RESTRICTED
WORLD TRADE WT/TPR/S/33
5March 1998
ORGANIZATION(98-0828)
TRADE POLICY REVIEW
INDIA
Report bytheSecretariat
Thisreport, prepared forthesecond Trade Policy Review ofIndia, hasbeendrawn up
bytheWTO Secretariat onitsownresponsibility. TheSecretariat has,asrequired by
theAgreement establishing theTrade Policy Review Mechanism (Annex 3ofthe
Marrakesh Agreement Establishing theWorld Trade Organization), sought
clarification from theGovernment ofIndia onitstrade policies andpractices.
Document WT/TPR/G/33 contains thepolicy statement submitted bytheGovernment
ofIndia.
Note: Thisreport issubject torestricted circulation andpress embargo untiltheendofthemeeting
oftheTrade Policy Review Body onIndia.India WT/TPR/S/33
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CONTENTS
Page
SUMMARY OBSERVATIONS
(1) TheEconomic Environment xi
(2) Trade Policy Features -Type andIncidence ofTrade Measures xi
(3) Sectoral Policy Developments xii
(i) Agricultural products xii
(ii) Food processing xii
(iii) Mining andpetroleum xiii
(iv) Manufacturing xiii
(v) Services xiii
(4) India intheMultilateral Trading System xiv
(5) Outlook xv
I. THE ECONOMIC ENVIRONMENT 1
(1) Recent Economic Performance 1
(i) Macroeconomic developments 1
(ii) Structural reforms 7
(2) Major features oftheIndian economy 9
(3) Trade andForeign Investment Performance 10
(i) Composition ofmerchandise trade 10
(ii) Geographic pattern ofmerchandise trade 10
(iii) Trade inservices 13
(iv) Foreign direct investment andportfolio investment 13
(v) Intra-industry and"tariff-jumping" foreign direct investment 15
(4) Outlook 16
Annex I.1 Exchange ratearrangements 18
II. TRADE AND INVESTMENT REGIMES 20
(1) Introduction 20
(2) TheLegislative Structure 21
(i) Legislative andexecutive branches oftheGovernment 21
(ii) TheJudiciary 22
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(iii) Thelegislative process 22
(3) Objectives ofTrade Policy 24
(i) Participation intheWTO 25
(ii) India'sWTO commitments 26
(4) Trade Laws andRegulations 27
(i) Changes totrade legislation 28
(ii) Notifications totheWorld Trade Organization 28
(5) Execution ofTrade Policy 30
(i) TheExecutive 30
(ii) Autonomous andadvisory bodies 31
(6) Trade Relations 32
(i) Multilateral agreements 32
(ii) Regional agreements 32
(iii) Bilateral agreements 33
(iv) Other 33
(v) Dispute settlement 34
(7) Investment Policy 37
(i) Foreign direct investment 37
(ii) Portfolio investment 40
(iii) International investment agreements 40
III. TRADE POLICIES BYMEASURE 41
(1) Overview 41
(2) Measures Directly Affecting Imports 42
(i) Registration anddocumentation 42
(ii) Customs valuation, clearance andinspection 43
(iii) Tariffs andadditional duties 44
(iv) Variable import levies 58
(v) Other levies andcharges 58
(vi) Minimum import prices 60
(vii) Import prohibitions, licensing andstate trading 60
(viii) Import quotas 68
(ix) Import cartels 68
(x) Countertrade 68
(xi) Standards andother technical regulations 68
(xii) Government procurement 71
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(xiii) Local-content schemes 72
(xiv) Anti-dumping andcountervailing measures 73
(xv) Safeguard actions 76
(xvi) Measures implemented inexporting countries 76
(xvii) Balance-of-payments measures 76
(xviii) Import privileges extended tofree-trade zones 77
(3) Measures Directly Affecting Exports 77
(i) Registration anddocumentation 77
(ii) Preshipment inspection andquality control 78
(iii) Export taxes, charges andlevies 80
(iv) Minimum export prices 80
(v) Export prohibitions, licensing andstate trading 80
(vi) Export quotas 83
(vii) Export cartels 84
(viii) Voluntary restraints, surveillance andsimilar measures 84
