ECONOMY

With over 1 billion inhabitants, India has a great diversity of peoples, religions, and languages, as well as a huge variety of landscapes, and soil and climatic variations. As a result, India is a patchwork of traditional farming communities and modern industry and services, including information technology (IT).

From the second half of the eighteenth century through 1947, British colonial rule shaped the Indian subcontinent. The British introduced railroads, telephones and telegraphs, electricity, universities, and some modern industries, and India also inherited a strong bureaucracy and modern legal system from the British. However, in the colonial era, India declined from being one of the more prosperous regions in the world to one of the poorest. It is estimated that India’s share in total world income fell from 22.6 percent in 1700, when the Mogul Empire had still not entered its final decline, to a mere 3.8 percent in 1952. Available evidence since the middle of the nineteenth century shows that the per capita national income in India virtually stagnated for about a century, while per capita income in much of the rest of the world grew several fold. As a result, at the time of independence in 1947, India greatly lagged behind much of the world economically, and the overwhelming majority of its population lived in poverty.

ECONOMIC CHALLENGES

India is behind developed and middle-income countries in terms of its achievement in human development. About one-third of its adult population is illiterate, with significant differences between female literacy rates (48.3 percent) and male literacy rates (70.2 percent) and between urban and rural populations. Mortality rates among infants and children are high; there are 34.6 infant deaths on an average for every thousand live births. Life expectancy at birth (in 2006) was 65.6 for females and 63.9 years for males. To improve health care and education for such a large population is a major economic challenge for India.

In 2000, about 35 percent of India’s population had a daily income of less than $1 a day, an international measure of poverty defined by the United Nations (UN) as part of its so-called Millennium Development Goals in 2000. Using a somewhat lower poverty line, Indian government estimates show that the percentage of the poor has fallen from 55 percent in 1973–1974 to 26 percent in 1999–2000 and to 25 percent in 2005.

India has a large number of people who have been socially deprived for centuries owing to historical discrimination and isolation from the mainstream of the society under the traditional caste system. These people have been classified as scheduled caste (SC)—largely the people known as Dalits or "Untouchables," formerly outside the caste system—and scheduled tribes (ST) in the Indian constitution. Respectively, SCs and STs account for 16 and 8 percent of the total population. These people are at the bottom of the social ladder, and a large number of the poor are among the SCs and STs. The Indian constitution has provisions for positive discrimination in favor of such groups, including reserved places in government jobs and educational institutions.

After independence, India adopted a mixed economy model with an emphasis on an import substitution strategy—the production of goods or services that were formerly imported but can be produced in a country to restrict imports. An import substitution program helps a country industrialize but normally includes a measure of protectionism (restrictions on foreign imports). This strategy was adopted by India’s first prime minister, Jawaharlal Nehru (1889–1964; in office 1947–1964), who advocated a program to introduce socialist policies slowly. He opted for a centrally planned development approach with the adoption of five-year plans. While public and private sectors coexisted, a central role was assigned to the state’s planning machinery in decisions concerning the allocation of investment. Agricultural production was mostly left in private hands, but the state played a major role in industrial production. The industrial policy emphasized expansion of capital- and technology-intensive heavy industries like machinery, iron and steel, railroad locomotives, and motor vehicles. The establishment of new private industrial facilities was highly regulated, requiring a permit from the state. Stress was placed on national self-reliance and import substitution, and foreign trade was restricted through high import tariffs and quotas on imports.

This protectionist framework helped India to lay the foundation for industrialization and technological change after independence. However, it did not help to raise efficiency in the economy. While the private sector was handicapped under the so-called "License Permit Raj," most of the public sector failed to generate the expected surplus. As a result, despite an investment rate of about 20 percent of GDP (gross domestic product, the total value of all the goods and services produced in a country in a fixed term, usually one year), the growth of national income remained low, at 3.5 percent per annum until 1980. With a population growth rate of about 2 percent at the same time, the effective long-trend growth rate was only 1.5 percent in per capita terms. East Asian countries that had more open economies, such as South Korea and Taiwan, grew much faster during this period by taking advantage of an expansion in international trade and foreign investment.

