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COUNTRY REPORT

India

Nepal

1st quarter 1999

The Economist Intelligence Unit15 Regent Street, London SW1Y 4LRUnited Kingdom

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ISSN 0269-5294

Contents

3 Summary

India5 Political structure6 Economic structure7 Outlook for 1999-2000

12 Review12 The political scene18 Economic policy24 The economy26 Agriculture27 Energy28 Infrastructure and telecommunications30 Foreign trade and payments

Nepal33 Political structure34 Economic structure35 Outlook for 1999-200036 Review36 The political scene39 Economic policy and the economy42 Sectoral review

44 Quarterly indicators and trade data

List of tables

9 India: forecast summary21 India: budget summary32 India: external reserves44 India: quarterly indicators of economic activity45 Nepal: quarterly indicators of economic activity45 India: foreign trade47 India: major partners’ trade

List of figures11 India: gross domestic product11 India: Indian rupee real exchange rates23 India: interest payments32 India: exhange rate32 India: international reserves35 Nepal: gross domestic product35 Nepal: Nepalese rupee real exchange rates

1

EIU Country Report 1st quarter 1999 © The Economist Intelligence Unit Limited 1999

March 1st 1999 Summary

1st quarter 1999

India Outlook for 1999-2000: A Congress-led government is likely to emergewithin a year. The next election may be more of a “two-horse race”. TheAIADMK and the Trinamool Congress are not anxious for an early poll, butCongress prefers early elections. If Congress wins a working majority, thetempo of reform should quicken. Assuming slower growth in agricultural out-put, the slight upturn in industrial growth will be sufficient to sustain GDPgrowth (at factor cost) at about 5.8% in 1999/2000. Average annual consumerprices will slow to 13% in 1999 and 9% in 2000. Although supply constraintswill ease, the currency depreciation and high budget deficits will prevent asharper slowing. The trade balance will widen slightly in 1999, and moresignificantly in 2000, as import prices strengthen and trade barriers fall. Afirming of private transfers will help to contain the current-account deficit in1999. The rupee will resume its downward slide.

The political scene: In state assembly elections Congress has retainedMadhya Pradesh and has defeated the ruling BJP in Delhi and Rajasthan. A newbipolarity has coalesced, but third parties remain the king-makers. SoniaGandhi’s political grooming has continued. The prime minister, Atal BihariVajpayee, has veered toward moderation, alienating BJP hardliners. Religiousflashpoints have emerged. The AIADMK and the Trinamool Congress haveretained their strategic position. India has agreed in principle to buy powerfrom Pakistan. The US has pressed India on nuclear weapons.

Economic policy and the economy: The government has proposed a tightbudget and looser monetary policy. Lethargy over reforms has depressed busi-ness sentiment. Government borrowing has exceeded targets. To meet privatis-ation targets, shares have been sold to cash-rich state institutions. Subsidieshave been tightened. The government has pledged to introduce gold bonds.The oil pool has swung into surplus. A labour law review has been delayed, buturban land reform has moved forwards. Inflation has peaked. Money supplygrowth has exceeded official targets. Official GDP projections have been scaleddown, but historical figures have been revised.

Agriculture and energy: Winter grain production figures have been scaledback. Bumper tea and cotton crops have been projected. Vegetable oil importshave risen. A few private power projects have moved forwards. India’s powersector policy has taken shape. The oil import bill has fallen.

Infrastructure and telecommunications: Some foreign investments ininfrastructure have been granted automatic approval. Several highway projectshave been approved. Ports development has shown some progress. Airportdevelopment has moved forwards. Cellular telephone operators have remainedlocked in a dispute with the government.

Foreign trade and payments: The trade deficit has doubled. Dollar-denominated exports have fallen. Imports have surged, despite soft oil prices.Higher freight charges will boost services costs. Anti-dumping action against

3


steel imports has been initiated. Debt buybacks have become more attractive.Foreign-exchange reserves have continued to grow. There has been no pressureon the rupee.

Nepal Outlook for 1999-2000: A general election is due in May. The NC and theCPN-UML look set to return as the two largest parties in parliament. Anotherhung parliament cannot be ruled out. The next government will be forced todeal with a stagnant economy, deep poverty and the possibility of a rise inpolitical extremism. The remoteness of the Maoist insurgency, and thecharisma of its leaders, will frustrate attempts to quell the unrest.

The political scene: After the fall of the NC/CPN-ML government, KingBirendra rejected the prime minister’s recommendation for an immediate elec-tion. The NC, CPN-UML and NSP have formed another coalition, agreeing tohold an early election. A royal appointee has been named to the 11-membercabinet. The Maoist insurgency has continued. The dispute over the fate ofBhutanese refugees has continued to simmer. Relations with India have re-mained equable and the India-Nepal transit treaty has been renewed.

Economic policy and the economy: Development spending has slid.Compliance on value-added tax has remained poor. The sale of a 75% stakein the Butwal Power Company has got under way, but the Nepal TeaDevelopment Corporation sale has come to a halt. The central bank has urgeda narrowing of interest-rate spreads. The UN Development Programme hasagain given Nepal a low mark for human development. Inflation has hit dou-ble digits. The trade deficit has narrowed, thanks to lower gold imports andhigher exports. Foreign-exchange reserves have risen.

