending rate is actually determined by banks on all loans over
Rs 200,000 subject to the MLR floor. Finally, foreign instdonal investors (FI[s) have
been allowed to operate in India since September 1992 under guidelines issued by the
Ministry of Finance, which permit PUs to invest in all non-government securities traded
in India's primary and secondary markets, including shares and debentures of private and
public enterprises. Since February 1992, Indian firms in sound financial conditions, have
been allowed to issue equity and convertible bonds abroad-although in the face of the
ensuing large surge in inflows the access to international capital markets has been made
somewhat more restricted.
*     Third. the authorities have developed a comprehensive program to strengthen the public
banks and increase competition. To strengthen public banks, the government has taken
steps to improve their autonomy and increase their capital base both through direct
Budgetary support, and changing legislation to enable pubiic banks to mobilize resources
from the market. The State Bank of India, which accounts for about one-third of public
banks' deposits, has already raised US$700 million of fresh capital in December 1993
and consequently the government (through the RBI) share in SBI's equity has been



- 50 -
reduced from 98 percent to 68 percent. i .eral other nationalized banks are expected
to tap the capital market during 1994-95. In addition, to improve debt recovery, the
government has indic-ated that in the near-term it would (i) establish Special Recovery
Tribunals to expedite recovery of dues owed to banks and financial instiutions; and (ii)
circulate names of defaulters in amounts 'above a threshold limit" among banks and
financial institutions. To increase competition, in January 1993, the RBI announced
guidelines for entry of new commercial banks and has authorized nie banks (three
foreign) to set up operations; existing foreign banks have been allowed to have equity
participation up to 20 percent in the equity of new private banks. In addition, measures
have been taken to broaden the ownership base of public banks. The government has
brought its equity below 50 percent in two large medium-term lending institutions, and
private ownership up to 49 percent is being introduced as part of other banks'
recapitalization efforts. Finally, all banks have been given some flexibility to rationalize
their branch networks, and restructre them as necessary.
In a decision which will further strengthen finarcial markets, the government announced
in the 1994-95 Budget its intention to phase out the monetiation of the fiscal deficit over a
period of three years. For the first time, the government is to operate with a rule limiting its
recourse to RBI financing through the so-called 'ad-hoc" Treasury bills, on which the
government has paid a fixed interest rate of 4.6 percent and which essentially was an open line
of credit with the RBI. Over 1994-95 the government is to obtain no more than Rs 60 billion
in financing from the RBI, about two-thirds of one percent of GDP. At any one time during the
year, the net financing would not exceed Rs 90 billion, or one percent of GDP, for any
continuous period exceeding 10 working days. These decisions will considerably enhance the
RBI's ability and independence to conduct monetary policy, and accelerate the development of
the government securities market.
The government has announced its intention to continue to liberalize financial markets
further, and strengthen financial institutions, particularly the commercial banks. The last RBI
annual report has indicated that, at an appropriate time, the maximum deposit rate, and the
minimum lending rate would be discontinued and a single concessional rate would replace the
two now in existence. As the market for government securities develops, it will be possible to
reduce the CRR further to the level of 10 percent by 1997 as indicated in the last RBI annual
report. This report also indicated that by March 1996 the average SLR would be reduced to its
present marginal rate of 25 percent. This implies that the captive market for government
securities will shrink rapidly in the next three years. Central government obligations are already
being placed at market related interest rates through auctions in which the RBI has declined to
participate.
Tax Reform
At 16-17 percent of GDP for cental and state governments combined, India's tax effort
is relatively high. Out of total tax revenues of 16.6 percent of GDP in 1990-91, customs
accounted for 3.9 percent of GDP, excises for 4.6 percent of GDP, sales taxes for 5.1 percent



- 51 -
of GDP, taxes on corporate and personal income for 1 percent of GDP each-i.e. a total of 15.6
percent of GDP. Except for the sales tax which is administered by the states, all the other taxes
are administered by the cental government with revenues from excises and personal income tax
shared with the states. Until the measures take over the last two years, the main problems of
India's tax system were essentially two.
*     Fjs, the characteristics of each one of the main taxes imposed heavy efficiency costs
to the economy. Customs revenues were based on extremely high tariffs which
enrcouraged inefficient import substitution and itroduced an anti-export bias in the
production of tradeables. Excises were based on high and highly differentiated rates on
manulicuring products; numerous specific taxes which distorted markets and made it
impossible to determine a reliable value for the average tax rate facing India's
manufacuring sector; very partial rebating of excises paid on inputs which created
serious cascading effects; and collections based not on invoices, but on a notional price
negotiated with the central government. Together with several hundred exemptions, this
untansparent and highly differentiated system complicated tax administration, and
encouraged litigation. Sales taxes suffered from similar problems of widespread taxation
of inputs, proliferation of nominal tax rates on similar categories of goods, and extensive
use of exemptions which created highly dispersed effective tax rates across commodities
and across states. Only five states, Punjab, Haryana, Manipur, Jammu and Kashmir, and
Himachal Pradesh exempt the purchase of inputs from sales tax. In virtally all of the
states there is a prolifemtion of nominal tax rates on different categories of goods. With
rates as high as 52 percent for widely held companies and 58 percent for the others,
cMrorate tax rates discouraged investment and encouraged evasion. Similar problems
existed with the Personal income tax which, in addition, did not cover agricultural
income-taxation of agriculural income is the prerogative of the states.
*     Second, sharing with the states of revenues from the personal income tax (85 percent of
revenues), and excises (45 percent), has led to serious ailocative inefficiencies. It may
have discouraged responsible expenitre behavior by the states because expenditure
decisions did not need to be accompanied by corresponding resource mobilization efforts.
It has also encouraged the central government to concentrate its tax effort on taxes which
are not shared with the states, which also are those with high efficiency costs. Revenues
from the tax on corporate income (not shared with the states) have doubled in relation
to non-agricultural GDP over the last four decades, while revenues from the tax on
personal income (shared with the states) declined by about half. Similar tax sharing
considerations have led the government to increase import tariffs (not shared with the
states) which, over the last decade or so, more than doubled in relation to GDP. The
73rd Amendment to the Constitution of April 1993 is an important and welcome change,
aimed at increasing the autonomy of local governments. However, it may accentuate
fiscal indiscipline by establishing between the states and local governments a system of
transfers similar to the one in place between the central and state governments.



- 52 -
Based on the January 1993 recommendations of the Tax Reform Commitee, the
government has formulated and begun implementng a comnpiehensive progmm of tax reforms,
which has been accelerated in the last Budget (Box 1.6). Tariffs have been gradually reduced
and will be reduced furtr. In the 1994-95 budget, taxes on corporate income have been
reduced and a major reform of excises has been implemented to make it morc closely resemble
a value-added tax and address its major problems. The government has extended the coverage
of MODVAT (a version of a value-added tax) to include manaring sectors thus far
excluded, and, for the first time, some services. Of particular importance also are the decisions
to shift most excise rates from specific to ad-valorem to increase buoyancy, reduce the number
of rates, and simplify the system by relying on invoices for value determination. These reforms
are of major significance. They have considerably simplified and modernized India's tax system
and make it possible for the centrl goverment now to focus its efforts on improving tax
administration-which will need to be the next priority. However, inefficiencies associated with
the sharing of tax revenues with the states and charcteistics of the states' sales tax are serious
problems whica remain to be addressed.
Pvgress and Shortcomnkgs in Public Enteqpvise Refonn
Background.  There are
about 1,000 non-financial public  -:-TIl2.5:--P it Sboar andbNitEs prfIs the Econmy,1 .S- .
enerrises inIndia, of which 300
are   owned  by  the  ceuti    .               -:t5ccr:fa,of-0, p't
government and about 700 by ste fStin::.-
governments. PEs have been the                                       u     :f
secter
govenment's   most  important  -                                               Output:
vehicle to channel resources ItO ky       m.D. " . ,
sectors of the economy; a  a                                .                   37 . 
resuit,  Ps  now  mange  55                        .    iao
percent  of  the   economy's                                                    11.
(excluding  households') c4-itaI      Umo*-                                    -. 71
stock and account for one-fourth     EIni.wm  watr                               2.2
of  non-agricultural  GDP.           T     S. 4 
Departmental enterprises,  i.e.,      fw <:              10:
PEs   organized   as   ministr-y       tr'jr214
e = ,   d o       '<f,"f..C   ,' ,'    -.   f.-.'' ',.-'. f   ,S': .   l,  .',-,f U'--' '; fS ''  f    "'' " ." '.'.'... .-.....''- 4''
irigation, water supply in rural  Wn                                             4...... t,x, ni.  .;
and urban areas, railways, river                                                 ... ..1. ..
transport,  ot,psa services,  .:..m..s.. 72..16
d~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ .. >    o.        Non . s ..    .... )fyv  B\-  .-  ..... ...
and telecommunications. Non-
departmentl PEs organized a    M--
corporations  dominate  mining    *ote:<Dqnn3-umaLPE
(including hydrocarbons and coal),
one-third   of  registered
mnanufactring (particularly steel,



- 53 -
petrochemicals, capital goods, pharmaceuticals, fertilizer), power generation and distribution,
oil and gas production and marketing, air transport, one-third of bus tansport, storage, and
banking and insurance (Table 2.5). As documented in several govermnent publications such as
the annual Economic Surveys of the Ministry of Finane, the Public Enterprise Survey of the
Department of Public Enterprises, and Eighth Plan documents, returns on PEs' assets have been
low and over time PEs have become increasingly dependent on government budgets.
Table 2.6: FInancnCentral Gmernment PEs' Plan nments, 190-9S"
(Its billion)
1 -91-              1991-92.:          199--                1993-94   V      994-95-
.:-t:Budget   Actuals -.Budget  Acals :Buget.An:tnals-  Budget.  Actuls..   Budget:
iumemalro:-:                131-e-    107 -137                 . 1  151--    161       191       189.       2:
Bonds anddebenres2t        -39        -49      :59        '7 61.:    .63                69        62:        75'-
Exeralco.omrcial3l          15        26.       20        19        59        37-  '   52         41    ' 72-
Othem4J                     34 - -   23--- - ' -'- -'24- ' -- -- ---29- '-- -: --28-' '  -' '39. -'   96  72 -   - -53 9.
BudgetSUppor. ,             68.       76                  0 68  9     : 9   -   6       66        75 ,:
GDP)'D A(1.3)- :-(1.4):'                        4      (1'1)    1.0)   (0.9)         (0- )     (OS)       (08
Total                                 2.:. :-8:--1 3- 29                                3            ..474  4.39  501
:(-c.cemof.GDP)           (5Ei;.,';-,;     'CS.4):--:'  - (5.3):;,':ss' (5.0)  (4.::8)- - ('5 %2)s-:: (52) M.  (60)  (:'  (56
GDP   -  '. - S .       . s    - S   S     
Zj ' j j, j,°, Sold ji',- .,    '. .' . . -                        .  . ..           .
;/   I n c l u d c s p u b k d e p o s i r a c c o u n t s .   a 3  3 0 .r -.or p o r   . .... . .
-,$,d, ,, - i- , ::. -:~~~~~~~~~--- : f'' '-'---' -- S::      :-:E-   -  -- ----:-X-  g-           :::. - :......:; :S
;= - - -- ; ~~~~~~~~~~~~~~~~~~... ...........  :      '.... .........  ..... '
-   :-  .  . .::::f  - .-  :  :::::   :: :f:   f    if  =-V :'    ::-'.'.:S::.   ::: :B. -.'-..S.:.S. :: g-. :::-.-.:_:. :-::f:.: .:ff.'.:::'::.:::-:..:f..:..:..f -.'S'-::::
Reform of Public Entaprises. In July 1991 the central government announced a thre
pronged strategy to improve PEs' finances consisting of: (i} eliminatng PEs' privrileges such
as entr baffers, proteton from external compeiton, and preferential access to budget and
bank resources (through the SIR); (ii) restructuring potentially viable PEs, liquidating the
others, and establishing a safety net program to cushiion the social cost of this process; and (iii)
providing PEs more aultonomy and the mandate to become profit-oriented concerns. Large scale
disinvestment  was not part of the strategy to refom  PEs  except for relatively small blocks of
shares sold to the public and mutual funds to mobilize fiscal resources. Over the last three
years, about Its 50 billion (Rs 1.6 billion) of equity, holdings in 32 PEs (for amouns varying
between 0.6 percent and 30 percent of the total equiity of the respective enterprises) have been
disinvested in several rounds of offerings rpesening half of th;e Rs 100 billion governen
target.



- 54 -
The government has taken several significant steps to implement this strategy. Firs, with
few exceptions, (such as railways) the government has eliminated formal barriers to entry and
PEs now face the prospects of competition from new entrants in sectors as diverse as  ini
air transport, power, banking, soon insurac, and all lines of manufacturing.  Trade
liberalization has reduced another important source of protection to PEs producing tradeables.
Second, legislation has been amended in December 1991 to enable the govemment to liquidate
chronically loss-making PEs, and the National Renewal Fund has been established to cushion
the social cost of restucturing. Since December 1991, 140 cental and state enterprises have
been referred to the Board of Industrial and Financial Restucnring (BIFR)-India's agency in
charge of restructuig or liquidating chronically loss-making enterprises which, unil December
1991, was only empowered to deal with private finns. Since its establishment in February 1992
up to October 31, 1993, the NRF had financed Rs 6.7 billion (US$220 million) mainly in the
form of voluntary reirement covering about 60,000 woes in 40 PEs. Third, the use of
Memoranda of Undertading (MOUs) with PE managements has been expanded and PEs'
managers have been given a clear mandate to focus on financial results and not count on
govrnment assistance   Budgetary support to PEs has been significantly xeduced while
prefrential access to bank resources has been virtually eliminated.
This approach has had limited success.        ...
In 1992-93, Steel Autthority of India Limited   Table2 7:. .f ..d .....      i-.
achieved record levels of turnover, profit, and
production as a result of the combined effects                       . . . .    .
of price  liberalization  and  productvity       ........ ...:pxeaua'    s
improvement measures. The Indian.-.
Rofticuce received58   82   140 .
Petrochemicals Corporation Ltd. is adjustin - :         .7 5.. .... '.
to increasing competition by cuttn prices;    .us&..              ... .nS
increasing capacity utilization and changig  . D.                1 . -
its prduct mix. On the whole, however,     Datd ...      . ...s    is
inprovements in performance are modest. in  WJudi--upnotic s:d.        3    3
relaion to GDP, until 1992-93 (te las yea         :                   4      7.
for which consolidated data are available) the
profits of profit-making PEs have not              LI  Apncy in - cha    ''''''
improved, and the losses of loss-making PEs              f '"''*'.m ' ......  ....
have not declined. While they have increased                 c    Vmdmg.w tes
in some subsectors, PEs' net profit  s            . - . .h5I.&
in a variety of manuifacturing sectors have    s'e 'f '
remained  low  and  wel  below  thir -    _   _._            ;---
competitors (Table 2.8). PEs have been
unable to offset through increased market borrowings the effect of reduced budgetary support
and loss of preferential access to bank sources; their ability to invest has been consequently
eroded. Tariff reductions introduced in the last Budget have exposed some publc enterprises
(coal, steel, basic ferrous and non-ferrous metals) to even further import competition. In the
last Budget, for example, the tariff on coal has been reduced from 85 percent to 35 percet, and
this will affect Coal India India's major coal producer with 800,000 employees); similarly large



- 55 -
Box 22: Cam Saua: Hhdw*n Machne Teals IN(            ), Mywrs Efaser Ltd (ML,
and th,Nationad Texti     pol J iJ x fNM               --i )
HRT was set up to psduce macit tools in 1953. The firbnicme oneofb 's agstprodaus of machine toolsiand:--
has also diversified into a bmad range of indsa  and consmergoods (tractors, printrs, beigs. Wh, lamps). k has a work-
force of 27,000; its tum-over i  992-93 was about Rs 8- billion (US$240 min);:and hasbeen consideed. an excellnt public:-.
atprisc because of its rapid gwh and modemteehdoogies. .However, HMr baisfoulnddififeilro cape withexteMal and doMesticr
compeiion    in 9 -93 itcoedanettlossdow for the f:fr-:ne in. is hi-:ory.
Recognig she need1for change he D ae  of Heavy ndstries (DIM  an HM, requesedsac frm  theiJapan
inarmaio&nal Cooperation Ageicy (RICA)  tasses what is  ired fart compy to   ticompe            hi I Mardi 1M. JlCA
submitd to sh _Govermaa CO                e cir ogmt  a           M      s,consas-ogfk.I) ot zanimdonalmstrcingd  ) USS-
:330 mlio  ivsnfor the modiaon ontand equipment () pomnionofmechaftonics ( tchnwo                 obinngeaic:s
- i --     dect ics) e ologie and (iv) exansionof inrnational operations. -The orgniztiondal  strucing pr edbtheRC.
--m prdtinra whom  majorf-and risky iinvesuswold bezeqired to-:enbleliM¶e  ompet wit pivat eop-- n
;disinvesarieur ofsi  oenetssae   ietObcsl.Sie  nterci   ua Fom fth iWJCkstudy. DHT ;d HMT
rook the ptrealdng deiVsionro 9pprovete     retructurn  rorm analouthoie            oegg    rfsinlaec
* toidientf  7nsbejitvm       ates
: f-:  ;   -  .   .  ---  .  -    -  >  =   -   ::   ....    ...._ ...   ..  ...     ... ..  .   ......   .. .   ....     .......
-5    S9f--l.h.t  g O~~~~ ~   ~   ~~~.... .....- - .......                                                 --- -F--t f - . - D . - .
Muer E,dabskud at (MKL)pa is pivamiem*Chibmerimmnu;,acuzrewhoIts-oniysba niwasS>i percni 1992'iwhenl abin.
..: = -  ---  ------ -                            f:  ........ . i f   f  --- -- ----fff -   :f 'i   -- .- f   5<5
* hmwasabout2Oecn M            pe to- ad.justtohe:-new nmoprsvevrnmi  i aiagosetradi  hr
---g~~~~~~                         ~   ~  ~      ~~~~~~~~~~~~~~~~~~~ .. .. ...... --------- -
contrast wit th abi6lmost twoyasrqie  oIeGvemnoprove die fl|i5H        rntamcuipat ME  used robeallep    - -
y .. f - 4 n '' U f    U   '~~~~~~~~~~~~~~~~~~~~~~~--- - ---- -.' -- ------
*f f compuMe-izedueica control systeingriiles range. To order to divesify its linerpsrroduct. MRL alsoentd into joint enre
r_-rag      nwith  nyde G           US  for poluion contrdl eqi ent with Und Germany fr water teanz*plas antd iwt
....    .    ... .... .......... ........  .....    ........... :..  .....a a.    ..a  .
The 'NazEenalTnzdue C.nuomtien (N'flV)is the zmao PAB hadeseomr, accountin for about. S eceneof -yam-prOduction
abt 2 -perent mc                            cont               t op         i  nin   gon   usi         o     ge
--.=.. ;  ,....-.  . -.  .= -....... . . .  ...    . .....  ....  ... .....  .    ....    . .    . ....   ..
c-i--- cally loss-.akung.privat ...i.. to tun thmaroundantimainmain nploymnt. Thecompany now  aes 124 nationalizeLinils
adesploysLf: &Whilehe ptivat wills avegone T                     painfl recarrin process inhe 19   ant 1980s incuding
* closingon-k   units, hivilgoff weaving sctions to th poweuoom ser; moderzationof :quipmtuo pd ;hig            i
high value-addedpsuducts je:aredlo ap inarkeL  NTC has made rew imuprovmen and contines to accumulate losses.
.A resnucrurzn-.pln has beenapprumepp         by she.Cabinerin1l93, amd calls for closur of aunconoimuns, die    .nchmcn
of 7,f0-700. workerstthroh a vtolu yie        scheme, a modenunmo program an te piization of some units. Rowever die
-''i--pfbitii-thefiE--p--~~~~~~~~~~~~.... ................    .....  ----------- -- --
-doti-  --hffi-M---ffXn 
kmtncuhrngprgramwhic is tillbeiazreiewe by di   If  hihise 'enloabod. Rtrenchment ha slowed downs._.
f,workers  pehaieI   wil orse Nit's revivaiplan..                                     -- - - --- --- --
f~~~~~~~~... .f .. . f                              . .                                          ..... ..
tariff reductions have taken place in the case of stel.  These reductions in tffs will further
increase competition and force PEs to improve their performance. To render this mprovement
in performance possible, however, it is imperative that PEs be given tihe means to respond to
increase m competition. Until now, while PEs' managers have been given a mandate to run PEs
as profit-oriented commercial concerns, they have not been given the authonty to introduce the
necessary restructuring measures, such as large scale retrechment, corporate reorganization,
closure or selling of units, and joint-ventures wiffi private investors. These have had to be
approved at the Cabinet or Parliament level in a time-consuming and often inconclusive process.
Even in the case of a successful PE, such as Hilndustan Machine Tools (HMT), since
restrctrng had been delayed, the decline of investment in the economy together with a sharp
reducdon in capial goods tariffs in 1992-93 caused the company losses for the first time in its



- 56 -
history. The adjustment of HMT to the new policy enviromnment stands in sharp contrast with
that of its counterparts in the private sector (Box 2.2).
Table 2.8: ProffiablEfty  oSe ..Id:                       f_'903--
.  1.    . ....   ...9.9....      .   1992-93
oS-makng11                                                               102              l0S
(Pucemof GD?)    ~ ~ ~~. ........             (1.0               (1.)            (.0)3:
laotIeu-unathigfEa(Rsbluion)       31                37              ~~~~~~~~40.
Profitso oPES:ii djieOitsmwr
(ctaof GDP).                                       :((A)                       (D. (3)
Sted     b  i-dw  ew
§ *3.9)              58)*             -17)
Ferilze   ...    .......    -.                                          
*   PBs                               -550)            ~~~~~~~~       ~~~~~~~~~~~-7:5:.(8)  -11.29(8)t
P...E.... *                                    7.9 (230rn        2  (2)           1(2
*   Print.                      . .<  ~~~~~~~~~~~~~~.A4. (ii):  *;    :4717')  5..0-(579)-
*  Private                               ~~~~~~~~    ~     ~~~~~3.5:(169)  :3.4(166)  .3.5:(102)-
PEa    ,  ~~~~~~~~~~~~~~~.16.7 (4    (14)                     14)        -3921 (14)::
.. . .. . ~~~3316                                2(74.:.:::..218
Noe~~ Noinberofeatmpnses m S. sample in parentheses. Pwf ii; an - ofir axes*.". 
Because of their economic importanc   it wdl be costly to delay trnfrigpublic
enterprise  into competitive, dynamic and profitable commercial concerns. These costs will be
in the form of declining profits as the pressure of competition increases with corresponding
negative effects on the consolidated public sector deficit; and further erosion in PEs' capacity
to invest. Given thie importance: of PEs in the economy, this could slow its recovery. hn many
case, large scale disinvestment is the fastes and surest route to reform  PEs, and one which
would reduce the fiscal deficit.  As a fir-st step, the rcm edtosof the Rangarajan



- 57 -
Committee (disinvesting up to 49 percent of equity in PEs in areas still reserved for public
investment, and over 74 percent in other areas) could be implemented immediately. In some
cases, however, immediate large scale disinvestment will not be an option and restructuring
exercises will need to precede disinvestment. In these cases, it would be essential for the
government to provide PEs with resources necessary for financial restructuring and to give PEs'
managers the authority to close non-viable business units, umdertake the large scale retenchment
which will be necessary, and promote private investors' partcipation in the restructuring
process. Unless such a pragmatic approach is adopted quicldy, the prospects for a rapid
recovery of growth will be correspondingly reduced.
Reform of States' PEs. Aggregate data on state-owned PEs are not available. It is
known that the State Electricity Boards and State Transport Boards account for a large share of
the states PEs' assets and production. Excluding these, the sates' 700 PEs are much smaller
and in the aggregate of much less economic significance than the central PEs. It is clear that,
as has been the case witi central PEs, fiscal constraints ad increased domestic and external
competition are forcing state goverments to reform their PEs by taking steps similar to those
of the central government The case of the SEBs has already been discussed. In addition, of
the 140 PEs refenred to the BIFR, 80 belong to the states. A state-owned paper mill has been
sold to the private sector in Tamil Nadu and a fertilizer plant in Karnataka. It is, however, not
possible to evaluate the depth of this reform process.
Short- and Medigm-Term Poficy Issues
The authorties have been remarkably successful at engineering a major transformation
of India's economic policies without the disruptions which have typically accompanied such
experiences elsewhere in the world. The process of reform is obviously far from complete. The
credibility of fiscal policies needs to be restored and a credible medium-term fiscal adjustment
path needs to be articulated. Remaining licensing restictions on imports of consumer goods
need to be eliminated and tariffs reduced fiuther. The successful completion of financial sector
reforms will require additional steps to increase the public banks' autonomy and profitability,
and rehabilitate the mrual credit delivety system. Now that the cental governent tax policies
have been improved, there will be a need to strngthen tax administration. Tax reforms need
to be extended to the states and the system of intergovernmental transfers needs to be reviewed.
The resucuring-cum-privatization of public enterprises needs to be accelerated. In the short
term, however, the major problem facing the authorities is how to mainuin the dynamism of an
economy which has been historically driven by a fiscally unsusinable expansion of the public
sector.
To address this problem, the fll imple on of the reform program needs to be
complemented by (i) an increase in public savings enabling the public sector deficit to decline
while expanding public investment; (ii) as recommended in the February 1993-94 Economic
Survey, a reevaluation of all ongoing or planned public investment projects to ensure that they
are economically viable, are directed towards the most urgent investment priorities, and cannot
be undertaken by the private sector; (iii) the estblishment of sector level institonal and policy



- 58 -
frameworks conducive to private investment; and (iv) measures to offset the impact of capital
inflows on the competitiveness of the real exchange rate to ensure the continued expansion of
exports.
Restoring the Public Sector Capacity to Invest. With investment of around 10 percent
of GDP in recent years, India's public sector has had a major role in allocating the country's
savings (22-24 percent of GDP)- Public enterprises are responsible for three-fourths of public
investment, and the central and state governments for the remaining one-fourth. At around 2
percent of GDP, however, public savings have been insufficient to sustain such investment levels
and reflect a number of adverse fiscal developments which became particularly severe during
the 1980s: high and growing current spending; low profits of PEs; and inadequate cost recovery,
particularly at the levels of the states. The Eighth Plan document indicates that rates of cost
recovery for economic and social services provided by the states have been steadily declhing
and that the resulting fiscal drain amounts to several percentage points of GDP. For example,
a significant proportion of the infrastnucture in irrigation (whose maintenance is the responsibility
of the states) is in disrepair because of insufficient expendiure on maintenance which is in turn
the consequence of inadequate user charges. Improving collections of user charges would
generate resources for better maintenance which would in tum increase agriculural productivity,
thereby improving incentives for private investment.
An improvement in public savings performance at the level of the central govermment,
public enterprises and states, is key to the success of India's economic program. It would not
only help reduce fiscal imbalances, but also help reverse the ant-investment bias of fiscal
adjustment-and thus the declining trend in growth of public investment started in 1991-92. For
the cental government, this implies mobilizing resources through a reduction in wasteful
expenditure, including poorly targeted subsidies, particularly on fertilizer, and better tax
administration. Reducing public enterprises' claims on the econvmy's savings requires
accelerating their restucatring and privatuzation. Tmproving public savings at the state level
requires improved tax systems and cost recovery. In addition, it may be necessary to establish
a system of intergovernmentadl tansfers which at the same time provides to the poorest states
resources to accelerate their development, and provides to poor and rich states alike incentives
to mobilize and use fiscal resour s efficiently. Concerns about interstate "equity" may have
to be replaced by a more pragmatic focus on India's poorest states, while increasing the financial
autonomy of the richer states wbere there is a scope for increasing taxation, and mobilizing
resources from domestic capital markets. The current practice whereby the cental government
plays the role of a development banker by providing loans for states' infrastructure projects may
need to be reviewed. Unlike a development banker, the central government does not associate
conditions to its lending to ensure the projects it finances are undertaken within a financialy
sustainable framework. Existing financial intermediaries could take over this development bank
function and gradually become responsible for fmancing in   projects at the state level.
Prioriizing and Increasing the Efficiency of Publc Expendture. While the objective
of the reforms underway is to increase the role of private investment in the economy, public
sector investment will remain important when directed to productive projects where it



- 59 -
complements and induces private investment. Ensuring this requires careful reexamination of
ongoing expenditure programs. Valuable expenditure programs such as road constructio. or
rehabiliton of irrigation systems are underfumded at present while programs that could be
undertken by the private sector, or programs, such as many of the Centally Sponsored
Schemes in agricultu, with negligible economic or social retus to the economy, contine.
For xample, it has been estimated that expenditure on high-density roads yields rates of retrn
as high as 40 percent-60 percent if saved time is valued as a benefit. However, achieving these
returns also requires improvements in implemntion capacity and procedures of the cental
road administation. This would in turnrequ  measures to (i) stamline procement and land
acqisition procedures; (ii) improve the quality of engieeing investigations and designs; and
(iii) introduce construction methods that improve the quality of road constuction, patiNcularly
for large scale contracts. Similarly, expanding provision of water supply, one of the main goals
of the Eigbt Plan, is known to generate sizeable benefits among dte lowest income groups in
terms of health improvements and time savings, pardcularly for women. However, here too
there is a pressing need to improve the quality of materials and equipment used in water supply
systems, and to imprve the personnel and financial management of water sector institutions.
To free resources for productive public spending, the Eighth Plan document has
recommended independent "zero-based' evaluations of existg government agencies to eliminate
those that ar redundant, have outlived their usefilness, or have turned out ineffective in
pactice.  The 1993-94 Ecomic Survey of the Minisatry of Finance has extended this
recommendation to all expenditure programs. It indicates that "Expeure prioritizaton and
control should also be sought through systematic zero-based budgeting procedures. whereby
esing programs are evalaed and low priority expenture pruned; and highlghts the need
to reduce subsidies and iprove their targeting, particularly in agriculture, where needed
increases in investment in rural infaructure "are lkely to be available only if the masuive
subsidies providedfor water, electricity andfertilizers are scaled down. " It would be extremely
important to implement the recommendations of the Economic Survey as soon as possible.
Increasing Pfiate Investnent. A decline in pnvate imvestment has been a frequent
response to stbilization and reform experences elsewhere in the world-a natural pause follows
major changes in the icentive regime as old projects are reassessed and rew projects are
formulated. However, structural weakesses inherited from the previous policy regime may
delay a recovery of private investment, and need to be addressed. As highlighted in Chapter 1,
the response of pivate investment to the new more liberal policy framework will depend on the
speed with wbich appropriate sector-level policy and institutional frameworks are established,
formal barriers tD entry are lifd where they still exist, and complementay public investment
is inreased. In the short run, the recovery of private investment requires taing steps to
provide a policy and reoy framework conducive to private investment in sectors such as
telecommunications and hydrocarbons, where there is an urgent need to expand capacity and
strong private sector interest. In these sectors, private investment could reach several points of
GDP in a relatively short period of time, and contrbute to a rapid and sustinable recovery.



- 60 -
TIhere is also a need to improve the investment climate in agriculture. Since this is a
process that would require some time to be implemented, it would be important to start it as
soon as possible. It would require the liberalization of domestic agricultral markets and agro-
processing, an increase in productive public investment, and the gradual removal of restrictions
on imports and exports of agricltural commodities. As indicated in the 1993-94 Economic
Survey "Private investment in agriculture can increase if public investnent grows, remunerative
prices for agriculural produce are maintained, controls on domestic trade and marketing are
scaled down, opportunities for ... agricultural export are increased". The authorities are
justifiably concerned with the short-term impact that the liberalization of external trade of
agrcultural commodities would have on prices of essential commodities, and the consumption
levels of the poor. However, the current restrictions on imports and exports cover a much wider
range of agricltural commodities than those consumed by the poor, and the current instruments
of controls are very crude and untansparent It would be more efficient to replace them by a
combination of tariffs and exports taxes that would still enable the authorities to offset short-term
fluctuations in international agricultural prices and keep domestic prices within pre-determined
bands to be reviewed periodically-with a view to eliminating rapidly policy-induced disparities
between domestic and intemal prices for commodities which are not widely consumed by the
poor, and more gradually for the others. As for many other reform measures, this approach
requires continuous improvement in the social safety net, such as the existing rural employment
programs. These measures, together with the liberalization of domestic agricultural markets and
recovery of productive public investment in agriculture should have a positive impact on private
investment in agriculture. Private imvestment in agriculture has historically accounted for as
much as 15 percent of total private investment, and its revival could contribute to a sustainable
recovery of the economy.
Also, in the medium term, the expansion of private investment will reqiire addressmg
fundamental issues such as de facto barriers to entry in sectors now open to private investment
such as power, urban infrastructure and roads; insufficient public investment in infrastructure;
and the size of the public sector deficit (central government, states, and nublic enterprises).
Unless the public sector deficit is reduced significantly, India will remain vulnerable to
macroeconomic instability and high real iterest rates, and private investment will suffer.
Managing Capital Inflows. In theory, large capital inflows should enable India to
increase its investment rate, thus expanding the country's production base and increasing its
growth rate. In practice, as indicated in a July 1993 IMF Policy Paper (IMF Paper on Policy
Analysis and Assessment, The Capital Inflow Problems: Concepts and Issues, July 1993), these
large inflows are not an 'unmitigated blessing"- They pose complex choices to the authorities,
and threaten the competitiveness of the real exchange rate-whose maintenance is essential for
India to continue expanding its exjot base (from which the capital inflows will be serviced) and
reap the full benefits of the refonn program the county has been implementing since July 1991.
As indicated in another recent IMF paper (S. Schadler et alk Recent Exoenences with
Surges in Capital Imlows, IMF, December 1993), in the face of large and persistent inflows,
a tightening of fiscal policy can help contain iflation and avoid a real appreciation of the



- 61 -
exchange rate. However, fiscal adjustment has not figured significantly as a response in most
counties that have recently experienced a surge in capital inflows. Although fiscal positions
generally improved following the surge in inflows, this was less a response to the inflows than
a continuation of the fiscal consolidation that in part attracted the inflows in the first place.
However, fiscal consolidation, and more particularly a reduction in government consumption,
has been important in preventing a real exchange rate appreciation. For example, Malaysia
moved from a fiscal deficit of 5 percent of GDP in 1986, to a surplus of 0.4 percent of GDP
in 1992. Thailand moved from a fscal deficit of 5 percent of GDP in 1984-85 to a surplus of
5 percent of GDP in 1989-90.
In India, capital iflows have surged at a time when not only the fiscal deficit is still
relatively high, but also, reflecting low domestic investment, the current account deficit of the
balance of payments is virualy in baiance. Capital inflows have thus placed the nominal
exchange rate under pressure to appreciate. The RBI has thus far held the exchange rate
constant in nominal tens by purchasing all the excess supply of foreign exchange at that  e.
This has caused rapid reserve accmulation and expansion of base money, which has created
inflationary pressure (inflation is now in excess of 10 percent) and has meant a real appreciation
of the rupee-which may undermne continue strong export performance. This highlights that
seeking to maitain a competitive real exchange rate merely by targeting the nominal exchange
rate could be an elusive goal in the presence of continued strong capital inflows.
Essentially, widening the current account deficit of the balance of payments or
accumulating foreign exchange reserves are the two avenues thrugh which India could absorb
foreign inflows. Whether the current account is widened though a reduction in domestic
savings (i.e. an icrease in domestic consumption) or through an inces  in domestic
investment, however, is of critical importance for the long rnm growth of the economy and its
future capacity to service the inflows. Typically, countries that entered a capital inflow episode
close to full capacity utilization and rapidly growing investment, have been able to translate
capital inflows into higher investment and higher growth, and no appreciation of the real
exchange rate. In counties where capacity utlization was low and mvestment sluggish, the
widening of the current account deficit has been accomanied by increased domestic
consumption, exchange rate appreciation, and an erosion of the export base.
Starting in the second half of the 1980s, large capital inflows in Latin America and E;ast
Asia-bave increased current account deficits. But whereas in Latin America this increase in the
current account deficit was accompnied by an increase in consumption and an appiation of
the exchange rate, in East Asia it was accompanied by an increase in investment and except for
Korea, no appreciation of the exchange rate. As indicated in the July 1993 IMF Policy Paper,
two factors seem to have accounoed for these differences. First, most Asian countries entered
the capital inflow episode closer to full capacity utilization than their Latin American
countparts (except Chile) where growth had been sluggish or non-exint. Second, a higher
share of the inflows was in the form of direct foreign investment in Asia (44 percet of the
increase in inflows) than in Latin America (17 percent of the incease in inflows).