Indian policy makers started to open the economy in a limited way during the 1980s. However, more drastic action followed a serious balance of payments crisis in 1991, when the value of the goods and services imported by India greatly exceeded the value of the goods and services that the nation exported. Consequently, India adopted wide-ranging economic reforms in order to move toward a more market-friendly trade and industrial regime. Indian economic growth improved to above 5 percent per annum during the 1980s and again to about 6 percent from the early 1990s. Early in the twenty-first century, India’s economy grew at over 7 percent a year.

A higher GDP growth, coupled with a slight slowdown in the growth rate of the population, resulted in per capita income growth rates of 3.5–4 percent and above a year. As a result, per capita income has risen more than threefold during the 50 years from 1955 through 2005. An increase in average income of this order marks a break from earlier trends, and India has had one of the fastest-growing economies in the world since the late 1990s.

Analysts believe India has the potential to sustain a high growth rate through the first decades of the twenty-first century. The age distribution of India’s population is perceived as conducive to growth. The number of young people in India is proportionately higher compared to some other developed and developing countries, including China. Demographers have pointed out that the age distribution, along with India’s relatively low life expectancy, could keep the proportion of the working population in India large throughout the early decades of the twenty-first century. This has been identified as a so-called demographic dividend for the growth of India’s economy.

The structure of India’s economy has undergone substantial changes. Agriculture was the dominant sector, accounting for about 55 percent of GDP in the financial year 1950–1951; since then, there has been a steady fall in the share of agriculture in GDP and a corresponding rise in the share of other sectors, particularly services. The contribution of farming to India’s GDP fell to 39 percent in 1980–1981 and to 21 percent of GDP in 2004–2005. The share of industry, which was only about 14 percent in the early 1950s, rose to 24 percent in 1980–1981, reflecting the great emphasis put on industrialization during the 1960s and 1970s. Industry’s share has stagnated just above one-quarter of GDP since 1990; in 2005, industry contributed 27.6 percent of India’s GDP. At the same time, the contribution of the services sector toward GDP has continuously increased. In 1950–1951, services accounted for about 30 percent of India’s GDP, while in 2005, it was estimated that services contributed 53.8 percent.

The unemployment rate in India is low at about 2 percent among the poorer groups early in the twenty-first century. However, some Western agencies estimate that total unemployment was nearer 8.9 percent in 2005. A significant portion of the labor force comprises a hidden category known as disguised unemployment. The withdrawal of the labor of this category, whose members are effectively underemployed, would not affect total production. There are no firm data available to quantify the size of disguised unemployment, which is mostly prevalent in farming and the informal urban economy, but indirect evidence indicates it could be in the range of 5 to 7 percent of the labor force.

As part of the challenge to boost India’s economy, the government embarked on a program of privatization in 1991, when the state was obliged to mortgage a large proportion of its gold reserves to avoid defaulting on its debts. As a result, the authorities sold off state-owned assets, despite the objections of many politicians and the labor unions. Those sectors identified for privatization include oil companies, mineral extraction and refining companies, and both domestic and international air carriers. The reduction of the nationalized sector is perceived as essential for attracting foreign investments and increasing competition. However, the privatization program came to a halt in 2005 as a result of internal political pressure.

As India’s economy rapidly expands, the nation faces serious environmental problems. Industrialization and population growth combine to add to water and air pollution, soil erosion, and deforestation. A toxic leak at the Union Carbide chemical facility in Bhopal in 1984, when more than 3,000 people died, highlighted the environmental issues of rapid industrialization, and since the creation of the Ministry of Environment and Forests (MoEF) in 1986, India’s authorities have attempted to coordinate development and environmental issues. However, many international observers perceive that economic development has taken priority over environmental considerations. Air quality, for instance, is poor in the major metropolitan areas owing to vehicular emissions and industrial smoke. The nation’s energy consumption is rapidly growing—by nearly 210 percent from 1980 through 2001, a faster rate than that recorded by China. Consequently, India’s carbon emissions have rapidly increased, and the nation is not a signatory to the 2002 Kyoto Protocol, an agreement signed by many nations (excluding the United States) to reduce their emissions of greenhouse gases.