(ix) Measures maintained byimporting countries 84
(x) Export subsidies 85
(xi) Duty andtaxconcessions 85
(xii) Export finance 85
(xiii) Export insurance andguarantees 85
(xiv) Export promotion andmarketing assistance 86
(xv) Free-trade zones 86
(4) Measures Affecting Production andTrade 89
(i) Adjustment andregional assistance 89
(ii) Subsidies andtaxconcessions 92
(iii) Industrial development policies 95
(iv) Assistance forresearch anddevelopment 101
(v) Competition laws andregulations 101
(vi) Trade-related investment measures (TRIMs) 102
(vii) Trade-related intellectual property rights (TRIPS) 103
IV. TRADE POLICIES BYSECTOR 107
(1) Overview 107
(2) Agriculture andfisheries 108
(i) Agriculture 108
(ii) Thepolicy framework 113
(iii) Trade policies bymajor product 121
(iv) Fisheries 125
(3) Food Products 126
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(4) Mining andPetroleum Products 128
(i) Mining 128
(ii) Petroleum products 129
(5) Manufacturing 130
(i) Recent developments 130
(ii) Textiles andClothing 132
(iii) Pharmaceutical products 140
(iv) Steel 143
(v) Automobiles andautocomponents 145
(vi) Electronics andcomputer software 149
(6) Services 152
(i) Commitments under theGeneral Agreement onTrade
andServices (GATS) 152
(ii) Financial services 153
(iii) Transportation 159
(iv) Telecommunications 166
(v) Tourism 169
(vi) Software services 171
REFERENCES 173
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CHARTS
Page
I. THE ECONOMIC ENVIRONMENT
I.1 Openness andintegration, 1985/86-1996/97 4
I.2 Fiscal adjustment andtariff duties, 1990/91-1996/97 5
I.3 Product composition ofmerchandise trade, 1980/81 and1995/96 11
I.4 Direction ofmerchandise trade, 1990/91 and1995/96 12
III. TRADE POLICIES BYMEASURE
III.1 Tariff structure byrates, 1997/98 47
III.2 Tariff structure bysector, 199798 47
III.3 Tariff escalation by2-digit ISIC industry, 1997/98 49
III.4 Licensing restrictions byproducts, 1April 1997 63
III.5 Coverage ofSpecial Import Licences (SILs) byproduct, 1April 1997 66
III.6 Canalized exports tototalmerchandise exports, 1988/89-1996/97 83
IV. TRADE POLICIES BYSECTOR
IV.1 Trade inagricultural products, 1991/92 and1995/96 110
IV.2 Trade inagricultural products, bytrading partner, 1991/92 and1995/96 111
IV.3 Trade inmanufactures, byISIC category, 1991/92 and1995/96 131
IV.4 Exports ofclothing andtextiles, bydestination, 1991/92 and1995/96 134
IV.5 Composition ofthesoftware industry, 1994/95 172
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TABLES
Page
I. THE ECONOMIC ENVIRONMENT
I.1 Economic performance ofIndia, 1991-97 2
I.2 Major features oftheIndian economy, 1990-97 3
I.3 Foreign investment bysource andactivity, 1990-97 14
I.4 Intra-industry trade byIndia 1980/81, 1990/91 and1995/96 15
I.5 Government 'smacroeconomic projections 2001/02 17
II. TRADE AND INVESTMENT REGIMES
II.1 Indian legislation relating totrade 28
II.2 Status ofselected notification requirements totheWTO, asatFebruary 1998 29
II.3 Disputes involving India intheGATT andWTO 35
II.4 Sectors eligible forautomatic foreign technology andforeign equity approval 39
III. TRADE POLICIES BYMEASURE
III.1 Tariff structure ofIndia 1990/91 to1997/98 46
III.2 Tariff byprocessing stage, 1990-98 48
III.3 Tariff byproducts, average import-weighted rates, 1990/91-1997/98 49
III.4 Keyfeatures oftheconcessional entry schemes inIndia 50
III.5 Bound tariff rates andeffective rates ofduty 54
III.6 Plurilateral preferential trading agreements 55
III.7 Bilateral preferential trading agreements 57
III.8 Rules oforigin 57
III.9 Indirect taxstructure oftheCentral Government excluding taxes on
international trade, 1993/94 and1997/98 59
III.10 Import prohibitions, 1993 and1997 62