- 62 -
Accumulation of foreign exchange reserves can be costly. Where inflows are very large
in relation to the monetary base, unless sterilization follows monetization, there is a loss of
control over the money base and inflation. Steriled intervention, however, implies rising
domestic real inteest rates and can be the source of large losses to the cental bank. The July
1993 IMP paper highlights that sterilization policies had limited success in reignig in monetary
growth in Latin American countries and that the experience in Asian countries is mixed. In
Malaysia as in Latin America, aggressive open market operations to sterilize the monetization
of the inflows mcreased short-term interest rates and attracted greater inflows.
In India's case, the increase in base money in line with GDP growth would provide room
for accommodating a limited increase in reserves. Assuming that broad money will grow at 13
percent during 1994-95 and that the multiplier in relation to base money will remain at 3.2, then
base money will also grow at 13 percent. With base money at Rs 1,304 billion (US$42 billion)
as of end-January 1994, and assuming that the central govermnent borrowing frm the RBI is
kept within the Rs 90 billion indicated in the last Budget, this 13 percent growth in the money
base implies that US$2-3 billion could be added to reserves. Beyond this, RBI's interventions
will need to be sterilized.
While the RBI holds about US$35 billion of government debt, the scope for sterilization
is limited, however, because secondary markets for government securities are not well
developed. In addition, most of RBI's holding of government debt is in the form of ad-hoc
Treasury bills carrying coupon rates lower than current market rates. Sterilization will force the
RBI to bear substantial capital losses. An altrative would be for the RBI to issue its own
securities. But again in this case, the profitabiity of the RBI would be eroded because it would
be issuing debt instrments carying domestic market related interest rates higher than
international ones to acquire assets on which it could only eam intoal interest rates.
Thus, were the inflows to require reserve accumulation beyond US$2-3 billion, the scope for
sterilized interventions of the RBI would be exbausted and more crude monetary insnumts
would have to be used to contain credit expansion, such as inceases in Cash Reserve
Requirements, ceilings on credit, or a higher minimum lending rate-except for the latter, any
of these measures would have negative consequences on banks' profitability at a time when the
financial sector reforms underway are already putting it under pressure.
An appreciation of the real exchange rate would not be suinable in the medium-term.
While since July 1991 India has significantly reduced tariffs and import strictions, the level
of protection is still high. As imports are hberalized further, and domestic investment recovers,
the real e-xchange rate is likely to depreciate. Thus, any temporary appreciation would have
serious disruptive effects on resource allocation. In addition, India's export base needs to be
expanded considerably to reactivate the economy and provide a strong foundation to medium-
term growth. It would be most undesirable for the government to allow the competitiveness of
the exchange rate to be eroded now that India is beginning to develop its export base at a rapid
pace and gaining a foothold in world markets. The  tenance of a stable and competitive real
exchange rate should be one of the main objectves of govermment policies. As the contrasting
expenences of Latin Amencan and East Asian economies demonstrate, allowing the real



- 63 -
exchange rate to appreciate further in the current environment of already low investment levels,
would stimulate consumption, and further depress private investment. In the medium term, as
the experiences of other countries suggest (Box 2.3), an increase in pub..c savings is the most
reliable instrument to maintain the competitiveness of the real exchange rate.
The challenge to the Indian authorities is to formulate a policy response which protects
the competitiveness of the real exchange rate and translates the surge m capital inflows into
higher investment. In the medium term, as the fiscal deficit is reduced and economy-wide
reforms enable investment to recover, the problem will become more manageable. The current
account will widen. And, with a reduction in the fiscal deficit, a reduction in the central
government borrowing from the RBI in the form of ad hoc Treasury bills, and the development
of the secondary government securities market, the sterilization capacity of the RBI will
increase. In the more immediate future, however, consistent with the lessons of experiences
from other countries, it could be costly to seek to absorb large volumes of potentially volatile
capital inflows not associated with investments while the fiscal deficit is still at a relatively high
level, import restrictions remain significant, and the bank system is being restructured. While
further fiscal adjustment is key to maintaining the competitiveness of the real exchange rate in
the medium term, it is not a flexi-ble tool which can be used in response to the vagaries of capital
inflows. Were the capital inflows to require additional accumulation of reserves within US$2-3
billion, the sterilization capacity of the RBI should be sufficient to absorb the inflows without
further appreciation of the real exchange rate. Were the inflows to increase beyond this level,
however, the authorities would need to take action to slow the inflows.
Many countries expenencing large capital inflows have had at one time or the other to
resort to measures to slow them down (Box 2.3). The nature and effects of such measures have
varied from country to country depending on the composition of the inflows and other specific
conditions of each case. In countries where a large proportion of the inflows were intermediated
by the banking system, the authorities have tended to use instruments aimed at limiting the
expansion of credit generated by these inflows-therefore reducing private returns on these
inflows. In countries where the inflows were mostly portfolio investments, the authorities have
tended to impose implicit or explicit taxes.
In India's case, a large part of the inflows originates from Indian fims mobilizing
resources through the issuance of equity and convertible bonds abroad. If the bonds are
converted, these instruments do not create extnal debt. In addition, they are attractive
instruments in that their servicing is not fixed and the holders share the nsks associated to
fluctuations in domestic income tnd exchange rate changes. However, they do create long-term
claims on the country's foreign exchange resources. As much as claims generated by the
creation of extemal debt, their growth needs to remain in line with the growth in India's capacity
to service them-that is in line with the growth of exports. Since firms still need to obtain
govermment approval to access extenal capital markets, it would be desirable for the governent
to take measures to keep such approvals within a certain limt to be reviewed every year. It is
important that this be done in a transparent and non-disceonary manner, and be announced as
a temporary response to a situation where the world supply of savings to India has increased



-6i -
sharply while the country's demand for such savings has declined, to be eliminated as soon as
there is a recovery of private investment, or to be tightened if this recovery takes time to
materialize. Guidelines were introduced in May 1994 restricting issues of equity abroad to one
per year, per firm, for fims with investment plans sufficient to absorb the finacial resources
mobilized abroad. This step should help reduce the volume of capital inflows and the pace of
foreign exchange reserves accumulation, but this reduction may not be sufficient. An additional
measure which could be considered would be to lift current restictions on firms' holding abroad
fumds mobilized in external capital markets. Were all these measures insufficient to bring capital
inflows within manageable proportions, it may be necessary to consider some appropriate form
of taxation of the inflows until such time when the recovery of domestic investment leads to a
widening of the investment-savings gap.



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- 66 -
CHAPTER 3: MANAGING JNDIA'S ENVIRONMENT - SELECTED ASPECTS
The policy initiatives outlined in the preceding chapters plus those on the anvil hold forth
the promise of sustained relatively rapid and equitable per capita economic growth. With this
growth, superimposed upon a rapidly growing and urbanizing population, inevitably will come
more potenial pressure on India's air, water, and land resources. To be sure, many of the new
policies, and some of the underlying trends, will themselves also provide some respite.
Improving cost recovery in power, irrigation, and water and sanitation, and reducing fertilizer
subsidies, for example, all would help to reduce pollution loads. More liberal access to new
cleaner technologies will help reduce the generation of pollution at source and render cheaper
and more efficient thc control of whatever pollution is generated. Reforms aimed at general
strengthening of state and local govermenLt instutions and finances will also stengthen the
effectiveness of these key levels of government in protecting the environment. Tiese initiatives
will, however, clearly also have to be complemented by efforts specefically targeted to
environmental protection.
This chapter briefly reviews the status of some of India's efforts to ensure that future
growth is consonant with improving environmental quality. It examines the priorities, strategies,
and programmatc approaches reflected in these efforts.  The chapter is based on the
Environmental Action Programme published recently by the government, and the comprehensive
body of work and information on which, directly and indirectly, that program is based. It
focuses on narrowly defined environmentl problems-enviromnmental pollution control (air,
water, hazardots and toxic wastes), and conservation of natual resources (forests, wildlife, and
biodiversity) which are the principal concerns of india's Ministry of Environment and Forests
(MoEF). It does not deal with other important problems such as the management of India's land
and water resources, the nexs between poverty and the environment, population, and
resettlement and rehabilitation, which are addressed in other reports.1
Inda's Enironment Today
There is no way in a country as vast and diverse as India to descnbe the status of the
environment completely and accurately- Even given the limited focus of this chapter, the most
tiat can be done is to examin a few enviromnental indicators that are correlated broadly with
human helth and/or with the health of ecosystems. These include measuements of the presence
of pollutants (Box 3.1) in India's air (such as suspended partulates) and water (such as
colifom), and indicators of the extent to which habitats are being degraded. India has made
great stides in recent years in monitoring several dimensions of its environment which makes
rough quantification possible.
Overal, the picture that emerges from these data is mixed. Certain environmental
pollutas have reached levels that are well in excess of levels judged to be adequate to safeguard
health. The health picture corroborates hese envirental indicators, reflecting pates of
disease and death characterisc of unhealthy environments. Vast areas of Indiads orginal
endowment of naural testrial habitats have been transformed, and those that remain are under



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-68 -
fpiure 3.1: 'Ambient C.imentvuaiow  of Air Plaim,19
45:
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Average AnmICuarnsm            0
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4-                                  -~~~~~~~~~~~~~~~~~~~~~~~~~~~~. . ... ....
a    is  an~~~~~~~~~~~~.........
Averaae anNeal cmnc*atntsm~~~~~~~~~~~~~~~~~... ... 
for which annual means arc repo~wrtged  xedd Sana averag  ambien  stanard.evel.fo
to health. exeept perhaps on a very localized basis. However, while ambient concentrations . ....   ..  . .. of
lead are still generally below the WHO benchmark range (i.e., 0.5-1.0 gg/m3, annual avenge),~~~~~~~~~~~~~~.... ... .
concentrations are aprahn  levels th'nsat are harimful to 1 hathTbe31.Wihtelkl
cotnato   r vnaceeato.fth   ae  fgowho.gsln-pwrd.oo.vhce.tcs



- 69 -
it is likely that airborne lead will become a problem         fabib e 3.1: Aben  a      g
m  major urban areas.  The other pollutant  (i.e.,
hydrocarbons, carbon monoxide, and ozone), because
of the dominant role that motor vehicles play in their    : Ci-r                 Con-e-t-a- -n
generation, could also become problems .                                                - 0  .
Calcu-tta'__.               0.3
Time seres air qualty data for twelve stations       Dl hi .. .02   0.3.67
in four major metropolitm cities over the period 1978 
to 1990 present a mixed picue (fable 3.2). Only              -         :     ....
three of the twelve stations show si         trends in
SPM, with a significant positive trend found at the
Bombay commercial area monitoring site, and significant negative trends at the industial and
residential monitoring sites in Madras. Significant declines in SO2 took place at two of the three
Bombay statons and one of the three Madras stations. Only NO2 exhibits generally (though by
no means uniformly) increasing ambient concentrations (Madras is an exception).
Table 32. Trend .s . mb. nt...o..t.en......9
.. ...   . ......  SgO ua          -i         iwi       i         wwh.           Sg
I                .            0.4 ... .1........*
2.5.          0.3i               17R               -L
;,, . , < .-.,.,~~~~~~.   :Sy., ..:.............   x. ,   :. :    ..,   , ........... ...- a:.:: .:.f.-.    .........---
-' "          L        ".-=  ''; x'E-S- >''  S S; * ,, f S Sa          2 2  M   , 0.0,  , 
I            -7 ,B2.-5    0107  S:-                             -'
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~.   .....    ...:=: - .-- 
CPm '       f<'- - .. -  .    .  .. ..              . ...  .0.4  38.3...0--.  . ...046
R                    0 1         4 '                  0     0.012 .  .   -2.62
....~~~~~~~~~4                         . ..=f- .....             -2...............   .-  .:-. ..   ...
-:1.I: ..0.014     0026           O.OOS,    .    -12.
''' .                ''''.'11.;6- '".0.018: '   " .12.9"   0.040... ...... 4.0''.  0.013.  ....
R.       --~10.2    0.0567- -'0.0    013         58      002A~32004
~~~~~~~~~~~.... ....                .            .. ...............  : .  : 5
Notes:`
1    .  G.t 'aW a' pCIflt  ''''flfl....... .. ..':-.   ....'':%.. .
2-- -'Sig i e   scsignificaairffe stdima dnd  iSignifie lvels arc repdled aL oaly dx¢ 15% level or bruec. -
. 3. .  .. :wdustiul moni;tlorW'h;.. ing s ie;S Ci - ' ', R. -.'  ......
The generally positive trends in NO2 concentrations are easily understandable in view of
the rapid increase in the stock of motor vehicles: in Delhi, the stock of vehicles grew at 10.3
percent per annum   over the 1980s; in Calcutta, the figure was 11.9 percent; in Bombay, 9.2
percent.  The absence of  increasg trends for SPM  and S82, however, is at least mildly
surprising in view of the relatively rapid economic growth that occurred in the 1980s. It must
be remembered, however, that changes in ambient concentrations represent the composite effect
of changes in the quantity and location of emissions, which in tur  are driven by patters of
development, technology, and enviromnental regulaton. For example, if all of the PM
emissions growth took place well away from these 12 stations, there would be no reason to
expect SPM  concentatons at these stations to increase. Or swichig of fuels (say from coal



- 70 -
to naural gas, and fuielwood to kerosene) in the vicinity of the stations could also contribute to
the moderation of pollution levels. Emissions reductions due to government imposed regulations
is still another reason pollution levels might fail to track growth.4 Trends (or long cycles) in
the capacity of the local atmosphere to diffuse air pollutants could also affect mean concentration
levels.
In the absence of more data, no firm conclusions can be drawn about the relative roles
of the various possible fictors that could underlie these trends. However, given the stepped up
monitoring and enforement activity of the last severl years, it is plausible to attribute at least
some of the atemation of SPM and S0 growth to India's pollution control efforts.
Water PoUlion. Recent data on total coliform and biological oxygen demand (BOD)
compared with "C" beneficial use category water quality criteria for these pollutant, suggest
that the water quality at a large number of stations remains relatively poor (Table 3.3).6 Over
40 percent of the monitoring sites for which dat are reported for 1989 (the most recent year for
which published data we  available at the time of preparation of this report) exceeded CPCB
cutoff values for BOD and coliform for "C" category wates.
The tend pictue is mixed but overall modestly encouragig. The frquency with which
BOD and total coliform levels exceeded C-category thresholds has declined over the period
covered by the data. Trend regressions like those reported in Table 3.2 above find statistically
significant negative coefficients.  Mesrement of the seveiy  with which the C-category
reference standard level was violated over a selected set of stations on the Ganga (which has
been the target of a major cleanup effort-see paragraph 3.33) and other major river basins also
show consistent progress in reducing BOD on the Ganga. While the BOD trend on oher ri
is downward, it is not staistically significant The total coliform index for the Ganga stations
and the stations on other major river basins trends upward, although the trends are not
statisfically significant. Although coliform comes frm  a number of sources, inclding animal
wastes and soil as well as human waste, these results suggest that sanitation and municipal
wastewater treatment condnue to be major problems on the Tndian water pollution scene.
Hardous and Toxic Wastes. Relatively lttle is currently known about the nature and
extent of India's hazardous and toxic waste problem. The National Environmental   g
Research Institute (NEERI) has recnty estimated that, of 4,054 large and medium water
polluting facilites oprating in the country, 1420 umits are potntia sources of hazardous waste.
There are, of course, many more small sources that are not reflected in this esdmate. Th
MoEF has initiated studies on the qualhty and quantity of the toxic and hazardous wastes
generated in 16 states. Some of these sties also include idenfication and evaluation of
potential disposal sites. The first reports from these sudies are expected in the Summer of
1994.
What quantitative data are available are based on a 1985, three-state study (Gujarat,
Mabarashtra, and Tamil Nadu) of hazardous waste generation and management pracdces m 8
industry subsectors.9 This study found that, in the setors examinmed, hazaos  wastes were
genrated by both process and pollution contol activiies. in the surveyed units, about 170



-71 -
- :-;- --::Tiable 3.3: &scedve of ROD-- aw  Toa C.-:-   Reference Lewis
-OD   CEDENCEMM                        COLIFORM EXCEDENCE;
PrprIonGang              OteRie          Prptonas-                   thrivs
of S.-tios   Deg-Dee of.   Degru of       f.o: of                    Deg:ee-of
Year    -  with Excess    Exeedence  Excedence  Wig,Exes  Eibxkcden  xeec
19'9   y     66 --7ei -              '                  .%
.1950        307%42                                   47.3        . 124 :. v.      14
A982         . 6. . 615  .4.                         *60.0%          142            100
19.8.    .4. . .£.7.                     2..8-6-.-%- -2-:-:-::-.3K:%                107
19'3,.",-'.;"'5-,.''''2''.                                 9% '  '4i                   118
1 _ Q984iZ,. W}.  64.1%aD  4i5.11,  ,   2   E 4  2.319  457%.       1471
1985        '63.7 347                    4.2          .39.8%        14               1
'   9 - -Ntt    a-u-- -s -rt                                                  W.-4c 6     .
v.1=8        .55.4%  .     6 .           2 .  6  - - - - . --.9    ... . 3
1987'-- f    65.4%.        621           2.7-   f    3.       . m    4             2 1
1981     ~~~~~~~       ~~~~50.4%. 26.18            32.2                          0
.98   .46       :   :..' . -.7%  ~ i-M' -:  ..  -2-.21. 28    30       31
it.. 3 mglliter orBODazISOOOMPNI¶..l..... .or tota.l..o..f--- ---
. -...b a > S h e D   4.S o _                             g*<...~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~.....
,t Waste Waer TlanlNSui  rsitu of Pb Fsncu nd:ayr Dece-m.1 993 1sti no..
..   *     B   -    f  .  ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~......          
.,._ . ..._._ .   ,;               ....  ... ..
thousand tons per year of hazardous waste was geneaed  directly from  processing unit
oeations while about 37 thousand tons/year was genrted from effluent treatmentplants  The
stud  also founId that the rate of generaion of hazardous waste in sml scale unts is relatively
geter than in large and medium scale plants. For example, te rate of generation of hazadous
w..aste in H-acid (an intermediate mn the manuacure of dyes) manfcturing is about 20-22 tons
p)er ton of product mn small scale units as against 10 to 11 tons per ton of product in a large scale
The stu}dy further found that the principal me thods of disposal of hazardous wastes
include dumping in low lying areas (inside and outside plant boundaries), dumping on municipal
gCrounds, dumping in the sea an coastal zones, disposal into te sewers of industrial estaes, anId
some disposal byr incineration andl direct use of waste exchange. Of these alternativres, almost
B0 percent of the waste was disposed of in low lying areas.
Forests Wlfe, wad Bidieu
The situlation with respect to conservation of forests, wildlife and biodiversity is much
harder to quantify than that wfit respect to air and water pollution. Data on forests and
protected areas are contained in detailed working plans and management plans maintained in the
states. Some states have begun the process of organizng these data into information syses,
which will greatly increase teir utilityr and accessibility. Data on other ecosystems (e.g.,
grasslands, wetlands) are less well-developed. Notwithistanding the difficlty in qumfcain
the consensus among experts is that India's ecosystems face pressures from grazing of domestic



- 72 -
livestock, fuelwood and fodder collection,           -          32: Bie   ini iind -
extraction of timber and non-timber products,
clearing for agricultre, burning and hunting      India is oof 12        imifidas ,,cp-c ent -of
and development projects.   One source"'    biological diversity. About 45,00 spwcies ofpland
-1 BI 000 species of nimal have been idntified as azlof.
suggests that, as a result of these pressures,    se condwced by the Botanica and Zoologicalvesof
India may have lost as much as 80 percent of    India.1mianflotracomprises i jut 15.000 flowering plants.....-
its original terrestial habitat, with by far the    (6 peof-deeord    , ana33 pc
which as endemic;-rougy 15 plant species a-...:-
greatest losses occuring prior to the middle  t- -arenu. :Amsrich-indem-imret       as      -
of the 20th cenry.                              - Western Ghats and t North-We     an Easeiml
oth2ty  r  t    aA  anlad-Nwobarlsnanxds o :'amiributealea
200 endemc species to: the edemic floin. Mam  fne..
Despite these losses, experts are also       prise 372 secis, with 63 pcntfound ss.... ...  .
agreed that India remains a rich repository of                speie rrse
WOW   tland reptilian and aihbm an wue4
biological wealth (Box 3.2). Embr cing 10         a2 spe   tvdy, whonfcautra-on            .--th
biogeographic   zones"   and   25   biotic        WenGhas le            ie-.s.:u  -.sfe
3. Percent in.S  p nm=na and 14 p6aentin bidsto, 32 peen,
provinces'2,   India   incorporates   an   -                         amphib:nse
exceptional range of biodiversity, including      animas.. 101 ofialS f.
al the world's major ecosystems. As one of               o ad 2 of f
the oldest and largest agriculturl societies,                :      --            . ...
India also has an impressive diversity of crop
species and varieties. It has been esfimated that the subcontinent is the origin of at least 166
species of crop plants and 320 species of wild relatives of cultivated crops.
Forests, which contain much though by no mean all of Id    s biodiversity (see paragraph
3.23 for a brief description of biodiversity in other ecosystems), today comprise about 64 million
hectar, or about 19 percent of the land area of India, according to satellite imagery. This total
includes monoclture and exotic plantations which contain little biological diversity and does not,
indeed cannot, indicate the health of the forest ecosystems, including their biological diversity.
Roughly 33 percent probably represents primary forest. About 10 million hectares are managed
as- "Protection Forests" for ecological stability, 15 million for production of timber, and 25
million as social forest to meet the demands  for fuelwood and fodder.  About 14 million
hecares lie within national parks and wildlife sanctuaries.13
The pressures on 1ndia's forests are multple and complex. Withdrawals of forest
products including fuelwood, timber, and non-timber forest products, are much beyond estimated
susainable levels. On the supply side, the standing timber stock is estimated at 4196 million
M,  and the annual net incnt at 52 million NV or 1-24 percent of the growing stock.)4 On
the demand side, the current anmal withdrawal of fuelwood is estimated at 235 million m3
against an estimated sustainable yield of about 40 million i3n and the annual withdrawal of
idustrial vood is about 28 million M? against an esfimated sustainable yield of 12 million WM.
Forests are also the main source of fodder and non-timber forest products such as oils, medicinal
plants, silk, resins, dyes, fibers and leaves. The livestock population is estimated at 450 million
and because of excessive grazing, natral regeneration is either absent or inadequate in nealy
53 percent of the forests; 250 million tons of grass and green fodder are removed every year.



- 73 -
Forest canopy cover has held up   - Tover:.
surprisingly well under these depredations
Crable 3.4). Four biennial estimates of forest      . -   .....
surface cover during the 1980s and early                                   open covr    Fan  Fae
1990s show little variation over roughly the    :(l-.  (- -5).
last ten years despite net removal before                        :.-:
reforestation/afforestation of about 3.3 milion           . -.                 40.2
hectares   worth  of  wood   annualy. 15              -D. .    39.'
Reforestation and afforestation might account,  - 99I 93 X - .0107  60.       .39.:
on average, for replacement of about 1.5    Ncof Daise Fowsz plus
million hectares annually. The proportion of                          e(ut shown)..
S  --.: -. covcareas adjusedto a comparablebasi.
forest cover accounted for by dense forest        :a  pofor unadjusted dam.
(i.e., crowni dlensity 140 percen.t and abo,ve)                    ...... ...  . .. *...
has also increased from 59.1 percent in 1985-
87 to 60.2 percent in 1987-89.t6
Trends in "Forestry and Logging" output and prices over the last 30 years suggest thtt
there has been some curtilment of the exploitation of forest resources since the mid 1970's.
The cross-hatched bars in Figure 3.2 reflect growth in real forestry output since 1960. Real
growth was positive in 10 of the 15 years prior to 1976; it was positive in only 4 of the 15 years
thereafter. The forestry GDP deflator, on the other hand, has trended generally upward relve
'o the overall GDP deflator over the penod (see Figure 3.3), followmg a sharp upward trend
between 1976 and 1988. A comparison of the annual pattems in price changes and output
dcanges (Figure 3.2) suggests that, prior to 1976, the direction of changes in price and quantity
was the same in 8 out of 15 years; after 1976, the direction was the same in only 5 out of 15
year. If we concentate on the 13 years between 1976 and 1988, when the relative price of
forest output was increasing relatively rapidly, the direction was the same in only 3 out of 13
years. Supply "shocks" thus appear to have been dominant in the latter part of the period, and
were prmariy responsible for the upward trend in relative prices.
As with the trends in pollution descnrbed above, there are a number of alterative
explanations for trends in forestry output and prices. They could, for exanple, reflect increasing
costs of forestry operations due to depletion of the resource base. More probably, however,
they reflect the increasmg success of efforts to restrict and reduce the rate of exploitation of
forest resources and of reforestationlafforestation efforts. In any event, they present a picture
that is reasonably consistent with the conclusion that the overall rate of deforestation, while
relatively rapid in the years prior to 1980, has come to a halt and begun to reverse.
There are relatively few hard quantitative data at the national level on what is happening
to protected areas (PAs) or to the flora and huna therein  What is clear is that there is a great
deal of activity going on in and around such areas that is inherently treatening to their viability.
Over 50 percent of parks and over 70 percent of sanctuaries reportedly contain growing human
populations within their boundaries, at densities ranging from 1 to over 1000 persons per knf '7
Over 80 percent of parks and sancmaries reported human populations in areas adjacent to the
PAs. Grazing livestock within both parks and sanctuaries is also common as about 70 percent



-74-
flgnm: 3.2: Foresfry nd Lgu-Ch      n O-          c      I-
.    .    ;  ~~~~~~~..  ... ....  .........
0.3$5
--     ~~~0-3- _                               
0.25. -
0.2
~~: iX 02 _;~~~~..      -.;       ;..   .    ... .. -. .: 
1-.                                            ..     .. 1....
0.05
-015    ~ ~ ~~~~1  1FGS19092194
mOutput- Chango  P- ice Changes."
Of parks and over 80 percent of sanctuares reported cattle within PAs. In addition to graing,
fodder is extracted from almost all PAs. Legal extraction of timber is relatively uncommon in
parks and is permitted in sanctuares only when beneficial to wildlife. No commercial fellin
is permitted. Although there are no data, it is likely that non-timber forest products such as
leaves, medicinal plants and mushrooms, are also obtained from many PAs. Biodiversity loses
have- not been quantified, but the Wildlife Ac-t lists 253 species of fauna in need of protection.
and the Botanical Survey of India has identified 135 endangered species of plants. The Red Data
Book, published by the Botanical and Zoological Surveys of India, highlights these rare and
endangered species of pLants and animal .
Data on Indias other ecosystems are even more sparse. Grasslands (permanent pastures
and other grzing lands) cover 3.7 percent of the country. Unprotected by any specializd
agency, tihy are threatened by grazing, fires, poliution, encroachment, and conversion to
agcultral and plantation forest use.  The mountafin ages of the Eastern and Westeng
Himalayas and the Wester Gbats are rich in biodiversity, but under enormous pressure from tree
feling, extraction of fuelwood and the spread of hulman habitation. Inland and coastal wedand
enre (about 4 percent of India's land area) are also rich in biodversity, and being degraded



- 75 -
by weed infestation, hunting and  .      I  33:FafD4iV;DPDiffer
poaching, encroachments, and
impacts  from   development
actievities, especially siltation and
pollution. Marine ecosystems are
also under pressure and there is
though  to  be  widespread        La-
deterioration  of  coral  reefs
(pardcularly in offshore islands)
and seagrass beds. The rate at    La
which these ecosystem are being
transformed or degraded, or the    -        : 
effects on biodiversity are not
known  quantiatvely, but   e
believed by experts to be serious. '
27e Cu7wen  zviivunmenud e t. -l i. iI i -.-
Overview
The governmet of Idia
has long recognized the importance of environme  protecion. Rooted in principles enunciated
in the 1950 Constittion, the foundations of India's present day framework for envonmental
management go back to the early 1970s, when former Prme Miniser Idira Gandhi establshed
the National Committee of Environenal Plannig. The Committee evolved int a Department
of Environment in 1980 and, five years later, to a fdifledged MoEF. States subsequently
established their own departments of environment.
Today, the MoEF has wide ranging, rapidly-expanding responsibilites as the apex
government body responsible for the environment. h's major responsiblities in terms of claims
on budget, however, include the conservation of forests, wildlife and biodiversity (which
accounts for about 70 percent of total MoEF spending-Table 3.5) and on environmental
pollution control (about 27 percent of MoEF spending).8 Its spenig (plan and non-plan)
increased fom Rs. 1.322 billion in 1986-87 to Rs. 3.698 billion in 1993-94, grwing at 15.8
percent anally in nominal terms, and almost 7.5 percent annually in real (i.e., deflated by the
deflator for govenment conson)  terms. By way of comparon, total central govement
Developmental Spending increased at an annual nominal rate of only about 5.4 percent, and thus
actually declined m real terms.l9
The picture with regard to overall enromental     n  under India's five-year
developmeut plans, incklding both central and state governments, is similar. Eight Plan
spending (Center and states) for enviromnt and forests (as defined in the Plan) is budgeted at
Rs 48.6 billion, up firom Rs 22.5 billion for the Seventh Plan (an increase in nominal terms of
about 10.8 percent annually), and accunts for about 1.1 percent of total Plan spending.



- 76 -
Other ministries and agencies and   -
corresponding departments at the state level            3.5: M       B               ,
also execute programs and policies that have     .-:-        j.4 . .f..p.es).
environmental objectives. For example, the
Ministry of Rural Development supports a
program for regeneration of biomass outside      -.-    -:  0:. .-. -                 :-
of recorded forest areas and programs for
:   5                     .ria  3.1Z    0114%
rural  water  supply  and  samtation; the
Ministnes of Power, Industry, and Non-           F.y and Wi.....          198.69    53.73%
Conventional Energy Resources all administer      Edu_dinand T.03    2.17%
programs encouraging energy conservation                                  35.07    9A8%.
and the development of alternative energy         Su; q of F  R:sourc     -s9.95    2.69%
sources; the Ministry of Urban Development        Fahe Conervan    .:9 .i.7%
is the lead agency on urban water and    .             .      .1
sanitation issues. If a broader construction of   --.6  .A1%
"environment" were invoked (e.g., including
spending on water and sanitation, watershed    .           CPCSEOU         0.48    0.13 5
improvement,  water  management,  and             NAEB                      5.9    1.60%
population), an even larger figure would be       Od           :-ss:   25.03oss
reached.                                                                   1.6f    0.4%s.
E*g     a.:ER.:    .   f...............   '..;.: ..:. ..:.
Environmental Pollution Conbtol                      m : ...::f
Eco-             :-    4914    131.29%
Institutional   Framework.   -                                                    ;9.'
Environmental pollution control in Idia is           m                      71  1-2%
govened by three basic statutes: the Water         zoolopEs.               741     2;00
(Prevention &  Control of PoRution) Act, :              a' -                64  -173
1974; the Air (Prevention &  Control of                                      7     119%
Pollution) Act, 1981; and the Environment
(Protection) Act, 1986. The Water and Air                                      
Acts lay the legal foundations of India's basic   :                          7 ..-%
institutional and reWatory frameworks for          eida C0        . -U.10  1       017
air and water pollution control They provide      r-ffan.l.-.. . IOi-4S.:14- 243%
for similar functions, powers, and pc . Nu1     -
with regard to air and water polution. Under      M :     . O  dO         :3     . 98    "
the  acts, broadly  speaking, the  Central                                 4f5  *- .....
Polution  Control Board  (CPCB) makes
policy and sets minimum national stnudards             .3
The State Polution Control Boards (SP s)         capib) O.di         .-:J
implement these standards, and monitor and      .GRAND UrAL              36911   I:UrW%
enforce to ensure compliance. The acts also                                      ... '.. . .:
prescribe a range of penalties, including both
fines and inarceration, for noncompiance.                        .... .....'



- 77 -
The. Environment (Protection) Act, 1986, substantially strengthened the powers of the
central government in air and water pollution control, specifically authorizing the CPCB to
undertake functions such as momtoring and enforcement which theretofore had primarily been
the responsibility of the states. The Act also extended the scope of environmental regulation to
the control of location of new pollution sources, and authorized the regulation of hazardous and
toxic substances. Finally, in what has proven to be a very important provision, the Act granted
ordinary citizens standing to initiate legal proceedings against polluters and pollution control
boards alike.
These basic pollution control acts are complemented by two additional pieces of
legislation, the Water (Pollution Prevention and Control) Cess Act, 1977, and the Public
Liability Insuance Act, 1991. The former authorizes the cental govenment to levy a charge
on consumption of water by certain  dustries and local authorites.  The latter requires that
those who handle (i.e., manuficure, process, treat, package, store, transport, use, collect,
destroy, convert, sell or trander) hazardous substances maintain public liability insurance for
the purpose of providing immediate relief to any persons affected in a hazardous wastes accident.
Standards and Regudions. Envirommental quality standards, differentiated by area,
have been promulgated for aer2 and water.2' Standards bave also been set for Water22 and
air23 effluent. Procedures have been established for environmental impact assessment, granting
permits to consaucel and operate sources of pollution, and for monitoring and enforcement of
compiance with regulations. A list of hazardous and toxic substances has been notified, and
regulations issued governing the granting of authorizatons to handle such substances.23
Recently, regulations have been issued requiring the anul submission of an environmental
statement to MoEF, and establishig an "Eco-Mark" label that can (with govrnmen
authorization) be applied to products produced by "clean' firms.
Fiscal bncentives.  Special fiscal ie   s have been provided by the central
government to encourage the installation of air and water pollution control equipment.
Accelerated depreciation rules cmrently provide for expensing of certain equipment (set forth
in a positive list) in the year of installatiorL Capital gains arising from the transfer of building,
land, machinery etc for establishing business in a new place and tbereby reducing industial
congestion are exempt from capital gains taxation. Specified pollution control equipment is
subject to a basic duty of 35 percent, and auxliary duty of 5 percent, rates that were
concessional under the old tariff structe, but remain only marginally so after the trade reforms
of the last three years. A rebate is also provided on excise duty over 5 percent for specified
pollution control equipment Rebates on state sales taxes have also been introduced by a number
of states for specified pollution control equipmen.
Pubic Expendture. The government is investng in emnronmentl clean-up activities.
Under the Ganga River Action Plan, for example, the government is financing sewage treatment
plants, low cost sanitation facilities, and more effective crematoria, and stepping-up e ment
of industrial pollution control regulatons on firms discharging into the Ganga and its tributries.
Plans are being developed to extend the basin clean-up approach to segments of other river
basins. Major public sector entrises which are potentally significant sources of air, water



- 78 -
and land pollution, such as the National               NC   .....n.
Thermal Power Corpotion (see Box 3.3)                                            .
and Coal India, are embarldng on major    mwcnnsyrmm4zoM .n.d:prseona
program  to 'retrfit' existing facilities as   Fha ib                         E eM ta do2 4
well as to ensure that new ones meet           eti  iW n oW euWht    or'r4 n;cut
environmenl performance standards.            ander 3.871 KW is CepeCod . be added over the nextihc    e
yea.p
Monitoring   and   Enforcement.    Most o/:NTPC's exuistngpower stianaodesnedm;n&ul
Seventeen (17) industries have been targeted    WhmU.CDYkOWuisiandazdS le  inm   T  -
generaly *dpcaia.within tceii.deulgu:saWadads, u  et
for special monitoring  and  enforcement    gl 5aMW.pIIuOnCMB 'owi  e  .-       NWCo
efform.    In  addition,  indusay-cagory         dbo mdW mwesures to b  M  exs     ......
sAti... into- compiance widlth. lse- a.um.. sneu
specific standards for npetionlmc itoring   .    `     s m udmulse . ib icers chl ;   aos.r
anviro mnetltRi 51|2ldl*s ett ee,C A&19i@ i5f1
frequency have been s.26   Area-specific  .eadiededatimnvimwn       tz    >iaagxm.synsn
findarhedevdpd to supporta pro-actvieapproachtoidufi.
polluion problems have been argeted by    .d va   ,                  cniw.pt.a1
designating 22 critically polluted (i.e., areas     pioj!nws  nd ies NTPCS X huirefited
in which air or water pollution levels are well  .coindienuiv .EAP 
in excess of air or water quality standards) :    c  o «  f_ A        itdftIS$
industal areas for special attention, and  :*. tmie..im*ludhnag tainip 6f.. rNTPCs.f: ff. 
'snsitive areas" to which more stringent  .            UDdCnYZTOD.C3101d365
mvironmentl quality standards and strict    W  - i . eI   , ain  t off te ations il be cv
industry-specific loctiom  ad evironment     . 1:-6.
assessment reqirements apply.
Compliance with reqirements to install pollution control equipment in the targeted 17
industries has increased substantially.28 Less than 10 percent of the more than 1500 facilities
in these industies had installed pollution control equipment as of December 31, 1991. By
December 31, 1993, over 65 percent of these facilities bad installed the necessary equipment.
Data on court cases filed by the CPCB and the SPCBs also suggest growing activity to enforce
air and water pollution control laws (Table 3.6). The cumulative mnmber of court cases
launched under the Water and Air Acts has increased from under 2000 cases in 1987 to over
5900 cases in 1993. While a substnta backlog has accumulatd, a total of 2353 cases had
been adjudicated by the end of 1993. Of these, 1570 (roughly two-thirds) were decided in favor
of the governent.  A litle over half of the cases won by the government imvolved the
imposition of a prison term or fine, while the remainder involved a restaining order.
Conservation of Forests, WVle, and Biodivenity
Insittional Framework.  Ii's present legal framework for conservation of these
resources is constiuted by laws governing forestry and wildlife protection and, to a lesser exnt,
by the Water (Prevention and Control of Pollution) Act and the Environment (Protection) Act
described previously. There is no legislative or other framework in place explicidy for the
protection of grasslands, mountains, deserts, or marine ecosystems. India also does not as yet
have legislation specifically directed at the conservation of biodiversity but is currently reviewing
actions required under the Convenion on Biological Diversity to determine what changes in its
legal and isttutional framework may be required.



- 79 -
Table 3.6: Cwnnlaef,6re urnes.at Aciiyudr te Wate ad AirAt
Year"-'.i ICa '-ses -ae-                             CaX ".'i  ''i'
-~~~~noYa W-.:aw .Yn  -                    *. Wae                   AIrsi 0   
W'~- iY  ri:  - -: f- -- W --i:  
.a.r       ir                   TornL     rd. :-i 'F... Airn  i>; l;
16           27.:8-- .  14      :  89        704    .. SO4        158         136
19-9    ; .298'   668.:             948 5                                    .173
.urnn. Ceina Pl olation Control Basd ..
Forests are managed concurenty by the central government and the state governments.
At the central level, the MoEF sets policy, coordinates activities with state forest departments,
and oversees national forestry research, education and training. The Forest Conservation Act
of 1980, as amended in 1988, is its most powerful tool. This Act empowers it to regulate use
of forest lands for non-forest purposes in the states. The Act requires consultation between the
MoEF and the relevant state before forest lands can be de-reserved for other uses.
Front line forest management responsibility and responsibility for implementation of
forestry policies lies with the states. Most states have basic forestry statutes which are modelled
after the Indian Forest Act of 1927. Under these acts, state governments assume the power
(exercised by their forest departments) to declare any land (including public and common lands)
as goverment forest land.29 These acts also typically provide for the establishment of usufruct
rights in forest lands based on customary usage.  Although the situation differs from state-to-
state, states' forest acts typically are complemented by a number of other laws that govern, for
example, royalties payable to the state for harvest of timber and non-timber forest products,
harvest and marketing of forest products, grazing on forest lands, regulrization of encroachment
on forest lands, rights to trees on private holdings, and transit of timber.
The Wildlife Protection Act, 1972, provides for restrictions or prohibitions on hunting,
cutting, and other forms of exploitation of notified species, the establishment of protected areas,
control of trade in wildlife products, and the protection of plant life. The Act authorizes the
constitution of Wildlife Advisory Boards, appointment of Wildlife Preservation staff, and the
establishment of national parks, sanctuaries, and closed areas.30 Creation and maintenance of
national parks and sanctaries and funding for wildlife conservation are the responsibilities of
the state governments, although the Ministry of Environment and Forests (MOEF) tbrough its
WiliLUife Preservation Directorate can guide and help fund state wildlife programs.
Wetlands derive some protection from ihe Water (Prevention & Control of Poliution)
Act, 1974, the Water (Prevention and Control of Pollution) Cess Act, 1977, and the



- 80 -
Environment (Protection) Act, 1986. Some states have enacted their own conservation
legislation in addition to adopting the nadonal policies. There is, however, no legislation to
prevent the drainage and reclamation of wetlands outside protected areas nor is there a
governmental institution reWonsible for wetland protection and mgement.3'
Management Straegy. India's forest consevation stategy has evolved from dependence
on strict regulation of access to and exploitation of forest areas to incorporate a range of
instruments and approaches tailored to specific local situations. The basic elements of this
strategy are set forth in the National Forest Policy of 1988 and cirulars issued thereunder. This
policy explicitly recognizes the multiple use nature of forests, the rights of local populations, the
infeasibility of protecting forest resources without their active participation, and the role that
forests play in the survival strategies of the poor. The Policy prioritizes altenative uses of
forests, according first priority to ecological conservation, second priority to providing goods
for use by local populations, with particular emphasis on non-timber forest products, and third,
as a source of wood and other products for industries and other non-local users. To reconcile
competig demands for scarce forest resources, the Policy advocates a coordinated program of
interventions to increase the supply of forested areas and reduce the demand for products from
natral forests and protected areas,32 and promotes joint (with local populations) management
arrangements33
The government's strategy with respect to protected areas has evolved along similar lines.
Previously, the predominant approach was to protect by policing. Where funds have been
available, walls, fences, gates, guards with guns have been used in efforts to protect parks and
sanctaries. While this approach is still effective and is used in protecting areas from poachers
and smugglers, it is being complemented by new approaches in areas where local communities
are dependent for their survival on exploitation of resources in and around PAs. These new
approaches are based on a growing realization-paralleling the development of strategies based
on joint forest management models-that the most effective and desirable way of conserving the
resources of PAs is by developing alternative resources and sources of income for the people
dependent on the PA resources. This strategy-commonly refenred to as "ecodevelopment"-is
cmrently being tried in a number of states.
Actions Taken. Several states have issued their own guidelines/regulations supporting
joint management arrangements, and some form of joint forestry management is now underway
in 11 states. The number of protectd areas in India has grown steadily from 10 national parks
and 127 sanctuaries in 19703 to 75 pars and 421 sanctuaries in 1993 and now cover some 4.3
percent of the country. However, despite wide coverage of biomes and species, the present
number under-represent some biogeographic zones with endangered species - - namely, the
Trans-Himalayan, Gangetic Plains and North-East.  Management plans based on the
ecodevelopment model have been developed for about one-half of the natonal parks and about
one-third of the sanctuaries.35
A National Committee on Wedands, Mangroves and Coral Reefs has been constituted by
MoEF to advise the government on appropriate policies and programs for the conservation of



- 81 -
these ecosystems, to suggest specific sites for conservation action and to give advice on research
and taining. State-level Steering Committees have been established to formulate, implement
and monitor the programs and District-level Committees have been created for co-ordination and
monitoring of program activities at the field level. Wetlands (16 sites) and mangroves (15 sites)
and the coral reefs of the Andaman and Nicobar Islands, Gulf of Kutch, Gulf of Mamar and
Lakshadweep Islands have been selected for increased protection. Nodal research institutions
have been identified for each to help to manage these areas in an ecologically sound maner.
Management action plans for the sites are either completed and under implementation with
MoEF financial assistance, or in preparation.
Issues and Opdons
The data and information reviewed in the preceding sections reflect a solid start in
dealing with a broad range of difficult environmental problems. A reasonably comprehensive
and coherent institutional framework has been put in place. Air and water pollution levels are
being contained; a start has been made at defining the hazardous and toxic wastes problem;
deforestation (measured in terms of area covered by forest) has been arrested; logging appears
to have stabilzed; promising new concepts for management of forests and wildlife and
conservation of biodiversity have been developed and are being implemented. It is just as clear,
however, that these achievements represent only a begining. Air and water quality in many
places in the country are still very dangerous to health; there is as yet no clear picture
concerning the generation and disposal of hazardous substances; ecosystems stil are, according
to expert consensus, under serious threat; and environmental institutions are still in their
formative stages.
The time is opportune for stock taking as the nation reviews and debates India's first
Environmental Action Programme. Several questions will need to be addressed: (i) Is lndia
addressing the nght environmental problems? (i;) Are these problems being addressed
efficiently? (iii) Is the institutional framework adequate? And finally, (iv) Is India doing enough
on the environment?
These are difficult questions. The answers given here are properly viewed as tentative
workng hypotheses. The objective is simply to raise some issues for consideration as the
discussion and debate within India over the Environmental Action Programme contnues.
Are the Highest Priority Problems Being Addressed?
The government's recently released Environmental Action Programme identifies seven
priorities for future action (Box 3.4). These priorities cover a daunting range of serious
environmental problems. The rapid growth of expenditres on environment and development
of institutional capability notwithstanding, these problems cannot all be fully addressed in the
near term. Hard choices will have to be made to make real progress within the resources
available.



- 82 -
Poliy Priorities. Many other countries have       n - -
found that some of their economic policies, in  --        -X
addition to distorting their economies and reducing  -. C-l-  -:of iad ssaiible
their growth  potential, also  actually  subsidize   =bbzatxon of biodivm adecti
environmental degradation or increase the cost of   2.- -  Affoad            - d
environmental protection.  A  typical example is    - camenaon  of soaiand aran-:
subsidized power consumption, which increases  n:. :sucsa
energy production and, other things being equal, the  -3  c;  o- -a an rled:
environment   impact associad  wih  power                ..:....
purouction. Eliminating the subsidy to power, in    -
addition to reducing wasteful power production and    4.    mpvingaccesc
consumption (and, in many cases, helping to solve a      T
fiscal problem), also thu  eliminates a subsidy to  . ...o. mviinmeuW
environmental degradation and contnbutes to a better               . -.   g
environment. Reforms like the elim tion ofpower 
subsidies are frequently called "win-win" reforms        as .',er .'na,,,..
because, in addition to a "win' on account of reduced           
waste of ordinary resources, there is also a "win"
associated with reduced waste of environmental
resources.
Recent policy reforms notwithstanding, there are still a number of areas remainng where
sensible economic policy reforms could pay environmental dividends as well. For example,
forest-based industries, like other industries locating in backward areas, are eligible for a number
of incentives, including exemptions from sales tax liabilities (under the Cental Sales Tax Act),
exemptions from the purchase tax, special capital incentives (loans and grants) for new units in
backward areas, octroi inentives (new or expanding units entitled to refimd of octroi tax paid
to local authorities), exemption from electricity duty and power supplied at subsidized rates), and
contributions toward the cost of feasibility studies. These incentives may, in the case of forest-
based industries, increase industial demand for wood and, other things being equal, may make
it more difficult to protect forests.
Other policies and investments that impinge indirecdy on land use decisions also may
have effects on the incentive environment that could, at some times and places, work at cross
purposes with forest conservation efforts. If policies with respect to livestock development (e.g.,
the Milch Cow scheme under the ERDP, other forms of subsidized credit for livestock,
subsidized veterinary services, subsidized insemination services), agricultural development, and
highway transportation (which have favored extensification of the network of roads and pushing
them into rual areas) are implemented without adequate safeguards, they may inadvertetly
encourage the degradation of forests and protected areas, as they have in other counties (Box
3.5).
Subsidies may also be responsible, in part, for some of India's environmental pollution
problems. Diesel fuel, for example, is heavily subsidized both in absolute terms and relative



- 83 -
-'- Ss =- -,, ~~~~~~~~~~~~~~~~~~~~~~~~.... ..  ......    . ......:---.s- .-.....    ....  ...... 
- -::      Many. - e::--   of tadq-'s prblmscanbbtraced totdecisionim themid-9lfOstopmde ovead-accessmtoA on-adesion :
by -_ '       dwis'      pmi0idh[i      fikiii     Ei t             5i l l U                S
wa.n..d.b .s.ad i srjetotgpie rsincenzivn  weaumswlt mina e                                      m     ll
-   4frsain  ltog  t ol  ewrn  oplcS  Ak  lm   ne seatfier Pushed by pvet gaud skee  addnlu
inthi rgs of oii.   G   caes haemrl epu     oicnie  rtdby  : ie goenmn in heor  of aces was,tie
liidan, various pubclipbc servicu-e-s, audj the case of die  nmzon scheme, subsistence allowancesc   -::.......   -
-Im                             hiceadves~~~~~~~~~~~~~~~nrais  nroueao
DeIErnuwm  oqzWm Rica d                                      rw   y-koenz~nhe-bm  facs   asde
bi    rncfdtreo aiidedaiboaawasxtuillyibu& aobfmcotwldmpsdnosr*eis  has
r S.n  '  '  .    .i:S:   ::  -:   S:  :  .    '  :'  S    gi::   ~~~. .   .i   . ...   ..    ....    ..  ..  ........     ...  ....   ... ......  .....    ..:   ... : .-     ...::::- :::: :
..ubmdzzml -2.Laiulmlmg pohcSzcsskew:edui.kSRSvor of.............hoaeder.....mnowo.....fo....s...cove----.---d--h-a...e.s........e....-...
,s.,-'. Y.S ..-f .N .....h                      d    sF  Ca..............  , 'oR*   R Sf's ...
: : : * - ~~~~~~~~~~.     ...:..  -..:...   -.:-.:---:       :::..:    : :;::;:.f . ::-.   -:.. ::::..  ..   ... . . ,  :;- ..........   -:..        : .   .....     .::::: ....     :.:.=.}R.:-:  .:: .:.
..'   -    .,  * 2   .  ,  .s,  6 ,  .'..    =  =....,,~~~~~~~~~~...   ...,,   .... .,,,   .j =,,_ ,j,.,, CS^   f
........b..-- ---e-ses.                   Eco-n  icAnaly     fO    a Rica
'~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ ...          .      -;- .   ........   ..-. f   ; -;-   - 2M&f-  -   - ff-ff- - -S
to gasoline.  Average effectv   power tariffs are only a fraction (about 40 percent) of the costs
of producing power. Both of these subsidies may. by encouraging greater usage of diesel and
power, be contriuting to patiuate  air pollution?6   Ferize  and irrigation subsidies
e:ncourage exccessive use of these inputs in agrcultue, degrading both land and water. The
w^ater and sanitaton problem is, inl large measure, also policy induced. Inaequate cost-recovery
in water and sntation bothicrae   wastewater loads and robs water supply and sanitation
agencies of thie funds needed to operate and maintain extisting fucilities and excpand services.
Small firms, which benefit from a variety of implicit and explicit subsidies (e.g., exemption
frm exc:ise taxes) may produlce more pollution per unit of output thn larger firms and may be
hrde to bring into thie regulatory net.
The structural reforms of the liast three years will do a great deal to reduce the
environmnal degradation associated wit growtk  Lower trade barriers and freer access to
technology, for exmle,  will translate  into newer, clearer, more energy-efficient industrial
plants. lRemnoval of distortions at the sectrl level like those mentioned briefly above would
frte  contribute to abatement of environmental pollution and conservation. of forests, wildlife
and biodiversity, and hence warrants serious considerationl as a central element of India's
environmental strategy. The durability of distorting sectoral policies is testimony to their
considerable political stayinlg power and/or to the conviction ta, whatever their weaknesses,
they meet fundamental development or equiity needs. Nonetheless, Indlia's recn success in
implementing deep structural reforms demonstrates that difficult choices can be made and that
change is possible. Potential environmental side benefits provide one more reason for continuing
to pursue reforms in some sectoral areas that have, as yet, been largely untouched by the reformn
prcss.



84 -
~~~~~~~~.  ... -         . .. ..
:ox 3.6: E        mataHeatih asoiz:
*         lbs  anes  f disese an teatozblbkd in adhinhealthdatumhighlysuggetive f the ossibe imp--oiseasn  oS -
*J99 Word Declopcitipozc ters o DisblliyMiuted ife ears(DaY) lsp,bsdonsiae fzetodo ogydsvelope l-yth
... ,, .......  .......   ..  .. .,,,       . -. .-   !     .
large as case of bulus DALYloses. Rog estime nicaute ht-s diess aeiesobl fr amot30% of Iias toa
. .......... . 
DaLY losses.-i                                     Wu]sses _
Cacefra i  fornendrkingpen-   -aeaslO sp ot mw i           particularlylargehalos P t mt i  sirs
wial12S pjcw=kntin its aindEemr hurarp omie ision.. t.i.hs                        us. edm s)s.ascia.
. in ll (e:g.; Mexo laorsa Phlpis. Thalanid) sgets that, Wiosf esos nwariobis founawd in epienijca btdIs
- XX'cl-iXs' *= ' *| _, paiewiiht udiDlEsi eniidsedat §¢; o
* in developed icdis nandsre  a developing canaies,' paiueolton astin perhas thimst serious helh. het.ed
in mast inoste   areas .i developing counDmes    .    , for               ual P      s a 
pgl', a reduction of 5PM by. 100 pgiui.(whiehwonld translate roughly into a raedction in respimble  bout:30 pg
would red 'e-DeBrs' n ilt'yraby.b3.5.ect:This"  m  ass -approinitely 2,40 li'vesp'rolon
Warrborm bactri ingested during drinking andlor'bathing me Wm. assoated- wiih.elevated umibidty2 a3d mortai:ty.
*Diarrha' dinseslone accaumfor about 10perenof ldits DALY loe. I     axe he sieodlaret(respuai  necnsai   firt
sinWle _idenMklbl scu  of.DALY  aims 1i India. 0=   csu             h     i         of ddiale        c
by   a -6                                                                                   .e . .Z . .* .   <   
* sidcidbjntsorder of 1Sti)40 peaenrb water suppl and smu=ationy i ventioa..
, ~~~~~~~~~~~~        ~     ~~~~~~. . .,.. .   ..- -- ' - f-S-
Poluton Priortes. Very rough, back of the envelope calculations for India suggest that
three problems may merit high priority on the grounds that their `solution" could yield
substantal health benefits at relatively low incremental costs (Box 3.6). First, ambient levels
of supended particulates are still exceedingly high throughout much of urban India and, if
epidemiological expeence accumulated around the world and to a lesser extt in India may
be taken as representative, are exacting substantal but avoidable costs associaed with excess
morbidity and mortlity. They also cost the economy in other ways (e.g., soiling, reduced
visibility, reduced sunlight). Experience in otber countries indicates that substantial reductions
in ambient co          ons  may be obtinable at relatively moderate cost.  If this experience
tansfers to India, an itensified particulate control effort could be very attractive from  an
economic standpoint. Second, given the prevalence and toll exaed by water-borne diseases,
basic water and sanitation are another clear high priority area for attention. Water and a
substantial component of sanittion services (ulike the ambient air) are, however, primarily
pnvate servces inasmuch as they confer a range of amenity, convenience and health benefits
exclusively on users of the services rather dtan on the populace at large. While there is an
economic externality justification for some subsidizaton of these services (particularly collection
and treatment of sewage), a good case can be made that cost recovery should play a leading role
in financing them. Third, given the potential for serious harm to health from improper bandlig
of hazardous and toxic pollutants, there is an urgent need to know more about the nature and
quantiies of materials being generated today and the ways in which they are collected,
transported, and disposed.