A feature of employment in India has been that unemployment increases with social rank and is highest among university graduates. The highest levels of unemployment have been in the age group 20–24 years, largely because there have been insufficient employment opportunities for young well-qualified workers. Educated young people have been unwilling to accept low-income, low-status jobs.

The rapid expansion of IT and high-tech industries and the establishment of English-language international call centers have taken advantage of India’s large numbers of educated English-speaking young people. At the same time, many better-qualified workers, particularly in IT and related industries, have emigrated.

RESOURCES

India is the seventh-largest country in the world, with an area of 1,269,219 sq. miles (3,287,262 sq. km), including areas occupied by Pakistan and China. The country has great diversity, from the triangular peninsular landmass of the Deccan in the south and center, through the plains of the Gangetic Plain, to the high chain of the Himalayas in the north. India’s natural resources include the fertile lowlands of the Gangetic Plain and other river basins, waterways that bring seasonal meltwater from the Himalayas, and the monsoon winds that bring seasonal heavy rain to much of the country. However, given the large population and the demand for fresh water for diverse purposes, the per-capita water availability in the country is low. Currently, only about 40 percent of India’s agriculture is under irrigation, although there is potential to double this.

India is endowed with significant mineral resources, although economic observers believe that these might not be sufficient for its future development and population. India now commercially produces 89 minerals, including fuel minerals, metallic and nonmetallic minerals, and minor minerals. The metallic mineral production includes iron ore, copper ore, chromite and zinc concentrates, gold, manganese ore, bauxite, and lead concentrates. Among the nonmetallic minerals, more than 90 percent of the aggregate value is shared by limestone, magnesite, dolomite, barites, kaolin (china clay), gypsum, apatite (a group of calcium phosphate minerals) and phosphorite, steatite (soapstone), and fluorite.

India is the world’s largest producer of mica blocks and mica splittings and, with a recent large increase in world demand for chromite (by the metallurgical and chemical industries), India has stepped up production and is now the world’s third-largest chromite producer. India also ranks third in the world in the production of coal and lignite, fourth in iron ore production, and sixth in bauxite and manganese ore. India’s coal reserves are widely spread. The most easily worked reserves are in the Chota Nagpur Plateau in the states of Jharkhand and West Bengal, where the main coal-mining region is Jharkhand’s Damodar Valley. The valley, a major industrial region, produces 60 percent of India’s medium-grade coal.

Management of mineral resources is the responsibility of the central government, and the public sector contributes over 85 percent of the total value of mineral production in India. However, the government has stated its intention to withdraw from nonstrategic mineral sectors, and public-sector undertakings are being privatized in a phased manner (although the privatization program halted in 2005). Private, including foreign, companies are increasingly being allowed to explore for and extract various minerals such as crude petroleum, gas, and iron ore. India produces around one-third of the petroleum it needs, mainly from offshore fields along the coast of Maharashtra (the Bombay High Field) and also, in smaller quantities, from Gujarat and Assam.

AGRICULTURE

Agriculture continues to be the dominant source of employment in rural India and accounts for about 60 percent of the total labor force. The share of farming in employment has fallen slowly compared to its share in GDP. With 60 percent of the work force producing 18.6 percent of GDP in 2005, the productivity of a typical worker in farming is one-fourth of that of a worker in the nonagricultural sector. The low level of farming productivity explains the prevalence of poverty in the rural sector.

