Banking and finance

The partition of India in 1947 adversely impacted the economies of Punjab and West Bengal, paralyzing banking activities for month. The Government of India initiated measures to play an active role in the economic life of the nation, and the Industrial Policy Resolution adopted by the government in 1948 envisaged a mixed economy. This resulted into greater involvement of the state in different segments of the economy including banking and finance. The major steps to regulate banking included: The Reserve Bank of India, India's central banking authority, was established in April 1935, but was nationalized on January 1, 1949 under the terms of the Reserve Bank of India (Transfer to Public Ownership) Act, 1948 (RBI, 2005b). In 1949, the Banking Regulation Act was enacted which empowered the Reserve Bank of India (RBI) "to regulate, control, and inspect the banks in India". The Banking Regulation Act also provided that no new bank or branch of an existing bank could be opened without a license from the RBI, and no two banks could have common directors.

The Indian money market is classified into the organised sector, comprising private, public and foreign owned commercial banks and cooperative banks, together known as scheduled banks, and the unorganised sector, which includes individual or family owned indigenous bankers or money lenders and non-banking financial companies. The unorganised sector and microcredit are still preferred over traditional banks in rural and sub-urban areas, especially for non-productive purposes, like ceremonies and short duration loans. Prime Minister Indira Gandhi nationalised 14 banks in 1969, followed by six others in 1980. Made it mandatory for banks to provide 40% of their net credit to priority sectors like agriculture, small-scale industry, retail trade, small businesses, etc. to ensure that the banks fulfil their social and developmental goals. The number of bank branches has increased from 8,260 in 1969 to 72,170 in 2007. The population covered by a branch decreased from 63,800 to 15,000 during the same period. The total bank deposits increased from 5,910 crore (US$1.08 billion) in 197071 to 3,830,922 crore (US$697.23 billion) in 200809. Despite an increase of rural branches, from 1,860 or 22% of the total number of branches in 1969 to 30,590 or 42% in 2007, only 32,270 out of 500,000 villages are covered by a scheduled bank.

Since liberalisation, the government has approved significant banking reforms. While some of these relate to nationalised banks, like encouraging mergers, reducing government interference and increasing profitability and competitiveness, other reforms have opened up the banking and insurance sectors to private and foreign players.

External trade and investment

Before the liberalization of the Indian economy our Balance of Payments (BOP) is very high there are no foreign reserves. With the Liberalization, privatization and Globalization of the economy and the government policies on exports and imports Many of the foreign countries which are members of the trading blocks like SAARC, WTO entered into India to do export and imports business trade with India, trade agreements with its neighbors and is seeking new ones with the East Asian countries and the United States, Preferential Trade Agreements with Afghanistan, Chile, and Mercosur. Exports in, 2010 are valued at Rs 485206.77 crores. Imports in, are valued at Rs 743338.09 crores. The trade deficit in 2010 is estimated at Rs 261017 crores. The total imports are 5188024 crores in the year 2009-10 and the exports are Rs 322424 crores in the year 2009-10.It can be envisaged that India would do the better in the international trade business with their neighboring countries in future and develop the Indian economy.

1.

Anti-dumping measures have been liberally used to protect trade, and the country is among the few in the world that continue to ban foreign investment in retail trade.

2.

Trade agreements with its neighbours and is seeking new ones with the East Asian countries and the United States, Its regional and bilateral trade agreements, Preferential Trade Agreements with Afghanistan, Chile, and Mercosur (the latter is a trading zone between Brazil, Argentina, Uruguay, and Paraguay).

3.

Exports - Exports in, 2009-10 are valued at Rs 845534 crores with a growth rate of 0.57% higher than the level of Rs 840755. Crores in, 2009. Imports - Imports in, are valued at Rs 1363736 crores with a growth declined to -0.75 % over the level of imports valued at Rs 1374436 crores is lower than the deficit of Rs.533680 crores in, 2008.

4.

Region wise exports are meant for Asia & ASEAN countries ranging from Rs 139650.70 crores in 2004 to Rs 743338.09 in the year 2009-10

5.

In the year 2009-2010 the bulk imports are Rupees 325992.63 crores with a growth of 23.53 % ,pearls ,precious & semi precious stones is Rs 57540.65 crores with a growth of 116.90 % . Imports of machinery are Rs 77738.2 crores with a growth of 36.76 % and the other imports such as medical ,pharmacy products , chemicals etc. are Rs 268387.36 crores with a growth of 12.46 % .

6.

In the year 2009-10 the exports of plantation the growth rate is 20.77% to Rs 4305.39 crores, Agriculture and Allied Products the growth is 24.92% to Rs 54023.09 crores. Marine exports from India in the year 2009-10 the growth is 18.98% to Rs 9032.78 crores. Exports of Ores and Minerals In the year 2009-10 the

growth is 25.82% to Rs 34179.46 crores .Leather and leather manufactures in the year 2009-10 the growth is 5.31% to Rs 12392.02 crores. Gems and Jewellery in the year 2009-10 the growth is 12.70% to Rs 107105.75 crores, Chemicals, Pharmaceuticals & Cosmetics, Plastics & Linoleum, Rubber; Glass & Other Products in the year 2009-10 the growth of exports is 20.12% to Rs 100403.88 crores, Engineering goods in the year 2009-10 the growth is 58.85% to Rs 183373.48 crores, electronic goods in the year 2009-10 the growth is 20.64% to Rs 26088.66 crores . The main items of exports of Handicrafts are various types of works of art, such as Metal Artware, Textiles (hand printed), Woodwares and Zari goods. In the year 200910 the growth of exports of textiles is 10.03% to Rs 72578.38 crores and that of the handicrafts declined growth is -10.22%. to Rs 670.83 crores