Sectoral review: Both bilateral and multilateral agencies have rallied behindthe Melamchi Drinking Water Project. Investment in hotels has grown. The1998 target for tourist arrivals has been missed. Problems at the Royal NepalAirlines Corporation have persisted. The aviation business has continued togrow and hydropower projects have inched forwards.

Editor: Elisabeth PaulsonAll queries: Tel: (44.171) 830 1007 Fax: (44.171) 830 1023

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India

Political structure

Official name Republic of India

Form of state Federal republic, 26 states and six union territories

Head of state President, currently Kocheril Raman Narayanan, indirectly elected for five-year termsby national and state legislatures

The executive Prime minister heads a Council of Ministers chosen from elected membersof parliament

National legislature Bicameral: upper house, Rajya Sabha, 250 members (238 indirectly elected by statesand union territories, 12 appointed by the president); lower house, Lok Sabha, 543members elected from single-member constituencies (79 seats reserved for ScheduledCastes, 40 for Scheduled Tribes) and two appointed by the president; the lower househas final authority over finance; elections to the Lok Sabha are held every five years

State legislatures Uni- or bicameral, elected members, state governor appointed by the president; a stateelection is held every five years

Legal system Based on 1950 constitution and English common law

National government Following a general election in February-March 1998, a Bharatiya Janata Party-ledcoalition government assumed office on March 19th

National elections February-March 1998 (Lok Sabha); next election due by February-March 2003

Main political organisations Bharatiya Janata Party (BJP); Indian National Congress (Indira—Congress (I) orCongress); Communist Party of India (Marxist)—CPI-M; Communist Party of India(CPI); Samajwadi Party; All India Anna Dravida Munnetra Kazhagam (AIADMK);Rashtriya Janata Dal (RJD); Samata Party; Telegu Desam Party (TDP); Janata Dal;Dravida Munnetra Kazhagam (DMK)

Council of Ministers Prime minister Atal Bihari Vajpayee (BJP)

Key ministers Chemicals & fertiliser Surjit Singh Barnala (Akali Dal)Civil aviation Anant Kumar (BJP)Commerce Ramakrishna Hegde (Lok Shakti)Defence George Fernandes (Samata)Finance Yashwant Sinha (BJP)Home affairs Lal Krishna Advani (BJP)Human resources development Murli Manohar Joshi (BJP)Industry Sikandar Bakht (BJP)Information & broadcasting Sushma Swaraj (BJP)Law, justice & company affairs Thambi Durai (AIADMK)Petroleum & natural gas Vazhapady K Ramamurthy

(Independent)Power Rangarajan Kumaramangalam (BJP)Railways Nitish Kumar (Samata)

Central bank governor Bimal Jalan

India 5


Economic structure

Latest available figures

Economic indicators 1994 1995 1996 1997 1998a

GDP at market pricesab (Rs bn) 10,472 12,268 14,281 16,051 19,249

GDP at market pricesab ($ bn) 333.5 366.7 402.7 431.9 458.0

Real GDP growthbc (%) 7.8 7.6 7.8 5.0 5.4

Consumer price inflation (av; %) 10.2 10.3 8.9 7.2 14.0

Population (m) 900.0 916.0 939.4 955.2a 970.6

Merchandise exports fob ($ m) 25,523 31,239 33,737 35,381 32,006

Merchandise imports fob ($ m) 29,673 37,957 43,789 45,730 47,037

Current-account balance ($ m) –1,676 –5,561 –5,957 –3,532 –9,919

Reserves excl gold ($ m) 19,698 17,922 20,170 24,688 27,341d

Total external debt ($ bn) 102.6 94.4 89.8 88.3a 93.1

Debt-service ratio, paid (%) 28.7 29.1 25.2 22.0a 23.0

Exchange rate (av; Rs:$) 31.37 32.43 35.43 36.31 40.88d

February 26th 1999 Rs42.68:$1

% of % ofOrigins of gross domestic product 1997/98b total Components of gross domestic product 1996/97b total

Agriculture, forestry & fishing 26.4 Private consumption 61.6

Mining 2.3 Government consumption 10.0

Manufacturing 17.6 Investmente 28.0

Utilities 2.4 Exports of goods & non-factor services 13.5

Construction 4.7 Imports of goods & non-factor services –13.1

Services 46.5 GDP at market prices 100.0

GDP at factor cost 100.0

Principal exports 1997/98f $ bn Principal imports cif 1997/98f $ bn

Textile goods 8.0 Capital goods 9.2

Handicrafts 6.0 Petroleum & petroleum products 8.2

Gems & jewellery 5.1 Uncut gems 3.1

Engineering goods 5.0 Iron & steel 1.5

Chemicals 3.1 Fertiliser 1.1

Leather & leather goods 1.4 Non-ferrous metals 0.9

Total incl others 34.0 Total incl others 41.0

Main destinations of exports 1997g % of total Main origins of imports 1997g % of total

US 19.3 US 9.5

UK 6.0 UK 7.1

Hong Kong 5.8 Belgium 6.8

Japan 5.6 Germany 6.7

Germany 5.3 Saudi Arabia 6.4

UAE 4.3 Japan 5.8

a EIU estimates. b Fiscal years beginning April 1st. New national accounts series with 1993/94 base year. c At factor cost. d Actual. e Includingchange in stocks. f Ministry of Finance, Economic Survey. g IMF, Direction of Trade Statistics.