The area under cultivation increased through the second half of the twentieth century, and arable land now accounts for 48.8 percent of the total area. In some regions, such as the deltas along the east coast and the Gangetic Plain, up to 90 percent of the land is cultivated. The overwhelming majority of farmers are subsistence agriculturalists who own their own small farm. The average farm is around 5 acres (2 hectares), although more than one-half of all farms are considerably smaller. Such small farms can often barely feed the families who work them. Most farmers grow only food crops, particularly cereals. Rice, which is grown where rainfall exceeds 40 inches (about 100 cm) a year, is the principal crop. Wheat, the second-largest cereal crop in India, has a higher yield than rice and is grown in the north and northwest. While rice is a summer-season crop, taking advantage of the monsoon rain, wheat is a cool-season crop.

Other cereals grown in India include sorghum (locally known as jowar), corn, pearl millet (called bajra), and finger millet (ragi). Apart from cereals, the principal food crops are legumes, particularly chickpeas, which are an important source of protein. Indians also grow a wide range of vegetables (including greens, okra, eggplant, squashes, onions, and potatoes), fruits (such as oranges, mangoes, papayas, bananas, and others), sugarcane, peanuts, coconuts (in the south), herbs, and spices.

India used to import food grains until the mid-1970s. Large-scale imports of grains at times reached 11 million tons (around 10 million metric tons), creating a foreign exchange problem and also causing pressure on world grain prices. As a result, achieving self-sufficiency in food grains production became a major goal in India’s development plans. However, the farming structure was not conducive for long-term investment and technological change. Much of the cultivated land did not belong to the farmers, many of whom rented their land. Because of the lack of security of tenure, farmers had little incentive to invest. After independence, the government tried to introduce land reforms, which, by and large, were successful in most parts of the country. Subsequently, the majority of farmers owned their land. However, attempts to impose ceilings on land ownership and to distribute surplus land among the landless poor met with limited success due to the political dominance of large farmers. Legal loopholes also delayed land reforms.

By the mid-1960s, the Indian authorities recognized the need for a shift in policy to harness technological developments to meet the food needs of the country. The so-called Green Revolution, introduced in the late 1960s and early 1970s, involved the adoption of high-yielding varieties of seeds and the use of chemical fertilizers. At the same time, a large volume of public investment expanded irrigation systems. The government also intervened in the market to guarantee minimum support prices to farmers in parts of the country. These policies led to an increase in net production of food grains from 73.8 million tons (some 67 million metric tons) in 1959–1960 to 106 million tons (about 96 million metric tons) in 1979–1980 and again to 206 million tons (187 million metric tons) in 2003–2004. The success of the Green Revolution, particularly in northwestern India, has made the country a net exporter of food grains in most years since the mid-1990s.

Because the productivity of food grains has greatly increased, the acreage under nonfood crops, such as cotton and edible oils, has also increased. Agricultural production has more than doubled since 1970–1971, an increase in output that can be mostly attributed to a rise in yield rather than an expansion of the area under cultivation. For example, the area under food grains has changed very little since 1980–1981, although output has increased considerably. The acreage under nonfood grain crops increased by about 30 percent in the period 1970–1971 through 2003–2004, while yield increased by 60 percent during the same period.

In order to ensure a minimum support price to farmers, the government has intervened, buying both rice and wheat. The procured grain is used to maintain a buffer stock, to establish fair prices through the public distribution system, and to generate employment for the poor in public works programs during lean agricultural seasons. However, farmers’ decisions concerning what crops to plant have been partly distorted because of the agricultural price support policy that favors rice and wheat. As a result, huge buffer stocks of cereals have built up; for example, reserves reached 66 million tons (about 60 million metric tons) in some months in 2002. Consequently, further agricultural diversification is encouraged. As well as offering support through food grains procurement, distribution operations are subsidized by the government. The state also subsidizes the price of fertilizer. Food and fertilizer subsidies account for between 5 and 6 percent of agricultural GDP.