1991 economic reform

Prior to the 1991 economic liberalisation,India was a closed economy due to the average tariffs exceeding 200 percent and the extensive quantitative restrictions on imports. Foreign investment was strictly restricted to only allow Indian ownership of businesses. Since the liberalisation, India's economy has improved mainly due to increased foreign trade

Global trade relations

Until the liberalisation of 1991, India was largely and intentionally isolated from the world markets, to protect its economy and to achieve self-reliance. Foreign trade was subject to import tariffs, export taxes and quantitative restrictions, while foreign direct investment (FDI) was restricted by upper-limit equity participation, restrictions on technology transfer, export obligations and government approvals; these approvals were needed for nearly 60% of new FDI in the industrial sector. A large percentage of the capital flows consisted of foreign aid, commercial borrowing and deposits of non-resident Indians. India's exports were stagnant for the first 15 years after independence, due to general neglect of trade policy by the government of that period. Imports in the same period, due to industrialisation being nascent, consisted predominantly of machinery, raw materials and consumer goods. Since liberalisation, the value of India's international trade has increased sharply, with the contribution of total trade in goods and services to the GDP rising from 16% in 1990 91 to 47% in 200810. India's major trading partners are the European Union, China, the United States of America and the United Arab Emirates. Major export commodities included engineering goods, petroleum products, chemicals and pharmaceuticals, gems and jewellery, textiles and garments, agricultural products, iron ore and other minerals. Major import commodities included crude oil and related products, machinery, electronic goods, gold and silver. In November 2010, exports increased 22.3% year-on-year to 85,063 crore (US$15.48 billion), while imports were up 7.5% at 125,133 crore (US$22.77 billion). Trade deficit for the same month dropped from 46,865 crore (US$8.53 billion) in 2009 to 40,070 crore (US$7.29 billion) in 2010.

India is a founding-member of General Agreement on Tariffs and Trade (GATT) since 1947 and its successor, the WTO.

Balance of payments

Since independence, India's balance of payments on its current account has been negative. Since economic liberalisation in the 1990s, precipitated by a balance of payment crisis, India's exports rose consistently, covering 80.3% of its imports in 200203, up from 66.2% in 1990 91. India's growing oil import bill is seen as the main driver behind the large current account deficit, which rose to $118.7 billion, or 9.7% of GDP, in 200809. Between January and October 2010, India imported $82.1 billion worth of crude oil. Due to the global late-2000s recession, both Indian exports and imports declined by 29.2% and 39.2% respectively in June 2009. The steep decline was because countries hit hardest by the global recession, such as United States and members of the European Union, account for more than 60% of Indian exports. However, since the decline in imports was much sharper compared to the decline in exports, India's trade deficit reduced to 25,250 crore (US$4.6 billion).

As of June 2011, exports and imports have both registered impressive growth with monthly exports reaching $25.9 billion for the month of May 2011 and monthly imports reaching $40.9 billion for the same month. This represents a year on year growth of 56.9% for exports and 54.1% for imports. India's reliance on external assistance and concessional debt has decreased since liberalisation of the economy, and the debt service ratio decreased from 35.3% in 199091 to 4.4% in 200809. In India, External Commercial Borrowings (ECBs), or commercial loans from non-resident lenders, are being permitted by the Government for providing an additional source of funds to Indian corporate.

Foreign direct investment

Share of top five investing countries in FDI inflows. (20002010)

Rank

Country

Inflows (million USD)

Inflows (%)

Mauritius

50,164

42.00

Singapore

11,275

9.00

USA

8,914

7.00

UK

6,158

5.00

Netherlands

4,968

4.00

As the third-largest economy in the world in PPP terms, India is a preferred destination for FDI. During the year 2011, FDI inflow into India stood at $ 36.5 billion, 51.1% higher than 2010 figure of $ 24.15 billion. India has strengths in telecommunication, information technology and other significant areas such as auto components, chemicals, apparels, pharmaceuticals, and jewellery. India has positioned itself as one of the front-runners of the rapidly growing Asia-Pacific region. India has a large pool of skilled managerial and technical expertise. The size of the middle-class population stands at 300 million and represents a growing consumer market. Industrial policy reforms have substantially reduced industrial licensing requirements, removed restrictions on expansion and facilitated easy access to foreign technology and

foreign direct investment FDI. The upward moving growth curve of the real-estate sector owes some credit to a booming economy and liberalised FDI regime. In March 2005, the government amended the rules to allow 100% FDI in the construction sector, including built-up infrastructure and construction development projects comprising housing, commercial premises, hospitals, educational institutions, recreational facilities, and city- and regional-level infrastructure. Despite a number of changes in the FDI policy to remove caps in most sectors, there still remains an unfinished agenda of permitting greater FDI in politically sensitive areas such as insurance and retailing. The total FDI equity inflow into India in 200809 stood at 122,919 crore (US$22.37 billion), a growth of 25% in rupee terms over the previous period. India's trade and business sector has grown fast. India currently accounts for 1.5% of world trade as of 2007 according to the World Trade Statistics of the WTO in 2006.