6 India


Outlook for 1999-2000

Congress’s growingstrength—

A government led by the Congress (I) party (or simply Congress) is likely toemerge within a year—a prediction that is reinforced by two recent develop-ments. Congress won a convincing victory over the Bharatiya Janata Party (BJP)in state elections in three northern states in late 1998. (Congress won in Delhiand Rajasthan—both previously held by the BJP—and in Madhya Pradesh,which it already held.) Congress’s success reflects disillusionment with theBJP-led coalition government, as well as growing enthusiasm for Congressitself. In addition, national opinion polls show that support for Congress iswell ahead of that for the BJP across most of India; in popularity polls, theCongress party president, Sonia Gandhi, is now ranked first, ahead of the primeminister, Atal Bihari Vajpayee. If polls are to be believed, Congress could beheading for a landslide victory in the next election, comparable to that lastenjoyed by the party in 1985, under the stewardship of the late Rajiv Gandhi.In fact, the next election may be more of a “two-horse race” than recent ones,given that parties other than those aligned with either the BJP or Congress arebeing badly squeezed.

—could hasten its returnto power—

But the party seems willing to wait before trying to precipitate a successfulno-confidence vote, in an effort to increase its chances of winning a mid-termelection cleanly and thereby reducing undue dependence on small parties. Thisstrategy suits Mrs Gandhi and also, ironically, the BJP, which hopes that itsfortunes might turn in the interim. Consequently, there exists an uneasy trucebetween the two parties in parliament.

—after some messyhorsetrading—

However, politics—and especially Indian politics—are not so straightforward.Many Congress party members are preparing themselves for ministerial office,and some are impatient. Several of the unaligned parties are also pressing for anearly election; these include the Communist Party of India (CPI), theCommunist Party of India (Marxist)—CPI-M—and the two caste parties of theRashtriya Loktantrik Morcha (RLM)—the Samajwadi Party and the RashtriyaJanata Dal (RJD).

Conversely, the parties that could turn a no-confidence vote—namely two ofthe BJP’s allies, the All India Anna Dravida Munnetra Kazhagam (AIADMK) ledby Jayalalitha Jayaram, and the Trinamool Congress, led by the Congress dissi-dent from West Bengal, Mamata Banerjee—are not in a hurry. They will changesides whenever it suits their tactical purposes. However, these parties are notkeen for an early poll, which could quickly erode their current parliamentarystrength and their disproportionate political leverage. They therefore reinforcethe existing, uneasy status quo.

—with the BJP’s currentallies

Bringing down the current government will thus not be as easy as it was for theprevious Congress leader, Sitaram Kesri, who simply needed to withdraw hisparty’s support for the ruling United Front government. Mrs Gandhi has twooptions. She can promise to form a government from the existing parliament,allowing her either to offer potential allies more prominent cabinet berths or tomeet their state-level demands. Through such defections, the BJP government

India 7


could lose its working majority and Congress could be asked to form an admin-istration, which would be dependent, however, on the same politicians whohave destabilised the BJP administration over the past year.

However, Mrs Gandhi clearly would prefer fresh polls—despite her recent com-ments downplaying this wish—in order to reduce the party’s dependence onfickle allies. In this case, Congress must offer the BJP’s allies something else if ithopes to hasten the party’s fall. One possibility is to offer Ms Jayaram a moresecure refuge from investigations into corruption charges against her; to retainMs Jayaram’s support the BJP will continue to try to stall the progress of theseinvestigations.

A crisis point will emerge in late 1999, following the state assembly elections inKarnataka, Andhra Pradesh, Goa and Sikkim. If, as is currently expected,Congress defeats a BJP ally, the Telegu Desam Party (TDP), in Andhra Pradesh,and wins the election in Karnataka, the momentum behind Congress willbuild, as will pressure for a fresh election. In late 1999 and early 2000, as theweather cools, the confidence of Congress rises and, perhaps most importantly,Mr Vajpayee exhausts his means of placating Ms Jayaram, the EIU expectsCongress to launch efforts to bring down the government by actively solicitingthe support of the BJP’s allies. We expect them to succeed, and for Congress tocall for mid-term elections (possibly in early 2000).

A Congress government— The possibility is opening up of a return to a period of majority Congress ruleunder Mrs Gandhi—akin to the governments under Narasimha Rao (in1990-95), and under Indira Gandhi, and then her son, Rajiv (in 1980-88). Theseperiods of governance were flawed by corruption and disillusionment but—bycomparison with the governments that were to follow—were also characterisedby stability and steady purposeful reform, especially in the early 1990s.

Mrs Gandhi is largely an unknown quantity. Until recently it would haveseemed preposterous to imagine that an Italian, Roman Catholic woman withminimal political experience should be widely tipped to sweep aside a tough,Hindu-nationalist government and become prime minister of the world’slargest democracy.

—would show progress onthe reform agenda

If she does come to power she will rely heavily for guidance on some estab-lished Congress veterans, including the former finance ministers, ManmohanSingh and Pranab Mukherjee, as well as Congress heavyweights such as SharadPawar, Arjun Singh and Rajesh Pilot. Although several of her advisers do notrank very highly on a scale of moral probity, they are experienced, pragmaticand politically astute. They are also likely to ensure that the next Congressgovernment presses forward with the economic reform programme launchedby Mr Singh eight years ago. The change in the pace of reforms should not beexaggerated: Congress also shelters its own “socialist” and populist strands.However, Congress is now seen as more attuned to the liberal economic agendathan the other parties; if it wins a working majority, the tempo of reformshould quicken.