Livestock has recently emerged as an important agricultural subsector, and receipts from raising livestock account for about one-quarter of agricultural GDP. In recent years, India has witnessed a so-called White Revolution in the dairy sector and has emerged as the largest producer of milk in the world. India has always had a large number of cattle, despite the fact that many Indians do not eat meat and the cow has an honored place in Hindu society. Hindu farmers keep cattle for milk, as draft animals, and to provide fertilizer. Some Indian states forbid the slaughter of cattle, and cattle that are no longer commercially useful may be sent to homes for old animals. Livestock ownership is typically small-scale, and farmers of modest holdings may have one or a few animals. Women account for the majority of the workforce in the livestock sector, which also includes raising goats and poultry. Sheep are largely confined to regions with a cooler drier climate, while relatively few hogs are raised.

The climate and soil conditions of India are suitable to produce a wide range of horticultural and flower crops, whose cultivation is generally labor intensive. Commercial horticulture focused on the export market has great potential and could attract investment and entrepreneurs to agriculture. Horticulture for export would require modern infrastructure such as cold storage for preserving produce, refrigerated transportation, and grading and quality control in various parts of the country. With a majority of the population still depending on agriculture, such diversification may be a way to improve standards of living and productivity.

India also grows a number of plantation crops, such as sugarcane and tea. Sugarcane is cultivated across a wide area, although large-scale commercial farming is restricted to those areas that are near sugar refineries. In the hills of northern West Bengal and Assam, as well as the hill districts of Tamil Nadu and Kerala, tea is grown. Much of the crop is exported to Great Britain and Australia. Coffee is grown in Karnataka.

In 1900, about 40 percent of India was forested. Deforestation, particularly in the second half of the twentieth century, has reduced the area under forest to about 22 percent. The large-scale deforestation that was typical before the 1980s has stopped, and there has been relatively little loss of forest cover since. Commercial forestry is small-scale, and most tree loss is for domestic firewood. However, some hardwood is felled in the Western Ghats and the Himalayan foothills.

Fishing along India’s coasts is still largely small-scale, with small family-owned boats confined to inshore waters. A tsunami in December 2004 greatly damaged the east coast fishing fleet. Deep-sea fishing, for example for tuna, has great potential, and in the 1990s, the industry expanded as a result of government encouragement. A limited number of factory ships that catch, process, and pack fish now operate from Indian ports.

INDUSTRY

At the time of independence, Indian industry was underdeveloped, with manufacturing activities accounting for only 10 percent of GDP. Industry was largely concentrated in two sectors—textiles and jute—and in a limited number of regions. Textiles were mainly located around Bombay (now known as Mumbai) and Ahmadabad in western India, while the jute industry was centered in Calcutta (now known as Kolkata) in eastern India. The jute industry was mostly owned by British concerns, while the textile facilities were largely Indian, typically owned and managed by families. Both British and Indian industrial houses had their origin in trading activities, but they did not technically upgrade their industrial facilities over time, nor did the British colonial government invest sufficiently in building the infrastructure or in education.

In 1947, against a background of limited industrialization and out-of-date facilities, the government of newly independent India decided to actively participate in the establishment and management of key industries such as steel, heavy engineering, machine tools, and heavy chemicals. The idea of planning as a means of rapid industrialization gained ground, encouraged by generally accepted thinking of the period and observations of the Soviet experience by the middle of the twentieth century.

India’s industrial sector grew at about 7.5 percent a year during 1950 through 1965, but fell to about 4 percent during the period 1965 through 1980. Industrial growth recovered again during the 1980s and 1990s. The structure of the industrial sector substantially changed in the second half of the twentieth century. Consumer goods no longer have such a dominant role. Industries concerned with the production of basic goods (such as food and clothing), capital goods (goods used in the production of other items), and intermediate goods (materials for industry) have grown substantially and now account for three-quarters of total industrial production.

Indian domestic industry enjoyed substantial protection through import tariffs and quotas until the 1980s. Public sector investment also played a major role until the 1980s. From 1991, industrial deregulation and trade reforms introduced important changes, and competition from foreign goods forced Indian companies to improve product quality, reliability, and durability. Indian business analysts generally agree that this policy shift in Indian industry should have taken place two decades earlier. Because the economic reforms were delayed, Indian industry underperformed.