- 85 -
If India's pollution prevention and control priorities were sharpened along these lines,
some subsidiary issues concerning the structure and emphasis of  diads current pollution
prevention and control programs would also arise. The apparent current emphasis of the air
program on particulates is appropriate. Although current ambient stndards for particulates
appear to be lax (with the exception of standards applicable to Sensitive Areas)' in comparison
with ambient standards in developed counties, they are qualitatively reasonable m view of the
high contribution of difflicult/cosdy to control sources (e.g., windblown desert dust, small scale
industries) to ambient concentrations, the relatively short sampling times (i.e., 8 hours) specified
in current standards, and the relatively small fraction of total concentrations that fail into the
respirable size range.3?
The case for tightening emissions controls on new vehicles, as is reportedly under
consideration for 1996, is less clear cut. On the one hand, the rapid growth of the vehicle fleet
and of ambient concentrations of NO2 suggest that increased attention should be given to mobile
source pollutants. On the other hand, experience in other countries suggests that the benefits
(particularly the health benefits) associated with control of CO, HC and NOx (and the associated
secondary pollutnts they produce) are small in relation to those associated with particulates
reductions, and the costs of controlling these other pollutants may be substantial. Moreover,
modernization of the vehicle fleet that may be expected to result from liberalization of the
economy is likely by itself to result in a shift in the vehicle mix to vehicles that emit less per
vehicle mile While intensified efforts to reduce emissions of particulates from the existing stock
of vehicles through relatively low-cost means (e.g., fuel reformulaton, including reductions in
lead, and, perhaps, inspection and maintenance) are in order, tigbtening new vehicle standards
on non-particulate pollution (CO, HC, and NO.) may be premature. It is clear, however, dtat
regular, contnuous monitoring (as disished from special monitoring studies) of vehicular
pollutants (mcluding lead) and their derivatives needs to be undertaken.
On the water side, while the governent's programs have been successful in reducing
BOD, they do not appear to have been as effective in reducing the level of crude indicators of
the presence of pathogens. This may suggest that more emphacis needs to be given to targeted
water supply and sanitation interventions relative to broadly based river basin clean-up and
indusial pollution control. This is not to argue that the improvements in water quality that
have been achieved through industrial pollution control (as indicated by the reductions in BOD
documented above) have not been beneficial. In addition to possible direct and indirect
beneficial effects on health, cleaner water may mean more productive fisheries, more recreation
apportnities, and lower costs of treating water for use. It does however suggest that a
rethinling of relative priorities and expenditures on water pollution control may be in order.
Finally, a somewhat remarkable facet of India's efforts to date to control environmental
pollution is an apparent emphasis-reflected both in the level of standards and apparent
enforcement emphasis-on protecting cultural, archaeological, and aesthetic values as well as
health. In the case of ambient air standards, for example, very stringent ambient standards have
been set for sensitive areas. The environmental impact assessment process also imposes
somewhat more stringent locational and assessment requirements in and around ecologically



- 86 -
sensitive areas. Much of the current enforcement activity, partcularly in the courts, revolves
about air pollution surrounding the Taj Mahal. It is quite unusual for a country to address non-
health concerns in the early phases of its pollution control efforts.
Conservation Priorities. The conservation agenda mapped out by the Environmental
Action Program, appropriately based (given the curent state of knowledge) on the
"precautionary principle", is daunting. Because of the multiplicity of values involved and the
risks of irreversibility, potential payoffs with regard to conservation of forests, wildlif and
biodiversity are inherently more diEcult to quantify than they are with respect to control of
environmental pollution, which makes prioritization difficult under the best of cirumses.
The task is doubly difficult in India today because of the fragmentation of the available data and
information about what is happening to India's ecosystems.
A clear priority is thus the development of more and better infomation and dtat At a
minimum, data series and management information systems are needed charaerizing the
quantity and quality of ecosystems and organisms that are the objects of potential conservation
efforts. The task is underway in several states and at the national level through the National
Natural Resource Management System Scheme. These efforts merit intensified support More
information and feedback is also needed on the "on the ground" economics of joint forest
m.anagement and eco-development approaches. It is still not clear wheher, in practice, the
resources and models in question will be able to generate enough rent to encourage sustained
conservation, and whether distrbutonal schemes, both inter-temporal and inter-personal, can
be implemented that will sustain participation.
Sensible specific conservation priorities have already been defined for a wildlife protected
area network?9 and implicitly by the identification of areas for protected area status. The
proposed network, which is based on an assessment of the locadon, size, viability and quality
of management of existing protected areas, would embrace several new and modified protected
areas. While some modifications may be in order in ligbt of administrative, political, and socio-
economic considerations, the clear priority is to take the steps and actions needed to actually
bring these areas under protection. Efforts to complete legal notfication procedures (which have
been completed for only about 40 percent of national parks and 10 percent of sanctuaries) and
prepare management plans for protected areas (only about 40 percent of the national parks and
30 percent of the sanctuaries have management plans) would be particularly important
Are the Right Strategies Being Employed?
One of the most interesting and exciting recent developments on the Indian environmental
scene is the use of economic incentives to encourage conservation of forests, wildlfe, and
biodiversity. Under joint forest management, usufmuay rights and/or claims on the produce
of government forest lands provide those in a position to conserve government forest resources
with economic incentives to do so. The experimental use of eco-development schemes that
provide economic altenatives to exploitation of the resources of protectd areas is another
promising initiative.



- 87 -
In contrast to its conservation strategy, India's present pollution control strategy basically
combines a big stick (standards and regulations enforced under threat of criminal penalties) with
a small carrot (tax breaks on the purchase of pollution control equipment). Despite the progress
made to date in containing air and water pollution, there are several indications that a
modification of the present strategy to shift some of the burden of securing pollution load
reductions to incentives, paralleling the evolution of India's forest and biodiversity conservation
strategies to include economic approaches, could be both more effective and efficient thn the
present approach.
The fmdamental potential problem wit the dE        - B    j       Stwdw       --
presnt pollution  control strategy  is its basic             u0aai  Choice-
inflexibility- MINAS (Minimum National Standards)
s     andards,  although  intended  to  be  minimum
standards, often tum out to be economically initasible  -    UNAS mdustml.siae pefa-
-udaT dscecdvely do zmtgiv anyr  leziiy
and may, in a few cases, be tecbnically impossible to   -o  s  -hs  d     am n- set at=lw l
meet (Box 3.7). Another serious problem arises when  = qat       orneutrIa n
aspirations for growth and for  Improvement of    -                         thiS       -
environmental quality come into conflict, as happens    aw th SPc c rElaxUNAStard-
frequenty in heavily polluted areas or in sensitive  -     
areas singled out for special protecdon (Box 3.8).    nsdordr-O''tccmoft planL
This iflexibilty can end up costig a considerable
amount as SPCBs and firms alike become bogged             =c and.:dsschar.m... .
down in negotiation and, if negotiations break down,  .   -have o--taODs --o
liigation. Paradoxically, it can also introduce (indeed   "...     ....l ..d..o.
it demands) a potentially undesirable element of               We to4omlr=oughbpovis
discretion and the opportdties for abus which tbrhiniy t e  Now with di now
.MWAS, winsch-  not rn a  fbr ulimate--
affords in monitoring and enforcement in cases where         d              ire tope
compliance may be infeasible.                       . sorof buolgitLtr'ae_ n.lhh roost of
-illsIs do so have an '~C  Th"'-' Ze. 5PCB -' 
an-. -- a =: .
. .ws io Ub d     L .... ....  .-:-:.
A second potentil problem with the present         -
regulatory strategy is that, like the regulatory
strategies pursued in many other counties, it may not be very cost effective. The standards that
have been set typically do not reflect the carrying capacity of the -nvironment (Box 3.10), or
differentials in the costs of reducing pollution loads from different types of sources. In the
Industial Pollution Control project currently under implementation with Bank financing in India,
for example, rougbly calculated incremental costs of reducing BOD from different ypes of
sources vary by as much as a factor of ten.
There are several ways in wlich India could pursue the same sort of evolutionary
approach it has followed with regard to conservation of forests, wildlife, and biodiversity. The
basic strategy would be to use economic approaches to complement (rather than substitute for)
current regulatory approaches to controlling environmental pollution-



- 88 -
For example, one way of itroducing both additional flexibility for dealing with situations
like the Trans Thane Creek (Box 3.8) case and improved cost-effectiveness and efficiency in
dealing with critically polluted or sensitive areas would be to allow for limited trading, within
the area, of consents to operate. The basic idea is simple. Sources in the area world be
permitted to expand, or new sources to enter only on the condition that the expander/entrant
arrange-by acquiring consents (or fractions thereof) from other sources-for enough consents
to be retired so that after expansionlentry, pollution effluentemission levels would be lower than
they previously were. This scheme would simultaneously accommodate growth or entry, while
at the same time providing a contining inducement to reauce emissons of pollution and
improve the quality of the environment.
Box 3C tG-- Conct        e Grh
In 1984, becaue of comsm abeutelevels oft snd'w pofutina ou:m  kslnm  Creiic
: Area,die GovmcofMahinstba ruhde.Usban DevlpnnDqnueD) late adra_  otfiuzonsolbti
;  idestablishmeorcpsionof chimuapasintchaafi-ommen 'Sveral-fi locadheaa            ons
draft:notqg n tar asuny r      ln 1986,:he UDD lamd -a fin    ca.nt!i bishmla'
= small concerns  auacngpucssig   U_s-_ hmuclisote fi mieeia. at the 
mediamand large sa,ims wit GOMMP:CB c..esulec.ttth provi atn.ow
theirldfizadion wid-thiohir pmndse..
-    L2ter in1986, a leading Indian ummzfacmrof oraice iasbtimitrd dat  MC  frkrnnepn
tsTras¶lucrcr*ckpanand. -wit ote is msc-ug-h-iermifi -catio  fir 198 j                      .f .....i.
>  .:  9    -  - y   -  -    -   9-   f................    ...
hen unrelatd to die control cf hazcr d  Ibe   =   u    is   oiioi i late19       in -: -.  i
:-certFictest  dapplkicnin 1989, oi:nthecaitins taplanSt's eqansiRowullorbrruseipolludbdisCbarebeqOdyo-n-i : . 
-existin IcveIsandi tasthte advancedandicael     l                         t    btheof
.- ;issuedmanN0CbI991                                                                  .............
t~~~~~ ~~~~ ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ .in  ] X its n    .....
- -at4-alof pbfic- s on, o it a--ndpin to
-19:9)A tc procgeneratedgood degof llti ;:S,spicio    e-pf s  ......-    ---s.
In reasonably small, self-contained regions (e.g., ind ial estates) where pollutionlevels
are within standards, effectiveness and efficiency could be improved by allowing sources, if they
so wish, to jointly meet applicable performance stndards. Here again, the basic idea is simple.
One or more sources would be permintted to exceed a particular standard parameter value
provided they arranged for other sources to reduce pollution loads below the standard by a
corresponding amount The potetial for muually beneficial trades under this approach may be
limited, however, if all MI4NAS standaids are at or near technically maximum stringency levels.
The two options described  in the preceding paragraphs involve relatively mor
modifications of the present regulatory framework40 They are intended to provide more
flexibility concerning the way in which pollution reduction goals and standards are met without
actnally modiying those goals or standards. They basically provide a wider, richer set of
implementation options for complying with current standards.
An alternative approach would be to permit some deviation frm standards, at least over
some range, and levy a charge on sources' pollution loads. Someting like this approach is



- 89 -
already in use in a few municipalities in India (Box  Bx9   fletCws   s
3.9). The level of the charges could be set, based on
an engineering economic analysis, at a level sufficient   Some Dmunicipalitieslmunicipal
to  induce  compLiance  of  'average  sources".41   corporaons bav sandards for -the dispotal of
Charge levels could be adjusted regularly for changes   =s. _mtc4 avd-
in these costs due to inflation, relative price changes,    .ma pv-id 1rfor charges to bre pai fceedig
and/or changes in sandard levels. rne charge levels  d            -    :td
could be differendated by geographic area, with          ;The BaJaodaMunicipal -Corporanobriozx
higher charges set for heavily polluted or sensitive             a sulatccntpand
.xLzcs2erquuecdm ipay chargesif drey exceed_.
areas. No enforcement activity would be brought                    h -:h is:i b ates caus
against a source unless it failed to properly measure   corrosn of-rsewe Vs::Such : colecdsiae.s
and report its effluents/emissions and pay the charges    psendy go nte gneralrene of e
due thereon. Monitoring would be geared to e-nsurig                           -
that these obligations were properly met. The system
could be backstopped, if there were concern that some sources might choose to emit
unacceptably high levels of waste, vwth an additional, but more lenient set of minmumn
standards which would trigger enforcement activity. Sources might be permitted to meet these
standards using a trading option like those described above.
The Water Cess, although not exactly structaned as an efluuent charge, provides a
platform on wbich a national program of charges along the lInes outlnded in the precdig
paragraph could be built. The present cess is levied directy on water consumption, and is not
directly related to the quantities of effluents in wastewater5 One possibility would be to levy
the cess on both the discharge and pollution content of the wastewater. Charges could also be
extended to emissions of air pollution. Charges could be levied, as the cess is now, based on
self-monitored and reported discharges, with spot checking and verification by polution control
boards.'3  As noted above, chare levels could be set, and adjusted, to approximate the
marginal cost of control of prototypical sources, based on engineering economic analyses of
control costs."
There are some other aspects of the present system that also merit retinking as India
seeks more effective and efficient ways to reduce eonmenal pollution. Perhaps foremost
is the apparent heavy reliance on crimial (as opposed to civil or administrative) law as the
primary enforcement vehicle. Since violations of pollution control laws are crimmal offenses,
exactng procedurl requirements apply, which raises both the time and money costs of enforcing
the law. Sample handlig procedures are complex and expensive to ensure an unbroken chai
of evidence in the event that a prosecution is to be launched.
As a result, formal enforcement proceedings are propedy approached as a course of last
resort SPCBs typically try to reach negotiated settlements, which can take up a substatil
portion of pollution control agency officials' and firm managers' time agreeing on what to do
about violations of sandards. In the absence of these demands, agency officals' time could
appropriately be uutlized for inhtnsifying and extendng the scope of monitoring and enfircement
actvities.