8 India


India: forecast summary

1997a 1998b 1999c 2000c

Real GDP at factor costd (% change) 5.0 5.4 5.8 5.7 Agriculture –1.0 5.0 1.5 2.2 Industry 5.9 4.0 6.0 6.2 Services 8.2 6.5 8.0 7.3

Real GDP at market pricesd (% change) 4.8b 5.2 5.7 5.5 of which: private consumption 9.6b 5.6 4.5 5.3 public consumption 7.0b 11.0 9.0 8.0 gross fixed investment 5.0b 9.0 9.5 7.0 exports of goods & services –1.0b –3.5 6.0 7.0 imports of goods & services 6.0b 7.0 8.0 9.4

Consumer price inflation (av; %) 7.2 14.0 13.0 9.0

Merchandise exports fob ($ m) 35,381 32,006 33,158 35,418

Merchandise imports fob ($ m) 45,730 47,037 48,695 53,930

Current-account balance ($ m) –3,532 –9,919 –8,750 –11,212

Exchange rate (year-end; Rs:$) 39.3 42.5 48.5 52.9

a Actual. b EIU estimates. c EIU forecasts. d Fiscal years beginning April 1st. New national accountsseries with 1993/94 base year.

The CSO’s bullish forecastfor 1998/99—

According to the Central Statistical Office (CSO), real GDP growth (at factorcost, and based on a new series using a 1993/94 base year) in 1998/99 (April-March) is estimated to have risen to 5.8%, from 5% in 1997/98. This figure iswell above most private-sector estimates, which placed growth at or below 5%,and higher than our forecast of 5.4%.

—is based on a crediblesurge in agricultural

output—

The main points of contention between the official projections and most otherestimates are the forecasts for agriculture and manufacturing. The CSO projectsa surge in agricultural output (by more than 5%) and respectable growth inmanufacturing output (5.7%). The forecast for agriculture is credible: the agri-cultural sector had a good year in 1998/99 as a result of the weather. Accordingto provisional estimates, foodgrain production rose by about 1.5% (althoughwithin this total, wheat output is estimated to have grown by almost 5%);however, much stronger growth has been recorded for cotton, sugar, oil seedsand tea output.

—and a less convincingpick-up in industry

However, the industrial sector performed poorly in 1998/99; output contractedor grew at a slower rate in some major industries, including steel, oil, cementand much of the capital goods sector. Apart from a few industries—includingelectricity, information technology and consumer electronics—the industrialsector has been deeply depressed because of sluggish domestic demand, weakexport markets, fiercer import competition, a lack of investment confidence,infrastructure bottlenecks and high credit costs (the influence of each varyingfor different industries). Hence, we expect that the CSO’s projection for manu-facturing output growth will prove optimistic (given that manufacturing out-put expanded by just 3.7% year on year in April-November 1998). Assumingindustrial growth of no more than 4%, GDP growth (at factor cost) is unlikelyto rise above 5.4% in 1998/99.

India 9


Even a modest pick-up inindustry in 1999/2000—

Given that even a modest upturn in industrial growth is taking longer thanexpected to materialise, we have also revised downwards our forecast for indus-trial growth in 1999/2000, to 6%. But we still see some tentative signs of amodest recovery, including a slight strengthening in business optimism, acontinued acceleration in non-food credit and bank credit to the commercialsector, and broadly stable (and, it is hoped, softening) interest rates.

—will be sufficient tosustain GDP growth at

just above 5%

Previous patterns belie the possibility of back-to-back bumper years for agricul-ture. Hence, even assuming adequate distribution of rains in the coming season,our forecast projects trend agricultural growth of only 1.5% in 1999/2000. How-ever, despite our assumption of slower growth in agricultural output, the slightupturn in industrial growth would be sufficient to sustain GDP growth at about5.8%. In sum, a combination of stronger industrial growth and weaker agricul-tural growth in 1999/2000 will rebalance the economy.

The inflationary wavewill ebb—

The sharp rise in consumer price inflation—which peaked at nearly 20% yearon year in December—sent shock waves through the financial community aswell as through the electorate (who responded by voting against the BJP in theDecember state assembly elections). The inflationary spike was due in part to ashortage of some foodstuffs, mainly vegetables, but was also fuelled by mone-tary expansion: annual growth in money supply (M3) has been running severalpercentage points above its 15.5% target. The decline in consumer price infla-tion, which we expected to begin in the fourth quarter of 1998 as agriculturalsupply conditions eased, did not begin until January 1999 (according to anec-dotal evidence). As a result, we have revised upwards our estimate for annualaverage inflation in 1998, to 14%.

—but high governmentborrowing will prevent

single-digit inflation

The current inflation position is not as bad as the price spike suggests: whole-sale price inflation, for example, peaked at nearly 9% in November, but hassince eased. However, developments that contributed to high inflation in1998—the rapid rate of monetary growth and the inflationary spillover fromthe monetisation of the budget deficit—will persist, as will the continuingdepreciation of the rupee, putting upward pressure on inflation, despite aneasing of some commodity prices. Consequently, average annual inflation isunlikely to slow to under 13% in 1999.