The largest single manufacturing industry in India is still textiles and the related clothing industry. The textile industry is widely spread, with factories in nearly all the major cities, but Mumbai, Kolkata, Surat, Kanpur, and Ahmadabad are among the principal textile centers. Cotton textiles are important, but India’s factories also produce large amounts of textiles from synthetic fibers, wool, and silk. The jute industry, which was traditionally important in the towns and cities of the northern part of the Kolkata metropolitan area, has declined as synthetic fibers have gradually taken the place of jute for many purposes.

Much of the heavy industry, such as iron and steel, engineering, and the manufacture of machinery, is still in state ownership. Iron and steel tends to be located near a source of iron or coal, and the Damodar Valley has three large steel works that use power generated by local coal. The largest steel facility is that of the Tata Iron and Steel Company at Jamshedpur in the Chota Nagpur Plateau, where local coal, iron ore, lime, and manganese support the industry.

Other major industries in India include food processing (an industry that is represented in nearly every town), a wide range of consumer goods industries including electrical goods, refining metals, the automobile industry, a range of transportation equipment including railroad locomotives and rolling stock, cement and building materials, and computer and IT parts. The computer software industry is centered in Bengaluru (Bangalore, which is known as India’s "Silicon Valley") and Hyderabad.

Indian industry is characterized by a large informal sector, in which facilities generally employ fewer than 10 workers. The informal sector, which accounts for about one-third of total manufacturing GDP, is centered in millions of workshops and other small facilities. Because the informal sector is largely outside the jurisdiction of labor laws, the wage rate is normally lower and the production process is relatively labor-intensive. Typical industries in this sector include pottery, weaving, metalworking, and woodworking. The informal sector typically absorbs underemployed migrant laborers from rural areas, and many larger production units outsource part of their subsidiary activities to the informal sector.

SERVICES

The service sector in India grew at a faster rate than either farming or industry in the last quarter of the twentieth century. The sector accounted for 53.8 percent of GDP in 2005. The service growth during 1980s was led by expansion in banking, real estate, and public administration, including defense. Since the early 1990s, IT, communication, tourism, hotels and restaurants, trade, and community services have been among the fastest-growing components of the service sector. India’s tourist sector is rapidly expanding, with foreign visitors attracted to beaches (for example, in the west coast state of Goa), national parks, adventure tourism destinations, and cultural centers, such as the so-called Golden Triangle of Delhi, Agra (the site of the Taj Mahal), and Jaipur. In 2004, in terms of receipts, the Indian tourist industry was the ninth-largest in the world.

At the start of the twenty-first century, India emerged as a major service provider in IT-related services to companies in the United States and Europe, which outsource part of their activities. The availability of large numbers of well-educated young people and their fluency in the English language are cited as the major reasons for the success in software-related service exports. British and other English-language corporations have also established international call centers in India, particularly in Bengaluru. Although the software sector contributes significantly to India’s balance of payments, the sector’s contribution to GDP is still small at about 1 percent.

Most of the banks in India were in the public sector and were highly regulated until the mid-1990s. The expansion of the banking and financial system has played a major role in growing investment that helped expand the economy in the 1960s and 1970s, but the stability of the financial system was badly affected in the 1980s, due to inefficiency and bad debts. As a result, the liberalization of the financial sector since the early 1990s has been accompanied by the introduction of strict legal norms. Mumbai, the financial capital of India, houses major financial institutions such as the Reserve Bank of India (RBI), the Bombay Stock Exchange (BSE; a federal institution that retains the name Bombay), the National Stock Exchange (NSE), and the Securities and Exchange Board of India (SEBI), along with headquarters of several banks. RBI functions as regulator of the banking network, the issuer of the national currency, and the manager of foreign exchange, while SEBI acts as the regulator of the securities markets.