III.11 Changes initems subject toimport licensing since 31March 1993 64
III.12 Access toSpecial Import License (SIL) 65
III.13 Canalizing agencies andproducts (imports) 67
III.14 Anti-dumping actions, upto30June 1997 74
III.15 Export prohibitions, 1993 and1997 81
III.16 Keybenefits extended tofree-trade zones, 1April 1997 88
III.17 Status ofsickindustry cases referred totheBIFR asofNovember 30,1997 90
III.18 Incentives/concessions offered tosmall-scale industries (SSIs) 91
III.19 Explicit (non-plan) subsidies 93
III.20 Industries subject tocompulsory industrial licensing inIndia, December 1997 96
III.21 Items reserved forthesmall-scale sector 97
III.22 Budgetary support topublic sector enterprises inIndia, 1996/97 and1997/98 100
IV. TRADE POLICIES BYSECTOR
IV.1 Overview ofIndian agricultural output, 1991-97 109
IV.2 India'saggregate measure ofsupport, 1995/96 112
IV.3 Procurement/minimum support prices inIndia, 1992/98 114
IV.4 Direct andindirect support measures forIndian agriculture 118
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Page
IV.5 Policies inmain agricultural sectors 122
IV.6 Overview ofIndian fisheries production, 1991-97 125
IV.7 Evolution ofIndian food products, 1991-97 127
IV.8 Theevolution ofthetextiles andclothing industry, 1991-96 132
IV.9 India'stextile andgarment quota policies 137
IV.10 Access totheIndian market under bilateral agreements 139
IV.11 Production, export andimport ofpharmaceuticals 140
IV.12 Changes made byDrugs Policy, 1994 142
IV.13 Evolution oftheironandsteel industry 144
IV.14 Evolution oftheIndian automobiles sector, 1994-97 146
IV.15 Joint ventures intheIndian automobile industry, 1991-97 148
IV.16 Production oftheelectronics sector, 1993-97 150
IV.17 Public sector bank performance indicators, 1992-97 155
IV.18 Keyfeatures ofthemaritime sector 160
IV.19 Thetelecommunications sector 1985-97 166
IV.20 Development ofthetourist industry, 1986-97 169
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APPENDIX TABLES
Page
I. THE ECONOMIC ENVIRONMENT
AI.1 Industrial production index, 1990-97 181
AI.2 Evolution oftheservice sector, 1980-96 182
AI.3 Exports bygroup ofproducts, 1980-96 183
AI.4 Imports bygroups ofproducts, 1980-96 184
AI.5 Merchandise exports bydestination, 1980-96 185
AI.6 Merchandise imports byorigin, 1980-96 186
AI.7 India'sintra-industry trade withtheworld bytheGATT Tariff Study
Categories, 1980/81, 1990/91 and1995/96 187
AI.8 India'sintra-industry trade withtheEuropean Union bytheGATT Tariff
Study Categories, 1980/81, 1990/91 and1995/96 188
AI.9 India'sintra-industry trade withtheUnited States bytheGATT Tariff
Study Categories, 1980/81, 1990/91 and1995/96 189
II. TRADE AND INVESTMENT REGIMES
AII.1 Consumer goods sectors inwhich dividend balancing isrequired 190
III. TRADE POLICIES BYMEASURE
AIII.1 Effective tariff andbindings, byHSchapter 191
AIII.2 End-use concessional tariff 195
AIII.3 Imports licensed (restricted) inIndia, 1April 1997 200
AIII.4 Items subject toexport licensing inIndia, 1993 and1997 205
AIII.5 Canalized exports andagencies, 1993 and1997 207
AIII.6 Volume ofcanalized exports from India, 1988-97 209
AIII.7 Non-tariff barriers byIndia'smajor trading partners, asofJanuary 1998 210
AIII.8 Anti-dumping actions against Indian exports asofJanuary 1998 211
AIII.9 Countervailing actions against Indian exports asofJanuary 1998 212
AIII.10 Export promotion andmarketing assistance bytheGovernment 213
AIII.11 Sectoral composition ofbank credit bymajor sectors, 1994-97 214
AIII.12 Interest ratesubsidies, 1995-98 215
IV. TRADE POLICIES BYSECTOR
AIV.1 India'sm.f.n. tariff byISIC category, 1993 and1997 216
AIV.2 Effective rates ofprotection inselected sectors 220