After dithering for months, and following an unconvincing 1998/99 budget, thefinance minister, Yashwant Sinha—with some backbone stiffening from theprime minister—appears at last to be serious about budget discipline. In recentmonths he has introduced reductions in food and fertiliser subsidies and toldgovernment departments to slash 10% from their spending. Asset sales are alsogetting under way, although, as a result of the weakness of the domestic stock-market and global depository receipt markets for overseas equity issues, conven-tional asset sales are not a viable option. Shares are therefore being sold to statefinancial institutions or to other state companies (particularly in the oil sector)with surplus cash, in the expectation that they will sell on the shares to themarket when it recovers. While there is an element of sleight of hand in thesemanoeuvres, they should ensure that the government is able to raise Rs50bn-70bn ($1.2bn-1.6bn) in the last few months of 1998/99 and even more in1999/2000. This will, in turn, help to weaken inflationary pressures. A reduction

10 India


in the government’s budget deficit is also a central theme of the 1999/2000budget. If, as we assume, the government can stay in office for most of 1999, itwill manage to complete additional asset sales (although falling short of theRs100bn target), helping to trim the budget deficit in 1999/2000 and allowingannual inflation to slow to single digits by the end of the year. Our forecast of9% average consumer price inflation in 2000 assumes that the budget deficitwill continue to narrow slightly under a Congress-led government, and thatcurrency depreciation will slow.

The trade deficit willwiden further—

India’s trade deficit (fob-fob) expanded to an estimated $15bn in 1998, from$10.3bn in 1997, owing to a contraction in exports and a rise in imports (led bya surge in newly liberalised gold imports). This downward revision to our tradeestimate, coupled with an estimated slump in inward transfers (owing to thediversion of funds into Resurgent India Bonds and gold), explains the deterio-ration in our estimate for the current-account deficit, of $9.9bn in 1998.

We do not envisage significant export growth (in dollar terms) in 1999, owingto the persistence of the poor external environment, a large increase in shippingcharges to the US, a loss of competitiveness to Asian and Latin American coun-tries (which have experienced larger devaluations) and the inherent supply-sidelimitations of Indian exporters, who must operate with inadequate infrastruc-ture and abundant bureaucracy. On the import side, a modest revival of indus-trial activity will suck in intermediate and capital goods. However, demand foragricultural commodity imports should wane in the wake of good harvests,while India will continue to benefit from depressed world commodity prices,particularly for oil. For those reasons, we expect only a marginal deterioration ofthe trade balance in 1999, to $15.5bn. However if, as we expect, private transfersreturn to 1997 levels (when inward transfers reached nearly $14bn) the current-account deficit will be contained at about $8.8bn. In 2000 lower import barriers,firming world commodity prices and a recovery in demand will boost importvolumes and prices, pushing the trade deficit up to $18.5bn and the current-account deficit to a massive $11.2bn. However, this translates into a manageable2.2% of GDP (according to recently revised figures).

60

70

80

90

100

110

1990 91 92 93 94 95 96 97 98 99 2000

India: Indian rupee real exchange rates (d)1990=100

Rs:$Rs:$Rs:$Rs:$Rs:$Rs:$Rs:$Rs:$Rs:$Rs:$Rs:$Rs:$Rs:$Rs:$Rs:$Rs:$Rs:$Rs:$Rs:$

Rs:¥

Rs:$

Rs:¥Rs:¥

Rs:DMRs:DMRs:DM

Rs:$

Rs:¥

Rs:$

Rs:¥Rs:¥

Rs:DMRs:DMRs:DM

97 98(b) 99(c) 2000(c)

Rs:$

Rs:¥

Rs:$

Rs:¥

Rs:$

Rs:¥

Rs:$

Rs:¥

Rs:$

Rs:¥

Rs:$

Rs:¥

Rs:$

Rs:¥

Rs:$

Rs:¥

Rs:$

Rs:¥

Rs:$

Rs:¥

Rs:DM

97 98(b) 99(c) 2000(c)97 98(b) 99(c) 2000(c)97 98(b) 99(c) 2000(c)97 98(b) 99(c) 2000(c)97 98(b) 99(c) 2000(c)

0

1

2

3

4

5

6

7

8

1996 97 98(b) 99(c) 2000(c)

India (a)

Asia excl Japan

India: gross domestic product% change, year on year

(a) Fiscal years beginning April 1st. (b) EIU estimates. (c) EIU forecasts. (d) Nominal exchange rates adjusted for changes in relative consumer prices.Sources: EIU; IMF, International Financial Statistics.

India 11


—and the rupee willresume its downward

slide

More than six months of nominal exchange-rate stability have encouraged thebelief that India is relatively immune from the exchange-rate contagion thathas swirled around other emerging markets. However, we expect that the rupeerate will soon resume its downward trajectory, albeit in an orderly and man-aged way. High domestic inflation (relative to India’s main trading partners)suggests that export competitiveness is being eroded quite rapidly. In addition,the recent reduction of interest rates by the Reserve Bank of India (RBI, thecentral bank) will exert downward pressure on the currency, as will the widen-ing of the trade deficit. Although India has abundant—even superabundant—reserves of about $30bn, we do not expect the central bank to use them tosustain the nominal exchange rate (although it may intervene to control any“overshooting”). We expect the exchange rate to depreciate by about 12% in1999, to Rs48.45:$1 by the end of the year. An easing of inflation should reducesome of the pressure on the currency in 2000, when we project an 8%depreciation, to a year-end rate of Rs52.92:$1.