- 90 -
Consideration should be given to shifting some of the burden to civil and administrative
legal procedures for enforcement. This could also open the way for expanding the role of NGOs
and others in monitoring and enforcement (e.g., by NGO audits of monitoring, or perhaps
performance of some monitoring tasks under contract), which could improve both the
transparency and effectiveness of monitoring and en ement.
The monetary penalties associated with non-compliance with pollution control
requirements also merit reconsideration. Fines currently specified in the Water and Air Acts
(under which almost all enforcement cases are brought) are very low in relation to costs of
compliance, and probabilities of detection of violations, though increasing, are sfill very low.
The direction of needed reforms is reasonably clear. The expected cost of violating regulations
needs to be increased (by a combination of increasing levels of fines and strengthened monitoring
to increase the probability of detecting violations) to a level roughly commesate with the cost
avoided by non-compliance.
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~.:-.....0                     t .   :   :. :-----
Receivingeg-   y-standards ae based cade concept ofewarqaay othereceig warbodyi thi
re-lationto:thc idenified beneficial use of tbwa body; :Sch standarsare: ware mationa piaecase! e cost of  :amn
Anoh -y=reason-n is dia euent rd a  laty ay toe
-d - - :  m  y:>                  =~~~~1 -d ;---ign-
-.f-;~~~~~~~~~~~~~~~~~~'e                       r d                        ,,  M W55  -f
s   =. --Receiving=:watrbody- stadascoudi nonetheless he' consdered whnth  ltimate disoal osfwamwatmis - cees.
e  stuarne waxer or- in ih maieeirnnt Apmpelyesigd ofihzunderaxroutflick,W adiffuser system could results a< 
.-over  opt    nf                                      itwh  m -     desie wc
~~~~~~~~~~~~~~~~~~~~~~.,... .. -.-.,-    --. :.  -   7:. :-:.E:-fi    RSSRSf:::S 
S"~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~.'-, -...... ...-.  .f  ,S ~.
One ofthe fWIcssw e   eevn     aebd    tnad    r    ple    st to    h    Muicpa  or m o    ofi Ge r eae
die West ern coast, .oneaia Worl and4won atla orthse   asth MPC  hnas specifi receiving    oy sids
Altou*g WCB has-itus permnited2b       u pmz trfeahtncntam  disposal 3ysthrougb uis of engineered dilatiot awl
di    ion, one ofthepisatoalco                        oflOWOlOOi at I. fomc th shore. Theleaon  ofcolibnM:
at 1:;if-km from die shorelne isquestionable. On tle Otherbar wirhoutdisiecdnofnuaxed sewage it is almost ihnposrbto meetthis.:
- :Mathematicalmdellin.g hasshowaiae arynotesr with.a 3-km-loqgoutfl  drworst coalitons, will  tit:
total colifonnMPN ofSOOfOndwlea:5 kmlong out thth me degre ofra tu=odt de d .sndad 95pement of
thetime.  Ieadditional length o2 iiwill costnestiaeds.3 billion:(about USS43 mllion) miure. li¶, he.crenrely:
huP6otant to Consider Wether    do st    mistifto maetsuch a             '.,standard.:
The present system  of fiscal incentives should be reviewed.  While these concessions
lower the capital cost of complying with environmental regulations, the effect on overall costs
of compliance (i.e., including operating and maintenance costs) is probably low. In addition to
the loss of revenues, these pror3ions also add to the complexity and costs of administtion of
the tax system. It may, however, be worthwhile considering the use of intrgovernmental fiscal
incentives (e.g., fiscal devolutions to the state governments) to encourage better environmental
performance. Incentives could, for example, be used as a complement to the central
government's preemptory powers to encourage better pernmance by the SPCBs.



- 91 -
Finally, the basic regulatory apparatus of poUution control can also be made more
efficient by injecting economic considerations explicitly into the setting of standards and
regulations (Box 3.10). One way this can be done is by relating effluent/emission stadards
more directly to environmental quality objectives. Introduction of receiving water body
standards, as an alternative to source performance staundards, is one of many alternatives for
introducing more resource-saving flexibility into the system without jeopardizing environmental
objectives. It is also important to subject those objectives to scrutiny, as the Bombay sewage
(Box 3.10) case illustrates.
Is the Instiuonal Framework Adequae?
India's institutional framework for environmental protection is well-developed. Some
leglative guidance on objectives (e.g., should MoEF/CPCB emphasize health, aestheic, or
other considerations in setting stndards; what role should economic considerations play in
standard setting?) and instuments (e.g., authorizing the imposition of emission/effluent charges
or alienable permit systems) would perhaps be useful.  The major challenges here are
strengtheing monitoring and enforement. As noted above, some realignment of roles of
enforcement and incentives may induce both beter and cheaper compliance.
Some additional measures would be useful in the conservation area to provide an firmer
policy foundation for implemention of the National Forest Policy and for management of
protectd areas, including ecodevelopment. Although 14 states have issued government orders
that provide for participatory approaches, similar orders are needed in other states as well.
Action is also bound to.be required for India to meet its obligations under the Biodiversity
Convention.
There are also priority needs with respect to toning up front line environmental
management agencies. The SPCBs are short of staff trained in environmental engineering and
in proper monitoring and enfoeme procedures. There are also severe equipment shortages
in most Boards On the conservation side, the key to enhancing management and conservation
of resources lies in coordinating programs between implementing agencies and possible
reorientation of forest administration, especially for the adoption of joint forest management and
eco-development approaches. The optmm strategy for protecting, regenerating and improving
productivity involves many activities not traditionally part of the forestry sector. It also involves
government agencies taking a more cross-sectoral approach in dealing with such matters as rural
development, tribal welfare, water and soil conservation, ecosystems management, animal
husbandry and agricultu. This can only be achieved ultimately with an inter-departmental,
integted approach deriving support from specialists in such areas as resource management,
social assessment and management of proected areas.
Another area meriting attention is ennmentl assessment.  Few isues have so
galvanized public opinion, both within India and interationally, as the controversy surrounding
'India's Sardar Sarovar Project and the wider issues associated with the Narmada River Basin
Development. While the most contentious ism  surrounding that project are primarily non-
envirnmental, the popular debate concerig Namnada has raised broader questions about the



- 92 -
adequacy of hIdia's efforts to protect its environment and the longer-term sustainability of India's
development strategy.
Box 3.11: TheSd            Sr      r;`     . .S. ....-,---               ..-
Bakmd
The NarmadaSagar ardbid Sar SarovarProjectwrtobetetwo forennrsof     mjor. 300 medium atabt 3,000
small irrigation and hyded powerpjects to be developeinthe Nanmda Basin in acordaewit:the NarndaWater DispuTe ibulnal
Award. 1979. The planning of the SSP in conjunction with fir NSP, as direcA.t by di ibil, rflcd a  bi appoach to-
development The stipulations of die Tribunal directing simuaneous cmpltion of te.Iwo piojetisoenvisioned ie f ns for
optimal utizaton of die lad andwater rcsourcs of the Basin.
Much of.the projectprepation took place before tr lankhad environmie a      nt procedur s in plce,an,n s
_,..'          ' ,     __,   .    . ',, ,     '  :   :      '.pr:..p:..,:a:-t.':o'n  ...-', .  ,..   cod:.   .::.-_:.    :    :.  .:    ..:.--  .  .:   : 
own procedures.instituted in 1978. were not yet fioly developed.          I"De     fuent and:cose consuharioms on.ciimrenal i
between te          of   irom t md Forstsd the    a*        itie ora   id ofur    s .               mnt-
rquirti unde Idia's environmentalgulati  notry   Ju   of 17 when die               utionS        o er          y 
begin. The MoEF had two.optinswith respecttothDe 'cleaianceothe pro  !(a) e r t-    - t    a   CNCAJ
to eamplet theunvirounen: t2ssessment before a fi  d on was-   on  ec            of tepjc  o b) .o    e
project while the assessmcnt was compkd. vA it hii=-m 61tb.kowe  *               s.
:; wit~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~.. ....*. .                 .....'.   '
i  iew -. i- ofothe . s oheproj       incspmn that                                  A,he second option was
adpted,on -ihe uistandic  ithat iheasssssment wold be completed byi th end *;1989.; To er tdat the project authorities
completd a;satisf :ory assessment th.composition and swpe of the NCA calisbed asre'sult of the  rmaa Tbunal Award, was
;  e.'.'.ced toinclude the Miiister of- Evironment & Forests in.the Review commime.te   and iif Secrer (Environmen&i Forsts) as t
!bc-ad ofshErdiic nmentSub-Gr d".
lthe even, e eniromental ssessment wias not complet  ashhcled in 1989. VW    cler progress ha been nude,
-.  .  . .- -. . .- .     . . . .: . . . .                  . .-  .  
iris- stil ogoin    - :- -. -:
T- =a.s.. icobjectiveofenviommental assessment  w enstr t that enviromenta consdetions are, from t   arliest s .
t' profjthepctcycle factordintoprojca-sedcionanlprojcctdesigadecisions. Ibis equirescompltion of th  ssessmnt befor tbasic.
decisions arend    Ithiy  uegt           viro lconsequneecan be mitimimd  lorinsomecase no) cost: `he1987. -
decisioapresupposed  ta the lse z indings of sheenvironmental asiseti  wild be shha any adverse impats'could be'prevented, or;
1:at len stisfactorily cottlled, throughi midigative measures. The assessmenlt  iosycouldy.  dnotiaffect .basic itheshol (eg., 'golno
;--go") project decisionsand   signs.(tg.location of major civil works). Thjis s a,     ver o WI        ire p'jps
approac  Le-  caryingou eionn        'assessmt'rin tandem with prject kmplenmioa) will zwork' in a !cbnically saustitwy
..--manierCL. aieveas goodan enviroumntome as atlow a costas could havcben achived had tae s         ebee complcted.
. ......  ..   . .f . .. ....                                        ::if           :X
t             i a  tfti  c  t      s policies  ih    ct  .a      t ssessmen have    i            
incprotn at 14989th ompeionof etiomn acsssens  befr die Bau ivapprSse a; projec   Xin  hasa~  rciy . 
titfhr stre g ein                          p      res in a nimberoF respects:. Amontirmn rp   of tese m.
requirements fomuhgetrpbi  icoueand-participiation than ;was previoril te
-.'..-        ~       _    ^     *         a "i' io    n asp    eo '''' ..R .:':''.s....;."..".'.
The roots of the Sardar Sarovar controversy lie primarily in the environmentl assessment
process followed (Box 3.11). The lessons of this experience are several. Perhaps foremost is
the need for a vigorous, objective, participatory environmental assessment process, carried out
at the earliest stages of the project cycle-when fundam                     l project design decisions are being
made-and before actual project implementation begins. It is also crucial that this assessment
place the project in the context of overall expected future development in the region.



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The government has recently issued a notification of new environmental assessment
procedures that should provide a much sounder regulatory basis for this important aspect of
environmental management. The new procedures clanfy EIA requirements and provide for
public access and review of EIA documents. They also require prompt MoEF action in review
of documents. Proper implementation of these new procedures will require considerable
strengthening of MoEF's capabilities to establish guidelines and technical norms for assessments
and to ensure thorough, prompt review and action.
Is Enough Being Done?
The rapid growth of expenditure and the achievements documented above
notwithstanding, the general picture that emerges with respect to both polhltion control and
conservation is that the resources currently available falls well short of what would be requird
to implement fully the provisions of India's current laws and policies. There is also a need to
strengthen various institutions and create widespread environmental awareness. The CPCB and
SPCBs are still critically short of trained manpower, equipment, and operating budget. In
consequence, the acual frequency of monitoring carried out by the SPCBs fall well short of the
literal requirements of existing laws and regulations. On average, a modest three percent of the
annum Forest Department budgets was allocated to nationl parks and sanctuaries in 1988.45
The protection of parks and sanctuairies requires intensive management yet the present number
of staff stationed in these protected areas ranges from 0.01 to 0.03 pers    per hectare. Wetland
and marine ecosystems are still poorly represented and managed through protected areas.
Despite attempts to conserve some of the more critical naural wetlands through the use of
protected areas (93 sites covering 5.5 million ha), only 28 percent (1.5 million ha) are totally
protected, 30 percent (1.6 million ha) have some form of protechon, and the remaining 42
percent (2.4 million ha) are totally unprotected
Ultimately, answering the 'enough" question requires hard decisions about allocating
resources to the environment (both directly through goverment spending and indirectly through
government "tax expenditres" on environmental incentives and through mandates to public and
private sector enterprises) relative to allocating these other developmental needs. Making these
decisions involves trading off the costs and benefits of environmental interventions ag,ainst those
associated with other developmental interventions. This requires being clear about the
developmental objectives being sought, and careful consideration of the alternative interventions
available for achieving those objectives. For example, investment in reduced environmental
pollution is only one of the kinds of interventions that can be taken to improve human health.
In many instances, it will be a very efficient kind of intervention for achieving this objective;
in some others, it may not (see Box 3.12).
The competition for resources from other high priority sectors that arguably are
underfunded is fierce. For example, while the share of public expenditure on education in
Idia's GDP and in total budgetary expenditur has been rising gradually over the last several
years, these ratios still fall far short of education spending ratios in most developing countris.
There are also substantial unmet needs in health, nutrition, family planning, surface



-94-
Box 3.12: Trnudig    -A. Ateratve  evepment Inftervetios'
- - 0 -:~~~~~~~~~~~~.                  . -    3.-    . . ..=.  ; ;
Particulate edissionsfront la nduianweplantwit630MWof ild   aciy (           tih bytre 6210 MWti}e
affecs m incantd ambientconcenntraion  tsseddpatwae  ihn aOradiuso'pxnt  3Skilomfnemnotpatst
-  -   - -  -   - - - i -   Z    -....  <   w    6   S   . .  <   {   Z    ?  ;..... 
The are is relatiely unpopulated: apxitey 15I huadpol muime I            liv i.flae.  Prltenana
cTcurnty controlled iat  iifc                                  mnns                               kae
estimated,basd n monnitaring and    i  c al'culatons    npt                               c
- 35-km madii tyan avenge (at selected pailim)-f26gi'. Curentmbi     .cn.i ..                 wt  e
operation, avenge 48 pglrt.
The emissions rol systema     pa                  to   : perce   oectio   ci    aS
(asswnhg a 12 percont casrof capital a,'20
: mnn        costs) Rs 25 milliwn (aboutlUSS 803.000 at an exchange rate3of Res. 30 per US ). This upgm5d)would reduca cntbient
concentratios min dieregion soudigthe plaby a aveof 3 gint           . . .
---- pplyig dose-response relationdaboe   in Box 3-6. de rechicion in partmlate cone              da
would resultom the prciitatorupa descibed above would reduce the  mber of det per yeain   ea uced by 
plant by-abouiS deahs. Underthete  snipiothat theade   averted would have occurred atbifb, fh namberof.DALYs ..
-.sad would bet tmostabout.310. :Tecos-perDALYsved houghicasedcncy ofemission coal in t isase uld
ibeat lastUS $ 2600D  Tis s - a way high cost. Te1993 World Dalonumber-of pblic'heal.--
intervenions, manyo wich are -stll tobe ilemente    major poriiionsao fndia,tacouWlreducc loss of DALY;ta st  of
.-~~~~~~~0                                                                                              ...$ ..W.*A g-f              :     . .'  .  ..    ....,      .    :. -;
Us:$1.0tOmo USVIO $ 003 pDALY. avd
ThereS - Z are im =     ,=..,         boveanalysis that wouldd wau additiond causieraion beftrcdawing
- :       catclusios.C(hief     these    eqls   deaity of the am-`Thecundecsiry. whichLis ued intbore:
cacltos!i  bu ap-hal :.npren  thaiui:flialt  ajo mnooltan aras. If   lius ;.as naic peapwe me in d...................e.......
"' .Do* *  of Cr plan.';lr cast per DALY avedwoUl        duced by a      f2      to: abotUS S ISIDALY s .
Tis wul be1 W el inln vr    opeii&eahaeveto    Whileitis unley*tfngowhi hvicinityo tinc plant
wol.bosraiudodnitcmebpoimlliuitun   ecOu,mDialjyinm ting tilml freiiixi.i is .imprr :rs .hat
'''-'' * -':~~~~~~~~~~~~C           E       S       S~~~. .......mg- ..            .....
calulaionals igore anmbeof iucorsthawo *DDM obe takenX is acon in aThila -si of the teitsofnrsa
..-i      condcuarp t .tduepm                   me imacts a sensitive area (tg. .an ...a.of..i  mlsenicra) :.r.
eample..:his wo-d provide   n additional  .oeus  consid.r the:up                      ... .                    .. .......
transportaion, power, and a host of other important developmental areas. Funding for the
environment will thus almost certainly continue to be constained. In this regard, an important
feature of market-based approaches like those skethed out above is that they could, depending
upon their design, also mobilize some additional resou   that could be used to strengthen
environmental programs. Nonetheless, even with additional resources, the keys to ensming
continuing progress in efforts to protect the enviroment wil be ensurng that the problems
addressed are careflly prioritzed, and that the soltions proposed are efficient.
The adoption of more flexble and efficient approaches is particularly important in the
present nmian economic environment, in which many of the nation's firms will face massive
economic restrucuring.  The resatu               ring process will create irresistble forces for firms to
change size, change location, change production process or, in some instances, to close down.
These changes will intensify the pressums and demands on India's enironmental ins                               tions.
The CPCB and SPCBs will be hard presed to meet the larger case load volume they are likely
to face over the next five to ten years. An element of flexibility may both help to smooth ffie
restructuring process and to result in fster progress, at lower cost, in reducing enviomental
pollution loads.



- 95 -
Concluding Observations
India has made solid progress in dealing with a broad range of difficult envirnmental
problems. Over a relatively short period of time it has developed a legal framework and a set
of institutions and programs for dealing with many of the problems it confronts. These efforts
are yielding results.
The challenge of developing sustmnably, nonetheless, remaims formidable. India wilL
have to do even more in the figure, and do so in a tight fiscal enviromnent in which it wiIL not
be possible to finance continued growth of environmental budgets trom ordinary budget
resources at anything like the rates of growth achieved over the last several years. The
governent wilL thus have to leverage the budgetary resources it can commit far more highly
in the future thn it has in the past Strategies employing ranserrable permits andlor charges
on environmental residuals, like those outlined in the preceding section, can in addition to
encouraging efective and efficient pollution prevention and control, also mobilize resources for
enhunced monitoring and enforcement or investment in pollton control programs. Inaginative
approaches to conservation of natral resources such as joint forest management and
ecodevelopment now being pioneered in India can, in addition to providing more effecdtve
protection, generate income, employment, and budgetary reveiue. The international community
must also help. All of these sources will have to be tapped.
Even with maximum leverage, however, the resources available will still probably fal
far short of the needs. Clear priorities, and efficient and effective strategies will be eent
to maximize the sustinable development impact of the resources available. Ihe recent
Enviromientl Action Programme represents an important step in this regard. The government
has made it clear that it regards the EAP as only a first step: priorities will evolve and stategies
will be refined based on experience and contnuing analysis, discussion, and debate in India.
The tentative suggestions offered in this chapter (e.g., focus on suspended particulates, water
and sanitation, hazardous and toxic substances, strengthen data on India7s ecosystems, strengthen
implementation of existing conservation initiatives, adopt market-based approaches to pollution
control as a complement to the present regulatory system) are not finn conclusions, but rather
only working hypotheses, based on a review of only a portion of the vast body of information
and data available, about where the highest prioties and most effective strategies may lie.
. In preparation for.the next Environmental Action Programme, which the government has
announced its intention to prepare in tandem with the preparation of the Ninth Five-Year Plan,
it is essential to begin now to strengthen the data base on the condition of India's environment
and deepen the kind of analysis of priorites, tradeoffs and options that is needed to provide well-
founded answers to the questions raised above. The government has recently completed a
preliminary evaluation of some options for using market based approaches to pollution control
and signalled its intention to fiuther explore these and other options. The development of a
system of Natural Resource Accounts, as provided for in the EAP, can also be an important step
in this regard. The completion of a set of accounts is a formidable undertaking. Fortunately,
the effort can yield substantial dividends well before dtese accounts are complete. Collecting



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the physical resource data and estimating the economic values associated with these resources
that are required to set up these accounts will provide most of the raw material needed to assess
the potential environmental costs and benefits of alternative development strategies, and to make
better iformed, more carefullly reasoned choices.



Endnotes
1. See, for example, Brandon, Carter and Ramesh Ramankutty, Toward an Enviromental Staev for Asia, World
Bank Discussion Par  No. 224.
2. There are at present two major sources of data on air quality in the country. The Central Pollution Control Board
has been sampling and compiling data on air quality (total suspended particulate matter, sulfur dioxide, ad nitrogen
dioxide) for as many as 41 cities under the National Ambient Air Quality Monitoring Programme since 1984. These
data are complemented by data from the Air Qualit Surveillance Programme of the National Envirnment
Engineering Research ILstiLute, which has monitored SPM, So, and NO2 in sevral cities since 1978. TIeb ar
also a number of special suidies (e.g., of airbone lead levels, CO [carbon monoxide] levels) asciated with
particular air pollution problems.
3. A slightly (but not materially) different picture emerges with respect to the distnibuton of concentatios avenged
over shorter periods of ime. Mean concentations averaged over shorter periods edxibit somewhat greater
variability, as is to be expected. Depeading upon the averg time, variations associated with climatic phenomena
of different time scales (e.g., daily cooling and warming and associated phenomena, seasoa changes) that affect
the atmosphere's capacity to diffbse airbome coaminmants and with emission ras  wil affect the oonding
measurement For example, ambient concentratio  of all air pollu exhibit a distnctve seasonal pattern, with
lower levels observed during the monsoon season when ventiladon, atmospheric scrubbing (as ranfall literaly
wasbes pollutan  out of the air), and dust suppression are gret .   imited compaisons of the disttion of 24
hour averages as against 24 hor standards curfendy under conideraton indicate potetial violations of the SPM.
S02, and N02 stadards, although the number of staos at which pottial SPM standards would be exceeded is
far greater tban is the case for the other pollutts.
4. India's air emissions data are much less-well-developed than its data on ambient air quplity. Complation of
reiable emissions iventoi  is exceedingly difficult gives the multitude of small sourcs, most of whici ar not
under the effective supevn  or control of State Pollution Control Boards. Much of the particulae matter in
lndia's air emanates from purely natural sources. Although the CPCB and the SPCBs, in principle, have mch of
the informato in their files that would be needed to prepare industry specific emissions inventories for medium
and large point sources, no reasonably comprehensive complations have yet been made.
5. hdia's ystem for designating beneficial uses of water bodies is described in eodnote 21.
6. Data are collected from approximately 480 surfuce and groundwater water quality sampling statons (422 staions
on rivers, 26 grundwater stations, and 32 stations on lakes and creeks) on the following water qulitq parameters:
(i) total colform count; (u) pH; (iii) BOD; and (iv) dissolved oxygeL Data on a more comprehensive set of
parmets (including fecal colitn, tubidiy,  mpeture, conducvity, total alkalinity, sulfates, nitrates and
nitrites, chem-el oxygen demand, total Kjeldahl nitrogen, chloride, hardness, calcum magnesium, sodim, total
dissolved solids and fixed dissolved solids, phosphate, and boron) are collected for a subset of stations, gerally
located in and around major metopolitan areas.
7. Some care in interprdng this trend is in order, however, since it depends an the sequece of plaement of
monitoring stations. If, as frequnly happens, staions wer placed first in areas that were bighly polluted, and the
monitorng network extended thereafter to less polluted areas, frequecy of excedences of any particular refrrce
level could appear to decline over time with absolutely no trend toward improvement of water quality. -
8. This measure is based on data taln from samples of ten monitoring points selected along the upper, middle, and
lower reaches of each river. For each set of monitorig pont, the degree of excdenoc was mcasmred by



-98 -
where E; is the level of pollution at each sation where the reference standard level is exceeded N is the number
of stations at which the reference standard is exceeded, and S is ffie reference standard lewL Suppose, for example,
that measured pollution levels were exacdy 2 times the referece stand level at each monitoring station where the
reference standard were exceeded. Then the value of this exprsson woud be '2.0."
9. National Productvity Council.
10. MacKinnon, 1. and K. MacKnnon, 1986. Review of the Protected Are  System in the Indo-Mulayan Realm
IUCN and UNEP.
11. These zones are large, disnctve units of similar ecology.
12. Secondary units within biogeographic zones, defined by particular gmrps of orgms separated by dispersal
barriers or a gradual change in eavironmenta factors.
13. Mulnji, A.K. 1994. Idia's Forests: A Swts Report on Concepts, Definitions, Trends, Contrveries.
lnternational Workshop on lunia's Forest Management and Ecological Revival. Delhi, 10-12 February, 1994.
14. Thus, sustainable production of wood approximates 0.7 NP per ha. This is low relative to a world average of
about 3.1 nm3 per hectae.
15. Acrding to the data prsented above, about 212 million m3 (i.e., 264-52) of wood in excess of grwth are
removed ch year from Idis forests. At an average desity of about 65i m3 per hectare, tbis implies removal
of wood from about 3.3 million hectares mnually.
16. With the introduction of digital mage prcessing, it should be possble to diaWggate density casses more
finely. The 40 percnt and above class could1 for example, be disaggregated into a 40-70 percnt class, and a 70
and above class.
17. Kothari, A., P. Pande, S. Singh, and D. Varava. 1989. Mmagement of National Parks and Sanctaries in
India: A Status Report. Enironmentl Studies Division. India Insttute of Pblic Adminion.
I8. In addition, India is rignatory to the six intemational conventions on the environment, on which the MoEF taks
the lead: Convention on Internonal Trade in Endangered Species (CITES), the Convention on Wedands of
lIteational Importance (dte Ramsar convmetion), the Convention on Climate Change, the Conveion for
Conservation of Biological Resources, and the Viea Convemion/Montreal Protocol on Substancs that Deplete
the Ozone Layer.
19. Private spending to meet Govemmen enviomental standards is also dlearly on the ise. While no precise
figures are currendy available, the Confederation of Indian Idutries esfimates roughly ta Idia's bussss are
speding about Rs. 1.5 bilion aually for investnt in pollution prvetion and control alne, and that this will
increase to about Rs. 7.5 billion amnually over the nen five years. Private expendies for conservation are
unknown, but probably of a substally smaller order of magnitude.
20. Air quality standards have been set (in 1982) for ambient oncntrations of SPM (sspended paricul  matter),
S02, N02, and CO. These standards distinguishbetween the types of areas: industial;, resideal and rural; and
sensitive (which includes hill stations, national pars, and    such as th Taj Mabal). Standards are stated
in terms of the frequency with which me- taken accordig tD a standard procedure - may exceed the



-99 -
stated standard values. The Governme  is curreny wriwing te 1982 andards for possble revision. Idia also
classifies noise as a pouotamn and has also established ambient sandads for n.
21. The CPCB has establisbed water quality agets for strtches of India's majo rivers based on beneficial use
categones. hndias system distnguishe five different beefcial use categois: A - water sutable for drinking and
domestic use without trament (but with disinfction); B - water sutable for river bathng, swimming and water
contact sports; C - water suitable for municipal supplies (consumed only after conventional tretmcnt); D - water
suitable for propagation of wildlife, aima husbandry, and fishies; and E - water suitable for agricultme,
indusial cooling and washig, hydra-power genation and controlled waste disposal. Each of these categores is
furter defined by prmary water qualty crieria, which set ramges for key water quality paameters such as pH,
ttal coliform, dissolved oxyge,x and biochemical oxygen demand, corresponding to eadh beeficial use
classification.
22. Two kinds of standards have been set for water effluts: (i) industry specfic standards, which set limits on
effluents of specified pollutants from specified industes; and (i) general standards, wich sti t maI
discharges of 33 difeente pollution parmetes for industries for which specific standards have not yet been
fiormlated  These general stndards are further difre_nated by the method of disposal (eg., different standards
apply for disposal in inland surfae waters, public sewers, land for irgaton, ad maine coastal waters). The
present trend is also to diffeti  industty-spocific stands by method of disposal.
23. Emisions staards govening partculates, SO2, NO2 and CO have been set fbr varo  catgorie of statonay
and mobile sources. Fuel standards have been set for gasoline. Noise emission stmdads hv bee set for new
vehicles, certain new domestic appliancs, and certain ew constuction equpmet. Stack height standards hae
also been set for selected statonary sources.
24. The permit to onsrc is grated dtrough an Environmntal Impact Assment review.
25. Tfhe Hazardous Wastes Mmngant and Handling Rnles, 1989, cover 18 ypes of hazar    wastes, while dte
Manufacture, Storae and Import of Hazmno  Chemical Rules, 1989, list 434 toxic, fa kable and cxplosin
chemicals for carefd regulation. Manctr, Use, Import, Export and Storage of Hados Microo          ,
Genetcally Engineered Organisms, or Cell Rules, 1989, regulate biowastes from  nias growing biotcology
actvities.
26. Idustries desigated as 'Red' (e.g., thermal power stations,sugar mills) are spposed to be inspectd either
monthly (large firms) or quartely (medium sized firms). Industrie desiated as "Orangew (e.g., manufactur of
building maerials) arc supposed to be inspected quartely (large fims) or semiann y (medium sized fims);
industies desigaed as 'Gren are supposed to be inspected ammally (lae firnu) or at de discretion of th  SPCB
(medium sized firms). Smal scale indu     i the 17 major pollutig categoies (see p ;argaph 4.34) above are
to be inspected one time per year. Self monitong and reporting. are required to be caid out with the sa-
27. The same classification sstem for idusties des ed in the precoding fnote is utild for purposes of
detemiing which idusties may be granted pemission to locate near areas designated as 'sensitive' and the
environmental assessment procedures that apply.
28. There are, however, no data on the extent to which these industris are atualy m compliance with
effluentlemissio standards.
29. The power to acquire and udlize prive land is available at the stae level thrugh the Land Acquisition Act,
1894.



- 100-
30. A 'sancary" is an area of natural or geommphological significance sufficiet to warrant its protection. All
prinvae nghts and properties are aither acquird aftr adequat compensation or allowed to contiue. Scientific
research and tourism are allowed, subjec to the approval of the Chief Wldlife Wardn. In the case of a national
pak (also defined as an area of ecologicallgeomorphological significance), rights and properties arc detrmined by
either acqlisition or exlusion. Only a totaly unencumbered area may be declared a nationa pak. Alteraion of
the boundaries of a national park, leading to a reduction of its size or its denotification, requires a resolution of the
ste legislae. No forestry operaion, grmzg, collection of other forest produce or humn habion is allowed,
under the law, in a national parL
31. Wedmads, mangroves, coral reefs and other marine ecostems that are either within protected areas enjoy the
proteion of various ac  and are managed by Sat Fores Departments. For the Andaman, Nicobar and
Lakshadwcep Ilands, the Govenm      of India has set up m island Development Auffhority esponsible for ensuring
enviroumena protection.
32. The Govenmment's ovea approach to forestry  _       under the 1988 policy eacomps: (a) an incrase
in the tota land area und  forest or tree cove to one third of d&e total land area; (b) resticting clear-felling in
natural forests; (c) wood subsitution (use of atrative raw materials and fuels); (d) large-scale afforestaion on
those private, corporate, comOnDal, and Goverment rcvenue lands what are not suitable for agricure (e) a major
shift in the supply of industrial wood from state forests to farm and indus  foestry; ff) the supply of needed
forest products to tribal forest users; and (g) an expansion of conservation and pmtected areas.
33. "Jont forest management" (5PM  is the sharing of pducts,   sibilics, control, and decision making
authority over forest lands, beween forest depatments and local user groups, based on a formal agreement. The
primary purpose of JFM is to create conditions at the local levd which enable improvements in forest condition and
productivi A second goal is to support an equitable distribution of forest prducts.
34. Prior to the ildlife Act of 1972, parks and sanctuaries were estabElised under the authority granxtd by the
indim Forest Act of 1927 to regate hunting and designate foest areas as resaved' or 'protected".
35. IIPA (1993). Biodiversity Consevation Through Ecodeveopment The plans are mainly based on a 'zoning'
of each PA into core and bufer zones. In. principle, the buffer zone is designed to absorb the impact of the
surrouding popultons, therby reducing the biotc pressure on core area. Developmen within buffer zone
vilage  s envisaged as one means of reducing such biotic pressues.
36. The linkages of these policies to the envioment are more complex than is commonly assumed, however. One
of the reasons the Govremment cites for holding the price of diesd fuel down is to contain dLe price differential with
kerosene, which is also subsidized, to limit the inceives to adultea  diese fued. The kcrosene subsidy, in turn,
is defended parilly on envinmental grounds as a means for containing the demand for fuelwood. In the case
of electric power, genmaion is currnly supply constaned. Pwer tarff mcrases terefore would not, m the near
temm, necessaily result in a reduction i generation and assocated pollution. In the longer term, removal of
subsidies is, however, likely to result in lower production, and lesser pollution, than odtrwise woud occur.
37. The 'Sensitive Area" standard of 100 pglm3 8 hor aveag, not to be exceeded more than 5 % of the time, is
strict.
38. No sysmatic stuy has yet been undertaken by de CPCB of the size distrbudon of partcles in lndia's ambient
air, but preliminary investigaions indicate that roughly 30 to 40 percent of ambient suspended particulate utter
by weight is 10 microns in diameter or less. This size of particle is typically termed "respirable" since it is capable
of penetrg dee into the respiratory system and is bdieved to be primarily responsible for the negative health
effects associaed with ambient particulate mawtr.   in d    couis with sringent limitations an emissions
of particulates, respirable particulate mater typically aco   for 60 to 70 percent of sampled particulate matter
by weght



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39. These priorities are spelled out in a 1988 snuy by the Wildlife Instime of India, which is an arm of the
Ministry of Environment and Forests.
40. Both the Water and the Air Act, for example, authorize the designation of air and water pollution control
regions anid the tailoring of standards (not less stringent than MINAS standards) to the  nironmnta situation of
those regions.
41. The MINAS standards thus would play a fundamentally different role in this lat  approach tan tey do in the
approaches earlier described. In the present option, they basically represent targets to which charge levels would
be geared.
42. Eligibility for rebates of a portion of the cess is conditonal, however, on compliance with water usage and
effluent standards.
43. As noted above, medium and lare sources of air pollution also monitor and report air emissions, with reports
subject to verification by SPCBs. This monitoring and reporting system could be used as the basis for a system of
charges applied to air emissions from stionary sources.
44. It is likly that gearing chrges stricdy to curent MINAS stndards would result in charge levels chat are
differentated by source type. This is because the incremental costs of meeing cmrent standard levels difer acmss
source types.
45. Indian Insfitute of PubLic Ad ion (1989). Management of National Parks and Sanctuaries: A Stats
Report.



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STATITCAL APPENDIX



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STATISTICAL APPENDIX
CONTENTS
I.    National Accounts
A1.1(a) National Accounts Summary (Rs. billion at curent prices)
A1.1(b)     National AccounsS Summary (Rs. billion at 1980181 pis)
A1.2(a)     Gross Domestic Product at Factor Cost - By Industry of Origin (Rs. billion at
current prices)
Al.2(b)     Gross Domestic Product at Factor Cost - By hIdustry of Origin (Rs. billion at
1980/81 prices)
A1.2(c)     Implicit Price Deflators for GDP at Factor Cost
A1.3        Gross Savings and Investment (Rs. billion)
AIA.4       Disposable Income and Its Uses (Rs. billion at crrent prices)
A1.5(a)     Gross Domestic Invetment by Industry of Origin (Rs. billion at current pnces)
A1l5(b)     Gross Domesfic Investment by Industry of Origin (Rs. billion at 1980/81
prices)
A1.5(c)     Investment Deflators by Industry of Use
Al.6(a)     Gross Domestic Investment in Public Sector (Rs. bilion at current prices)
A1.6(b)     Gross Domestic Investment in Public Sectr (Rs. biMion at 1980181 prices)
H.   Balance of Payments - Current Accounts
A2.1        Balance of Payments (US$ million at current pnces)
A2.2(a)     Merchandise Exports (US$ million at current pnces)
A2.2(b)     Merchandise Exports (US$ million at 1980/81 prices)
A2.2(c)     Export Unit Value Indices (US$ terms: 1980181=100)
A2.3(a)     Merchandise Imnports (US$ million at cmrrent pnces)
A2.3(b)     Merchandise Inports (US$ million at 1980/81 prices)
A2.3(c)     Import Unit Value Indices (US$ tenns: 1980/81=100)
A2.4        Invisibles on Cunrent Account (US$ million)
A2.5        Decomposition of Recent Export Growth (US$ million at cumrent pnces -
annual averages)
m.   Balnce of Payments - Capital Accounts
A3.1(a)     Exteral Debt Summary: Debt Outstanding and Disbursed (US$ million at
current prices)



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A3.1(b)     Extrnal Debt Summary: Disbursements (US$ million at current prices)
A3.1(c)     Exeal Debt Summary: Prmcipal Repayments (US$ million at current prices)
A3.1(d)     Extenal Debt Summary: Net Flows (US$ million at current prices)
A3.1(e)     External Debt Summary: Interest Payments (US$ million at current prices)
A3.2        External Reserves (US$ million)
IV.  Public Finance
A4.1        Central Goverment Finances Summary (Rs. billion at current prices)
A4.2        Budgetary Classification of Cental Govemment Finances (Rs. bilion at
urrent prices)
A4.3        Budgetary Classification of State Government Finances (Rs. billion at current
prices)
A4.4        Budgetary Classification of General Govemment Finances (Rs. billion at
curmnt prices)
A4.5        Tax Revenue - Centre and States (Rs. billion at cumre prices)
A4.6        Non-Tax Revemne - Centre and States (Rs. billion at curent prices)
A4.7        Revenue Expenditure of Centre (Rs. billion at current prices)
A4.8        Revenue Expenditure of State Governments (Rs. billion at current prices)
A4.9        Capital Expenditure: Centre and States (Rs. billion at current prices)
A4.10       Transfers between Centre and States (Rs. billion at curent prices)
A4.11       Explicit Subsidies in the Cental Government Budget (Rs. billion at current
prices)
A4.12       Outstanding Debt of Central Government (Rs. billion at current prices)
A4.13       Outanding Debt of State Goverment (Rs. billion at curet prices)
A4.14       Outsading Debt of Central and State Goverments (Rs. billion at current
prices)
A4.15(a)    Projected and Actual Plan Outlays by Sectors (Rs. billion)
A4.15(b)    Projected and Actual Plan Outlays by Sectors (Annual averages at constant
1980/81 prices - Rs. billion)
A4.15(c)    Projected and Actual Plan Outlays by Sectors (% distibution and achievement
rae)
V.   Money and Credit
A5.1        Money Supply and Sources of Change (Rs. billion)
A5.2        Base Money and Sources of Change (Rs. billion)
A5.3        Selectd Monetary Policy Insruments
A5.4        Strctu  of Short-Term and Long-Term Interest Rates (percent per amnnum)
A5.5        Sectoral Deployment of Gross Bank Credit (in Rs. billion - change during
year)



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VI.  Agriculture. Industry. Transport. Energy and Prices
A6.1        Production of Major Crops (million hectares)
A6.2        Irrigated Area Under Different Crops (kgs. per hectare)
A6.3        Yield Per Hectare of Major Crops (million tonnes)
A6.4        Net Availability, Procurement and Public Distribution of Foodgrains
A6.5        New Index of Industrial Production
A6.6        Production, Inports and Consumption of Fertilizers
A6.7        Indian Railways - Freight & Passenger Traffic
A6.8        Petroleum Summary (million tonnes)
A6.9        Generation and Consuimption of Electricity
A6.10       New Index Numbers of Wholesale Prices
A6.11       Contnbution of Selected Commodities to Increase in WPI in Calendar Year
1993
A6.12       Consumer Price Index Numbers for Industrial Workers, Urban Non-Manual
Employees and Agricultural Laborers



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Table A1.1 (aJ
National Acounts Sunuuay
(Rr. bgrln at curnt prics)
1980181    198435    1985W6    1988187    1987mB    199        193W0 8919 ufI       199V92    199ZS3
GOPk                         m4.27    208133    2337.99    26D0.30    2948.51    355.17    4051127    4720.60    551152    6279.13
Agdculbre                   460.49     719.50     772.24    824.13     923.79    114C73    1270.4    1500.83    1760.51    1997.84
Ilduaby                     317.15     578.50     65E814    737.46     838.29    1008I8o    118160    1360.92    1531.01    1722.68
Mimg                        1.87       54.58     61.98      67.96     7M5        92.08     103.09     108.65    12.43      140.86
Manubictu                  216.44     31Z43     417.75     461.66     52165     636.70     75Z34     87&24      967.17    1097.62
Consotion                   61.14     11Q97      129.47    152.17     1711     206.77     238.07     271.32    311.20     347.45
edciWy                      20.70      40.52     4894       55.67      6M68      73.25      87.10     102.70    122.21     13675
ServAce                     44Q.63     787.33     907.61    1038.71    118143    1385.64    1607.18    1864.85    2224.00    2556.61
ndrect Taes                  135.86     228.10    284.44     328.19     38350     430.76     481.59    582.05     641.03     776.53
GDPmp                        138013    2313.43    2622.43    292.49    3332.01    3965.93    4539.88    5308.65    615655    7055.66
ResoceGap (M-M                4825       54.18      81.37     80.7       8593     124.3      112.19     155.29     35.50     112.52
Impaet irnts)               137.17     211.28    237.67     255.25     2623      38159      485.46    575.48     609.85     807.24
Expats (g+ns)                8892      157.10     156.30    17437      210131    26.66      353.28    420.19     574.35     694.72
TOt   peure                  140838    2357.61    270.80    3010-36    3417.94    4090.86    45205    5463.94    619205    71M8.18
Consunpto                    1123.85    1879.73    207759    2295.93    627.69    3077.5B    3481.24    4058.78    4714.70    5405.46
General Gat                  130.84    243.52   * 291.74    346.25     40D43     47231      542.M      615.37    694.83     786.39
Pile                        99 20t    1636.21    1785L85    1949.68    221926    2604.27    291921    3443.41    4019.87    4619.01
Irwestment                   284.53     487.88    e2621      714.43     79125    1012.28    1.al81    1405.16    1477.35    176278
Foed Irvesmnert             262.76     455868     s455      620s52     721.94    856.69    1035.02    1225.73    1352.60    150Z41
Chane in Stcks               21.77      32.20      8366      92.91      6131     156599    155.79      179.43    124.75     260.37
Domesic Savins               23628      433.70    544.84     633.56     704.32    8835    107&62    1249.87    1441.85    165026
Net FatorIncrane              Z82      -17.36     -19.24    -2652      42.68      -45S      -n54       .8.50    -101.18    -03.96
Current Trrfem               22.57      29.67      27.01     29.75      34.99     38.42      37.59     36.27      65.83      63.70
Natioml Sakug                261.67     446.00     55161      3679      706.63    884.20    106367    1217.65    140650    161s0oo
Fogn Savigs                   22.86      41.88     73D6    77.64         8162     129.08     127.14     187.51     7085      152.78
GDP per capita (s)          203.14    3130.49    3473.42    3799.60    422844    4926i62    552294    6327.35    719223    8091.35
Percapitapratewosmupbin      145146    2214.09    236138    252877    2816.31    3235.11    3551.35    4104.18    4S9.11    527.02
Avenge Exchnge Rates:
Rupee per USS                7.893     11.J87     12.237    12.787    Il9S      14.477     16.663     17.949    24519      28.954
Rupees per SDR              10154      11.944     12.918    15.707     17.380    19.269     21.361    30.714     33.428     40486
Memo Ren:
PFi. ConsumPIon (CSO)        992.92    162090    1M7.58    1999.98    2240.61    2589.93    2917.26    335B.37    383135    4276.82
PopuatIn (emI_                  679       739        755       771        788        805       822        839        856       872
Sounes: CSO. NOai" A Ao  Stasbco 1993 md Qick Esm, at     uay  1994



107-
TablaA1.1 (
Nast Accaf Bwy
(Pb. ilmwat mlIWI pric.)
sePt                       1224i     lsos.27 1561 66MO   18327    inn    ta4    t1na    2t9    2a                  2221
A    _clz                 4549    540L.6      542.18    522.1      479    622.14      ma       un2        4Oa32    urIs
ISsw                      317.15    41330    43i25    43.        493267    5345      as 63 239    c3n    ins
Mink*                     law       2466      2123      29.78    30.80     35.42     31La2      190     4363      4126
Iune*Sm9                 21144    21.53    32          324.45    34616    21144    41013    44131    43.70    443157
wnfluiun                  11.14     6626      71.63     75.      77.77      379      B90D    93         9624      913
BaIcyb                    20J70     21B63     309       3422    321Z       40Q1      44.4      47.92    51.76     5515
S9la                      440.0    6802    591.23    W61         674. 7    723.4    7101       612.0    825    935
hdis Tm                    13168    170.!8    20Q62    219.79    237.13    241.4    251i4    2J.0    2732    2173
GCMp                       13=Q13   167489   17684   1a2.50   1940S   23127   234.17   2311.44   24092   251902
TwnuCdTdUEctd                0W      136s      1135      24.62    14.83     2163      2290       ROT      14.62    127
GoscOwiudicN  h s          13153   16875   17QU.4   1W7.12   155.8    211.90   2277.07   23W51   2423.74   253240
RAso    GOp                  4825     41.31     S1.9?     61       558       71.77    5147       62.66     11.76     3219
Impa nhWIN                137.17    161.05    161.02    195.     19256    223.23    221.65   Z24    202.05    22645
mftythmwtl                   88.92    112.77    119.05    13166    138737   15t.47    18136    17tl    190.29    29150
upIIIgtfl                    mm      105.9   6l.a6    10921    121.05    127A4    115.43    1611    17S47    11171
TOW   EmdIw                14B3     173Q03   1844W    193922   2011.57   223         23 Z13!65   24537   2450   25.32
cmum_ 1                    1125   I S7   14soM31   197   15sons   172Z9 1016L84   188843   1941.78   1-713.5
Ginud Gdt                 130.64    183    10.24    20            ZE49    221W  2LU  25211    2 5    2505    211L12
Pi_l                       90.1    1227.74   1251.07   1331.46   138U05   14627   1557.73   1610115   16.23   1795.64
1uman                      25413    332.49    3951    39925    420.69    51071    5271    5494    49372    891.40
Flutd hNmbu               2176    307.84    329.74    35197    315S    "26.00   45C2    515613    46514    61&4
amp h    tu                21.77     24.65     64.77     3S2      21.34     1171      52.69    631        8.s      9.981
Donmedo twup               23826    291.18    332.54    337.1J    351&01    4394    457.24   m5OB    481.9b    55.44
Nd Facor hums               2.2    -1124    -14.85    -2036    -21.25    -245    -204    -27.73          33.52    -345
COurtTrush                 22.7      22.62     21057    22.55     22.76     2207      17.92     14fl     21.*1     16.6
NMImm  wbup                261.67    300.      331.45    33954    368.51     356    4.11    51034    470.25    546.
Faupi 9wg                   2Z31      31.J3     5A05     5R51      543       7415      60.60    79W       2147    4U75
GDP purcqi 5t.)           2=0014   22543   233971   240.72   2453.01   215624   274.0   261443   314.16   288947
Pucmpbph Scwum* M    14146   1651.36   1670.29   1725.95   1731.05   14362   1895.04   t9t.53   1915.22   11¶9524
Rpe DSis (W1961m100
GoPuap                     100.0    1311      1415      1511      171.7      65.    201.4    222.9    2516         20
Imponh                     10W.0    1312      131.3    1302    In6         174.1    205J      247.1     301.8    341.4
B,Pm b')                   1000      1483     1522      15s       1725     20.       242.8    251.0    327.3    36.3
TowtS  E_.                 100O      1319     146       1!5 2     1609      11       196e    2227        25U2      274
Got. C      _Uuin          190.     1434     1542      168.1    =162       1963     2110      237.1     257.7     232
Pd,. Cnulan                100W      13313    141.6    1464       16.       175.5    167.4    214.D      23.0    2708
Fblu Inh-                  100 lO.   1460     1645      172.4    1817      20D.2    221.1    237.7    276          3045
Tda huan                  10.OO    14174    1573    17694    167.76    19641    25.69        2 4       21323    2980?
StouC9D. 1SonS A=omukWc1s9 3. and Qi* Esd   l                  IN1



-108 -
Table A12 (a)
Gross Domestic at Factor Cost - By Industry of Origin
ps. billion at current prices)
1980181    19841E5    198Y86    198CM7    1987/88    1988189    1989S0    199019    1991/92    1992s93
Aoruu:lw3   Sector         46.49      719.50     772.24     824.13     92179    1140.73    1270.49    1500.83    1760.51    1997.84
Aaricuibe                 424.66     B51.81     699.64     744.05     835.15    1041.03    1154.47    1374.11    1623.17    1845.36
Foresty & Loing           32.62       50.53      52.86      57.58      61.78      68.28      7.21       80.99      84.34       85.99
Fbhri                      9.21       17.16.     19.74      22.50      26.86      31.42      37.81      45.73      53.00       66.49
Indusby Setr               317.15     578.50     658.14     73T.45     83E.29    1008.80    1118.60    1360.92    1531.01    1722.8
Mining&19Cuarryg           1EL87      54.58      61.98      67.96      70.85      92.05     103.09     108.66      126.43     140E6
Manufachting              216.44     37243      417.75     461.66     528.65     636.70     75Z34      87824       967.17    1097.62
Regisered                122.81     233.52     258.06     2e854      322.07     398.57     46517      54`14      608.71      679.79
Unreglstwed               93.63     138.91     159.69     179.12     206.58     238.13     287.17     335.10     358.46      417J.3
Becrickly.Gas&Water        20.70      40.52      4894       55.67      62.68      73.25      87.10     10Z70       122.1      13&75
Conshadion                 61.14     110.97     129.47     15017      17611     206.77     231807     271.32      315.20     347.45
Servi  Secor               440.63     787.33     907.61    1038.71    1186.43    138564    1607.18    1864.85    2224.00    2558.61
Tramport ,ragna CorLn      57.24      118.73     140.98     16537      199.38     238.72     277.84     338.67     413.73     497.39
RSihwas                   11.24      24.74      31.36      37.65      43.55      47.51      5575       6433       7142        87.76
Other Transprt            36.80      77.24      91.00     105.10     124.68     15229      17&55      222.95      278U02     33852
Stae                       1.22       2.12       2.60       zo         3.17       3.34       3.71       4.15       4.66        4.89
ConunnIat                  7.98      14.63      1602       19.82      27.97      35.58      39.83      47.24      56.63       6M22
Trade. Hotels et.         147.13     266.90     310.50     345.51     384.33     452.22     512.53     587.91      701.16     79631
Barlfdg & 8Irance          34.08      7Q.81       265       96&64     111.43     134.13     172.68     198.45     257.91      29Z92
Real Estate etc.           73.83     105.14     115.17     126.45     136.13     148143     164A46      191.81     199.88     22CL81
PublLAdni£&Debkce          57.94     108.35     12511      149.33     179.48     20&58      241.33     26925       314.84     359.B7
OtherSeMAoes               70A1      117.39     13220      15541      175.68     203.56     23834      278.76      336.48     391.31
GDPat Facor Cost          1224.27    2085.33    2337.99    26030    2941851    3535i17    4058.27    472860    551S552    6279.13
Source: CSD, Quick Estimates. January 1994.



8i  02uuif Ne;i3 
|~~   ~~~               C l   I  f               
|  oEiSgeliN    13l4tll    (d 
jI  r_n^E.                        AW0l2  ll    X
" S"8NUwol;|E 00-:|Q25 G:|nX |~



TS AlJ 0c)
bqulci Puck  D      dutWor for GOP atFador Cod
(ISUOiB-100)
1961       196435    1966    19687    198MU1    1968W             19B9S0    199091      1991192    192i3
Agdctnl Sector             10Q0.0     13309      142.43     154.8      172.74     18136      200113     226.40      274.94     297.22
Alcuaue                   100.00     131.14     14.33      151.BS     169.5S     7I.567     197.12     223.70      273.62     29654
Fatlyi Lagin              100.0      15890      15.17      16934      209        2324       24479      249.4       2757       284.26
Flbt                      100.00     14555      167.0      169.13     217.49     235.       2507       282.46      32219      37929
lty Set                    100.00     139.97     152.26     159.00     169.61     168.63     202.72     218.66     243.65      28.18
Mt*&Ouuyhu                100.0      219W1      235.       228.21     230.03     257        271.15     272.       289.8       31t09
_uudutia                  100.00     127.75     137.78     142.29     151.63     16iW05     l6a22      199.01     222.49     247.45
RegWered                 1c000      129.51     139a35     144.74     154.09     16sD       1626       20138      224.31      247.89
UWaomwd                  10W        124.90     134.57     138D9      14845      16lS       itQOD      19531      219.47      246.74
BEdcIf.Ga ah.r            100.0o    141.3       157.92     162.66     1c.7       17/9       194.25     21432      23Et11      247.96
C      _uuh n             1011W      1a52       160.25     201.90     e245       24677      267.8      290.93      320.85     353.24
Suttseor ese               mm         14104      153.51     163.30     17583      191.4      206C0i     22149       ZliM44     28Z30
TaapolmtSIDar&a            1C0O0      162Z60     177.31     194.94     216.O6     243.49     26EQ3      30279      347.12     392Q82
Rtu                      100.00     19526      22363    248.68       276.40     30455      34331      38160      412.4      499.20
SwrTreupoat              10*O0      159Z75     171.41     185.98     19914      224.22     237.37     28329      331.3       375.88
s-3                      10Q0.0     138.56     150.51     164.71     187.57     20366      216.96     2.28       251.80      271.67
-      _cmlfAN          100Q00     139.73     1491U2     172.65     221907    M7124       290.94     324.23     36371       38545
Ta Hdb .                  10D40W     146.57     15SD02     155.70     17629      19838      210.83     22a38       282-13     28416
Bow        hIuan          10aQ00     13742      14182      144.41     1560       155I55     16a16      189.32     2D220       224-08
Re Ed      : Sc.          100        122.81     130.82     137.09     143.72     15t1.5     16227      18262       18136      19t647
P?u  Amin &Dn             100.0D    145S3       156C0      169l5      184.95     201.66     21520      239.23     271.74      297.83
-;iir5Ewvioes             100.00     139.63     15M24      162L73     177.94     19502      209;29     230.57     262.2       28862
GODP at FactrCXO           100l.0     13862      14933      159.26     173.11     187.10     203.42     22f.3       25823      282L73
Sauc :  hed bxnn TabI  A12(a) end A12b0)



-1t11 -
Table AlIJ
Gross Saidng and Investent
Pt b Ubon)
198i 81   IS4fl   IsBi      19iW117  1987AIr    lSBe   1989M       1 91   1991i29  1992\3
GROSS NATIONAL SAvNGS    26t67    445.W    552.61    63579    7CQ63    88420   1053.57   1217.65   1405.50   16100W
HoLseholdc                 192      341.27    414.86    54.65    576.50    715.88    870.75   1017.81   1135.95   1265.2
PvatSeporaSector            22.84    39.47     5318     5212      57.90     5731    119.45    143.13    19.15    194.90
Pblic sector               46.54     65.25     84.57    8002      7223      81.01    73.47     55.91    107.40    1478
Foeign Sains                 22.86    41.88     7360     77.64     B3.6Z    1208    127.14    187.51      70n85    15278.
GROSS DOMESTIC INVESTM    284-53    487818    2621    714.43    790.25   101328   1190.1   14D516   1477.35   176Z78
Change In skids              21377    3220      83.65    13.91     68.31    155       155.79    179.43    124.75    260.37
GROSS FIXED CAPfIAL FOR    265276    455.68    542.55    62052    721.94    85569   1035.02   122573   135260   190Z41
By Type or Asset
Construct                  136.49    227.19    274.53    297.61    340§3    57      447.93    557.32    645.91    701.9
Mfc fy & Equipment         126.27    228.49    26.02    322.71    381.41    464.12    587.09    668.41    70.689    800.82
By Sectir-
PlbIc sector               116.93    2n96    275.01 54s          345.71    398 6S    43B.57    497.98    587.49    622.57
PriWaleseo                 145.83    221.72    26754    287-98    376.23    45m03    596.45    727.75    75511    879.84
G-DPmp at cunet pces       136013   2313.43   22243    929.49   3301   3961S3   4539.86   53011 65   5156.55   7055 66
19WB1 price)
GROSS DOMESnC INVESTM    2E4.53    332.49    394.51    399.25    420.89    510.71    520.71    584.94    49372    591.40
Charie In Stacks            21.77     24.65     64.77    3928      21.34     82.71    52.69     69.31     8.8      97.98
GROSS FriXD CAPITAL FOR    262.76    3078.4    329.74    359.97    399.55    42.0W    468,02    515.63    485.14    49a42
By Type ofAssat
Consnutim                  135.49    127.18    139.80    135.80    150.45    155.19   1522    185.66    181.88    180.48
Mad*Iny S Equipment        126.27    180.66    190.14    224.17    249.10    272.81    305.50    329.97    30325    312.94
By Sedor.
Public sectr               116.93    164.33    170.80    192.31    185.60    195.39    19S.45    203.91    209.60    19953
Private sector             145.3    143.51    158.94    167.66    212.95    23215   271.57    311.72    275.54    293.83
Source: CSO. Naionl Accounts StastIc993I and Quick Etbes aed Jmnumry7. 1994.



-112-
TableAlA
Disposable Income nd Its Uses
R  biRlon at crrent prics)
1i(181 1 194       1985I 6   1987   1967A88   198889   19B9M0   199U91   199112   1992193
GOPmp                        1380.1    23114    26224    29205    33320    3965.9   4539.9   5306.7   6155.6   7055.7
NK  Facstr Inome km abroad      2.8    -17.4    -192       -26.5    -37        -42.6    -52.5    48.5    -1012    -104.0
COerafrentrtansI               22.6      29.7     27.0      29.8      350      384       37.6      36.3     65.6      517
Dipoatle cme                 1385.5   2325.7   26802    297    33343    3961.8   4524.9   5275.4    61212    7015.4
Pdvte imposable ixcme       12001    2017.0   22519    2506.5   28531    3407.5   3909.4   4605.1   5319.0   60792
Pubic dkponable incme        177.4    300.8    376.3    426.3    4807        5543      615.5    671.3     82        9362
G wasanal Savis               261.7    446.0    552.6    6368        706.6    8842    100.7   1217.B    140S5    16tao
Priae umngs                  215.1    380.7    468.0    556.8    634.4    802          992    1161.7   1299.1    14802
Pulic savng                   48.5      65.3     84.6      80.0      72.2     81.0      73.5      55.9    107.4    14M8
Fnd COnummpn                 1123.8   1879.7   2077.6   2295.9   2627.7   3077.6   34612    4058.5   4714.7   5405.4
PEtVCcumption                993.0   1636.2   17858    1949.7   2219.3   2504.3   29192    3443.4   4019t9    4519.0
Puttc CDnsumpon              130.8    243.5    291.7    346.3    408.4    473.3    542.0    615.4    694.8    7864
Sawes: 1 C0O. Natonal Accotors Statstc 1993, and QuLick Estimates datd Jaiy 7. 1994.
Z World BaSic EsDlatet



-113-
Table At.5 (a)
Gross Domestic Investment by Industry ofrigin
(Rs. billion at current prices)
198t8  1984185   19B516   1986187   1987188  1988189   1989190   1990191   1991192   1992193
AgkuitUral Sector               48.6     70-1      76.1      77.8      92.5    100.5    111.7       129.5     147.5     172.0
Agriculture                   464       64.8      704       70.8      545       91.2     1017      11659    133.4      1553
Foresbyy&Logging               1.0       2.2       21        2.4       2.7      3.1       3.9       4.6       4.8       5.2
Fhing                           1.3      3.1       3.7       4.5       5.4       6.3      7.1       8.1       9.4      10.5
IndustrySecor                  96.7    207.1    280.6    308.7    354.0         448.5    480.8    557.2      599.3     715.9
Miing &  uanQ g                9.6      29.3      41.8      45.4      42.2      4189     64.1      70.5      68.3      70,2
Manufacturing                 4B.4    111.5      1516      156.2    193.6     289.4    269.6    319.6       318.7     405.1
Registered                   29.2      80.7     110.4    107.8    137.3    2024        185.4     225.0    219.9      2859
Unregistered                 19.2      30.8      43.2      48.4      56.3      67.0     84.2      94.6      98.8     119.2
Electricity.Gas &Water        31.7      55.5      72.4      96.3    105.3    117.9    126.2    140.8        186.5     211.7
Constuction                    7.0      1017      12.8      10.8      12.9      12.4     20.9      26.3      25.7      299
SericesSector                  112.6    198.9    246.8    309.6    290.1    385.8    452.3    510.5    585.0           693.9
Transpot Strdge & Com.         29.1      57.1      64.1     79.8      81.9     1069      130.9     146.2    165.7    201.6
Raihws                        81       14.0      16.9      23.1      21.8      26.7     26.8      31.4      34.1      472
Oiier Trrsport               17.5      34.3      37.4      45.3      44.7      57.8     75.6      84.8      97.5     1048
Skrage                         0.2      0.5       0.5       0.8       0.8       0.8      0.9       0.8       1.1       1.1
Crnuncation                    3,2      8.3       9.2      10.7      14-6      21.6     27.5      291       33.0      48.6
Ttade. Hotls etc.              23.3     27.5      46.0      684      30.7      72.2      91a2     102.5     9Z3      135.4
Bankft &surance                 1.7      5.4       55        8.7      150       21.3     24.1      27.4      39.5      386
Real Estate e                 31.4      59.8      6808      BDg 9     901      101.6    11&1      129.6     1713      190.5
Publi Admin & Defence         21.5      39.0      48.3      55.5      558      6Z9       56.5      75.5      87.8      97.8
OherSevices                    5.5      10.2      141       16.3      167       20.9     24.6       9.A      26.3      30.1
Grsis Donestic Investmt       257.9    476.0    603.5    696.1        736.6    934.8   1044.7    1197.3    1331.9    1582.
Memo Items
Gross Domestic Investmern a/  308.8    454.1    558.9    634.0    785.4    989.7   1231.0   1397.9    1487.2    1729.1
Ermrs I Omissions              24.3    -33.8    -67.3       -0.4       -4.9    -23.5      47.2      -7.2       9.8    -337
Grss Domestic Invslment        284.5    487.9    626.2    714.4    790a3    1013.3    1190.8   1405.2    1477.4    1762.8
(ur'*uted) bf
at Rerers to CYs savnrgtased estimate of investment
bt Rerers to Gross Capital Fomtibon unadjusted fbr erors and omissions. which is CSOs direct
estimate ctmwestnet bsed on physical lows.
Sources: CSO, National Accounts Statistics 1993. and Quick Estnates Jamuary 1994.



-114-
Table AlS (b)
Gross Dormesic Invesbue,t by Industry of Origin
(Rs. bilion at 19is1ui pTicesj
198/1 1 1984/5   1981e    1986S7   1987/88   1988/u   1989/A    1990191   19I92   152193
Agricutral Secor                 48.6     48.9      48.4      43.6     47.8      47.4      47.8      51.2     50.7      51.4
Agriculture                    46.4      45.5      412       40.1     44.2      415       43.5     4654      45.B      45.7
Forestry&Lolng                  1.0       1.5       1.2      1.3       1.2      1t3       1t5       1.6       1.5       1.9
Fishing                         1.3       1.8       20       22        24        2.6       29       31        3.4       18
Idustry Sector                  967      149.6    171.1    177.6    197.1    225.6    211.8    230.3    200.2          2485
Mining a OQnyikg                9.6      21.7      2E5      27.7      25.5      25.2     30.2      2B.1      23.5      28.3
Manufactudng                   48.4      80.0      9.a5     85.9    104.6    137.5    113.3    131.0    1C006         136.0
RegisterEd                    29.2      59.9      86.9     60.5      77.9     108.1      814      961       713      101.8
Unregerd                      19.2      20.1      239      25.4      26.7      29.4      328      34.9      292       342
Elecluicity,Gas&Water          31.7      39.9      45.4     57.1      59.1      56.7      57.5     58.9      65.8      72.1
Contucio                        7.0       8.0       8.4      6.9       7.8       7.1      109       1Z3      10.3    12
Services Sector                 112.6    131.8    1651       160.4    135.0    188.3    189.7    206.2    191.0    231.0
Transport Strage& Com.          29.1      4Z6       39.7     48.5      45.7      5z5      58.7      602       593       617
Raiwy Es.1                               8.8       9.1      124      10.1      11.1       9.8     10.6      10.1      11.6
Other Transport                17.5     27.6      24.6     29.6      27.4      30.7      36.5     37.6      38.6      39.8
Sorag                          0.2       Q3        0.3      0.4       0.3       0.3       0.3      0.3       0.4       0s
CommunIcation                  a2        6.0       5.7      6.1       7.9      10.5      121       11.7     10.2      11.8
Trade. Hotels etc.             213       19.8      5Z0      32.5       8.2      47.7      43.7     51.0      27.4      61.3
Bankin & Inmuare                1.7       3.7       14       5.2       8.8      11.3      11.5     11.7      1S3       14.0
Real Estate etc                31.4      33.0      344      35.9      36.6      38.6      423      43.8      51.5     51
PublicAdroin S Defence         21.6      26.3      28.1     29.9      27.5      2a.7      23.1     28.2      28.9      29.4
OthServices                     5.5       6.5       7.5      8.4       8.3       9.5      10.3     11.3       8.8       9.6.
Gross Domesbc Investment        257.9    33Q3      3WU6    381.6    379.8    4623         449.3    487.7    441.9    5309
Memo beems
Grss Domestc Inmestment aW     3088      309.6    356        35Z6     418.2    498.9    542.1    581.9    497.2    58013
Errors & Omissions              24.3    -22.9    -40.9       46.7      -27      -11.8      21.4      -0        3.5     -11.1
Gross Domestic Investment       284.5    332S      394.5    399.3    420.       510.7    520.7    584.9    4917        591.4
(unaciusted bl
at RefeRs to CSO's savgs-based stimate ori mvernet
bt Refers to Grss Caplal Frmation unadjusted for eros and omissions.  ch is CSCs direct
esimate of investment based on physical fIlas.
Souces: CSO, Natonal Accomts Statistics 1993. aid Quick Estima  Janary 1994.



-115-
Table AlA (c)
Imvedtm    Ddblts by hIdusty of Use
(.19M1IM100)
199181   199I1S 5   1995186   19197   1997/88   1998    1998/90   1990191   1991J92   1992193
AoFutu  lS$ad                       1mn0    1433       164.0    17.3    193.4    2122         2335      25a1      29t3      334.8
Agrbiua                            ifO      1423      1628B    178.4    1912       209.7    231t7 251.7          291.2    3423
FRmsay&Lagng                      10m.0    1442       173.1    194.4    2137       240.2    2EO1       2858      331.7     267.5
Fidi                               1m.0    168.9      1l85      205.0    223.3    239.8    246.9    25E4         275.4    2791n
tnduSby nar                         im       138.4     164D0    173.8    179.7    197.9    227.0    242-0         29933     28B5
MIfl &aOnybig                     100.0    135D0    157.5    163.7    165.3    193.6    2125           250.8    290.8    2482
Maubuak'g                         100.0    139.4    1692        181.B      11      196.0    238.0      2440      316E9     298B0
ReiseOD 10.0    134.A    1650                                  17B.1    1763      187.3    23DL6      234.1     30D83     280.8
U      _ahud                     100.0    1513       181.0    190.5    210.7    22l.0    25652        271A      33ELa     349.0
Ekdrily.Ga AWAtOr 10O                       139.0     158.4    16U.7    17R 1      207.7    21Q4       2ma0      28ms      293.6
ConUhi                             1000E    134.5     5ns8    1567        165.1    173l      19i28     213.7     24EL7     245.5
Servicesfr                          100.0    1509      149.5    19.1    215.0    2049         2385      247.5     308.3    3D04
TrnpoutStu &Caom                   100.0    134.0    1614       164.8    17Q4       203.5     2l8      2427      278.5     316.
RSuy                              100.0    152       1844      196.     217.2    240.6    2733        297.8    332        407.2
DhwTIU1ct                         100.0    124.4    1522       1510      193.5    1886      207.1     225.3     252o      26311
Surge                             100.0    16i5      193.5    2063      2353      26655     255S9     276.7    305.6    237.0
Canuzmcmtn                       10.O    139.9    192Z7       176.1    184.3    206f4      22812     24t.3     3221      411.3
Trde. HitsetcI                     10.0    138.0       54       210.5    3735      151.5    224.5    200.8    337.5        220a
lmdn & Iumnan                      100.0    143.8     1619      166.9    170.5    188.       208.8    235.0      258.9    275.9
Rd Ested                           100.     181.5    2002       2253     246.3    2613       279.4    295.7      336.7     3590
PublcAdmin & DOiea                 100.0    148.3    1712       185.7    2031      2192      244.      267.3     304.3    333.0
Cuiar5aM                           100.0    157.9    18Q4       1936      201.8    220.0    23&8       26D.8    300.7    313.9
Gms DnmliC liwnUnt                  iota     144.1    157.7      12.4    193.9    202Z2       2325      245.5     301.4     2982
Imo fMM
Gso DonestnI Iwa yment              t10.0    14B6.     158.1     17Q8.     187.8    19B.4    228.4      2402      299.1     297.9
Gros Domestic hneshnent             10Q0.    146.7    1S8        178.9    187.8    1984       2287      240.2     2992      298.
(ujete  bW
aV Ream to cUOs uang4ad estat of irwsmut
Id Rdrs to Gross Capl Famuifn unafjted far efms and oa rsls which IsCSOsdkac
esmae Cd nemat baed an physi Dom
S,c   CSO. NatonalAccourl sSc  190 a-d  uci Estimh. Jamary u1t4



- 116-
Table AM (a)
GCa Dauledlc twesim_et hi PubNc Seclor
Ots bi. at curnt pre)
1 81    19848         1968       19s7       1987188    1989    199s          1999
Adcutr SCa                                 18.92      2579       2a42       2935       3170       35a19      34.19       392
Ag*eAM                                    17.96      2433       2542       27.01      31.14      3219       30.50       34.8
FcaI&y&Lagfl                              0Q95        2.12       13?        2.30       2.         288        3.66       4.40
FiGhio                                     I001      0.4        om        Gto5        0.04       002        am          Dm
Indsrby Sector                             53.27     127.21     171 15     19192      20519      227.03     26014       236.
M"If8 a QuaT                               9.14      265.8      40.41      4287       4030       4857       6343       5.75
Muutflzg                                  Itt70      4320       643        61.38      62C2       5r.3       7530        89.54
EIecMty.Ge &Wa                            29.51      5.78      M8899       9Q75      10037      t102       12L29       13296
Cbnomim                                   S2.         2.58       290        (e89       2.84       0.41        1.        3.80
SemSctor                                   45.48      95.15     103.14     12&87      11098      15971      19134      221.94
TrAulPdhtsZamQSChL                        1519       3350       34.9       51.41       4720        265       77.13      8053
Ratmys                                    814       14.04      16685      2.10       21.83      26.73      26.84       31.42
OtbrbTaut                                 6567      10.71       8.49      1T.00      10.33      14.01      22-37       19.62
SEoae                                     0.17       0.41       0.43       057        048        0.23       038         0.35
Cowilcaton                                3.21       834        9.19      10.74      1455       21.63      27-54       29.13
Trude HSs ebdc                            -030       1029        355        1.17     -15.16       432       20.10       23.44
Bad & In1                                  1.10       2.4        3.20       4.98       9.65      15.01       16.96      18.33
Re Eal  s et                               1.70       3.78       5.06       651        6.70       7.57       7.32        m93
PubcAdnif&Defence                         21.62      35.95      45.32      554        55.78      61g        5652       75.46
CiterSerAnm                                3.17       5.79       8.03       9.34       9.78      11.89      1331        15.25
Grs Domestic Inbatment                    117.67     24915      30874      35415      350.87     421.83     437         55721
Soum: CSO. Natbul AcmIs Statc 1993. uid     Edckm  .Muy 1994.



-117-
Table AIX (b)
Grmss Domstic Inveshnent in Public Sector
(Rs. bilion at 1980191 prices)
1999181    191B415    1195196    1916/87    1987189    1969/89     19W90       1990191
Agrbuud Sector                           18.92      18.22       16.31      15.50      15.80      14.85       1Z98       13.77
Agricunltue                             17.96      16.73       15.16      14.28      14.61      13.64       11.57      1Z21
Foremsy & Logng                          0.95       1.47        1.13       1.18       1.17       1.20        1.40       1.54
Frhi                                     o.01       0.02       0.02        M04        0.02       Q01         Q01       a02
IriduySector                            53.27      926S      108.31      111.07     112.90     I07.77      111J71     117.58
Mling  Ouanying                          9.14      21.23      25.64       26.17      24.77      24.52      2983        27.76
MUUAaSIIrq                              11.0       31.76      38.14      30.89       30.69      30.26      2681        33.14
SecIbTcity.Gas Water                    29.51      37.97      43.15       53.67      5E.18      5Z81        54.61      55.31
Curnucion                                2.92       1.7D        1.38       0L34       1.26       0.18        0.46       1.37
Seriaces Sector                          45.48      65.00      57.54       6927       5M88       7201        81371      84.78
Transpodt Stoae & CorrL                  18.19      23.31      20.19      29.79      24.9        28.75      32.57       31L72
RaDways                                 8.14       8.82       9.14       1241       t0.05      11.11       9.82       10L55
aOITerTanisport                         6.67       8.26       5.18       11.0D       614        7.07       10.53        L32
Strage                                  0.17       0.25       0.22        0.28       0.2D       0.09        0.15       012
CommunicatIo                            3.21       5.96       5.65        6.10       7.9D      1048        1Z.07      11.73
Trade. Hotels et:                       -0.30       7.68       0.11       -1.39     -14.26      -1.89        958        8.90
Banidng & Insurance                      1.10       1.95       1.94       3102        5371       805         815        8.05
Real Estate et.                          1.70       2.09       Z56         Z99        2.82       298         2E9       3a05
PulicAdnilo & Defence                   21.62      26.27      28.14       29.86      27.47      28.70       23.13      2E823
Other Services                           3,17       3.70       4.60        5.00       4.85       5.42        5.59       5.80
Gram Domesticlnvstnt                    117.67     175.88      18216      19584      179.58     194.63      206540     21&13
Sources CSO. Nabonal Acount Ssatist 1993. and Q* Estmates. January 1994.



-118-
Table A2L1
Balance of Payments
19W/81, 19861861992193W a
(US, miron at cunrnt prices)
190S11    19BS86   19BE1 191987/88   196189   1969190   199M11   199192   1992023
Exots of Goods ard Non-Factor Services      11265    1773      13637      t6217     18213     21201     23411      23425     239S4
Merhanise gob) bi                           5316      9463     10420      12646     14257     16955     15477    1223    1U71
Non4-actorSerices                           2949      3310      3217      3571       3956      4246      4934       5202      S205
Impot d Goods and Non-Fadcor Senvces        17378     19422     19962     22843      26843     27934     32063      24873     27880
MehMandise (ci) bf                         15862     1728      17740     19816      23618     24411     27914      20347     22895
Non-VactorSenioes                           1516      2124      2222      3227                 3523      4149       4526      45
Trade Blane                                 -7546     -7835      -7320     -7170     -3         -745      -9437     -2124      -4106
Nonfctor Seuvtes Balane                      1433      1186       995       544        731       723       785        676       220
Resource Balance                            -6113     6649       635       -666      -630      -6733      -652      -1448      -3886
Nd Factor Inome                               357     -152      -2074      -2520     -2941     -313       -3816     -4127      -3591
FactorService Recpts                        1083       547       501       446        397       395       257        157       165
FactorSevice Payments dc                     726      2119     2X75       2966       33B       3548      4073       4284      3756
Net Curnet Transfes                          2860       207      2327      298        2654      2256      2021       2685      2200
TwanrdReceipts                              2874      2219      2339      2724       2670      2271      2037       2701      22
TranslarPayments                              14        12        12         26        16        15         16        16        20
Cufrent Account Balne                       -2896     -6015      6072      -6448     -8916     -7630    -10447      -290       -5277
Fonign Diecd In nt                              8       160       208        181       287       35         165       148       435
Ctial Giant Aid                               643       359       403       410        406       5OD       461        4a        356
Net Meden 8 Long-Tenn Capital df             1350      2530      2920      3941       4349      3863      2670        392      1544
Grss Dtuxsaeents                            2142      3839      5210      5834       6297      584       5073       BE45      4539
Prineipal Repay_mts                         792       1309      2290      1894       1949      1983      2403       3254      2995
OherLT kdtmvs(NRI                             339      1579      1825       1992      2328      1953       1536      -454       1949
caial Flws Em                                 -04      2198      1435       667       1325      1122      2816       -41        731
Net Shut-Term Capital                       228        273       168       m          253       917       111      -¶13      4-33
Ot#hes d                                    -200       474      -102       -731       141       167      -1000     -1228       -974
Capita lllssieL.e                           -832      1451      1369      1176        931        38      3705       2226      2538
OCeer  Balance                              -1360       612       720       744       -m         158      -280       2611       -262
Net IHF Credi                                1014      -264      -648      -1082     4210      -1006      1029        773      1289
Change in Reserves (2il. Gold)                346      -548        -72      338       143        85o      1771      -3384     -127
(-= nrease)
Memrorandum Itns:
End dYear GOn Resees (Excl. Gokld)           685       6657      6729      6391       4959      4109      2338       5722      6749
Reserve in Mont dslr;owxs                     5.2       4.6        4.6       a9        2.5       20         1.0 o      4         3.5
Current Account Deficit I GDP                1.7%      28%        2.7%      Z5%       3.3%      Z8%        3.5%      1.2%
Debt ServmiRatiRb /                          9.5%     229%      32.2%      29.6%     29.4%     26.5%      27.6%     296%       25.0%
aIBOP based on revised bment d noncustom imports as adopted by GOI torn 199091 orwwdo
bh Net ofawde petolem eports
cIncludes intest - non-rdent depos and IMF serhcedrges
dc Exaudnk nonesident depot shown below under ther LT Inlbows 9NRf.
elornesponds to b     balance hom 19S091 anaidr
V ResiduaNtem Iluding short-em capial, reserve wlualion changes, rupee bade hmbaln  etc
alAs prpoton of saocuft ereeipt
Sourice: Reserve Bank of IndIa



-119-
Table A2: (a)
Merchandise Expots
1980181, 198U6-1992193
(US$ million at currnt prices)
198Y151    198986      1956187    1987J88    198EW89    1989J90    1990091    1991192    1992I93
PFnuy Expafs                      3399       3152        3279       3287       3254        3853       4354        4189        3940
Fish                             275        334        421         411        435         412        535         588         602
Rce                             284         160        154         261        229         256        257         308        337
Cashews                          177        184        256         243        191         221        249         276         259
Crtee                            271        217        232         202        203         208         140        135         130
Tea                              540        511         451        463        421         550        596         494         337
Spices                           141        227        218         260        190         170         133        161         136
Iron Ore                        384         473        428         427        465         557        584         585        381
OtherPniiwy                     1327       1046        1115       1020       1121        1478        1859       1641        1758
Manufctjred Exports               510S       5639        6457      a879        10853      12715       13781      13773       14603
Chenmias                        298         407         456        618        890        1288        1176       1591        1378
LeatmE Manubtuaes               494         629         721        964        1051       1170        1448       1276        1278
Textles                         1057        E60         994       1407        1312       1598       2266        2164        2153
Garments                         697        872        1041       1403        1452       1936       2235        2211        2394
Gumns&Jeiwesery                  783       122B        1622       2015       3033        3179        2923       2753        3073
Engneeing Gkods                 1048        779        886        1141        1558       1967       2157        2246        2458
Pebotlin Products                32         417        321         500        349         418        522         417         476
Other Manufacures a/             697        447        416         750       1050        1159        1053       1115        1393
TOTrAL EXPOXRTS (Carmere) bt      8506       8791        9736      12085       13948      16589       18136      17962       18542
Saistical Dscrepancy              -189        672         684        561        310         387         341        261         247
TOTAL EXPORTS (9.COPz)            B316       9463       10420      12646       14257      16955       18477      10223       18789
a/ Induding unclassified exports.
tl Net of muds petroklem sqpot
Sources 1. Ministry of Commerce. D.G.C.I.S.
2 Reseue Bank of India
3. Economic Survey.
4. World Bank Staff Estimates.



-120-
Table A22 (b)
Merchandie Exports
1930181, 1983586-1992193
(US$ million at 1980131 prices)
198t11    1985186   198@87   19678?8   19889   198010   1990191   1991/2   1992193
Primary Exports                  3399      3078      3184      3099       3220      3986      4499      4368      453
Fish                            275       325       357       354       386        424       48D       571       571
Rice                            284        96        97        152       137       165       197       265       424
Cashews                         177       204       236       229       202        266       305       288       344
Coee                            271       295       231       317       291        437       339       343       445
Tea                             540       471       418       479       451        487       453       5m        390
Sces                            141       153        138       114       122       115       110       115       104
Irn Ore                         384       497       4S8       461       541        578       530       490       344
OthrPrimary                    1327      1037       1239      994       1090      1513      2075      1793      1909
Manufctued Expots                5106      5875      6696       8414      9184     10418     11303     12678     14142
Chemicals                       298       377       463       542        847      1182      1585      2157      1333
Leate Mandu!rs                  494       781       770       899       958        962       98D       957      1071
TedlI                          1057       669       757       1074      915       1123      1329      1873      2513
Garrents                        697       837       917       1142      1137      1485      1641      1759      1823
Guems&Jewliery                  783      1021       1419      1602      2082      1909      1573      1646      2082
Engineerng Goads               1048       952       978       1391      1728      2221      2470      2514      3229
PdoeNrMa FProducts               32       535       645        986      694        784       917       gm       1242
0ther Manufactures ar           697       704       749       778       824        753       808       793       850
TOTrAL E2'ORTS CoNmnerce) b/     8506       8954     9883      11513    12403      14404     15802     17046     18i73
Statistca Discrepancy             -189      684       695        535       275       336       298       248       248
TOTAL EXPORTS BL.O.P.)           8316      9S38      10577     12048     12679     14740     16100     17294     18921
a Inducing undassied expots.
bl Net of crude petroleum expxts.
Sources: 1. Ministry of Commece, D.G.CI.S.
2 Reserve Bank of India.
3 Economic Sumvey.
4. Would Bank Staf Estimatms



-121-
Table At2 (c)
Export Unit Value Indices
1980151, 13SU8C-1992193
(USS tent.: 190181 = 10W)
1980'1     1988       19SD       1987/8     1988/89    199         1991       19t9992    1991*92
Priy Exports                       100.0      102.4       103.0      106.1      101.1       96.7       96.8       95.9        87.0
Fish                             10Q0       102.9      11.1        116.1      112.7       97.2      111.5      103.1       1065
Rice                             1000       1673       159.0       172.1      167.4      155.6      130.5      116.3        795
Cashews                          100.0       90.2       105.6      106.3       94.5       82.9       81.7       95.B        75.1
Calee                            10Q0        734        100.4       637        69.7       47.7       41.4       39.5        29.2
Tea                              10O        108.6       107.9       96.7       93.3      113.       12B.8       9112        86.8
Spces                            100.0      148.1       151.2     226.0       155.2      147.2      121.3      139.3       130.4
Iron Ore                         100Q        95.1       91.4       92.7        85.9       964       110.2      119.4       110.9
Other Primary                    100.0      100.8       90.3       102.6      102.9       97.7       89.6       91.5        92.1
Manmd     ored Epors               10O         96.0       96.4       104.6      116.4      122.1      121.9      108.6       103.3
Chernlci                         100O       107.9       964        11a9       105.0      108.9       74.2       73.B       10314
Leather ManUtdr                  100O        80.6       93.6       107.2      109.8      121.7      147.9      133.4       119.3
TeWAes                           10Q0.      128.7        31.4      131.0      1434       142.3      170.5       115.5       85.7
Gamnt                            10Q0       104.2       113.5      1229       127.7      13D.4      136.2       125.7      131.3
Gus                              10Q0.      120.3       1143       125.7      145.7      166.5      1858        167.3      147.6
Engineerin Gds                   10O         81.8       90.6        820        90.1       81.6       87.3       89.4        76.1
Petreleun Products               10D.0       77.9       49.8        50.8       50.3       53.4       57.0       425        3a4
CherManutatuesa/                 1000        63.5       55.6        9Ex4      127.5      154.0      130.3       140.6      163.9
TOTAL EXPORTS (Cmmer) h            100.0       99.2       985        1050       11Z4       115.0      114.8      105.4        99.3
Saical Disce                       100.0       99.2       985        10i6       11Z4       115.0      114.8      105.4        99.3
MOTALEXO'RTSaO.P.)                 100.0       96.2       98.5       105.0      112.4      11iO       114.8      105.4        99.3
af includng unclassified export
hI Net cicrude peeralum Comm
Smuces: 1. MhInisy of Coanerce D.GaI.S.
2 Ron Bank of Ind.
3. Economic Suraey.
4. Wod BankSW  Estis



-122-
Table A23 (a)
Merchandise kpors
19801S1, 198651-1592193
(US$ rillion at current prices)
190t1  198          19W87   19671E8   198B189   1969180   199011   199192   1992193
Food                             1348      1321       1068     1292       1203       714       890       424       702
Foodgralns                       127        90        37        25        437       227       102        70       334
Edible gls                       865       60        479       709        503       127       181       101        58
Others                           356       631       552       557        263       361       407       253       311
Other Consumer Goods              378       452       594       600       7ao        800       851       634       782
P.QL                             6669      4054      2187      3148       2938      3766      6026      5325      5919
Cude Petroeum af                4243      3013       1672     2395       1891      2455      3420      3194      3711
Petremn Products                2426      1041       515       753       1047      1311      2605      2131      2208
Capital Goods hi                 2416      3503      5073       5064      4803      5304      5833      4233       4531
Intrmediate: PRIMARY             1277      2156      2474      2997      380W       4488      4653      3801      4553
Fertnizer Raw Material           210       313       218       243        301       329       348       309       279
Gems                             528       899       1170      1538      1984      2546      2062      1957      2442
Oiler                            539       944       1087      1217      1515      1613      2222      1534      1832
Int.mredbta: MANUFACTURES        3781      4472      4315      4055       6053      6147      6022      4996      539S
FerbTar Manuacturs               826       860       387        132       341       737       636       645       698
Irn & Steel                     100       1140       1134      962       1341      1383      1177       799       779
Non-Verous Metals                605       443       324       444        544       752       614       341       395
Othes                           1270      2029      2470      2496       3128      3275      3596      3Z1 1     3524
TOTAL IMPORTS QCrMmne) bh       1586       15957     15712     17156     19497     21219     24075     19412     21883
Statldl Discelpancy                 -7      1230     2GQ8       2660      4121      3192      3839       935       1012
TOTAL IMPORTS bh                15862      17187     17740     19616    23618      24411     27914     20347     22895
a/ Net  aude oil apots.
bi 1987188 wanrds Capital Goods includes Project Gwads.
Sources: 1. Minisby of Commerce, D.G.C.I.S.
2. Reserve Bank of India
3. Econonic Survey.
4 Waoud Bank Staff Esmates



-123-
Tabe A23 (b)
Merchandie  uipo.ts
1911031, 1t6usiu-imz
(US$ ndion at 1isi prices)
19881    1984185   1987 1J 1967188   198s                     198W90   19 1    199192   1992193
Food                              1348      1529       1454      1527      1710       1958       885        my        445      1014
Foodgrals                         127       372       113         56        35      1021        310       125         77       62
EdIsiOIs                         885        635       564        770       980       539        160       259        111        51
Ot.                               356       522       m          701       695       409        395       422        256       302
OUer CwmwGoods                     378       355        471       587       513        55        6          64        472       558
P.OI                              6889      3916      5113       505        959       6748      7281      8284       9428     11415
ue Petroleum aW                  4243      1886      3828       4053      4644      4665       5105      54         a283      7660
PrImhn Poducts                  2426       2030      1205       1012      1314      2063       2176      2882       3145      3755
capitalGoodftt                    2416      2842      3877       4703      4205       3702      4142      4311       3054      3141
Inrte Iudb PRMARY                 1277      1858      2461       3038      2419      2841       3363      3314       2646      3072
Fe;tz erRaw Matuial               210       151       140        197       161        178       157       174        151       147
Ge*                               528       7a3       977       1127      1262       1511      1965      1521       1400      1673
OIlie                             539       964      1344       1714       996       1151      1242       1619      1095      1252
In_r:rie   MANUFACTLRES           3781      4541      5342       4844      3533      4728       5057      4797       3924      4314
FPedteLlnifut_ue                 826       1104      1163        813       320       472        876       806        830      1117
IranASteel                     .1080        979      1319       1110       874      1275       1162       936        622       581
Nfll-Ffrr    Mestal               605       519       642        481       540       553        775       599        325       361
Cthes                            1270      1939      2218       2240      1799      2428       2244      2454       2146      2255
TOTAL IMPORTS (ofmfce)           15859     15041      18718     19543     18338     20542      21351     22180      19g79     23514
StallaUci  iepny                    -7      2888      1443       2523      2843      4342       3212      3534        962      1087
TOTAL IMPORTS                    1562      17710     20161      22056     2t181     24884      24553     25694      20941     24801
al Nt dnde d eport
bI 1987188 onwards CpitaI Goods imcludes Project Goodr
Sauce.: 1. Mffly ofC cmmeru D.G.CIS.
Z Reem Bazra d lndit
3 tonmlc Suney.
4. Wdd ButSk        E_Se



-124-
Table A3 (c)
Import Unt Value Indices
1980MI8, 19S4II-1992193
(LSS Ta      t9811 = 100J
1980t1  198516   1986B7   1987E85  1988Y9   1989190    990191   1991192   1992193
Food                            100.0     90.B      70.0      75.5      61.1     82.6      855       93        69.2
Foodgrains                    1W.0       79.6      Ga1       72.0     4S        73.1      80.3      91.4      50.4
Ed'ie Oils                     10D.0    106.4      5Z2       72.4      3.A      79.3      70.2      90.4    114.0
Otuers                         1W.0      81.1      718       80.2      64.5     91.4      96.5      9H.6    102.9
OtwerConsunerGaods              100.0     95.9    104.8    1171        126.1     124.5    131.5    1343       140.2
PO.L                           1i0.0      79-3      43-2      52z       43.5      517      691       5t.5      513
Crude Petdeum                  100.0     78.7      41.2      51.6      40.5     48.1      59.7      50.9      48.4
Pewaeum Pmducts                10.0      81.0      50.9      5723      51.3     602       86.9      67.7      58.6
Cal Goods                       100.0     90.4    107.9    121Q4       129.7    128.      135.3    1381       1442
Irter_ediate: PRIMARY           10D.0     87.6      81.5    1219       13318    134       140.4    14316      1482
Feater Raw Matenial            100.0    223.      110.5    150.7    161.7    209.6    199.         2047      190.1
Gems                           100.0     92.0    117±8      121.9    131.3    129.6    136.9    139.8        1460
ower                           10D.0     70.2      634      122.2    131.6    129.9    137.3       102       1464
tntermneate: MANUFACTUlRES      10D.0     83.7      9Z9      114.8    128.0    121.5      1X.5      127.3     125.1
FeutlzerManuactus              10D.0     739       47.6      41.3      72.3     84.2      7&6       77.7      62.5
Iron &Stel                     10.0      86.4     102.1    1123       105.2    119.0    125.0    128.4    134.1
Nan-Venous Metas               10O     69.0      67.5      8z3       983      97.0     102.5     104.7    109.3
Otr                            10W.0      05      10E3      134.5    148.5    138.7       146.5    149.6    156.2
TOTAL IMPORTS Pmmere)           10D.0     85.3      80.4      93.6      94.9     99.4      16.       97.2      93.1
Sttscal Discrepancy             1000       85.3     80.4      916       949      99A4    10B.        97.2      93.1
TOTAL IMPORTS                   100.0     85.3      80.4      916       94.9     99.4    108.5       97.2      93.1
Sowces: 1. Mimistry CoConence. D.G.C.IS.
2. Resere Bank of India
3 EcanoncSurey.
4. WoWd Bank Staff Estimates



-125-
Tabe A2A
IMesbl on Cumnt Account
(Ua Mason)
1985081    19858B6     1916117    1967188      19888      1990        ISSelw9     IDOS9J
GROSSRECElPIS                       6-O         6076       6D57        6741        7023       6912        7228        80E0
No     r Sevices                   2949        3310       3217        3571        39#i        4246       4934        5202
ofwhich:
Tguuat                             458         494        5w          660         ae          907        115t        1028
Tral                              1478         972        1258       1431        1419        1433        1393       1409
Ows                               1013        1844        1423       1460        1639        108        2385        2765
Facr Incme                         1083         547        511         446         397         395        257         157
CLerftTIansU mal                   2874        2219        2339       2724        2670        2271       2037        2701
GROSSPAYMENTS                       2257       4235        4780        5970        662        723B        8166 8s85
Non-FatrSeric                      1516        2124        2222       307         3225        3523       4149        4526
oNlich:
Traupot bi                         450         667         5t5        870        1027        1115        1226        1250
Travel                             114         336         290        376         405          0          488        567
Olms                               952        1121        1347       i78         1793        205        2435        2709
Factor Incoe                        77         2099        2545       2917        33E2        3700       400         394
CO nlTrans                           14          12          12         26          16          15          16          16
NEr RECEIKS                         45t9        1841       12           7rl        ao                     -a          -425
Non-Factor Somn S                  1433        t1e6         995        544         731         723         785        676
dftict
Trnport                              8        -173         -47       -1S0        -129        -20B         -70        -m
Trd                               1364         636        9gm        1055        1014       1=           905        842
Oh"                                 61         723          76        -21        -1454        -9          -0          56
Fadtor ncon                         355       -152       -2045       -24T1       -29         -3305       -44        -37
OanTfltTrw                         2860        2207       2327        269         2654        2258       2021        2685
af Ect n   rujpin pfl nid  Idg the hopl *Cemnt in 191St
hbfE   fIgM IncldkumkdeI cLivamkdm ture m
Stsei : 1. tRaene Bw* ori
2 WOld DettaTa



-126-
Table £2.6
DecmpoulU    of Ref Export Growth
(15$ no       t curret pikes -mumi average)
i9uaiaD8              I9Wsi9M2                  IncnC                     _huf
Manrctued Ewxs                                5257                  11036                  5mo                     2%
Constmtiongoos                                3317                   7029                  3712                    59%
Lether                                        S                    1105                   605                    10%
Genis (gns)                                  1045                  2587                  15                      25%
Gamnerits                                     747                  1713                   965                    15%
Teteis                                       1025                  1623                   Soo                    10%
Infmwesnt goods at                             D                     1659                   768                   12%
9meimeie goods                                1D48                  2348                   1300                   21%
Cliesnicels                                   36B                  1003                   635                    10%
Petdeolen Prod                                2m                    421                   219                     3%
OUrs bh                                       477                   924                   447                     7%
Pimay Eipmts                                  3194                   3703                   509                    8%
Fsh                                           329                   467                   138                     2%
Rice                                          m                     244                    22                     0%
Cashews                                       167                   239                    72                     1%
Cdee                                          20D                  17                     -13                    0%
Tea                                           504                   496                     -                     0%
Spices                                        144                    19                    45                     1%
Irnm Ore                                      404                   50B                   104                     2%
Other Prinmay                                1224                  1373                    149                    2%
TOTAL EXPORTS (CtSn) ef                        8451                 14739                  6268                   100%
Discrepancy                                    503                    424                   -79
TOTAL EXPORTS (SOP) cG                         894                  15163                  6209
Memor
Ges (Net dl                                    285                    705                   400
at Refrs to engineing godtds
bl Incuding rlulied e lt
cI Tdal wpa' t.oab., net d cuSs dL
d Eipob tess  b   of gem and ew_y.
Sofces 1. MindsytCryCo   s. D.GGCI.S-
Z Reserne Bank of Indra



-127-
Table A3.1(a)
External Debt Suwmfair Debt Outstanding and Disbursed
(USS millons at current prices)
1981182  198213  19184  198485  198556   19887  198788  1988189  19890lO  199U91  199182  1992193
A. Pubt & PubridylGuarz LT       18767   21127   23600   25353   31839   39354   47405   52019    57052   61838   65941    71701
t. Ofcial Credtos               16366   17789   18956   19152   22549   26132   30095   30955   33417   3653              4W78   43982
a. MUfiataal                   6972    8562    9801    10462   12400   14268   16588   18063   19664   21783   23978   26130
aa cwuhich IBRD                 1193    1395    1779    1888    2396    3475         4661    5590    6615    7685    8459    9067
ab dwhich IDA                   5654    6983    7820    8545    9750   1OS29    11615   12019   12521    13312    142 I3 15339
b. Bitatw                      9394    9227    9155    8890    10149    11854    13507   1290    13753   14750    18100    17E52
2. Private Crediaos              240      3338    4644    6211    9290   13222   17310   21055   23635   2535    25853   27719
a ConmnerdaBanks                617      771     1121     1547    2196    3284    4768    5764    6434    6940    7067    6870
h Supplus Cmdls                   87      94       96      466      829      805      715      632      539      434      430      582
c NRI Deposts                   1570    223    2809    3265    4914    6595    8516   10482   12415   14111    12990   14627
-': sndurcing IDB)                 2       11      30      259      657    1117    1317    1876    2577    2948    4e             4351
e OthePrivate                    125     439      58B      574      894    1421      1894    2301      1670      872      941    1289
a Piva Non-Guaaneed LT             873     1029    1185    1341       1497    1388    1652    1473    1551        1488     1545    1505
C Total LT DOD (A-B)             19640   22156   24785   26704   36    40742   49057   53492   58603   63326   67486   73206
D. Use or IMF Credit              1553    3446    4713    4456    4832    4768    4023    2573    1565    2823    3451    4799
E Short-Term Debt               1204.0  1891.0  2636.0  2856.0  3129.0  3297.0  3519.0  377Z0   4689.0  48090   3791.0  29580
F.DebtOutstandKngtoRusiaa          . 0        0        0       0        0        0        0        0    11021   12847    10420   106
G Ttal E al Debt (C+DE+EF)    22397    27493   32134   34016   41297   48801    56598   59837   75879    3596   85148    91579
af Debt to Russia as specibed according o the Jary 993 Agmemert btav    Inbia and Rusia
Sources: The Wcid Ba* Debt Reporing S9yste



-128-
Table A3.1(b)
Extemal Debt SuTrary: Disbursenments
(USS millions at current prices)
s198182  1952183  198314  1984185  1985188  198187  1987188  1968189  198919g  1990091  1991192  199213
A. Putt c  Putidy Guar. LT      2296      3202     3525     3938    4916      6710     7478      8450     7559     6395    6257       6234
1. Official Ceditwa             1671     1932     1934     1771     2014      2214     3600     3627     3575     3559     4399      3402
a Muateal                     1209      1440     1365     1144     1403     1313     2269    2625    2106        2226    2757      2408
aas IBRD                       421       288      471      291      328      641     1295      1716     1445     1219     1230      852
dowhich fast-dsburMg          0        0         0        a        0        0        0        0        0         0      300      100
ab IDA                         786      11i9      874      823     1047      656      917      755       566      762      gm3    11E8
dhcast-disbursirn             0        0        0         0        0        0        0        0        0         0      155      344
bh Bilaieal                    482       492      56a      627      611      So1     1331     1002      1469     1333     1642      994
2 Prvte Credtr                   M5      1270      1591     2168     2901     4496     3878     4823    3984       2838     1858    2831
aCimmecka banks                 197      218      503      623      753     1713     1587      1606     1158      696      423      204
Suppem Cedits                    9       40       41      405      193      283        5        16        3        8       77      221
c. NRI Deposit                 364       671      937      814     1579     1825     1992     2328      1953     1536      -454     1949
d.tnds scIuding lDB)             0        10       21      232      329      359      116       7        773      56S    1643         0
e. Other Pivate                 55       331       89       94       47      316      178      195        97       10      169      457
E Privte Non-Guranteed LT        422       355      407      450      503      325      348       175      240      214      309       254
C. ToaIl LT Dlsements (ADB)    2718       3557     3932    48        5419     705       7826     86       7799     660      6566      6488
D. IMF                           692      1968     13T6      201        0        0         0        0        0     1754     1233      1623
E Net Short-Term Capital         278       6S7      745      220      273     18        222      253      917      111    -1009      -03
F. Total D sbuents (C+D+E)    3688    6212         6053    4809      5692     7203      5048    8878      871      8474     6790     7278
Sources: The World Bank Debt Report  System.



-129-
Table A3.1(c)
Eternal Dt*Summr Pin-pd Repaymnts
( SS pmisaturtpies)
1981182  19828   19831114  1984185  19856  198S67   167118   9689  1B90  199W    199152  1992IW
A, Pubikc & Publicty Gisa LT      681      714      824      786     96    1610    1605    I6s9    1655         2185    2981    2R19
1. Official Credtos               575      600     599      547      651     843    1109       973    1095    1203    1446    1573
aE MulIeral                      as      100      122      131     161      241      506     397      468      608      73       837
aa orvchlIBRD                    66       72       S        87     104      174      430     302      352      472      52       634
ab  wriNchlD                     20       25       33       41      S3       61       69      81       9B      114      141      155
b. Eateal                       489      500      477     416      490      602      601     576      627      595      743       36
2 PIveCreditoS                     8S      114     225      239      295      SW7     A6       esB      eSW      88      1535    101S
aL CaxunercialBankss             42       64      154      178     2C2      778      293     425      316      355      418      S2
Ls uppls Credits                 31       33       38      30       47      120       9B      96       98      113       82       8g
dL Bondsndufing IOB               0        0        2       0        0        0        6      14       27      282      244      211
e. OhierPivate                   13       17       31      31       46       69       99     161      125      132      791      133
B. Pfrivate Non-Guranted LT        85      219      261     305      363      480      289     2E0      322      318      273      306
C. TOa  LTRepansits {A+B)         746      933    1065    1091    1309    2290    1894    1949    1983    2403    3254    2995
D. IMFRepaynts                     40        0       70      134     264      648    10B2    1m2       100B      725      460      334
ERepaymueristoRusia af              a        0        0       0        0        0        0       0        0        0        0      974
F. Total LT Repaymnts (C.D+E)     7B6      933    1155    1225    1573    2938    2976    3159    291    3128    3714    4303
a/ Debt to Russai as speified aaxrdl to te January 1983 Agmert behceen India mud Russi
S5w. The World Bank Debt ReportingwSyst.n



-130-
Table A31(d)
Exernl D.b Sunmr  Net Fows
U1  minions at curnet prices)
19B192  19821   1983184  19848   1985g18 1986    19878  198B9  1990  19901  1991192  199223
A. Pubtc a Pubhl Guar. LT       1635    2488    2701    3152    3969    490    5E874    67E2           5898    4310    3277    3545
1. Official CredItors           1097    1333    1335    1223    1363    1371    2492    2855    2480    2355    2964             1729
a Muftlateral -               1124    1341      1244    1012    1242    1072    1762    2229    1638    1518    2054    1571
aa dfwhich ERD      -          356      217      384     203      224      467      965    1415    1093        747      703      218
ab cfwhich IDA                 766    1083       841     782      994      595      848      674      468      648      812    1031
b. blaetai                     -27       -8       91     211      121      299      730      425      842      738      899      158
2. PrwateCreditos               539      1156    1365    1929    2606    3629    3382    4127    3418    1954            323    1816
a. Canmerciul Bankr            155      154      349     445      551      935    1294    1181        842      341        5     -378
b SuppliemrQCedbl              -22        7        3     375      145      153      -93      -80      -95     -105       -5      132
t AN  Depositsn                364      671      937      814    1579    1825    1992    2328    1953    1536    -454    1949
d. Bonds (nclukng IDB)           0       10       19     232      329      359      110      664      746      304    1399    -211
e oerPrivate                    42      314       58       63        1     247       79       34      -28     -122     -2        324
B Pivate Nn-GUBt         LT      337      136      146      145      140    -155       59    -105       -82    -104        36      -52
C. Toa-LT Repaymntrts (A+B)     1972    2624    2647    3297    4109    4745          933    6677    5816    4206    3313    3493
D. Net IMF Credit                652    1968    1306         67    -264    -648   -1402    -1210   -1008    1029         773     1289
ENetFlowstoRussia al               a        0        0        0       0        0        0        0        0        0        0     -974
F. NetShcxt DebtFkws             278      687      745      220     273      161      222      253      917      111    -1009     4133
G. Tdal Net Fws (CED5EF)        2902    5279    4898    3584    4118    4265    5073    5720    5725    5346    3077    2975
af Oet to Russia as specied accordtu the January 1993 Aememert between India and Rusda
Sources: The Wadd Bank Debt RePcrt  SystemL



-131 -
Exbm DaM Sumnny tiara Pnus
(UP mUonsatcuran pipas)
1912   198U   ISOM   191415  19661S 19 7  1916  19US    119O  I*M   1911012  IN=
&PubAMPublG.LT                  561      662      8       s91     123      1654    2071    241        20    3smo        33ap     an
1. a01 ud c om                 343      357      431      440      D        682     794    1S25               ¶C10     1266    1311
IL MflkI                      111      14      218      239      262      31       479      Mi       639      737      7m       m
S  dSaChIBRD                  71      101      1SB      1N       200      296      371      474     5m       GI1       146      732
db dw hid MA                  40       46      5S        1;       71       91       as       so        0       w       IC"      lop
b.BHEIS                      232      29       213      201      268      293      315      3Q       447        3     4ST       48
2. PMEL    eaMM                215      305      424      477  61           m 12    1277    in        ¶Q4    2125    2083    1552
a. t  muulciS9am"             55       73      123      124      155      252      266      374      402      543      45       370
b.SwgiusOCdb                   6        6        a        a    48    64   67   e1    53    43    31    30
c. NR Dipa                    151      195     242      290      400      524      7U       824      763    126       1574      812
d. 9OSWMI*IER                  0        0        3        3       17       55       85      111      150      207      223      25
athw Pd                         1       31      46       52        ea      87      125      iS       176       71      25        81
8.rv I Nm 1-Ga m1in LT           37      126     130       136     14       159      147      127      140      13       126      123
CrTflLTISftm      B)            59      71       9n       1055    1363    1822    2216    2           2M       38       34       305
o. IIAFS..keaqs                  25      144     277      374      310      317      297      233      154      134      2m       271
E IIIPaidtoR _ia                  0       0        0        0        a        0        0        0        0        0        0        a
F. lerst PaWdacnsrTa            150      178    23         316     22t      225      250      287      36       353      40       191
G. Ta  1m  Paid (C+DE+F         781    iiio      1462     1745    1979    2354    2765    3106    3340    3987    4576    3516
at DebtaRUb ustothcd  ca:m       l      w I J Iy lb3Awmt be_nI Idand tae  tRiS
SmtwflWadd wk DfltPpadhqSy



-132-
Tal A3.2
ExtemRews
(liS$ nSAln)
Rema       Remains                 Resert
Fahule                 Pomilon     xckdn                  lcdind         Us of         Net
EBtwu          SORs  inhe Fund         Gold      GdddS         Gold  IMFCmdrt   Resen
19881                     5SI0         603        405        68           370        7228         327        6901
1981182                   3582         473        405        4460         335        4795         964        3831
9613                      4231         291        393        495          324        5289        2876        2413
1983184                   5099         230        518        5847         323        6167        415D        2017
1984185                   5u2          145         483       6110         325        6435        3932        250
19616                     5972         131         554       6657         416        7073        4290        2783
196187                    5924         179        626        6729         470        7199        4291        2908
1967188                   5516          97         676       6391         507        6396        3653        3246
91le9                   d4226         103         630       495          473       532         2364        3067
lUSUS                     3361         107         634       4109         487        459         1493        3102
199091                    2236         1C             -      233B         504        2842        2623         219
19912                     5631          90           1       5722         542        8264        3451        2812
1992S3                    5434          18         297       6749         557        7306        4799        2S07
Eridoilt e Mont
19i
Mucb                    2236         102            -       2338         504       2842        2623         219
Eune                    1124          63            -       1187         492        1679       2457         -778
Sp_ubu                  1722         184            -       1906         512       2418        3294         4876
Deamber                 3530          46                    3627         565       4192        3471         721
192
Mu4nh                   531           90           1        5722         542       6264        3451        2812
Jue                  -  6221         115           1        6336         565        6301       3522        3379
Spk*md                  5777          34           1        5812         512       6394        4183        2211
December                5461           4         292        5757         548       6305        4483        1822
1993
Mach                    6434          18         297        6749         557       73GS        4799        2507
m                       mm6553       187         298       7038         560        7598        5102        2495
SpBatuo                 7629          61         302        7992         569       8561        5109        3452
December                9807         1o          292       10199         551      10750       1097          -228
Nat IMPF Cret   eto Useto    P cd IMF   ' 1    Ihe Geieral Resourcs Accmut PRA) ekit Tnst Fund.
Sbfln   A*J t  FPcy (),  mi Enhnced Sbcudal A usmen Faciy  9SAF lob
aWVaued at 35 SRs per n  try Gua
Souc: IMIF. 1a Rnrd Ssm  veitn bm



-133-
Table Al
Central Govennm t Finance Sunmry
(Rs. bAin *t curnt pries
199iS1      1991892     1992183      1993194     199394       1994195
BE          RE          B.E
Reenue af                         5495         90.9        760.9       877.1       787          900.8
Tac Revenue                      429.8        5D.7        540.4        627.4       544.7        127.4
Customs                         206.4        2ZZ6        237.8        277.3       225.0       25i0
bnlon Bd5eWU                    141.0        16.2        153.7        188.4       172.8       2E1
lrnameTaUbf                      12.5         16.3        18.3        23.6         17.3        27.2
Ccpcuate Tax                     53.4         78.5        89.0        105.0       105.0       124.8
otr                              16.5         23.2        31.7        33.1         24.7        111.3
Non-Tax Revenue                  119.8        1902        220.5       249.7        241.9       273.4
Intest Receipts                  87.3        109.3       124.9       145.3        145.4       15i18
Ase Saes                          no          30.4        19.          35.0        25.0         40.0
Otber                            3Z5          5D.4        761          69.4        71.6        73.6
Evendtwed                         995.9      1054.1       115.6       12467        1372.2      1450.0
Nmn-Plan Ependibxe c             764.4        79B.6       B52.3         90.6       965.4       1040.3
Inrtest Paynewt                 215.0        266.0       310.4       3e0.0        375.0       450O
aerense                         154.3        163.5       1758         191.8       215.0       230.0
Subskbes                        121.6        1225        12D.4         83.8       124.0        94.6
Other Nor4l Ean liture          273.6        2467        245.7        235.1       254.4       25.56
Plan Ependitureof                231.4        255.5       310.3        356.0       4D17        409.7
Gross Fical DSlcit                4463        36353        401.7       369.6        585.5       54OL2
Frone  by:
Reseve Bank of Inds (iei di      147.5        551          42.6        43.1        9116         6a0
Markeble Secuwiies (net) ef       49.1       117.7       1652          97.0       296.9        267.0
Other Domestic Bnuwing (net)     2180        13E3         1408        175.0        159.6       179.4
ESenS Bcomving (net)              31.8        54.2         53.2        545         35.4         4L8
Memo: GOPnp                      53203       6156.6       70Ri7       790Q0       7970.0       900O
Fiscal DerfciGtOP               E,4%        59%         5.7%         4.7%        7.3%         6.1%
Revnue lGDP                   1103%        11.2%       10.8%        11.1%        9.9%        10.0%
E3pNiDwe/GDP                   1&7%        17.1%       16.5%        15.8%       17.2%        16.1%
af Includrng ale of pubic as   (disinvestment).
bt Net of stat  stare
c/Net CN loan recovena
dt Monetized deficit
d T4Sik and dated seauili   dn  those Issued to RBI.
Seawnc Midsy of Financer Uion bm     docunt



-134-
Table A2
Budgetary Classification of Centrad Goverment Finances
(Rs. billion at current prices)
8687      87188      88s*       8990      s"Il       91192      92193      93194      94/95
RE    BRE
Revenue receipts                 33a.83    371137     435.91     499.96    549.54     661130     741.28     761.66     860.84
Ta revenue                      243.19     280.15     337.51    38349      429.78     500.69     540.44    544.73     627.42
Non-tcwevenue                    87.64      0.o2       98.40    115.47     119.76     159.61     200.84    216.93     23142
InLerestirom state gownuneut     27.54     31.55      37.70      44.24     51.74      65.65      78.43      96.95     111.27
Reeue spenrlwre (A.B+CtD)        4D0B60    46175      541.06     642.07    73815      82109      927.02    1102.24    1180.11
A. Devepnl                      10285      114.25     14036     18415      19601      19B.17     208.60    253.31     260.85
1. Social services              16.75     19.35      22.43      2499      27.53      30.57      34.30      43.44      45.93
2 Eonomnicsercs                 E6.11     9490      117.93     15.17      15044     167.60     174.30     209.17     21492
R Non-deeopmwtl                 220.10     244.59     207.69    335.47     391.00     45034      521.56    619.27     720Q83
Delence serakes                9179       80.60      95.58    101.94    1UR74       11442      121.09    149.44     161.69
Interest paymes                92.37     11Z36      142.61    177z7      214.71     265.63     310.35    375.00     460.00
C. GranlsW-aid and htribubons    78.59      93.49     10ZOB     10936      134.39     159.53     180.54    216.81     2M!30
Gmntstostegovernmt         -   73.53      91.36     10.15     107.44     132.02     157.00     17830     213.77     196.27
D. Reem"eej dtue ofTs             706        9.43      10.92     13.09      13.75      15.05      16.30     1Z85        6.12
Net cumet bane                   -77.77     491.38    -105.15    -14Z11    -185.61    -162.78    -18574    -0.58      -2727
CpiUasepandiure (A.6.C+D02       185.65    179.07     204.08     237.18    260.88     200.63     215.99     244M3      221.88
A. Deveopnental                  75.62      56.61      60.03     7095       69.23      5820       73.82     57.30      63.20
1. Soial servi                  3.90       Z80        3.51       321       2.47       239        2.59       4.12      4.15
2 Ecarnnic serices              71.72     53.86      5852       67.74     66.7T      55.57      71.23      53.17      59.05
B           _n.developnveal      1458       33.39      40.76     4527       49-56     5SZ32      58.88      72.01      75.8
Defence services               12.98      31.0B     37.B3      42.22      45.52      49105     54.73      65.56      68.31
ZCapitalxedtuorUTs                2.40       ZB8        1.76      1.87       2.68       l42       3.50       2.99       2.46
Q Loin and advances (net)        9105      86.13      11.53     119.09     139.40     117.01     99.41      137.64    120.64
tstates urs                    49-87      58.51      67.30     79.55      98.69      94.10     0.97      10368       9150
4P-22     58.31      57.07      7930      98.39      93.75      85.60     101.97     9282
bDOtters                       43.18      27.62      34.23     39.5       40.71      22.03      1Z44      3395       25.15
E DOfunvfmmert of equity in PSEs  0.00       0.00       0.00      .OD       0.00      30.38      19.61     25.00      40.00
Giossofail defict (GOI Delh)     283.42    270.45     309.22     379.30     446.50    363.41     401.74     585.51     549.15
OCCandolheradlnerds               23.90      14.10     12.90     -25.00     -12.0      -11.00      f32        0.79
Gr ssfiscal deict OMF Definlion)  2352     256.35     29632      404.30     459.00    374.41     39.42      584.72     549.15
FInance by bbtruments
Mar lans                          55.32     58.62      84.18      74.04     80.01      75.10      36.76     176.92     147.00
Snailswa*p                        34.11     39.11      5.35       85.75     91.04      6640       57.17      60.00      60W
Povcident funds                   46.80     5Z74       71.12      90866     89.37      79.56      87.55      97.90      99.00
Eitemai loans                     20.24     28.93      24.60      2595      31.81      54.21      S319       38.37     4279
Treasury ills                     88.62     5652       6.44      109.11     117.69     68.87     117.73      77.31      60Q0
Otter                             1833      34.53       853       641       36.5B      19.27      4933      135.01     140.36
SWUrcec 1. Ministry of Finance, Union bUdget documents.
2. Dept d Bpenditwe, Finance Accouats.
3. Dept d  Emnditue, Finance Accmunts



-135-
Table A3
Budgetay ClauItcaton of State Govmnt Flnances
(    bUlon at cwrernt prices)
8187       87188      mm/8       89190      91S1i      91/92      92193        394
Actdal      R.E        RE
Revenue receipts                        SOS        44a.00     57.09      589.08      i3.19     80136      914.34     1005.62
Tam revenue                            25188      289.20     33o.70     39227       448.80     526.04     60124      682.17
Direota                                 1S.77      19.85      24.13      3008       33.75      39.59       42.27      49.25
Irdect tabx                            S135       173.37     198        229.A8     269.70     317.96     358.22      413.59
Statedse in sbal                       6E4.76     95.98     106.69     13232      145.35     16148      2D4.76      219,32
None Iuem                              134.98     1S18O      176.38     196.81      224.39     232        3010       323.46
Gears hn= centre                       73.53       91.36     10.5       107.44     132.02     152.i2     18M55       188.90
Revenue experdure [A&B+q                381.58     451.54     52296      602.53     717.73     861.86     955.51     1050.86
A DevFlpnenta (1+2)                    269.44     31820      3SZ37      407.61      48855      578.71     624.20     6556.5
i. SocIa servics                       151.99     177.06     205.74     240.17     279.62     310.04     35225       38131
1 Etimcnc seices                       117.45     141.14     156.63     167.64     206.92     26L67       271.94     275.35
E. tNonenlpm                           107.69     12844      155.06    1i8.69       221.34     273.15     321.06     33.51
Intrest paynents                      44.29      52.68       64.11      766        92.21     114.79     140.99      16E859
To cet                                27.54      31.58      37.70      44.24      51.74       44.36      53.83      68.32
Tothers                               1E75       21t10      26.41      32.44      40.47       70.43      87.16     100.28
C. Oterezpedbre                          4.46       491        5.53       51m         7.84      100W       10.23      10.69
Net cufrent balane                       5.28       -355      -15.87     -13.45     -4454      -56.51      41.17     -424
Caplexpenbtre[A49CB                      94.39     101.31      9f66      117.52     134.78     132.49      158L71     191.02
A. Developmental (12)                   651        64.29      8e53       77.28       89.61      98.61     106.28     123.62
1. Socal serves                         9.88       10.74      11.28      11.71      12.57      16.47      17.62       20.05
2. Ecanoric services                   50.63      53.55       57.25      65.57      77.03      82.14      9.66       10176
S.&w lwmsal                              226        2z2        225        2.3        263        234         305        3.Z2
C. Loans sad adm     (non               31.52      34.77      27.88      37.88       42.55      31.54      47.39      6409
Grfss tseal defi                        89.11      104.85     114-53     130.96     179.32     189.00     199.88      237.07
Fance by hsihnen
Ltt kas                                  14.31     11W        22.46      25.95      25.80      1664       22.14       21.88
Louasrnw cenmte (Ne)                     4122       5a.31      67.07      79.30      98.39      93.74      91.18      10107
Small savingslP kidertfunds              10.42      16.28      20.01      23.07      3069       29.09      34.98       37.40
Otwer                                    1616       1226        4.98       265       2463       47.53      51.58       75.72
at Otwe pendture kdade    p      ar id  surgn b sto loal bodes and pamcerat re InstMIons and
resnrvewtth efirmumdepartienut
Soaun   1. MhltyrdFhan4 UniJn bdget documt
2. Resemv Bu*d Indb. RBI badlhson state har



-135-
Table MAA
Budgetary Classificalion of General Goverrnent Finances
(RS. bilion at current prices)
19515\      W87?        87/88      8W9        89190      90,91       91192      92193      93194
af         bt
Revenue recelpts                      534.96     61G.62     695.43      5i15       937.36    1038197    1247.75    1393.54     1481.43
Taxsremue                            431.82      495.0      559.35     88521      775.76     878.58    1026.73    1145.68    1226.90
Non ta sreverue                       103.14     121.55     126.08     13694      161.50      16G39      221.02     247.88     254.54
Revuueeendture KA.*C+D]               586136     68912      790.35     925.17    1092.92    1209.12    1483.56     1650-40     1871.02
A Develoam                           320.04      372.29     43244      502.73     591.96     684.56      776.       832.79     90.97
1. Socacl services                   146.18      151.73     195.40     228.17     265.15     307.16     340.61      386.55     424.75
2. Eicxonacsences                     173.86     203.56     23604      274.55     325.80     377.40      43E27      446.24     485.22
B. Nondeelprmnetal                   251.68      300.25     341.45     405.05     47992      560.60      679.13     788.83     934.48
rG Revenue dsbume tstrUTs              5.86        7.06       9.43      10.92      1309        13.75      15.05      16.30      12.85
D. Other E'penditre f                   8.49       9.52       7.04       7.46       7.95       10.21      1253       1Z47       13.74
Net cufent balance                    -51.11      -72.49    -94.93    -121.02    -15S55    -230L15    -235.53    -256.86    -3B9S9
Captal expudlre (AB+CC+D4E            164.65     230.17     221.87     235.44      27515      296.97     238.95     282.35      333.07
A Developmental (1+2)                 112.28     136.14     120.95     128.56     148.3       158.84     156.87     182.10     181.11
1. Social services                     9.18       13175      13.54      1479       14.92      15.04       18.56      25.21      2418
2 Economdc servcs                     103.10     122.35     107.41     113.76     133.31      143.80     138.01     161.89     156.93
EL Non-Developmental                  17.46       16.83      35.65      43.01      47.53      5119        54.65      61.92      75.93
C. Loans and advances Cne)            33.56       7480       6238       62.11      77.42      8326        5437       59.83      9i.05
D. Capital dsbrnents o UTs             1.35        2.40       Z8B        1.76       1.87       2.68       3.42        3.50       2.99
EDisiwementr of equitiesnPSEs.         0.00        0.00       0.00       O.W        0O.0       0.00      30.38       25.00      25.00
Gmss lscal deficit                    215.75     302.66     316.79     356.45      430.71     527.12     474.78     539.21     722.66
Finance by Instnummnt
Mart Loants                            6112       69.63      7663      105.64      99.99      101561      93.74      55.90     198.80
Sinail Sa*gs                           43.69      34.11      39.11      58.35       8175       91.04      66.40      57.17       60.00
Proident Furids                        23.91      57.22      69.02      91.13      113.93     120.06     10165      122.53      135.30
Eatemal Loans                          14.49      20.24      28.93      24.60       25.95      31.81      54.21      53.19      38.37
Trestay ails                           65.55      88.62      56.52      E2.44      109.11     117.69      68.87     117.73       77.31
ower .                                  4.90      32.84      46.58      13.29       -401       60.90      82.90     129.69     212.88
al Actuals for Centre and Revised Estimtes fbr Stes.
bh Revised Estimates for Cerre and Budgetauy Estmates for Stales.
dotherexendhbre Inckde compensation and auuWlretsto loca bodIs and panchyayt fa instittions and
reserve wit fte hance department and central gerats to UTs.
Sources: 1. Mbisty oFhnare Union bugt doument
Z Reserve Bankindia. RBI bulens on stale financr
3. DepLt ofEerndhie, Finance Account



- 13.7-
Table A4
Tax Revenue -Centre and States
(Rs. bilio  at current pris)
W87       87188    8m189      m9.40     9091       91192     92193     93194      94196
at       bW        RE
Central Govemment
A Grass tax reenue                        328.38    376.66    444.74    516.36    575.76    673.61    746.37    767.50    87136
CapoCamo tax                             31.60     34.33     44.07     47129      53.35     78.53     58 99    10500    124.80
Taeson incme                             2679      31.92     4241       5Q0.4     5171      67.31     78.S8      95W)    1(9;CS
Cusatns                                 114.75    137.02    150.05    180.3      206.44    222.57    23776    225.00    25O
tnion Ece OmAas                         144.70    16426    168.41    224.06    245A14    28110    301.32    317.50    367.00
0w                                        8.54      9.13     116E0     1461       17.12     24.10     32.42     25.00      18.31
B. sates Share arx Revene                   4.76     95.96    106W69    13232    145.35    171.97-  2052         222Z44    24394
IncomeTax                                21.60     25.89     27.49     39122      41.21     51.04     60.57     77.71      82.05
Fstde Duty                                0.10      0.06      0.01      QC00       DXo            0.00   O        0.QO      0.00
UnionEs Dus                              63.06     70.03     79.19     93.10    104.14    12a.93    14465    144.73    161.89
C Assgnments or UT tae - to local bodies    0.43      0.53      0.54      Q55        0.03      0.95      0.71       m33       CLO
lax Revenue (net [A4B.q                   243.19    280L15    337.51    38149    429.78    50.69    54044    544.73    627.42
State Govemnmen
Sate own Tax Revenue                      167.12    19.22    224.01    259.95    30345    351.07    400.48    46.84
DirectTax                                 1877       19.85     24.13     30.06     33.75     39.59      4Z27      49.25
Taxesonkmcame                              2.70      2.70      3.12      4.53       6.34      6.56      6.45      717
LUd rewrue                                 3.82      448       5.94      6.90      &07        5.62      489       6.68
Slamps and reistation lees                1016      1254      14.86      18.45     21.12     25.04     30.67     35.10
Oer                                        0.08      0.13      0.21      0.18       0.22      2.37      0.26      0.33
IndirectTax                              150.35    173.37    199.88    229.59    269.70    317.98    35822    413.59
Sales Tax                                 96.40    111.85    131.22    15160    176.67    208.87    239.24    274.64
State exise                               24.21     26.67     30.81     38.64      47.95     53.20     58.92     66.77
Taxes on Vehi:;es                          9.98     11.75     1Z90       14.15     15.65     1806      22.05     26.64
Other                                     19.77     21.09     24.96     28.49      29.41     37.77     38.01     44.55
State Share or Cernral Tanes               84.76     95.98    106.69    132.32    145.35    168.48    204.76    219.32
Taxrsvenue retaned by stales              251.08    289.20    330.70    392.27    448.80    519.55    605.24    682.6
alt Auals forthe Centre and Revised Estimates fbr the Sttes
hi Revised Estimates far the Certr and Budget Estimates for te Stlaes.
Souces: 1. MinisIy  hirnance, Union bget documenLt.
2 Reserve BankoF India. RBI bull-ers on stale finanocs.



-138-
Table AU
Non-Tax Revenue - Ccnre and States
(Rs. bDion at curret pries)
aEwa       usM        a.         awmr      9rwsi       9Um        g2m3       S94        94196
at         bi       B.E
Central Govemrment
Ncnax mume                         87.64      90.22      9&40    1I4?         119.76     15R61      20084      216.93     233.42
IterS rceiptis                     5353       57.55      69.81      84.66      87.30     ian33      124;87      14538      159.78
riom I govenments                 27.54      31.58      37.70       4424       51.74      6!i65       843       9695      11127
Orvidends and profis                57         6.05       475        7.16       7.74      10.58      2493        27.37      27.93
Othergenemr serACes                 3.01       3.37       3.95       405        5.06       5.72       10.14       7.S5       7.91
Social services                     454        0.60      .A80        0.57       0.65       am0        n79         129        1-31
mnamic services                   11.49      1273        8.93       5.45       8.60      21.46      17.86       1107       1468
GrdFts4n-aid and cantributiom       4.36       4.92       6200       7.54       5.86       8.47       9.19       130O       13.65
Other                               5.54       5.00       4.15       7.04       4.55       215        1106        8.87       &16
State Gawemment
States own Nrn.t revenue            61.45      67.44      76224      89.37      9237      127.06     125.45     134.55
Inter  reipts                      16.1B      19.47      23.87      26.34      24.03      53.20      41.75       41.51
Geralsenroes                        7.04       7.54       9.        11.40      19L13      17.28      17.86       17.87
Social serves                       4.75       5.04       5.73       676        5.86       7.75       7.79        8.24
:ao;rnic services                  32.55      35.12      36.64      4459       4301       48.39      57.42      6532
Fomstryand wldliie                 9.59       10.67      10.08      11.96      11.37
Industries                         850        9.11      12.08       14.31      12.23
COthe                              14.46      15.33      14.48      18.32      19.41
ouer                     ,          0.23       0.28       0.49       C.28       034        045        0L62        0.62
Grants *fm centre                   73.53     91136      10.15      107.44     132.02     15226      18365      188.90
Nonrtax revenue reained by es      13496      151180     1763B      196.81     224.39     279.32     30910       323.46
aAfuals forteCentre and Revised Eulurmtesforte States.
bt Revised Estinates forthe Centre and Budget  Etnses for the St
Sources 1. Minsty of Finance. Urion budLet documerts.
2. Reserve BU*kf Indas. RBI buletins on stae fnces



-139-
Table A47
Revenue Expendiure of Centre
{Rs. billin at current pnce)
86181    578       8BIE9    B99G    90F91      91192     92093    93194     9495
RE        BE
Revenue spenire (A+B.+C+D)                   401.60    461.75    541.06    64207    r  15    823.08    927.02   110224   1181.11
A. Devdopnenlal                              102.85    114.25    140.36    184.15    196.01    198L17    208E60    253131    261185
1. Social seirs                               16.75    19.35    22.43     24.99    27.53     30.57     3430     43.44     4593
Educa:tion SpouArtsandCtabe                  7.08    10.13     11.12    11.41     1Z74     1172      14.97    1928      20.80
Healt and Fatly webe                         2.22    Z17        311      3.48      397      4.50      5.59     5.94      7.39
Infonnation and Broadcasti                  1.72      Z10      236       3.23     3.60      4.43      4.61     3.97      4.28
Water supplyandSmanion                       0.o      0.13     0.51      078       0.93     064       Q63      1.11     1t2
Labourand abourwelae                         2.34     1.64     Z43       Z64       Z7B      3.00      3.29     5.17      4.81
soawnynamwre                                 1.86     1.92      196      Z36      Z25       Z81       3.44     4.82      5.10.
am.                                          0n72     0.75    0n94       1.09      127      1.47      1.77     214       229
2. Ecownomic seves                           86E11     94.90    117.93    15617    16E.46    167.60    174.30    2098?    214.2
Agricultureandalledasvies                   5.10      5.55     7.45      7.75    22.92     19.25    2126      13.0B     1111
Fertiizer Subsidy                          1.98      21.64    3ZO      45.42    43.89     51.85    61.36     50.32    40.m
Fond tSubsidy                              20w       20nw     2200      24.76    24.50    2850      28.00     5Z20     400X0
Eap  Subsidy                                7.85      &62     136s    20.14      27.42     1758      8.19      7.00     3.00
Iription aid Fbod Cotr                      084       0.76    Q0.85      081      QB9       1.20     1.07      1.85     1.70
Rura5 Development                           291       3.13     3.61      3.70     3.77      157      4.06     18.01    42r25
SpecialAreaPrgrdanms                        0.12      0.08     0.05      0.07     0.12      0l.9     0.17      0.21     025
Eney                                        3.16      3.94    5s         6.90     7.49      5.37     Z67       6.04     5.25
Industay and MbNals                        11.17     13.57    1220      17.96    12.26     1203     17.98     20.9     19.91
Transport ar tndCcnwricati                  3.12      6.08     6.79     15.62     E.05      9.19     968      13.98     12.79
Science, Tedmrlogy and Environent           6.10      7.57     9.34     10.40    11.27     12z7     1365    16.S       17.88
Generel EonmrSevices                        6.76      z99      4.18      5.62     5.90      6.0      6.19      9.72     1331
EL NN.dvelpnertal                            20.10    244.59    287.69    335.47    391.w    450.34    521.58    619.27    720.83
Deservices                                  91.79    88.50     95.58    101.94    10.l74    114.42    121.09    149.44    161.69
Interest payment.-                           9237    11Z35    14261    177.57    214.71    265.63    31(.36    3750oo    460.00
an Inlemal Dd                               47.63     5514     69.13     82.73    96.22    109.09    129.89    158.23    213.31
an Etenal Debt                               7.66      9.77    1Z42      14.4     17.78     25.69    34.51     38.75    41.61
an Small Sangs. PFs. Sc.                    34.89     44.90    58.01     7573     96.37    12420    138.83   1i211    19904
Other                                       2Z19       256      305       4.17     4.34      6.68     7.12      5.91     6.O4
Admiristaw Services                          13.26    15.32     17.9     20.71     25.24    27.98     37.83    38.68     39.80
FiscalSevices                                1Z07     10.94     11.00    1Z78     1Z12      17.69     20.48    22.44     23.57
Pensions and nisr. servics                   10.59    17.37    20.60     22.46    30.19     24.63    31.84     33.71     35.77
C Grns4iald aW conbiutj                       78.59    93.49    102.C9    109.36    134.39    159.53    18054    216.81    3x300
Grants to State Governments                  73.53     91.36    100.15    107.44    132.02    157.0D    17830    21177    198727
a Non Plan                                   16.17    19.22    23.40     23.33    41.67     31.51     31.27    3Z39      22.51
b. State Plan Schees                         26.64    34.43     35.59    35.38    38.78     70.55    8069    172.39      97.88
a Cental and Cenraly sponsDred               30.12    37.14     40.45    48.37    51.05     54.93     66.34    78.9      73.84
schemes
d. Other                                      0.80     0.58      0.71     0.35     052       0.01      .OD         ..    2.04
Grants to UTs. and Oes                        5.06      2.13     193       1.92     237       2.53     224       3.05     4.04
D.Revenue0isbursmentsofUTs(Net)               7.06      9.43     10.92    1309     1l75      15.05     16.30    1285       6.12
Memo Itms:
Total Subsidies                               54.51     59.80    77.32    104.74    121.58    12253    120.43    124.00   94.63
MajorSubskes                                 46.83     51.26    67.87     9032    95.81      9S3      94.15    103.00     8300
OtherSubsdis                                  7.68      8.54     Q45      14.42    25.77     24.60    25.28     21.M0    11.63
Rural EnpkoymeentPmgrmme                      12.C5     14.10    1244      21.W     2.00      18.17      rLa    39.06     50.5
RLEGP                                         7.27      6.66     7.84       .2         ..       ..        ..       ..
NREP                                          4.78      7.45     4.60      0.02        ..       ..        ..       ..         .
Jawahar Roigar Ycjan                             ..                 ..   2Q96      20.00     1.17       na      33.06     38.55
Sources: 1. fbrstry d Fffarce, lkinbugtdcmnts_
2. Dept of EV=UMe Fonoe AccountL



-140-
Table AU
Revnue Expenditue of Stae Govemnnent
Rn bUion at current pica)
857       Se8       8S/       8am9        90M        91/92     9g93        9394
RE          .E
Reaenuen  edi      BIQ                    3M158      451.54     522.6      602.      717.73     861.86     955.51    105.86
A, De ctpmentil [(1.2                     269.44     31820      36237     40.81      48855      578M71     524.20     656.66
1. Sas.rIc                               151.99     177.06     205.74     240.17     219.62     310.04     326       381.31
Educat  Sptat, Aft Bd Cultist           77.55      9Q10      10943      135.71     155.28     17034     19656      217.23
He  and FlAy VWeltsm                    2554       3053       34.77      39.s6     45.86      5054       55.9       6308
WauppywandSadna                         11.78      13.22      1194       14.77      16i38      1830       1990      19.57
w el!. ofscST. S   BCs                   9oe       11.84      11.18      14.69      17.90      20.71     23.17      26.23
Socilsocasty ard wtdbmi                  924        823        970       11.0A       1Q62      14.68      1&91      1930
COher                                   1&79       2l13       24.72      2429       30.59     3.47       35.80      35191
Z Etcnocutumies                          117.45     141.14     1583       167.64     208.92     268.67     271t94     27RL36
Agdcutre and Aied SeAses                3325       3E98       4265       4829       62.67      69.81     80.79      79529
Cp Htuhbarky                             8.76      9.5       11.06      1Z65       1697      2;lO6       22.75     -
FoOd Storq and Warhusing                 1.05       1.20      1.23       1.5        1.88       2.45       3.56 
Foresty and WVd Ue                       7.61      869        9.48      10.2       11.75      1.83       14.68     _
cawer                                   183        19.50     20.90      23.80      32Z06      33.47      3Et80     -
RunS Deidopumet                         282        32S20      3M54       227       46&75      50.60      59.21      64.81
Sp Auan Pmgramnn                         26         2.35       109        3.54      3.57       4.11       4.62       5.26
1alMon MD Fbod Conmtrl                  208        27.75      33119      33.94     3456       41.40      46.52      5249
EawD                                     404        9.14       7.74      10L92      9.89      5030       2620        14.03
Idury aNd Mibeals                        6S7        7.33       8.69      12.17     11.65      1Z71        14.27     15.01
TranspmtandCwommucatons                 13.78      16.01      17.35      19522      2a33      24.41      24.39       26.21
Sden  Tedwtnlog and Enwcmment            0L23       024        tL23       0.25      029        0.36       0.51       tL61
Gcj'eJ   Wicseu                          5.15       7.14       7.15      l.i2       16118     14.9B       15.44      17.65
BL NanCeveopmieta                         107.69     128.44    155iO6     188.9      221.34     273.15     321.08     3351
Inteto  Paymwnts                         4429      5Z.6B      64.11      76.68      9221      114.79     140.99     168.59
On mmr Rn the                           27.54      3158       37.70      4424       51.74     44.3       53M3       6S32
on the hkIreY  Debt                      7.0t6      &95       1.42       1141       15168      1163      17.76      22.32
On t.I San,s P.L                         6.01       T.63      10.58      12.70      17.03     22.19      28.47          -
OUst                                     3.68       4.51       5.41       6.34      7.76      34.61      42.93      77.96
AdnwidaSenS cm                           37.18     44.1B      S0.31      574        70L.1      77.t2      SW5       114.53
Pen cn mxd MiWCSlanemOServcc             11391      17.58     23.92      29.31      3193       37.16      41.68      46.16
Other                                   1t31        1399       16172     22l8       21l0I      43.59      4990       54.22
GC.oleumsujhgea/                            4.46       4.91      5.53       6.03       7.84      1Q00       10.23      10.69
a. OIlier expw.dtre bixcxecom eeafoa and assuign.nt to otc  boxSes and panrchyat y rajinfrons and
eth the bnaoed    _
Sance: Ruuwe Bat Uo India. RBI buleth on stale EnmnceL



-141 -
TAbleAMi
Capt! EzsdturtCentre ad Stess
(RuL billion at csrmnt prices)
A187      87J18      sn9        8990       90r91      9imA       92193      9314       94135
aI         b        llE
Ca    ere  IA4CCD4                  1B565      179.07    204.06     237.18     20.8       200        215.99     244.93     221.88
A Davap.entud (1*2)                 75.82      51S67      50.8       70.        59.23       .26       73.82      53         6
1. Social serncks                   30         280       3151        321        2.47      239         .59       4.12       4.15
EdIfiCS .pOIsArtSc e.68                      0.05       0.13      0DAB        0.06       IID4      Qd5        mo0        Ct15
HSaM aid Fawe*aU                  0.01       0.19       0.15       02D        Elm       am         CLOT       0.0        0.05
Housin                            1.G3       Q75        Q99        m98        1.11       125        1.78      241        2.06
lrfoman and Bredretro             2.13       1.74       1.71       1.78       1.os       0.35      0.07      0a3          m36
ower                              Q05        (0LS       Q52        0.15       024        am3       Q62         1.18       1.53
2 RigmI cSces                      71.72      5.s        5652       67.74      E6.77      1587       71.23      5317      S05
Agrwafleuiad                      232        0.54       Q55        0.45       0.45       .49       0.47      O06          1.5
Beurgy                           2125       1546       1.05       2.07       27.09      1931       1621       19.15      19.72
Indusy and Mhiuals               20.82      14.07      1310       l.52        7.71       .70       5.82       5.S        aes
TnmWt& Cemmuijcslic              2379       1840       21.51      26S       26.45     24.72      33.81       1Q9t      2287
Geea Ecymi Sewice                 1.09       0.65       0.00       126        2.!2      2.57       9.07       2.05       227
Obw                               2-45       1.75       Z31        2.28       255        1.48      2-85       3.31       39
EL Nonbdelop    l                   145        33.39      40.76      45.27      4.56      52m        5588       72.01      7558
Ddence9Snes                       1298       31.06      37.83      42.22      4552      49.05      5473       85.6       65.31
Oler                               1.5        2232        93      1305        4.04       327        4.14       6.45       7.27
cq Cafl Et end reeurs                240        ZE8        1.76       1.87       2.68      3.42       3.0        2.99       246
D.  n and Advaziese_                9305       8513      101.53     119.09     139.40     117.01      9941      137.64     12164
To Stae Govemmmnt a ur.           49.87      5551       67.30      79.55      sB69      9tt18      89         1m688      95.5D
To Oes                            43.18      27.62      34.23      39.55      40.71     2283       1244       3395       25.15
E  himenermt of equity hi PSs        0.00       0.00       0.0        0.0        0.00     3138       19.6       2100       40.0
SzBte CvGomeit 
Capit expedire CA.B9C]               94.39     101.31     95.66     117.52     123.31     132.50     158.7      191.82
A Develpunel (1.2)                  8051       6429       68.53      77.28      7MU4      90.6'      10o28      12
1. Scal Services                     9.8B      10.74      11.28      11.71      12t57     15.47      17.62      2O05
ttcaon.SpofbArtetrC                1.20       1.29       1.68       2.64       2.84      287        3.40
Heathm and Famlyweirre             1.89       1.88       2.04       1.84      23         3.04       3.36
Waewsupply and SanitIon             39        4.00       4C04       3.37       354       5.05       5.62
Housing                            1.75       2.11       1.90       t99        1.82      1.97       1.85
OHer                               1.65       1.45       1.l3      1t87        2.00      a4         3.39      205
Z EoicxSaesi                        5Q63       5.55       57.25      S5S7       77.03     8214       9.6S       103.76
Agwcuflteu  alled                 260        2.17      29         5.9        11       5.24       7.84
1n1atF and Rood cwn               27.lt      29.65      32.66      32.9       3f56      3442       4233
Tranpoat                           975        9.43      10.27      11A9       13.42      14.02    1.97
Xr                                tt11.17    1228       11.63      15.16      20.94     25.46      23.52
B. Non-dZelcp,nulS                    26        226        2.25      236        Z63        2.34       3.05       3.92
G Lon and adlvaince                 31.62      34.77      27.88      37.88     42m5       31.54      47.39      6409
afduais bar thse Cetre od RensidEsnates bfr the Sbaes.
bt Revised Ettnte for the Cete an Budgetal y Etbtmte for te Ste
s :uce&. 1. M  nCyrFRhnie Unin bletdocumenKt
2. Rese  Bal of lnde. RUI bulainsan tae finuas.



-142-
TI. ALIO
EnRa buon cute ad Sl_
(Nm biu S afforun plmp)
a6i7      Wm         -m       aM        g         91192    9gm93        -        94695
sttsin hcues                       6K76       95M      105.59    132.32    145.35    171.97    205        22244    243.
UrA.e nss  tild                    63.0      7QmM      79.19     93.10    104.14    120        145    144.73     1619
bIMe tI                            21.60     25.g9    2749       30.22     41.21      51.04     6057      77.71     cmE
E dity                               10       amOB      Cal       am         Qm        Qt00      am        QaOO      tO
GU    toS es                       7=3        91.6    10D.1      107.44    13ZM      157.W     175        21377    197
Nan-0uluf                          15.17     19.22     2140      2133      41.67      3151      31.27     32.5      2Z51
Staph.                             2&.64     34.43     35.B      3538      36.75      70.55    ae6e   13           97.6
C _nr mad CuSrapamd                30.12     37.14     40.46     467        51.05     54.3      6534      76.19     73.84
Ots                                 ne60D     Q.58      Q71       0.35      0.52       QO1      CLO0      0.0       2.9
tx OaESC       ls uT,               7513      69        9915    lSiS       135.66    1212      121.41    144.44    137.2
1s RIU_ Iby S  aid 3UTs             25.27     26.47     31.85     29Q       36.97     29R12     3444       40.76     42.43
In_ I   apuwsbyUSES                27.54      31.56     37.70     44.24     51.74     65.85     76.43     169       11127
FET RNSFER(CIIS WEW                ials6     214.26    231i43    275.07    324.32    357.50    31Ztl      4M94    424.43
SonmW  1. MIIIyoFhUuIc  Undn hudtdadamlut
2. Re e SBu*IndI  RB boult on tffu $iu
3. Ce% dlidhm. FiamAcmwt



-143-
Table AWlI
Explicit Subsdies in the Central Goavnmnt Budget
(Rs. bilion at curent prices)
BUlB?     87A88       am19       990        99         9s192      9293       g3194      94S5
RE         ME
A MairSubsidies                 46.83      51.26      67.57      903        95.81      97.93       94.15     103.00.     8S30
1. Food                         20.00      21.00      22.W       2436       24.50      28KD       25.00      52.0        4Q00
2 IndegenitmsFotltes            17.00      2.50       30.00      37.71      37.30      35.00      48.00       3.00       3500
* ILparwtFeris                   1.96       1.14       2.01       7.71       6.39      1.0          9.96       6.00       5.00
4. Oths Fewter Subsidy             ..          ..         ..                              85        3.40          -
5 EBPg       lk4nd               7.85       9.62      13.85      20.14      27.42      175         5.19        7J0        3.00
Maret Dewdo_ees
B Debt feidtorarmers                -          ..         ..         .      15.02      1425        15.W0       5.00       3.41
C9 Other Subsidies               7.68       a54        9.45      1442       10.75      10.35      1128        16.0D 0   -22
5. Railays                      144        1.74       Z07        2.33       2.83       112        3.41-      405         4.03
6. MlImrdeckdh                   0.36       0.23       027       .a10       0.10       0.15       Q15        QtS         0.10
7. Haidloom Coth                 1.23       1.24       1.46       1.81       1.E5       1.87       1.94  .   1.90         205
& tmpoitlEoftSqa.                0.76       0.05       Q40        00            ..         _          ..         -           -
Ed   Ols e&
9. irterst Subsidies             2.29       3.93       4.06        .81       3.79       3.16       1.12        1.13       1.12
10. OtherSubsidies               1.60       1.35       L.19       1.37      2I18         05        1.26       2.44        0.92
TOTAL -Subsidfies               54.51      59.80      77.32     10474      121.58     122.53      120.43     124.00      94.63
Source: Minsty of Fiance, Union Budge Documets



TaGbkA412
Outstanding Deli of Central Governnent at
(Rs bilion at curent pries)
198081    821S3    83N84   8415    SW86    8887    5718       -l      89E0    9U91    91192    9293
bl
1. ToReserve Ba*n o India   1578   218.53   258.02   31858   38047   451.38   516.97   582.00   720.13   867.58   92266   WM2
aTreauylls                116.44   15U05   14647   189.85   242.49   185.61    70.91   12318   23573    49.80    61.59   167.17
hCGSoCIeDIUS               36.58    634    77.9    98.19   104.23    82.26   8B.43   110.89   141.02   174.50   171.47     n.a.
c SpecS senaties            5.85    4.1O    45.70    46D50    51.87   198.67   371.77   369.87   368.81   671.01   720.46   81332
d. Other lbi               -2.92   -7      -1052   -9.84   -1664    -6.95    -6812   -11t69   -25.43   -27773   .3[86   -tS26
e Cwh balance mi Dpts.      7.17    36.44    154      6.12    t14 4    821     802    1025       nLm      na.     na.       nma
ZTo conrcal hab;             73.64    91L59   10S70   118a2    151.90   20210   241.46   287.66   333.85   386.13   460.46   513.93
a Tresury bIl               5.21    11.55    9.38    298      0.46     0.16    014      0.03    0a06    am0 l0     11t  3a06
bh CG Socuihe              66.43    87-04    97.32   115.28   151.44   20M.94   241.32   287-63   333.79   38803   460.35   510.87
To Barin   da,n             226.42   317.12   3S672   436.84   53L'37   65148   751843   869.66  1053.98  125571  1383.12  1479.16
3To Prtae Seclor            250.1   372.28   400.70   48Z41   587.4   69f662   829.78   973.10  10E9.90  1203.56  1183.30  1188.35
a. Smog savigs            79.76   110.98   13i07   171.57   214.49   247.25   28.58   338.33   417.91   501.00   557.55   599.55
. Othes                   171.05   261.30   26563   31084   37335   44137   546.20   634.77   671.99   702.56   625.75   588e.o
&Eel Debt                   12026   159.32   18362   215.16   254.63   315.3   367.40   454.95   538.05   68631   980.20  1351.73
5x TSd ostag debt           597.49   84672   941o4  1134.41  1374e84  1665!46  1955E51  229771  268t193  31458  354C62  4019.24
arEnd oyear 'mg
btPsoWhinL
Sorew 1. RBI. Repod on Cuenacy ard Fnance, waris sims
2. Miley atfFnanc. Uhmn Sudgd & Iian Eonowic Stbist  Pubic Finane).
3. Eiconoic Swy, various iowues
4WoWdank        EStafntes



-145-
Table M.13
Outstnding Debt df State Govewnet at
(Rs. bion at ctrrent prices)
198051    183   83184   84M5    W588   WA7    871W8    M89    89S0    W191    91192    9W3
1.ToResenvefBankoflndia       11.65     9.70   1ROB    24.92    6.31    11.47    9.90    14.14    1670    20.90    17.50    19.26
a. Gwss                      1Z11      9.54    10.93    25.76    10.65   1458    10.09    14.29    ta, n.a            ILt    1Ja
h Cash babnces and Dpt        0.46    O014    0.85    0.84      434    3611      0.19    0.15        a      11a     at       e na.
2.TocgxmeciWalbanks           19.11    25.75    31-62    41.66    44.53    525    7537    88.92   100.83   125.32   182.01   262.47
a SG SeKurfies             16.81    23.17    29.12    36.38    47.74   56.18     47    85.12   103.49   12Z90   150.12   177.34
b. Othm                     230      2.58    2.50     328    -321    -.93    5.90       4.90    -2.66    2.42    31.89  81L13
To Banidng Sistem (1)+{2      30.76    35.45   41.70    6.58    50.84    6.72    85.27   10i6   11753   146.22   19951   281.73
3.30 Prt Secor                45.00    5938    70.26    68.B4   106.05  11r.77   11851   15120   1842   216.63   238.46   21&65
a. PrNident Fund            24.63    36.30   4427    4846    5617   68.59    84.13   103.81   126.88   157.57   186.66   221.63
b. Others                   20.37    23.08    2599    20.38    49.89   35.18    34(48    47.39    57.54    6106    51.0    -.98
4To CestaI Gol (a-bc]         164.01   230.40   271.90   306.52   35223   41924   481.35   539J9   621.05   717.18   804.75  9sZ89
a Loarstromn Center          170.71   235.58   274.56   31Z26   3564   434.66   4931    559.85   639.03  713M    83254   92172
b. Stbe hoding of TEilD       4.35     2.97    0.17     1.43    1520    1268E    8S    17.8    151B    1.80    24.95   20D3
a. State hdoing of CG Ser.    Z35    2Z21      249      2.31    2.41    2.76     2.77     2.78    2.60    2.82     2.84     na
FL TOtal ostanding debt      239.77   32523   382386   443.94   511.13   59273   68523   79496   923MM  10193  1242.72  140127
atEnd ofyear stock
f Provisiona.
Sources; 1. RBI. Repor mo Currenry and Fnance. various isun
2. MhistryrFbance. LUorn Budget & Indian Economic Stati  (lic Financ.
3. Econmic Suey. various issues.
4. World Bank Staff Estimates.



-146-
Table A4.14
Outstanding Debt of Cental and State Governments al
(Rs. birion at curent prices)
1980181   82183   83184   848    85186   8817    87/88    88B9   86190    mauM   9149g2    92193
bf
1. To Reserne Snk ot India    154.43   22&23   268.10  343.S   38678  4J685   52587   59614   736.83   885.48   940.16   984.49
a. Centre                   15278   21&53   258.02   31158   38047   451.38   51397   582.00   720.13   887.58   922.55   965.23
b. Sate                      11.65     9.70    10.08    24.92   631    11.47     9.90    14.14    16.70    20.90    17.50    19.28
ZTo commerial bardcs           92.75   124.34   135.32   159.92   196.43  257.35   316.83   377.518  434.68   513.45   542.47   776.40
a. Cene                      73.64    98.59   106.70   11126   151.90   22.10   241.46   287.66  333.85   388a13   480.46   513.93
b. Stote                     19.11    25.75    31.52    41.66    44.53   55.25    75.37    89.92  0.83   125.32   182.01   252.47
To Barkg &System (lr(2)       257.18  36257   405.42   50142   583.21   720.20   843.70   973.72  1171.51  1401.93  15863  176C.89
3.To Prtate Seaor             209.11   426.48   468.30   547.51   67829  787.95   M3674  1104.15  125634  140057  1393.97  1386.17
a. Small sngs                 7976   110.98   135.07   17157   214.49   24725   28158   33i33   41731   501.00   557.55   599.55
b. Others                    209.35   315.50   33323   375.94   463.80  54070    53.16   765.82   8343   899.57   836.42   78J62
4. ExernAl Debt               120.26   159.32   183.62   215.16   254.63   31536   3f7.40   454.95   538.05   686.31   98020  1351.73
5 Total outitanng debt       566.55   938.37  1058.34  12615.0  1516.13  18.51  2147.84  2532.82  2985.0  348B.81  3956.80  4498.79
Lot  to Stles fom Cernte      170.71   235.58   274.55   312.26   369.84   434.68   49100   559.85   639.03   738.80   832.54   923.72
af End of yewsoclc
hi Provisional.
Sources: 1. RBI. Report on Curency and Finance, various issues.
2. MinIty oFmanFew Uni Budget & Indian En k  Staistics G'ttlc Finance).
3. Economic Sw%ey. varo   san
4 Would BawcEsta muEes



-147-
Ta3b  4.15()
Projeced and Actua Plan Ou0.ys By Sectors
(Rs bilon)
sh Plon                Savant Plan                                  Eihth Pln
(8UN14115              (6519A0           9152      9U92      92RW3  (929349d7
pmt       acfin              paL     fak^   Adctua      Rv4ut  RPjeiom
A   Agama& AgedtPognm                     119.15     15202         22234    3atrL       90.S9     105.3        MM43
A    U                               55.95     S6S24         10524    127.93      38.51      4373        224.67
Rud DmabPrst                         53.64      69.97         89.06    1546       41.42      5C11O       34423
S=lMl ArPw=n                         14.80      15.81         28.04     3470      10.67      11.54        670
B    hipSm &Mod Cantrl                    121-0      109.31        16939     16.91      42.32     44.19       32525
Mr h' laon                           15.l0     1a48          28.05     3192       8.44        62        5917
Majorrbatian                         8448       74N3         11555     110.20     2524      2.OS         224.15
Faod Cantd                           10.45       8.11          4Ar       9.45      2.64      3.10         16is3
Ca-fl Ana DwlcPent                    85f        7.79         16.71     14.33       00        3.40        2510
C   Iftaify adM Miuau                     15018      159.50        221.06    290.99     65.64     92.71       46922
VUa&SnSScat.                         17.81      1Q45          27.53     32.49      9.41      10.23        63.34
Larg&s  Mur.idiatril                132.37     150C.         193.55    258.50     56.2       8248        405.88
D   tegw                                  26535      307.51        551.9    61620    197.34    234.12        115I.61
Poaw                                192.65     152.8         342.74    37895    145.i8    127.81         795.89
Paudmm                               43.00      B482         12935    161.31      3140      81.9         240.O
cad                                  28.70      38.0          74.01     71.,2     17.10     23.09        105.07
E   Tinot                                 124.12     142.07        229.71    297.70     9114    105.1S        55926
RuNway                               51.00      65.87        123.34    165.50     5393      57.10        27202
Ross £ RaS Trump                     46.35      5082          71.90     8459      24.82     25.61        16952
PoII   ShlPI al                      14.856    1213           2113      26.07      8.45      1151        76.14
Chli Aviii                            8.59       9.57          758      1899       5.47      10.48        40.83
F   COIn8mIIiCSiUIB  _SC.WC                31.34     34.69          61.14     9         3614      4968        289.66
G   Scknce&Tnhagy                          8a65       10.11         24.63     3023       8.62      956         90.42
H   SectS Sacu                           140.35     159.15        29fi78    332.61    10299     119.38       751.55
Educoan                              2524       29.78         6383      76.85     23.75      27.32       196.00
IAAFa iyVVem                         21.31      34.12         64.49     68.09     19.48     2317         14076
Houwng a Urbn DmaDkpmt               24.88      2.38          42.3D     48.36     13.2       1843        105.50
WSwsuplwASwS*Sn                      3922       39.97         6.22      70.92     22.46      21.95       167.11
CtrtmISr_MNO                        22.70      26.90         59.94     68.38     23.77      25.51       142.19
I   Ohms                                    am2       16.50         2424      57.94     10.74     11.12        63.60
J   TOTAL                                  97.0    1100.9          18M0.0    2207.6   64751      771.27      4341.00
N! Tip Plannbiw S bm  ywptflarwajwam w at cuSa it pdceaforac hau
a/ Can major and MMoppt. Splpiu Ltomn mud Inrd   Waler.
S:e: Pbnr  Ca_



-148-
Table 411(b)
Projected and Actul Plan OuUays By Sectors
(Annual avaes at constat iMi prices - Rs beron)
S    an                  Sventh Finn                                    E    Rn Phm
(80181.84185)            (8518 ;8.8W90               91192       92193  (9203-9617l
po.        als              pr(j   acuab        Act        Reviled  Procons
A   A:cuftwe & Aie Progm                         26.76        24 45       30.31      33-35      30.28       35.35       2135
AgdCturxe                                   1200        10.68       1435        13.56      1287       14.67        753
Rur.d     Deevekognt                        12Z05       11.23       1214        1613       13.84      15S81       11f49
SpectlAfea Pmgram                            3.33        254         32          3.67      3.57        187         22.65
B   IrrgaSton & Rood Cao!                        27.33        17.78       23.15       17.75     14.14       14.B3       109.12
Mb  Irrgation                               4.07        2Z9          3a82        339       2.82        3.23        20M.O
maor bilgaon                                18.98       1222        15.75       11.81      Q44         9.42        7520
Rood Contrl                                 2.35         1.34        1.29        1.01      0.88        1.04         5.45
Command Area Deeopment                       1.92        124         22B        1.54       1.C0       1.14         8.42
C   Indutry ard Mheals                           33.75        27.01       30.14      3121       21.94       31.10       157.42
VWage&SnudScale                              4.W         3.11        3.75        3.46      3.15        3.43        2125
Large & Mfln Indusries                      29.75       23.61       2fi39       27.75      1&79       27.67       136.17
D   Energy                                       59.63        49.1        75.16      65.64      65.95       78.54       387.70
Poer                                        43.29       29.57       45.73       40.0B     48.52       4285        267.01
Petrolemn                                    9.66       13.35       17.63       17.32      11.16      27.37        80.52
Cat                                          6.45       6012        10.09        7.S2      5.71        7.75        3525
E   Tnzout                                       27.89        22z2        31.32      31.24      31.13       35.28       187.63
Raimeys                                     11.46       1Q.67       1fi82       17.36      1302       1Q.18        91.2S
Roads & Rdad Tanrt                          10.42        &26         9.80        9.04      8.29        8.59        56.67
Port & Sdpping                              3.34         1.97        3.15        Z77       2.82        3.8        2S54
Cail Aviti                                   1.93        1.52        10          2.04       1.83       3.51        13.70
F   Co-mAwmcadon &     1madcast                   7.04        5.51         6.34      10.26      12.08       16V          97.18
G   Sdence a Tedhnlogy                            1.94         1.59        336        3.19       2J8         3.21        30.33
H   Socal SenIces                                31.54        25.41       40.32      35.37      34.42      4Q005        25ZI4
Education                                    5.67        4.71        6.70        8.01      7.94        917         65.76
H eeh &FamiWy netb                          6.36         5.44        8.79        7.23      0.51        7.77        47.22
Houtn& UrbanDeelopmert                      5.59         4.51        5.77        5.14      4.52        6.18        35.39
WlTersupplyaSuRtion                          8.81        6.39        8.89        7.57      7.51        7.36       56.0
OterSocaISnAers                             5.10         4.27        6117        7.42      7.94        9.56        47.70
I   Othsm                                         1.80         2.78        3630       622        3.59       3.73         21.34
J   TOTAL                                        219.1        175.6       2454       234.2      215.4       2588        1456A
Memo tem: Price Delator                           89.0       122.8        146.7      187.2    29M23        298.07       298.07
Not See footns to Table M.15(a
Source: Derived trom Tabl A4.15(a)



-149-
Table4.15(c)
Projeted and Actual Plan OuUtys By Sectors
(% distribuion and achievement rates) al
Sth Plan                   Seventh Pla                                          EIgh Plan
(BOl-841                   (85N8549M90                 1991192        21.42     C92l93-6
% share    achieve-       %share   achle-        achiev-      achieve         % s
Pr4ibt     menct             ib   mnentcd    mnetd           nmentcd              bi
A   Apictture&AlliedPrgmams                     122        91.3           1Z4       110.O        90.1         116.8           147
Agdcuture                                  58         834            5.8       94.5        86.1         114.0             5.2
Rural Development                         5§5         93.2           4.9      132.8        93.2         121A              7.9
Specal Area Prgram                         1.5        76L3            .6       95.9        934          11015             1.6
B   lirgatIon 8 Flood Cotrbol                   125        65.1            9.4       76.7        90.1         104.8            7.5
Minor Irriation                            1.9       713             1.6       88.7        87.1         114.4            1.4
MaJor Irrgation                            17        64.4            64        75.0        91.8          99.8             5.2
FiNed Control                              1.1        57.0           0.5       78.4        91.6         118.2             0.4
ComnmandAzeaDeaefopment                    as9        64             0.9       674         81.9         113.9             0.6
C   Industry and Minerals                       15.4       8Q0            113       103.6        76.2         141.8            10.8
qilage & Sean Scale                        1.6        77.6           1.5       9.2         79.3         109.1             1.5
Large & Medium Industries                 13.6       719.4          10.8      105.2        75.7         147.2             9.3
D   Enugy                                       27.2       8Z4            30.6       87.3        926          119.1            26.6
Power                                     19.6        6183          19.0       85.8       106.1          81.4            1E53
Pebteum                                    4.4       1381     -      7.2       98.2        67.9         245.2             5.5
coal                                       2.9        94.8           4.1       74.6        67.8         13156             Z4
E   Trasport                                    1Z7        BZ2            128        99.8        93.9         113.3           12.9
Raways                                     5.2        9.1            6.9      1032        101.3         106.3             6.3
Roads & Road Trnsport                      4.8       79.3            4.0       92.3        91.2         103.6             3.9
PtAs & Shipping                            1.5        510            1.3       87.7        620          136.8             1.8
CMI Aviation                               0.9        718            0.4      197.1       1242          192.3            0.9
F   Conaruniatlon & Bradcasting                  32        712             14       123.1        9Z3          138.0            6.7
G   Science & Technodrg                          0.9       81.8            1.4       94.9        84.7         lil.4            2.1
H   Social Sices                                14.4       cac            16.4       87.7        91.5         116.4           17.3
Educaton                                   2.6       810             3.5      9Q1          912          115.5            4.5
Heaui 8 FanllyWelare                       2.9       855             36        822        100.7         1194             32
HLousiv SLrban Develpment                  26        824             Z4        89.2        77.3         135.S            24
Water Supply &Sanbtion                     4.0       7Z5             36        852         893           98I             3.8
OtlherSocialServices                       2.3       83.7            3.3       9a.8        96.6         120.4            3.3
I   Othes                                        0.8      154.3            1.3      18&4         70.2         103.9            1.S
J   TOTAL                                      100.0       80.6          100.0       95.5        89.5         119.6          100..
al Dedved tom Table A4.15(b).
bf Percnage share in letS Plan oy.
d Actual outay as a percentage of tet outay br the Plan.
Soucs DerIvd tram Tabe M.15(b).



-150-
Table A6.1
Money Supply and Sources of Change, 198031 -1993594
(Rs. billion)
19S8011  198455  1959M  198617  1987158  1986159  1986190  1990191  1991192  1992093  1903194
BROAD MONEY SUPPLY (M3)           557.74  1023.62  1193.99  1416.42  15279  2002.41  2309.48  2658.28  3174.51  3626.65  4320.46
Narow McMoey Supply (MI)          234.24   39922   440.99   515.22   585.59   711.01   a16C58   92B92  114838  1232.78  1496.57
Currency t:h Pubflc               134.26   22672   250.59   283.82   335.59   380.71   463.00   530.48   610.98  685.12  821.67
Deposit MoW (Iotal)               95.87   188.0   187.50   228.30   246.00  323.40   341.60   391.70   52855   532.63   674.90
Time Deposits with Banks           323.50   624.40   753.00   901.20  1057.20  1291.40  149190  1729.36  202m643  2M387  282389
SOURCES OF CHANGE
Net Bank Domesc Credi             623.59  121295  1411.24  1667.61  1918.57  230D.36  268157  3119.62  346257  3924.63  4401101
Tc,Goverment                     257.18   50342   583.21   720.20   843.70   973.73  1171.53  1401.93  158Z63  1760.89  2041.09
Fmrn Reserve Bankd hfi (RBI)    164.43   343.50   386.78   46285   526.87   596.15   736.83   888.48   940.16   984.49   99100
From omer Banks                  9275   159.92   196.43   257.35   316.83   377.58   43470   51&45   64Z47   776.40  104109
TO Coretladl Sector              36.41   709.3   828.03   947.41  1074.87  1326.63  1517.04  . '.69  1879.94  2163.74  235192
Fm  Reserve BatSo Ind            17.00    2752    3052    3394    3719D    55.24    8349    6&42    7260    62.20    64.45
From Olher Banks                34c541   66201   797-51   91147  1036Q97  1271.39  1453.55  1654.27  1807.34  2101.54  2294.47
Net Foreign Exchange Assets        47.30    31.34    38.72    48.15   56.72    68.00    66.51   165.81   212.05   25014   537.27
of Banldng Sector
Govemmenesa Curency Liabiles        6.19    J7.77    9.40    11.92    13.80    14.75    15.55    16.21    17.04    17.98    19.38
to the Public
Net Nan-Monetary Uabilites         119.34   22E.44   265.37   311.26   346.30   30.70   46115   583.35   516.85   566.10   636.20
of Reseve Bankof India           53.60    5622   107.07   134.44   14225   169.36   175.36   270.22   274.15   280.56   28Q34
of otherBanks                    65.74   14222   158.30   176.82   204.05   211.34   28E79   313.14   24270   28es54   375.86
Bmad Money Supply (M3)            557.74  102a62  119399  1416.42  164Z79  2002.41  2309.48  265285  3174.81  3626.5  4320.46
COPat mar    ices                 135D.13  231a43  2Z643  2929.49  332.01  395.93  4539.86  530S.65  6156.55  7055.66  7970C00
Notes: 1. Up to 1992193, as of March 31 on the basis of the dosure of uemnment accLmts
2. 1993194 numbers ae promsinal daa from REI as of March 31.
Sources: 1. Econcnic Survey, various icsues.
2. RBI Bulletn (Weeldy Sabstic Supplement).



-151 -
Table A2
BDe Moneyaid SourcescrChange, 19ONI - 199384
fRs. bilion)
198011  19WB5  1985/8S  198617  1967/88  1968      19E191   199U91  1991U2  1992=S  199314
TOTAL BASE MONEY SUPPLY             194.52   35116   381.66   448.0   534.90   629.59   775.9t1   77.79   995.05  1109.43  13B5.41
Cumency with Pubic                  13425   22fi72   250.59   2882   3359   380.71   43.O0   530.48   6109    68512   821.32
OherDepositswtihRBI                 4.11     595     2.89     309     397      6.94    5.96     6.74    &85    15.03    25.28
Cash with Banks                     881    1203    14.65    15.31    1163   19.72    19.6    2Z34    2Q40    27.85    3Z11
Bank Deposit with RBI              4734   107.46   11153   145186   179.71   222.22   287.07   318.23   348.82   381.40   507.70
SOURCES OF CHANGE
RBI Caims                          194.19   401.62   441.92   524.39   609.18   722.18   975.0  1G51.97  1118L78  1145.54  1105.49
On Govemment (net)                164.43  34f50   386i78   46285  526i87   59Q.15   73fi63   B8.48   940.16   954.4   99553
On Barts                           1276   30Q60    24.62    27.60    44.41   70.79    7t.71   100.07    51.Q2    9a85    5.51
On Commnunei Secor                 17.0D   27.52    30.52    33.94    3T.90    55.24    63.49    63.42    72.60    62Z   64.45
Net Fuden Erchane Assets            47.75    28.99   37.41    46i21    54.17   6202    6069    79.83   18.38   226.47   514.22
orRBI
Goernmenrs Camcy Uatls               619    7.77     9.40    11.92    13.80    14.75    15.55   16.21    17.04    17.98    1938
to the Pubic
Net Non-Monetuiy  billies           53.60    8622   107.07   134.44   142.25   169.36   175.36   270.22   2741i5   256   25Z68
c5R   _ev Bank oF India
Tdal ase Money Supply              194.52   352.16   381.66   44808   53490   629.59  775.91    77.79   995.05  1109.43  1386.41
GDP it mke pices                  1360.13  213143  26243  2929.49  3332.01  3965.93  4539.86  530865  6155.55  7055.66  7971.00
Foes 1. Up to 1992193 as of Match 31 on he bais of the dome cfgowennmrt maocots
2. 19934 number a-e poisonal data li= RBI ostetandings on Aprl 1. 1994.
Surces: 1. Eonondc Surmey variomas
I RBI Bullefn NeealdySlatistcal SuppiuenenW)



-152-
Table AL.3
Selected Monetary Policy Indrwmmnts
Bank                 Minihum                  Salty
Rate           Cash Reserve Uf LWry hbt
Yoer & Month                                                   Rato                     Rati
1981 July 31                             1                       6.5                     34.0
August21                          10                      7.0                    34.0
September25                      10                       7.0                    345
Octber30                          10                      7.0                    T.O
November27                       10                       7.3                    35.0
December25                       10                       7.5                    35.0
9G2January29                             10                     7.75                     35.0
Apnl 10                           10                     7.25                    35.0
June 11                           10                    7Too                     35.0
193 May 28                               10                      7.5                     35.0
July30                            10                      8.0                    35.0
August27                          10                      U5                      35.0
NOverur 12                       10      knc:entai CRR d( 10%                    35-0
ow November 11. 1983
1984 Febnry 4                            10                      9.0                     35.0
July 28                          10                       9.0                    35.5
Sepainber1                        10                      9.0                     360G
October 30                       10                                              3610
19S5 Jure 8                              10                      9.0                     3&5
July 6                           10                      9t                      37.0
1967 Febnm 28                            10                      95                      37.0-
April 25                         10                       9.5                    37.5
October24                        10                      10.0                    37.5
1988 Januaay2                            10                    t10                       3110
July2                             10                     105                     35.0
July30                            10                     11.0                    3E50
19UBiyI                 1                 C                      50                      3EO
1990 Septeber 22                         tO                     15.0                     35.5
1991 July 4                              11                     15.0                     31.5
1991   October 9                         12                     1SO                     385
1992   Apnl 1                            12                     15.0                    30O
1993 Aprl 17                             12                     14.5                     30.0
1993 May 15                              12                     14.0                     310
1993 Septeber 17                         12                     14.0                     25.0
1994 Jure11                              12                     14.5                     25.0
1994 JuAy 9                              12                    14.75                     25.0
1994 August 6                            12                     15.0                     25.0
Note Dates gven are those on whict. the annoraced measu rese effect
a Mininum cash mserves to be deposlted Wt t  RBI es % ao net demnud and  mn Eablets D11
hi The rati of flquid assets (ecklusive of tose under (a) to aggate dewand and time iaMbite upto March 28. 1995 amd
net demand ad time Eablilties wEh efEc n March 29.1 995.
Sources: 1. Reserve Bank of India, Repoxt of tie Com tte to Reviwevthe Wordr of the Mmeay System
Z Resenre Bankiof Indb, Anmmi Report- varkus Is