AIV.3 Summary ofIndia'sspecific commitments inservices 221
AIV.4 Summary ofArticle II(m.f.n.) exemptions listed byIndia 223
AIV.5 Basic telecommunications licensees 224
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SUMMARY OBSERVATIONS
1. TheIndianGovernmentinitiatedamajor
programme ofeconomic reform and
liberalization in1991, reversing apolicy
direction followed fordecades. Since then,
successive Governments have progressively
reduced tariff protection andrelaxed and
simplified India'srestrictive import licensing
regime. Internal reforms haveincluded reduced
control overlocational andindustrial licensing
controls, inaddition tosome loosening of
controls onadministered prices insomesectors.
Inthisprocess, however, thepolicy focus was
principallyonliberalizationofcapitalgoodsand
inputs forindustry, toencourage domestic and
export-oriented growth: byandlarge, imports
ofconsumer goods remained regulated.
2. Thesereformscontributedtoadramatic
increase ingrowth inthe1990s, accompanied
bylargerflowsofinwardforeigninvestmentand
increased international trade. Thebalance of
payments situation alsoimproved greatly. To
build onthissuccess, India hasrecognized the
needtocontinue theeconomic reform process,
withanincreased emphasis nowonimproving
infrastructure, which appears tobeamajor
constraint onthegrowth ofindustrial activity
andexports; further liberalizing trade through
reductions intariffs andnon-tariff measures;
reforming thesubsidy structure, which is
estimated tocostaround 14percentofGDP;
andrestructuring public sector enterprises,
which continue tobeafiscal drain. These
reforms, iffullyimplemented, should lower the
anti-export biasthatisstillinherent inboththe
trade andindustrial support structures. This
would also permit India tolower export
incentives, thus moving towards amore
outward, rather thanexport, oriented policy
framework, further integrating India intothe
multilateral system andproviding afirmbasis
forfuture sustained growth.
(1) TheEconomic Environment
3. Since itsprevious Review in1993, India
hascontinued liberalizing itseconomy, albeit
atasomewhat slower pace. Economic reformsinitiatedin1991haveproducedstronglypositive
results, mostnotably annual realgrowth rates
averaging 7percentbetween 1993/94 and
1996/97, ledbystrong industrial recovery.
Overthesameperiod,merchandiseexportsgrew
atanannual rateofsome20percentincurrent
USdollar terms. In1996/97, however, some
economicslowdownoccurredandexportgrowth
fellto8percent, partly asaresult of
infrastructural bottlenecks andindicative ofthe
needforcontinued structural reform.
4. Inthearea oftrade reform, atariff
reduction programme hascontinued andisto
progress further. Average rates have
consequently declined. Thenumber ofgoods
subject toimport licensing restrictions hasbeen
gradually reduced albeit withanemphasis on
industrial andcapital, rather thanconsumer
goods untilrecently. Theforeign investment
regime hasalsobeensimplified withanumber
ofsectors being opened uptoforeign direct
investment.
5. Further structural reform needs the
support ofcontinued macroeconomic stability.
Animportant issueisthereduction ofthepublic
sector deficit, estimated at8.5percentofGDP
in1996/97. TheCentral Government deficit fell
to5percentin1996/97, butadjustments to
reduce State deficits have notbeen as
forthcoming andshoring upparts ofthepublic
sector, prior toplanned reform and
disinvestment,hasbeenexpensive.Withthecost
ofsupporting important sectors such as
agriculture andrelated transfer programmes,
itisunclear howfarthepublic sector deficit
maycrowd outinvestment. Overall, subsidies
remain adrain onGovernment revenue andlead
toamisallocation ofresources.