Review

The political scene

A big victory forCongress—

In the state assembly elections in November the opposition Congress (I) party(or simply Congress) comfortably held the state of Madhya Pradesh and sweptthe ruling Bharatiya Janata Party (BJP) out of power in Delhi and Rajasthan. Interms of votes cast, the swing in Congress’s favour was not dramatic. But underIndia’s “first past the post” system—modelled on the British system—therewere big changes in the numbers of seats held by the parties. Congress’s shareof the vote in the same states rose from 39% in the 1993 assembly elections andfrom 41.5% in the 1998 general election, to 42.8%; the BJP vote declined from38.9% and 44.7%, respectively, to 36.6%. However, by any standards this wasa big win for Congress.

—affirms the emergenceof a political bipolarity—

India has now experienced several years of fluid coalitions. However, there aresigns that the public mood now favours a simpler structure based on two maingroupings—the BJP and Congress (each trailing a long tail of political allies)—and stronger, single-party government. The most recent all-India opinion polls,taken after the December state elections, show support for the BJP and its eightallies (including the tenuously attached All India Anna Dravida MunnetraKazhagam—AIADMK) at 26%, down from 36% a year ago, while support forCongress has almost doubled, from 26% to 45%. Significantly, support for theUnited Front (UF) of leftist and regional parties, until recently a powerful thirdforce, has collapsed from 25% to 9%. Polls show that support is crumbling inseveral of the UF’s regional strongholds; these include the Communist Party ofIndia (Marxist)—CPI-M—in West Bengal and Kerala, the Janata Dal inKarnataka, and the Telegu Desam Party (TDP) in Andhra Pradesh. Congressappears to be rediscovering the diverse support base it once enjoyed during therule of Indira Gandhi and her son, Rajiv. Despite its current unpopularity, theBJP still commands the loyalty of a committed support base and of allies.

12 India


—but is not thedeath-knell of third

parties

It would be premature to announce the death of third-party and coalitionpolitics. The BJP government still depends on a precarious set of relationshipswith smaller parties to stay in power (see below). Moreover, there are states,such as Tamil Nadu, where regional parties will dominate the local politicalscene for the foreseeable future. The caste-based Rashtriya Loktantrik Morcha(RLM), a political combine formed by the former Uttar Pradesh chief ministerand leader of the Samajwadi Party, Mulayam Singh Yadav, and the Bihar-basedformer chief minister and leader of the Rashtriya Janata Dal (RJD), Laloo PrasadYadav, may be worried about the possible resurrection of Congress in these twobig northern states. But the two Yadav (a caste of cow-herders) leaders remaina formidable force.

The ascendancy of SoniaGandhi, although marked

with contradictions—

The Congress party leader, Sonia Gandhi, is preparing herself to be India’s nextprime minister. To a non-Indian, her ascendancy may seem bizarre: she is anItalian in a country with strong nationalist sensitivities; a Catholic in a pre-dominately Hindu country that is easily influenced by religious passions; anda political novice in a party and country overflowing with experienced poli-ticians. The source of her claim to fame, let alone power, is meeting (when shewas a language student in the UK) and later marrying an Indian undergraduateand putative airline pilot who was the second son of the daughter of the firstIndian prime minister, Jawaharlal Nehru. She finds herself at the head of apolitical dynasty through a truly remarkable sequence of political events andtragedies: the rise to power of her mother-in-law, Indira Gandhi; the accidentaldeath of Indira Gandhi’s eldest son, Sanjay; the assassination of Indira Gandhi;Rajiv Gandhi’s reluctant entry into politics and subsequent electoral triumph;and his assassination.

—is due to herembodiment of the

Gandhi dynasty—

Sonia Gandhi’s political liabilities were so obvious that too many Indian poli-ticians, and intellectuals, made the mistake of underestimating her potential inIndian politics. Her inherent strengths too were underestimated. She embodiesthe Congress party through her family name. Although periods of Congressgovernance were characterised by flashes of autocracy, cronyism and allegedcorruption—which lapped around Rajiv Gandhi and Sonia as well—they areremembered nostalgically by many as times of relative political stability andeconomic advance. In addition, the dynastic principle is not regarded as silly orold-fashioned by many poor Indians, who revere Sonia Gandhi for her Indianfamily. Her daughter, Priyanka, appears to be next in line.

—coupled with cautionand good advice

But Mrs Gandhi’s ascendancy is not due entirely to factors beyond her control.She is acknowledged to have managed the transition from political wife towidow to political leader in an exemplary fashion. For eight years after Rajiv’sdeath she resisted repeated pleas to join the Congress fray, taking care to retaina modest widow’s lifestyle, looking after her children and burnishing her latehusband’s somewhat tarnished reputation.

Moreover, her entry into politics was timed to perfection. She entered thepolitical scene in the latter part of the 1998 general election season when herparty, under its lamentable former leader, Sitaram Kesri, was heading for apolitical savaging at the polls. Although her direct intervention was limited,her presence provided the psychological boost that seems to have averted

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Congress’s complete electoral annihilation. This sense of timing has remainedwith her, as she waits patiently for her turn in office.