TRADE

India followed an inward-looking policy from 1947 through 1991. Foreign exchange rates were fixed by the government, and restrictions on imports (to protect local industries from competition) were introduced in the mid-1950s and intensified in later years to contain the demand for foreign exchange. Quota and tariff restrictions made imports of some commodities prohibitive. Protectionism also made it difficult for India to take advantage of world trade expansion; as a proportion of world trade, India’s exports fell from about 2 percent in 1950 to below 0.5 percent by 1990. Balance of payment problems persisted from the 1950s through the 1990s, with the value of imports greater than the value of exports, and foreign exchange reserves were generally low. At the same time, the high tariff wall that effectively ruled out competition led to inefficiency in production, and India’s industry became less competitive.

The trade regime changed with the introduction of economic reforms since 1991. Foreign trade was liberalized through the gradual abolition of import quotas and a substantial reduction of tariff rates to moderate levels (the average tariff rate on imports was 18 percent in 2004–2005). The foreign exchange rate of the Indian rupee, the national currency, is now determined by market forces, although the RBI occasionally intervenes. Post-reform performance in trade is generally acknowledged as a success of the market-oriented reform program. International agreements reached at the World Trade Organization (WTO) have also influenced India’s trade policies, and what was a virtually closed economy until the late 1980s has become an export-oriented one. At the same time, India progressed from being predominantly an exporter of primary products (raw materials) in the 1950s to an exporter of manufactured goods by the 1970s. Manufacturing accounted for 73 percent of exports in 2004–2005. India’s major exports are engineering goods, textiles and clothing, gems and jewelry, and chemicals. Among the invisible exports, software exports have grown since the 1990s. The single largest import into India is petroleum, followed by capital goods and export-related items such as pearls, precious stones, chemicals, and textile yarns. Fertilizer is also a major import.

Great Britain, the former colonial power, was India’s major trade partner at the time of independence in 1947. However, the destinations of exports and the sources of imports have greatly diversified, and the United States, Japan, Germany, and Arab countries became important trading partners. India’s trade with China and and other eastern Asian countries has increased since the 1990s.

In 2005, the United States was the largest recipient of Indian exports (taking 18 percent), followed by China including Hong Kong (13 percent), the United Arab Emirates (8 percent), Great Britain (5 percent), Japan, Belgium, Bangladesh, and Italy. The main supplier of imports to India in 2005 was China including Hong Kong (7 percent), the United States (6 percent), Belgium (5 percent), Singapore (5 percent), Switzerland, Germany, Malaysia, South Korea, the United Arab Emirates, and Australia.

TRANSPORTATION AND COMMUNICATION

India claims to have the second-largest road network in the world. The nation has 2,393,169 miles (3,851,440 km) of highways, of which 74 percent are paved. The remaining 26 percent of roads are unpaved rural roads, some of which are in a poor state of repair, particularly after the heavy rains of the monsoon season. India has few modern expressways, and the national (interstate) network (the National Highways) extends only 41,010 miles (about 66,000 km), of which only 4,970 miles (about 8,000 km) have four or more lanes. It is estimated that India’s road network carries nearly 65 percent of the nation’s freight and 85 percent of its passenger traffic, and although the National Highways are a mere 2 percent of the road network, they carry 40 percent of the total traffic.

Recognizing the importance of a good road infrastructure for economic development, the government has undertaken a major initiative to expand the network of highways, widening roads and improving their quality. Priority is being given to improving connections to remote parts of the country and to seaports. In a major departure from earlier policies, private sector participation in the development of the highway sector is being encouraged.

India has 39,290 miles (63,230 km) of railroads, and state-owned Indian Railways is the largest railroad company in Asia and the second-largest in the world. With a workforce of 1.54 million, Indian Railways runs more than 11,000 trains a day, of which 7,000 are passenger trains. The nation’s railroads carry about 16 million passengers and 2.2 million tons (2 million metric tons) of freight every day. Because of the size and economic importance of India’s railroads, the system is administered by a separate Ministry of Railways. Besides the railroads themselves, the ministry is also responsible for subsidiaries that supply most of the equipment and services used by the railroads such as rails, locomotives, and rolling stock. Although generally profitable, with minimal subsidies from the government, the productivity levels of India’s railroads are low by international standards. Train speeds are low in general, and the turnaround time of freight trains is high. As a result, the transportation of goods by train over long distances is not particularly competitive. The government has inititiated a program to improve the performance of the railroads, including greater use of advanced technologies and private sector involvement, including outsourcing some activities.