(2) Trade Policy Features -Type and
Incidence ofTrade Measures
6. Since 1993, tariff reform hasbrought
thesimple average ofallrates down to35per
centin1997/98, from71percentin1993/94;
theprocess oftariff reform andreduction is
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ongoing. However, thestructure ofthetariff
remains complex, withalargenumber ofbands;
inseveral industries, notably paper andpaper
products, printing andpublishing, wood and
woodproductsandfood,beveragesandtobacco,
tariff escalation remains high.
7. Reforms tothesystem ofrestrictive
import licensing havemoved ahead steadily, but
further steps remain tobetaken andare
encouraged. Ingeneral, products arefirst
moved toaSpecial Import Licence (SIL) list,
withproducers being exposed tolimited foreign
competition, before theproduct ismoved tothe
listoffreely importable goods. Thelistoffreely
importable goods currently covers some
68percentoftarifflines:remainingrestrictions
cover mainly consumer goods, andIndia has
proposed asixyearphase-out programme for
these restrictions. India iscurrently indispute
settlement proceedings withtheUnited States
regardingitsremainingrestrictions.
Approximately 10percentofalltarifflinesare
presently subject totheSILlist,increasing SIL
coverage byaround one-third from 1995/96.
India also continues tousestate trading
monopolies toretain somecontrol overexports
andimports ofcertain products (canalization).
Since theprevious Review, theproduct coverage
ofimports through such canalization has
increased slightly; however, private operators
canalsotrade insome ofthese canalized
products andtheshare ofsuchproducts intotal
imports hasdeclined to19percent,compared
to27percentattheturnofthedecade.
8. Thereforms intariff andnon-tariff
barriers havenotbeenaccompanied bysimilar
reforms toexport subsidies andincentives.
India continues tomaintain alarge number of
incentive programmes forexports, incentives
which,accordingtotheauthorities,areintended
tocompensate forimport restrictions. These
include income taxexemptions, subsidized
credit, export insurance andguarantees, export
promotionandmarketingassistanceschemesand
accesstosomeimportsthatarenormallysubject
torestrictive licensing. Theoverall scope ofsuch incentives hasbeen enhanced, turning
India'soverall policy stance more explicitly
export-oriented andincreasing thepossibility
ofresource misallocation.
(3) Sectoral Policy Developments
(i) Agricultural products
9. Theagricultural sector hasthusfar
remained relatively untouched bythereform
programme. Nevertheless, agriculture has
benefited fromtheprice realignments resulting
frommanufacturing sector tradereforms. Some
progress hasalsobeenmade intheremoval of
state controls ontheinter-state movement of
certain grains andofadministered prices;
however, controls ontheexport andimport of
certain products through licensing policies
remain.
10. DuringtheUruguayRound,Indiabound
itsagricultural tariffs atceiling rates ranging
from0to300percent. Inreality, applied rates
for1997/98 areconsiderably lower, averaging
26percentforthesector, withapeak of
45percent. Thisishowever likely tochange
asIndia tariffies itspresent licensing
restrictions; inthiscontext, India iscurrently
renegotiating itstariffbindings onsomezero-or
low-duty products. Progress inchanging the
structureofagriculturalincentivesandsubsidies
islikely toremain constrained bythe
Government'spolicyofprovidingsupportprices
tofarmers andensuring lowcostsupplies tothe
population through thepublic distribution
system.
(ii) Food processing
11. Although tariffreforms haveresulted in
average duties inthefoodsector being halved
since 1993 (currently around 29percentfor
foodproducts and134percentforbeverages),
industrial andimport licensing restrictions
continue tobemaintained foranumber of
industries. Inaddition, anumber ofproducts
arereserved forproduction bythesmall scale
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sector. Production bythefoodmanufacturing
sector hasgrown rapidly, especially following
increased foreign investment where upto51and
100percent ofparticipation isallowed
automatically forforeigners andnon-resident
Indians, except forproducts reserved forthe
small scale sector.