Mrs Gandhi’s willingness to listen to sensible advice is another factor thathelps to explain her successful debut in the Indian political scene—and placesher in marked contrast to her imperious mother-in-law. The so-called “coterie”,a group of much-reviled hangers-on to the Gandhi family, includes some goodpolitical brains. Rajiv’s cousin, Arjun Singh, is one confidant, who has himselfbeen close to political power for decades. She also has access to ManmohanSingh, the highly respected former finance minister—and loyal supporter—foradvice on economic policy. Congress party members who would otherwise beengaged in destructive plotting are being kept busy working in policy andadvisory groups, whose suggestions she seems to listen to.

But her politicalgrooming continues

Mrs Gandhi is scarcely the finished article. She has risen to her current elevatedposition so rapidly and effortlessly that her political enemies have had littletime to craft their strategy. She is therefore being groomed by her advisers towithstand the more testing battles that lie ahead.

This grooming includes her ongoing “Indianisation”. Her Catholicism is beingdownplayed and she is widely reported to be a “non-practising” Christian. Shehas been making high-profile visits to temples and quoting Hindu scholars; avisit to the Sikh Golden Temple in Amritsar is also planned. That Nehru, Indiraand Rajiv Gandhi were atheist or agnostic is of little relevance; they had less toprove and were not faced with an opposition party whose ideology is rooted inone version of Hinduism. Congress seems to be rather cleverly packaging SoniaGandhi as an embodiment of secular Hinduism: deferential to Hindu traditionsand culture, but tolerant of diversity. She is carefully avoiding a BJP-inspiredcampaign against Christian conversion.

Mrs Gandhi is also angling for the support of low-caste Indians. This segment,once the bedrock of the Congress party’s support base, in recent years hasbecome more attached politically to casteist parties. This strategy could proveto be very effective against the BJP, which is identified strongly with high-casteBrahmins and Thakurs and the trader group, Baniyas. As a foreigner, Sonia istechnically at the bottom of the caste hierarchy; but in practice she is seenas casteless.

Mrs Gandhi is also exploiting, rather skilfully, the fact that she is a woman.South Asia has seen more success for female politicians than anywhere else inthe world, with the exception of the Nordic countries. In every case, however,they have risen to power—at least initially—owing to their relationship with apolitical father or husband; Western-style feminism has not been a politicalforce in India. Nonetheless, Mrs Gandhi believes that her gender is an asset;she is insisting that one-third of Congress candidates are women. Moreover,her judgement that the electorate—especially women voters—will respondwell to a strong female leader is supported by opinion polls.

The prime minister veerstowards moderation—

The BJP prime minister, Atal Bihari Vajpayee, can see that his party is in troublewith the electorate. This is attributable in part to the bungling of some sensitivebut otherwise small issues, such as the price of onions and other staples

14 India


(4th quarter 1998, page 20). The testing of nuclear devices in 1998, seen as away of uniting the country in a patriotic fervour, had little impact on uncom-mitted voters. But the government’s overriding image—that of indecisiveness,policy drift and dissent—is also a liability.

At the heart of the BJP’s problems is the persistent tension between the prag-matic and the hardline elements of the party. The pragmatic wing, which is ledby Mr Vajpayee—believes that the government’s first responsibility is to pro-vide competent, stable rule and advance the process of economic reform; theideological zealots aligned with the broader Hindu movement Sangh Parivar(which is led by the grass-roots cadre organisation, the Rashtriya SwayamsevakSingh—RSS) emphasise the importance of political and economic nationalism,and regard Hinduism as an aggressive political force.

Mr Vajpayee, realising the impossibility of accommodating both wings of theparty, has made a conscious decision to distance his government from theideologues. He ignored furious opposition within the RSS to the opening-up ofthe insurance sector to foreigners (see Economic policy); the BJP home affairsminister, the hardliner Lal Krishna Advani, backed the prime minister on thismeasure. The government has also supported reform of patent laws in line withWorld Trade Organisation (WTO) demands. At a meeting of the BJP nationalexecutive in January Mr Vajpayee’s allies won the day and swadeshi (self-reliance) economic resolutions were thrown out. The meeting also condemnedattacks on Christian churches, which had been orchestrated by Sangh Parivarmilitants. The leaders of Sangh Parivar organisations, many of which havemillions of supporters, are now among the prime minister’s deadly enemies;the senior leader of the temple-based Vishwa Hindu Parishad (VHP), AshokSinghal, and Bharatiya Mazdoor Sangh (BMS) leader, Dattopant Thengadi, canbe included in this group.

Another bold step was to disassociate the BJP government from its alliancepartner in Maharashtra, the Shiv Sena, which tried to disrupt the recentPakistani cricket tour. Even by the BJP’s standards the Shiv Sena is a viciouslysectarian organisation, which is known for dispensing violence to Muslims,southerners or liberals, and working with criminal gangs. Its populist economicmeasures are an embarrassment to the BJP as well (4th quarter 1998, page 13).But its threats to disrupt the cricket matches between Pakistan and India provedtoo much. BJP ministers, including Mr Advani, went to Bombay (Mumbai) tooffer an ultimatum: unless the Shiv Sena backed down, the state governmentcoalition would collapse. In the event, the Shiv Sena backed down.