-                               ~~~~~~~~-.53-
Table ABA
Stmcu     of Shout-Term and Long-Tenm Interest Rates
(percent per anno"
19W81           I9sa             199W1            199tl92          1992193
A. SHORT-TERM RATES
Reserve Bank Rate                                                9.0            10.0             10.0             12.0             1Z0
Tmeaswy Bls:
91-day o                                                       4.6             4.6              4.6              4.6          aa-10.7
182.day                                                                                     i0O-1D.t          0.8-10.1          7.844
364 day                                                                                                                        WS910.3
Cal Money Rate (Bmbay)                                           7.1            10.0             15.9             19.6             144
Ctxrnerial Bank Rages
Mamimu Depot Rate bI                                          10.0             11.0             11.0            1310             11.0
btunW Lending Rtt 15                                                                            16.0            19.0             17.0
B. W1OTERM RATES
L.D.BJ. Prie Lending Rate                                       14.0            14.0          itO-liD         i&O2Do           17D-19D
Company Depo Rales: d
Pvate Sector Compnies dV
) l year                                                    9.-13.5        10.0-15§0        10.5-14.0        10.5-15.0        120-15.D
(0I 2 yeam                                                 10-14-5         1Z0-150          12G-14.0         1Z0-15.0         13.0-15.0
(li) 31ya                                                  130-15.5        13.l-15.0        13.5-14.0        14.0-150             15.0
Putic SectDor Cmpanies
() l year                                                     11.0         11.5-12.0        10i5-120         10.5-150             13.0
Tir) 2ye1 12.0                                                             ¶20-30           11.5-13.0       '15-15.0              14.0
N) 3Syears                                                    13.5         135-1445         13.0-14.0        13.0-15D0            15.0
Average Yeld - Ordinsr Shoes                                    5S9              3.2              26               2.1              1.7
Redempfion Yed -Goverimert ot Inda Seculies
() Shut tem (1-5 years)                                     4.7-0.0          5.4-9.8         7.0-21.7        04-25.3           9.14-8
(Il Mediumt tem (5-15 yearn)                                5.84             6.5-9.5         9.4127          9.5-13.4          9-14.8
ie) Lontenu (abowv  5years)                                 A.4-7.5         8.4-11.5        10.9-1ZO          9,9-12.4         8.-125
a) Ellective 8Janumy, 1993,.ane aNlc  sysefm for9t-dayTreary Blfws Iircad.
bl Effective 22Apnl 199Z a single biImDm  deposltra  h  ben for depoes svaui  nutrimes
Earlerdltenrt ra.s t re pnestedtbrdsewrt dqt sates.
cI Deposits actr  the public
C WelI.estabed priatesector ct,xa
Sournc  Reserve Bank d Irdi- - Report on QLrency and Fluc  %a   issues.