(iii) Mining andpetroleum
12. Majorpolicychangessince1993include
automatic permission forforeign equity
participation ofupto50percentinthemining
of13minerals; foreign equity above thisshare
must beapproved bytheForeign Investment
Promotion Board (FIPB). Inanattempt to
increase exploration, liberalization hasalso
taken place inlicenses granted forexploration.
Trade reforms include areduction intariffrates
toaverages ofaround 10percent(from 46per
centin1993/94) fornon-ferrous andironores
andto13percent(from 65percentin1993/94)
forcoal.
13. India depends onimports ofpetroleum.
Prices, until recently, continued tobe
administered although some effort hasbeen
made since 1993 toraise these prices
periodically toreduce thefiscal burden ofthe
"oil-pool". Despite this,thegrowing subsidy
for petroleum products prompted the
Government in1997 todeclare aphase outof
most administered prices inthesector. The
Government hasrecently also placed an
emphasis onincreased oilexploration
domestically toreduce import dependence,
through theNewExploration Licensing Policy
which offers companies investment incentives
suchastaxholidays toinvest inIndia.
(iv) Manufacturing
14. Reforms havebeenmostwidespread in
themanufacturing sector, including reductions
inaverage tariff rates, import licensing
restrictions,compulsoryindustriallicensing,and
aliberalization offoreign investment policies.
Thesector hasresponded positively tothereforms,althoughsomeslowdowningrowthhas
occurred in1996/97 due, inpart, to
infrastructure constraints.
15. Since India'sprevious Review, the
average tariff onimports ofmanufactures
(ISIC3) hasbeenlowered from 73toaround
36percentin1997/98. Despite this,tariff
escalation insomeareas remains high,sincethe
largestreductionsintariffrateshavetakenplace
forcapitalgoodsandintermediateinputs.Tariff
escalation isimportant insectors suchaspaper
andpaperproductsandtosomeextentintextiles
andclothing, where India hastraditionally
maintained, andstillhas, high levels of
protection. Incertain sectors, such as
automobiles, tariffreform hashadlittleimpact
onimports offullyassembled items, because the
liberalizationofforeigndirectinvestmentwithout
accompanying reform ofimport licensing
restrictions haspromoted local investment in
manufacturing.Approximately1,977tarifflines,
attheHSeight-digit level, inthemanufacturing
andmining sectors, continue tobesubject to
import licensing restrictions. Asnoted, the
authorities haveproposed aphase outofthese
restrictions overasixyearperiod.
16. Foreigninvestmenthasalso
beenconsiderably simplified, withanenlarged
listofindustries, including theautomobile
sector, where foreign equity participation ofup
to51or74percent can take place
automatically. Compulsory industrial licensing
isnowlimited tonineindustries, compared to
18during India'sprevious Review; some
reduction inthelistofitems reserved for
production bythesmall-scale sector hasalso
occurred.
(v) Services
17. Servicescontributemorethan
40percent toIndia'sGDP. Their
overall growth has been underpinned by
rapid expansion ofactivities inthearea
offinance, and,toaleser extent, commerce
andtourism.
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18. Significant headway hasbeenmade in
liberalizing telecommunications. While the
government-controlled corporation VSNL
operates asthe exclusive provider of
international long-distance services andthe
monopoly Department ofTelecommunications
forthedomestic long-distance services, private
investorsinjointventuresareallowedtoprovide
intra-voice telephone services invarious States
andmetro areas. Many value added services
-includingvoicemail,radiopagingandcellular
mobile telephone -arenowopento49percent
foreign equity participation. Inthearea of
financial services, thebanking sector remains
fairly closed toforeign participation, while the
insurance sector isstillmonopolized bythe
Government. Under theFinancial Services
Agreement, theGovernment hasoffered to
remove reciprocity requirements inthebanking
sector andalsoraised theannual limitonnew
banking licenses from eight to12.
Other services areas -suchasshipping, roads,
ports andair-arebeginning toopenup,but
foreign participation remains relatively lowand
significant administrative barriers remain.