India has a fleet of nearly 670 commercial ships of which some 215 carry international trade. However, Indian ships currently carry only about 16 percent of the cargo in India’s import and export trade, down from 35–40 percent during the 1980s and 1990s. The aging fleet is largely privately owned, but tax disincentives discourage investment, and India increasingly relies upon foreign carriers. Most vessels are small to medium-sized, with no large capacity oceangoing ships in the Indian fleet. Nearly 90 percent of India’s foreign trade passes through 12 major and nearly 140 minor seaports. The dozen major ports are the direct responsibility of the central government and handle three-fourths of total maritime trade.

The main ports along the west coast are Kandla, Mumbai, Mormugao, New Manglore, Kochi (Cochin), and Jawaharlal Nehru Port. Kandla, on the Gulf of Kachchh, was constructed in the 1950s, to take the place of Karachi, which became part of Pakistan after partition in 1947. Mumbai handles 12 percent of all India’s maritime trade, while Jawaharlal Nehru Port, which is part of the Mumbai metropolitan area, has modern facilities including mechanized container berths.

The principal ports along the east coast are Tuticorin, Chennai, Visakhapatnam, and Paradip, while Kolkata-Haldia is a riverine port. Chennai largely handles crude oil and bulk goods. Visakhapatnam, the principal east coast port, has the deepest water of any Indian port; its outer harbor has been developed to export iron ore, and a berth has been constructed for crude oil and petroleum products as well as general cargo. A new mechanized dock system at Haldia with provision for deep-draft vessels supplements the facilities available at Kolkata.

Despite recent developments at Jawaharlal Nehru Port, Visakhapatnam, and Haldia, Indian ports have insufficient capacity and are unable to berth very large capacity ships. These constraints have necessitated transshipment of goods to and from India through ports in Sri Lanka, Singapore, Dubai, and often even at sea. As a result, the government is allowing the private sector to develop new ports and modernize and expand existing ports.

India has 14 international airports and 239 airports with paved runways. Five airports—Mumbai, Delhi, Chennai, Kolkata, and Bengaluru—handle three-fourths of India’s air traffic. India’s airlines were nationalized in 1953, but economic reforms in 1994 allowed private companies to operate in the domestic sector. Several private airlines subsequently came into operation, and currently 12 airlines operate regular domestic services. Intense competition between these airlines has led to a decline in air fares. Passenger traffic doubled between 1990 and 2005, and private airlines now have a 70 percent share in India’s domestic passenger traffic.

Air cargo also experienced rapid growth from 1991. Although air cargo accounts for less than 1 percent of the total cargo exported, it accounts for 35 percent of the total value of exports. The rapid growth of air transportation since 1991 has exposed weaknesses in India’s airport and air traffic control facilities. Consequently, the government has allowed the private sector to invest in the modernization and expansion of airports.

Following independence, the telecommunication sector was nationalized, and there was a state monopoly until 1997. Since the late 1990s, the sector has grown by 22–25 percent a year, rising by 2005 to about 35–40 percent per annum. The telephone network in India is now one of the largest in the world (and the second-largest among emerging economies), with more around 50 million telephone main lines in 2005. About 40 percent of the network is now operated by private companies. Some 69 million Indians had mobile cellular phones in 2006, and intense competition among phone companies has drastically reduced the tariffs. Cellular call charges in India are believed to be among the lowest in the world. Despite these successes, access to telecommunication is low, with about 26 phones per 100 persons in urban areas and only about 1 per 100 in rural areas. In 2005, 60 million Indians had Internet access.

M. PANDA, A. GANESH-KUMAR