-154-
TablMA
Sectral Deployment oF Gross Bank Cret
Cn Rs. billion -change during year
80o81    87/88     88189     a9m       9W091    91f92     92IS3     92193     93194
Goues Bank OCedt                           35.69     76.91    154.68    16943    15148      79.65   210.615     71,59    -1Z49
PuI Food ProPm tCredl&                    -3.41    -2914    -14.21     12Z37     25100      164      2073      -7.10     23109
Gss n-Food Cedit                          39.10    106.05    15889    157.05    1284B      7822    189.93      7069    -3.58
PibitySectam                             17.74    40.20     51.49     61.64     2532      25.10     43.33     1304      -2.10
Agdcdture                                817      14.39     19.41    25.76      2-24     14.07     1t7.7     6f56       1.32
Sml Scade lndusties                      594      1712     2.15      24.08     16-3       S.69     1&77       327     4-.40
OitherRmtysectm                          3.53     a69       8.9      11.80      6.70      1.34      7.29      321      -.02
Industy (Medium&tsga)                    1691      37.97    70.32     6087      62.48     25.82    115.37     5202    -19.21
Nholemale Tmade (other han                0.79     5§18      11.69     7.05      438       2.44      7.55      4.13     -551
food pWmuC
OtherSBot.                                3.66     22.70     35.39    27.60     36.32     24.85     23.68      9.50     A76
Eipot CreditCmduded in                      0.09      7.71     22.24    21.04      9.41     11.08     50.54     1369       5.39
Goes Nan.Food Credd)
P-ntor  Sector advance as prnt
d rnet bk credt a!                         350      44.10     4320     42.40     39.20     38.70     35.OD     37.10     3440
a In theldas mth cch pebd, advanc  kte Partidato Cicat
Souce EcnomcSuvey. varis  ase