(4) IndiaintheMultilateralTradingSystem
19. India was, from thestart, anactive
member oftheGATT andafounding member
oftheWTO. Asaresult oftheUruguay Round,
India bound 67percentofitstariff lines;
linesremaining unbound include those on
certain industrial items andmany consumer
products. Under theGeneral Agreement
onTrade inServices (GATS), India hasmade
commitments in33activities (compared withan
average of23fordeveloping countries) outof
atotalof161.Inaddition, India alsotookpart
intheInformation Technology Agreement -
coveringcomputers,telecommunication
equipment, semiconductors, semiconductor
manufacturing equipment, software, and
scientificinstruments.India'santi-dumpingand
countervailing legislations havebeenamended
inlinewithrelevant WTO Agreements. With
respect tointellectual property rights, India's
Copyright Law was amended in1994inaccordance with itsobligations under
theTRIPS Agreement. India plans tomake use
ofthe transition period available to
developing member countries oftheWTO to
implement other changes toitsintellectual
property rights; however, inadispute withthe
United States over"pipeline" patent protection
andexclusivemarketingrights,the
WTO'sDispute Settlement Bodyhasfound that
India isobliged toimplement thenecessary
measures. India iscurrently intwo
WTO disputes: oneasadefendant with
theUnited States, asnoted above, andtheother
asacomplainant with Hungary, relating
torestrictions ontextiles andclothing.
20. Interms ofWTO tariff commitments,
India hasbound 67percentofitstariffs
inmanufacturingand100percentinagriculture
inconsequence ofitsUruguay Round
commitments; however, mostofthesebindings
areatceiling levels, ranging upto300percent
inagriculture. Thebound simple average
tariff tobeimplemented bytheyear2005 is
54percent,compared withthepresent applied
rateof35percent,itselfsettodecline further.
Intheservices area, theinitial commitments
made under GATS are such that the
existing policy framework iseither moreliberal,
orequivalent tothebound measures. In
bothareas, thus, India, like most other
developing countries, hasputaceiling onits
protective structure, rather thanbinding itat
effective levels, while pursuing unilateral
liberalization.
21. India maintains several plurilateral
agreements with countries intheregion:
theangkok Agreement, theSouth Asian
Preferential Trading Agreement (SAPTA),
andtheGlobal System ofTrade Preferences
(GSTP). Further concessions tosome of
these ountries are also provided within
theframework ofbilateral trade agreements.
However, theimpact ofthese agreements on
India'strade seems tohave been minimal.
India'merchandise imports resulting fromthe
eighth Bangkok Agreement and SAPTA
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Page xv
member countries accounted foronly3percent
oftotal merchandise imports and about
7percent ofitsmerchandise exports
in1995/96.
(5) Outlook
22. India'sincreased openness and
integration withtheworld economy havebeen
important factors inexplaining thehealthy
economic growth recorded inthe1990s. The
recent economic slowdown demonstrates the
needforcontinued andevenaccelerated reform.
Transparencyindecision-making,especiallywith
regard toforeign investment, should alsobe
increased ifIndia istoreach itsforeign
investment targets. Continued opening ofthe
trade regime andliberalization oftheforeign
investmentregimearelikelytobetranslatedinto
even higher growth rates than have been
experienced sofar.23. Other factors constraining economic
growth mayinclude thefiscal deficit, which
may, forexample, contribute tohighinterest
rates. There isalsoconcern withregard tothe
large share ofsubsidies ingovernment
expenditures: while many ofthese areaimed
atassisting theverypoor, itisnotclear that
thistarget isbeing reached. Second, thepoor
quality andcoverage ofcertain infrastructure
facilities -notably power andtransportation
services -which areallessential forthe
development ofboth domestic andexport
markets, needs tobeaddressed. Third, reform
efforts inindustrial restructuring, needtobe
accelerated, especially toenable theclosure of
unviable unitsinorder torelease resources for
useinmore productive areas. Internal
deregulationcouldthereforecomplementIndia's
ongoing trade liberalization process in
promoting amore efficient andproductive
economic structure.
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