-155-
Table A6.1
Production of Major Craps
isawe1  1981m   19S513  19B3184  198485  iSin    19imw   1987118  198W      99 19890  1sr   1991192  199293
Total FoodgraMS       129.6   1333    129.5   154    145.5   150.4   143.4   140.4   169.9   171.0   176.4   168.4   1B0.0
Khauif               7T.6    79.4    69.9    89.2    84.5    85.3    80.2    74.6    966    101.0    99.4    91.6   100.5
Rab                  51.9    5a9    59.6    31l    61.0    652         63.2    65.8    74.3    7.0    77.0    76.8    79S
TotalO Ceels          119.0   121.8   117.7   139.5   133.6   137.1   131.7   129.4   1561    150.2   162.1   156.4   166.4
Kharff               73.9    75.0    65.5    83.9    79.8    80.7    76.0    70.2    90.0    95         94.0    87.2    947
Rabi                 45.1    46.7    51.9    55.6    538    SE4    55,7    59.2    66.1    627         66.1    692    71.7
Rice                  53.6    53.3    47.1    6D.1    58.3    63.8    60.6    56.9    70.5    73.6    74.3    747    726
Kharif               501     49.2    43.2    55.0    53.8    59.4    53.6    49.0    63.4    65.9    66.3    66.4    641
Rab                   3.5     4.0      3.9     5.0     4.6     4.4     7.0      7.8     7.1     7.7     8.0      8.3      5
Wheat                 36.3    37A      42.8    45.5    44.1    47.0    44.3    462    541       49.8    55.1    557    5S8
Barley (JaiQ) 10.4    1Z1              10.8    11.9    11.4    102      9.2    122    1tQ2      129      11.7     8.1    13.0
Khaf                  7.5     6.8      7.5     8.7     7.8     7.3     6.5      8.6     7.1     92      8.3      5.7     9.2
Rab                   Z9      13       3.3     3.3     3.6     29      2.7      3.8     3.1     17      3.4      Z4      3.8
maize                 7.0     6.9      6.5     7.9     8.4     6s      7.6      5.7     82      9.7     9.0      &1     102
a84a                  5.3     s5    5.1        7.7     6.0     3.7     4.5      3.3     7.8     f6.     6.9      4.7     8.7
otal Pubes             10.6    11.5    11.9    1Z.9    1Z       1314    11.7    11.0    13.5    128      143      12.0    136
1Cui                  3.8     4.3      4.1     5.4     4.5     4.5     4.2      4.4     5.6     5.5      5.4     4.4      . 8
Rabi                  6.9     7.2      7.7     7.5     7.2     8.5     7.5      56.     8.2     7.3      8.9     7.6     7.8
Gram                   4.3      4.6     5.3     4.8     4.6     5.8     4.5      3.5     5.1     4.2      5.4     4.1     44
Tur                    2.0      2.2     2.0     2.6     Z6      2.4      2.3     Z3      Z7      2.7      Z4       1      2.4
TcaalOsedsat            9.4    1Z1      10.0    12.7    1Z9    10.5    11.3    12.6    18.0    16.9    16.6       16.    20.3
flarE'                5.0     7.0      5.4     7.2     7.0     5.9     6.4      6.4    10.5     9.6     9.8      93     11.8
Rabi                  44      5.0      4.6     5.5     5.9     4.9     4.9      6.2     7.5     7.3     6.8      9.3     8.5
Qoundnut               5.0     72       5.3     7.1     6.4     5.1     5.9      5.8     9.7     &1      7.5      7.1     8.9
Khar                  3.7     5.5     3.7      5L3     4.7     3.8     4.4      4.2     7.5     6.1     5.1      5.0     6.6
Rabi                  1.3     1.7      1.5     1.8     1.7     1.4     1A       1.7     Z2      20      Z4       2.1     2.3
Rapesed & Mustard      2.3     Z4      2.2      2.6     3.1     2.7     2.6      3.4     4.4     4.1     5.2      5.9     4.9
Sugarane              154.3   1864    189.5   174.1   170.3   170.6   185.1   196.7   203.0   225.6   241.0   254.0   230.8
Cottn                   7.0     79       7.5     64      8.5     6.7     6.9      6.4     8.7    11.4     9.8      9.7    11.6
Jute a Mesta            8.2     8.4      7.2     7.7     7.8    12.6     8.6      6.8     7.9      .3     9.2    103       9.0
Jute                  6.5     6.8      5.9     63      6.5    10.9     7.3      5.8     6.7     7.1     7.9      8.9     7.9
Mesta                 1.6     1.6      1.2     1.4     1.3     1.8     1.3      1.0     1.2     12      1.3      1A      1.1
Pott                    9.7     9.9    10.0    121      12.6    10.4    1Z7      14.1    14.9    14.8    15.2    164      15.7
Notes: Unit d measuer  all cormodties is mnlron tonne ecept in the cae d aron, jute and mesh
wfse producton is in terms OdiRIon of baes Figurs lor 1992S93 a  pavMoL
aI Includes grouriuts. rapeseeds and mustard, sesame, liseed, casedmVwd. n d safflower. Surdlower and soyabeanr
Sources Economc SuFey. various issues.



-156-
Table A6
Irriated Area Under Diffrent Cops
(-lion heamres)
198051   1981182   196sBD    19B354   1984185   1989586   1981if7   1987J88   1988189   198a9s    19
Totl Foodgras               37.6     38.3      38.4      40.2      40.1      40.6      41.7      40.5     429       43.7       443
Tctal Cerwls               35.6     36.2      366       385       384       385       39.5      35        40.6     41.4       41.8
Rie                       16.3     17.1      18O       17.4      17.7      17-7      18B2      17.0      187       192       192
Jvoar                      0.6      O.6       0.6       n.6       1.7       0.7       aa8       Ms       0.B       0.8        0.
Baja                      0.6       0.7       [L6       06        0.6       0.6       0.7      0.7       0.6       0.7       0.6
Maie                       1.2      1.1       1.2       1.0       1.0       1.1       1.3       1.2      12         1.2      1.1
Wheat                     15.5      155       17.0     17.9      17.5      17.5      17.7      17.9      18.6      18.7      19.3
Barley                     09       0.8       117       0.7       0.86      n7        06        0.6      0.6       0.5       0.5
Total Pules                  ZO        21        1.8      1.7       1.8       21        22        2.0      2z0        22        2.5
on"emps
Oiseed at                   Z3       2.5        Z6       3.1       a5        3.4       33        4.3       44        4.6       52
Coton                       21       22        Z3        2.3       1.9       2.2       2.2      23         Z3        Z7        26
Sugarcane                   Z3       28         2.8      2.6       2.6       2.5       28        2.9       3.0   .  30         a2
al Oseeds inchie grundnUts. rapeseed fl must3rdL kneed, sesame and Shea
Source: Econic SurWey. %WflOs s



-1t57 -
Table AN
Ydd Per H tame of Major aops
(kgs. per hedUe)
19801B  1981182  1982193  1963084  198415  1985W    198687           8 98 188  19W  19898   199091  1991N2  1992193
TdpFoodrakis               1023     1032     1035     1102     1149     1175     1128    1173      1331      1349    1380      132      1445
Khari                     933      946      884     1060    1041    1042        985      996     1166     1241    1231       1174     1289
RaiW                     1195     1193     1295    1343      1341     1410     1382    1468    1628       1544    1635       1751     1706
Tobl Cereas               1142      1157     1151     1296    1285    1324       1265     1315     1493     1530    1571      1574     165
KhIw                     1015     1021      956     1148     1129    1140      1074     108      1270     136       1357     1303     1427
Rabi                     1434    1489    1552       1606     1617    1718      1573    17        1964     1875    2MO       2126    2060
Rice                      1336     1308     1231     1457    1417    1552    1471    1465         1689     1745     1740      1751     1744
Khrif                    1303    1266      1185     1413     1374    1514    1393    1368        16i7     1677    1670       1676     1653
Rabi                     2071     2204    2135    2205    2274    2329    25f           2640    2548      2878    2671      2720      2758
Wheat                     1630     1691     1816     1844    1670    2046       1916    2002    2244        2121    2281      2394     2323
Barey (bAer)               660      727      657      726      715      W3       576      762      697      99       814       655      969
Klhar                     737      837      760      851      820      761      665      892      789     1053      969      757      1224
Rabi                      520      538      501      522      5#3      447      437      568      50       604      582       496      674
Malize                   1159     1162     1145    1352      1456     1146      2       1029    135       1632     1518      1376     1694
Bela                      458      470      469      652      519      344      401      37B      646      610      653       455      824
TXd Puls                    473      483      519      548      526      547      505      515      598      549      578      533      573
Khari                     361      415      402      483      453      412      392      435      504      480      471      393       S52
Rai                       571  50 6         61        5 606   589       5       6D4      57       686      616      672       672      641
Guam                       657      590      715      663      661      742      649      629      753      552       712      739      673
T17                        689      745      680      801      819      767      722       5       779      763       673      583      663
Tobs Qeesal                 S32      634      563      679      684      570      605      629      824      742       771      719      793
Khwn                      492      644      511      655      633      516      554      559      805      691      698      604       779
Rab                       588      621      639      713      755      651      G87      720      851      822      82       886       813
Gndmut                     735      g7       732      940      898      719      841      855     1132      930      904       818     100
Kmir                      629    1866       64       835      779      an       73       737     1066      824      751      687      950
Rabi                     1444     1613     1516     1484     1518    1549      1540    1425    1442       1532     1611     15        1601
Rapeseed & Mustard         560      541      577      674      77t      686      700      748      906      831      904       ass      773
suarce                    57844   58509   55441    55974   57673   60000   6000          600      61000   650M0    65s0       S6000    64000
Cottn                       152      165      163      141      196      197      169      168      202       252     225       216      251
Jute & Meda                1129    1310      1265     1323     1242     1524     1454     1274     1540     1546      1634     1662     1658
Jute                     1245     1480     1458     1417     1411     1710    1647      1496    1748      179       833     1837      1848
Mesta                     828     8s        771      859      764      910      865      680      s09      958      9e8     1019      968
Potat                     13256   12596    13549   15206   1406D    120W    15000    16000   1S00    160DD    16O(n   1600o    15DO0
Note: Fgmes or 1992193 are praouba.
a Incudes g    ft. rdpeses  and mustard, sesamEneedc 1  astned  rgeieed safk     sunermadoyabeinL
SoCe: Ewi Swuey, walrs _ene



I1 g g iii 
ie   -             % f 
f SPy e | 0
l~~~ eel aaMZ   
*    w  a '-    1
-A         r  t 



-159 -
Table AUA
New Index of Industral Production
(19801d1=100J
lndex                                     199112  1992f13
-      -         -~~~~~ over    over
Weigit   198586  1987  198713  1989819  198690  199i091  1991J92  19923 1991   1991U92
a,
Genel index                         1CC0CO    142.1   155.1   166.4   110.9   1964    21Z6    2125    2163          ao       1.8
Mining ad CQWPJin;                   11.46    167.5   177.9   184.6   199.1   211.6   221.2   221.5   224 8         al1      1.5
Bedcity Generated                    11.43    1524    168.1   181.0   1982    219.7   236i    257.0   269.8           .      5.0
Manujcknn Index                      77.11.   136.9   149.7   161.5   175.6   190.7   207.8   204.6   2071          -1.5     1.2
Food admi5cts                      533    125.6   133.2   139.0   148.5   150.9   169.8   166V2    1726          -21      37
Bcnragestobacco. stm               1.57    1121     985     84.9    9Z-   103.0   104.8   119.1   113.7    13.6    -4.5
CdIon eztUes                      1231    110.4   112.5   111.2   107.8   1123    126i6    125.2   128.8         43       2.1
Jule                               200     97.2   101.1    91.0   101.9    97.4   101.6    90.4    862    -11.0          4.6
Tedle pmducts                      0.82    1128     87.1    91.7   134.2   151J    103.2    97.2    75A         -5x0    -22.4
Wod&wodpmodRfs                     0.45    223.2   245.1   161.7   171.7   176.0   1972    18i5O    190.4        4.2      Z9
Paper &  Werpoducs                 323    14&5    1532    166.3   171.3   181.5   198.0   209.6   2109           5.9      0.6
'easw Ieleatwerpducts             0.49    16.2    177.7   1855    177.4   188.3   1943    1966    1953          1.2    407
R;bber pbl    & penokenn prd.      4.00    1530    1498.    155.1   168.3   173.5   174.0   1724    177.5       4.9       3.1
emicaiaadienicsprduc±s            1251    154#3    175.5   200n9    233.4   247.6   254.1    26828    276.B      3.4      53
NnealliC mrrural products          10     157.3   160.3   158.1   18146    139.9   1931    205.2   207.8         6.3      1.3
'Bs metiB &aloy products           9.80    117.0   126.8   135.6   144.9   143.7   158.8   168.5   174.2         6.1      3.4
MM products                        229    114.7   124.5   129.6   133.5   142.6   1431    139.9   125.4    -22    4-6
Machnery&nmachinetools             624    13012    141.8   139.2   161.2   171.9   185.9   184.4   177.0    -1.3    -4.0
Becid niuotnery                    5.78    20Q6    254.7   3352    345.0   459.2   5636    4916    479.9   -124          -Z8
Traqtffequ nent                    6.39    135.8   144.9   151.9   171.3   1B1.1   1925    191.5   196.9    41.5          3.9
MisceRneousproducts                090    15Z7    235A4   2721    306.3   3X2    321.8   299.5   277.0   -16.2            27
atPrvisoqL
Soaxce EconomicSavey. varius fues



-16D-
Table ASS.
Production, Impouts and Consunp_on of Fertilizers
(0am' nuientrtons)
Nitgeno sd                     Pho.Phatc bi               Ptassic                     TOal
Produ-      hn-   Consu-       Prdu-       Imw    Consu-        Im-   Cnsu-        Produ-      Ins-   Consu-
(April-March)         cton      pots    mption        clion    ports    mplion      pois    mnpin        don       pots    mption
1980/11           2163.9    1510.2   35781         841.5    452.1   12116        796.8    6219       3005.4    275.1    5515.5
196U32            3143.3    1055.1    40617        95Q0     3432    1322.9       64318     676.2     40913    204Z1    d067.8
19a83            3429.7    424.6   4242.5         987       63.4   1432.7       643.7    726.3      4413.4    1131.7    6401.5
1983/84           3491.5     6551    S204.4       1064.1    142.6   1730.3       556.4    775.4      4555.6    1355.1    7710.1
191E485           3917.3    200s.5   5486.I       1317.2    745.2    186.4       871.0    838.5      5235.2    3624.8    8211.0
198s56            4328.0   1680.0    SW1.0        142E.0    816.0    20050       903.0o    8030      57550    3399.0   8474.0
196/7             5410.0    1103.0   5716.0       166a.    255.0   2079.0        9520     850.      7070.0    2310.O    8645
19s7ms            54R6.0    175x0    5717.0       1655.0      0o    2187.0       80.0    88.0        7131.0    984.0    8784.0
1968/9            671210     219.0   7251.0       2252.0    407.0   27210         820    106s0       8964.0    1608.0   11040.0
196w90            6747.0    523O    73B86O        1796.0   1311.0   3014.0      1280.0   1168.0      8543.0    3114.0   11568.0
199u1             6990       414.0   7997.0       262zo    1016.0   3221.0      1328.0   1328.0      9045.0   2758.0   12546.0
1991/92           7301.0    5510       046.o      25620     967.0   3321.0      1236.0   1361.0      9883.0    2769.0   12728.0
1992093           7430o    1160.0   842E5O        2305.0    745.0   2842.0      10zo       884.0     9736.0    29630o  12152O
1993194cd         7800.    1549.0   9S0           22000     7330    3200.0       656.0    10000    10O0.0   293ao   13850.
al Eiludes ruarn uant far non-aricultural wposep
V ekxudes data In respect of bonn and rakwosphata
d Antlicked.
Sou    1. The Fesdir Aaortn  of lndri. Feui. Staistcs. varous  iese-
2 Eononic Survey. vanou em



-161-
TableAS.7
bdlan Ruhways - Freight & Passengr Trafcis
Passenger Traffic
Revenue Eaming Freigt Trafc                          Non-Subtrban                             Subban a/
OCngbig      Net tons-   Average       Passwe s   Passenr-          Avage  Passenger        Passeg-   Avage
tonnage   Wbmetes         klad        onatg           netes           lad   aniht          idbmeters       ead
Year         (mbtonh       (rmihi) O(dometers)         (Son)       (mibn)    (ldbneters)    (mlWon)        (millon)     (kms)
19BO11           195.9      147652        754             1613       167472         103.9       2000          41086       20.5
1951R2           221.2      154253        743             1640       176822         107.        2064          43965       21.3
19621E3          228.5      157751        733             1625       181142         111.4       2029          45789       22.6
1914             230.1      1EEB49        734             1491       18080B         121.3       1834          42127       23.0
1904185          236.4      17262         730             1449       182318         125.8       1884          44264       23.5
1905516          258.5      19660         760             1549       195175         125.0       1884          45439       24.1
19517            277.8      2141W,        771             1610       i0B057         129.0       1970          48411       24.6
1957A18          290.2      222528        757             1637       217632         133.0       2171          51859       23.9
195819           3021       222374        736             1495       211819         141.6       2022          62023       25.7
1989190          310.0      29602         741             1544       226045          76.9       2129          54933       25.8
1990t1           3114       235785        741             1599       2360;6         147.6       228t          59724       262
1991l2           33ao       250238        740             1637       25t174         153.4       2436          63543       25.1
1992093      350.0      2523e8       721             1467       239655          1633        229          60547        25.4
1993(94          362.0      26895         70              14526 239                 161.8       2391          85598       27.4
1994J95          3800       273726        720             1485       240269         161.8       2439          66910       27.4
Ndte: Fgures for 1993194 and 1994195 are resed esibmates and ludget estimaes s .pedey.
al Pasengs booked between stations wditn Me subhln areas do B nar FRan 19889 crards Subsaban pasenger
raffic includes Metib Railway. Cakcutta
Source: Miisry ci Raways Railway BueL



-162-
Table AU
Petrodeum Suuwny
Comnodity Balance of Pdeleum and Petrolem Produdcs
(million tonnms)
881    81182   8W3    83184   84M5   851E6   8N187   871BB   89    awo    90191   9192   92193
a'
A. CRUDE PErROLEUM
1.Relinery Thzouohpjt     58      30.2    332     35.3    35.6    429    45.7    47.7    4a8       51.9    51.8    51A      535
2.Domnesic Pmdductln     10.5    16.2    21.1    26.0    21.0    302    30.5    30.4    320         34.1    33.0    30.4    27.0
(a) On-shre              5.5     8.2     82      &6       a9      94      9.9    10.2    10.9    1Z4       11.8    11.4    11.2
(b) Off-shore            5.0     8.0    1Z9      17.4    20.1    218    20.6    202       21.1    21.7    21.2    19.0    15.8
3.lIMpts                 18.2    15.3    16i      16.0    13.7    15.1    15.5    1H.0    17.8    19.5    20.7    24.0    29.2
4.Eports                     -    0.8      4.5     5.5     6S      0.5        -       -        -   .  -        -                -
5LNet Ipnt 34)           16i2    145      1Z4     10Q5     7.2    14.6    15.5    18.0    17.8    19.5    20.7    24.0    29.2
B. PRODUCTS
1tometirConsunption bt    319    325    34.7    35.8    38.5    40.8    43.4    ML4    50.1    54n1    5iO          57.0    59.1
dwhtich:
(a)Naphtha               23      3.0     3.      2.8      3.      3.1     3.2     29       3.4     3.4     3.4      3S      3.4
(b) Kemsene              4.2     4.7     5.2     5.5      6.0     62      6.6     7.2      7.7     B2      L4       8.4     8.6
Cc) High Speed Diesel   10.3    10.8    12.0    1Z6      13.7    149     1Lo      7.7    183    20.7    21.1    227    24.5
td) Fuel ais             7.5     7.2     7.3     7.6      7.9     7S      7.9     8.1      s5      .8      9.0      92      9.3
ZOomesdc Ptuducon        24.1    28.2    31.1    32.9    33.2    3R9       428    44.7    45.7    48.7    455    4a3.    504
(a) Naphtha             2.1      3.0     3.0      3.6     3.5     5.0     5.6     5.5      5.4     5.2     4.9      4.5     4.6
(b) Kemsene              2.4     2.9     3.4     3.5      3.4     4.0     4.9     5.1      5.2     5.7     5.5      5.3     5.3
(c) High Speed Diesel    7.4     9.0     9.8    109      11.1    14.6    155      16.3    16.7    17.7    17.2    17.4    183
(d) Fuel ols            621      6.9     8.0      8o      7.9     ao      ao      8.5      8.9     9.0     9.4      9.6    10.4
3.lmports                 7.3     4.9      5.0     4.3     6.1     3.9      31      3.9     6.5      .6      8.7     9.4     ; :.3
4.Elports d               n.s.    0.1      0.8     1.5     0.9     2.0      2.5     3.4     2.3      Z6      2.6     2.9      3.7
5.Net Imports             7.3     4.8      42      Z8      5.2      1.9     0.6     0.5     42       4.0     6.1     6.5      7.6
of PradsionaL
bl Ecludes refinery fuel consumption.
cl Exdudes suppls of POL prductc to NepaL
Soux: EronomnSurvey. vamious es.



-163-
Table A6S9
Generaton and Consumpion o Electricity
(in00 OGWH)
80Ba1      8595       B6e7       87A9   s              999        s01         91)92    92193 ml
A. GENERATION OF ELECTRICITY BYL OUREAND REGION
1. Thermal tb
Northern                  13669      25.73       29.0       37.74      41.24      4B.82      5Z13       50.44       6s 16
Westen                    25.37       4a94       54.58      51.80      63.39      73es       7Es95       54.33      85.50
Suhern                     922       20.45       24.10      28.07      30.53      3403       35.76      40.39       44.31
Eastem                    1z53        15.37      19.31      20Q77      21.40      21.55      20.39      22.40       24.57
North-E  n                 050        0.Q7        1.16       1.24       1.15       122        1.31       1.19        t.22
Al-India                  61.30      114.35     128.85     149.61     157.71     17870      185.55     2M8.75      224.77
Noirfln                   15.08       19.49      2Z.02      20.96      23.57      25.01      27.16      27.21       25.45
Westem                     7.81       6.18        5.15       5.06       7.54       6.7        E.31       B.16        7.28
Southern                  21128      21.15       21.08      17.35      21.64      24.54      29.17      29.63       30.70
Eastem                    z2s         3.17        3.67       3. i9      3.76       4.11       5.34       5.87        4.57
NortEastem                 0.41       1.03 O92               Q97        1.36       1.t8       1.66       1.89        1.94
All-India                 46.54      51.12       5384       47.44      51.87      6z12       71.64      7276       69eB9
N ulcear
Norten                     1.23        1.28       1.32       1.39       1.87       t73        Z116       1.66        2.77
Wefl                       1.77        1.96       2.0)       1.61       1.90       1.55       1.90       1.71        2.o
Louthern                               1.74       1.70       Z04        z05        1.35       20         Z.16        1.98
A-hnda                     3.00        4.S6       502        504        S82        4-63       614        5.53        EL75
4. Utirfes- Al India (1 + 2 + 3)  110.84  170.35    187.71     20209      221.40     245.44     264.33     287.03      301.41
5. SeIrGeneration Bi Indusry    .42       13.04      13.57      16.59      19.91      23.23      25.11       25.60      3015
and Railways
6. Total-AD India C4 +5)      119.26     18339      201.28     21&99      241.31     265.66     289.44     315.63      331.55
B. CONSUMPlION OF ECTRICITY BY SECTORS
1. MinhiandMaMatacttzfigd     55.35       7630       81.98      82.97      Sz95      100.40     105.38      110.6Z     115.94
Z Transnrt                      2.31       308        3.23       3.62       3.77       4.07       4.11        4.52       5.58
1 Domestc                      9.25       17.2       19.32      22.2       24-77      29.58      31.98      35.85       39.58
4. Agorcutuke                  14.49      23.42      29.44      35.27      3.B88      44.06      50.32      56.55       63.77
5. Otters                        30       1228       13.66      15.42      17.02      17.01      19.74      21.42       2Z25
E. Trial                       B9970     13432      147.64     159.40     176.49     195.12     211.53     230.97      247.12
at Data br 1992-93 is prAsional.
b/ndudes aten desel. vid md gas
cldndales inrkal power on utiles p1us net genratki in the n _on-utilie.
Source: Cental SecricLy Authwty. Power Data Bank & Irnfiaion Directirate.



-164-
TableAS.10
New Index Numbers olWholle Prices - By Years
Base 198V9Z=100
WEIGHTS      82/83     85186    86M87     8788    8a89        891      90191     9192      92S93      a/
TOTALFOODARTICLES            17.386     111.1     134.1    147.8    161.1    177.1    179.3    2106         241.2    2Z1.7    113
Food Grabs                   7.917     109.1     124.5    129.4    141.3    161.8    165.4    179.2    216.4    242.4    110
OIher Food                   9.469     1128      142.1    163.2    177.7    189.9    190.9    218.5    261.0        294.4    12A
INDUSTRIAL RAW MAT.          14.909     101.6    115.9    124.4    1428       14103     145.3    1866       199Z3    192.2     0.0
Non-Food Aide               10a81      1018      120.4    1341      163.0    160.2    166.0    194.2    229.2    228.7    0.2
Minerals                     4.828     1013     10W.5    104.2    10.5        986      102.2    109.0    113.5    118.1       2.3
FUEL. POWER & LUIL           10.663     106.5    129.8    138.6    143.3    1512        156.6    1758       19.0    227.1    14.1
MANUF. PRODUCTS              57.042     10315    124,5    129.2    138.5    151.5    168.6        182.     203.4    225.6    10.9
Food Products               1C.143      97.4    117.2    129i       140.5    147.8    1164       181.7    2063      223.8     8.5
Bewmge & Tobacco             2.149     100.2    1232      133.0    155.0    18107      207.7    2421       265.7    29317    10.6
Texdles                     11.545     104.8    119.5    116.0    126.6    139.6    158.2    171.2    188.4    200.7          6.6
Chemicalsarid                7.355     10.5    118.3    124.6    131.9    135.8    140.1         147.9    1014       19Z6    14.4
C3emal Products
Basic mrerm and              7.632     104.5    139.7    141.3    149.7    1764        205.6    219.9    234.8      255.6     9.3
Products
Machineryand                 6.268     10t.8    121A      127.3    132.3    15.a8      166.2    180.2    20a3       2306     10.7
Mad*ne Tools
Transport Eqpt               2705      1016      12310    129.6    135.5    148.9    116.2    181.3    202.5        218.1     7.7
ALL COMMODITIES               100O      104.9    125.4    13Z7       143.6    154.3    155.7    18Z7        207.8    221.7    10.1
Note: This WPI sales basd 1986182 was Inboduced as of July 1989.
a! Percent chand e hi i    year 1 93 over 1991/92.
S3res: 1. Ministry d Industry, OFte d the Earmii: Advise.
2. Cenrie rar Monitrin IrKdsa Economy.



-165-
TableA1.11
ContrIbuton of Seected Commodites to
Increame In WPI In Calendar Year IM3 at
1993 over 1992        % ContbutLon
Weghts            1992        1993       PecntChange           to chaw  In WPI
FDod                              27.467          253.8       265.8           4.7                    Io
Ceeas                            17386           26868       281.9           5.7                    15.2
Pulses                            6.824          2425        2393            -1.3                   4.3
Othr                              1.093          254.6       285Z            121                     1.9
Non-Food                           9.469          295.7       31Z2            9.3                    14.5
10O91           2314        237.9           2.8                    3.8
Mkweals
4.828          115.5       128.6           11.3                   3.7
Fuel and Power
Coal                             10.663          2193        254.1           15s9                   21.4
Milneral ds                       1.256          298.5       33B.0           14.0                   3.0
Beclcity                         U6.666          1956        22D.8           12.9                   9.7
Z741           241.6       282.9           17.1                   6.5
Manfactured Pioducts
Food prducts                      57.042          220.8       237.9           7.7                    5fi4
SWa                             1i0.143          221.2       240.3           8.6                    112
Eble oils                         4.059          173.5       191.6          11Q4                    4.2
ebr odprodus                      Z.445          270.2       2533            -3                     -2.4
Tedl                               31639          241.5       285.9           18.4                   9.3
cement                            11.545          196.5       2126            7.1                     9A4
inn and Steel                      Q916           207.8       206.5           0.3                    0.0
Capil goods                        Z441           227.3       247.2            .8                    2.8
Ouies                              626            226&7         n.a.          na                      n a
25.729          229.1         na.          nia                     n.a
ALL COMMODIES
uewhich                         1W00.0            224.7       24Z0            7.7                   10D.0
Agdclwahfeased
Non4Agriculturi                   37.610           245.0       258.9           5.7                   3Q.2
62390           212.5       231.8           9.1                    69.8
at Weighted share of each cmmodity in totl absokl cdle In Whoesle Price Index
Sotnce:1nlky yofindusty. Cite dthe E,nwnicAdvise.



-168-
Table 6.12
Consumer Price Index Numbers for Indusial Workes. Urban Non-Manual
Employees and Agriculture Laborers
Irdkstral Worker                Urban Non-Manuel       Arlul tural Laborers at
Year                                                            Employees
Food Dlnd        Gener Index                                         Genea Indec
(Apri-Marl)             C1982=100)         (1882100)         (19S4185=100)                   (196W61=100)
1980/1                        84                  e1                  69                              409
1981162                       96                  91                  78                              448
1962183                       102                 99                  84                              481
198354                        117                111                  92                              522
19845                         122                iB                  10W                              525
9l5o86                      128                 126                 107                              555
1986s7                        141                137                  115                             578
1987k88                       154                149                  125                             650
198U8                        169                 163                 136                              724
1989190                       177                173                 145                              752
199091                        199                193                  161                             am
1991192                      230                 219                 183                             1007
1992193                      254                 240                 202                             1083
Averge of weeks
1991
Mach                         207                 201                  169                             858
June                          219                209                  174                             876
Septenber                     234                221                  164                             975
December                     239                 225                  1B7                            1008
1992
March                        241                 229                 192                             1046
June                         251                 236                  197                            1068
September                    258                 243                 204                             1112
December                     25S                 243                 205                             1067
Is13
March                        252                 243                 205                             1053
June                         252                 250                 210                             1057
September                    275                 259                 217                             1113
December                       nza               264                   na                              na
Pertentge Chn e in Index ovethe
corresponding month or pxevious year
1992
March                        16.4               13.9                 136                             21.9
June                         14.6               12.9                 112                             21.9
September                    10.3                10.0                10.9                            14.1
Decamber                      7.1                8.0                  9.6                             5.9
1993
March                         4.6                6.1                  6.8                             0.7
June                          4.4                5.9                  6.6                            -1.0
September                     6.6                6.6                  64                              0.1
Decenber                      n.a.               a6                   n.a.                            FL&
a! Inioes relate to Agiuctural Years (Juljr-une.
Sources: 1. Minitry cf Labor. Labor Bureau. Stna.
2. Central Batistical Orgarfmation.
a  arnomicSu.dey. vanrus imses



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