—as religious flashpointsemerge—

The prime minister’s statements in favour of religious harmony have beenunable to stem a disturbing spread of religious violence. Unusually, these at-tacks have been aimed at Christians, rather than Muslims. There are around23m Christians in India, equivalent to just over 2% of the population (but amajority of the population in three small north-eastern states, and in Goa).About 70% of all Christians are Catholic. Across India, but especially in thestate of Gujarat, there have been attacks on churches and groups of Christiansby Hindu extremist organisations that are linked to the BJP.

India 15


The attacks have been explained as the violent result of Hindu opposition toassertive Christian missionary activity among low-caste Hindus and tribals(such as the Dangs of Gujarat). But they are clearly orchestrated by militantsamong the various branches of the Sangh Parivar. One of the more shadowygroups, the Bajrand Dal, is thought to have been involved in the murder of anAustralian missionary family in Orissa. It is quite possible that hotheads alsoimagine that they can dent Mrs Gandhi’s popularity by whipping up anti-Christian hatred.

A more predictable target of the extremist fervour is a site in Karnataka, sacredto both Muslims and Hindus, where Hindu nationalists are protesting againstalleged sacrilege. This has the same potential for trouble as the Ahodhyatemple/mosque in Uttar Pradesh, whose destruction by Hindu extremists un-leashed massive sectarian violence seven years ago. A cynical interpretation ofevents would note that the BJP has expanding ambitions in the southern stateof Karnataka, where a state election is due later in 1999. But the main effect ofthe violence is to create splits between moderates and extremists in theHindutva movement, as well as between the BJP and its secular allies.

—but two coalitionpartners remain vexing

Mr Vajpayee is, belatedly, becoming more assertive in dealing with his ideologi-cal allies. But he has been less successful in managing the two women on whosesmall parties he depends in order to maintain a majority in the Lok Sabha (lowerhouse). The marriage of convenience between the BJP and the AIADMK (with18 MPs), led by Jayalalitha Jayaram, has held together, albeit tenuously. To saveit, the government has compromised its own ethical standards by trying variouslegal dodges to help Ms Jayaram escape corruption charges.

Another troublesome ally is the leader of the Trinamool Congress in WestBengal, Mamata Banerjee, whose seven MPs are needed for the government’smajority. However, the BJP is unable to deliver her demands that the CPI(M)-led government in West Bengal be overthrown and that she be given the job ofrailways minister, at the expense of another coalition partner. If Mrs Gandhisends encouraging signals to Ms Banerjee, she is likely to return to her formerparty, Congress. Most of the remaining members of the coalition are moresecure, although Mr Vajpayee must keep a close eye on the more ideologicalRSS ministers and those partners with prickly egos.

Congress and the BJP arestrategic adversaries—

The BJP and Congress have become strategic adversaries but tactical allies. TheBJP needs time in office to produce results and, in particular, to stabiliseinflation (which is an extremely politically sensitive indicator in India).Mrs Gandhi is ignoring advice to push for the collapse of the government bydrawing the support of some of the BJP’s current coalition partners. She wantstime to strengthen her grip on the party and she does not want to repeat therecent history of weak coalition governments dependent on fickle partners.But, most importantly, she wants an election, which Congress has a goodchance of winning outright.

—but tactical allies— This positioning has made Congress and the BJP less inclined to overt antago-nism. The pragmatic elements in the BJP leadership and Congress also sharea broadly liberal outlook on economic policy. The leader of Congress in

16 India


parliament, Sharad Pawar, has an uneasy relationship with Mrs Gandhi, in partbecause he is the only Congress leader with a serious political base of his own.But he is carefully following a bipartisan approach which serves his party’slong-term objectives. Co-operation led to the passage of 14 bills in 18 days inthe last session of parliament in 1998.

—for now However, this period of calm co-operation may quickly dissipate. Mrs Gandhi’sstrategy has risks, which will become apparent if the BJP government recoversits nerve and starts to deliver on its promises. Ambitious and anxious support-ers will press Mrs Gandhi on a daily basis to bring down the government, inorder the hasten their entry into office. She would like to come to power“cleanly”, that is, through an election. But she is not entirely in control ofevents. There may be a stampede from the BJP’s fickle allies to jump on herbandwagon, leading to a no-confidence vote that Congress can hardly fail tosupport. However, the BJP’s current allies are unlikely to jump ship unlessCongress can offer them something better. Moreover, the prospect of a quickelection following the BJP’s demise is not particularly attractive to king-makerparties such as the AIADMK, which may see its 18 seats in the Lok Sabhadiluted in another poll. The more gradualist approach would have Congresswinning state elections in Karnataka and Andhra Pradesh later in 1999 todemonstrate the width and depth of its support, before precipitating a generalelection—by drawing away the BJP’s allies with offers that do not involvegovernment seats—early next year.

The military boosts itsforces—

Apart from the purchase of 48 Russian fighter aircraft in 1996, India has spentvery little on defence equipment in the past decade. The defence minister,George Fernandes, has said that he wants a new set of jet training planes; unbeliev-ably, 172 jets have crashed since 1991, killing 60 pilots. The British Hawk-100,Dassault’s Alpha and a version of the Russian MiG are still in the running. TheBritish plane is the preferred choice of the air force, although the Russian plane isthe cheapest. In the past, arms sales have been surrounded by controversy overmurky deals, such as the Bofors gun scandal which implicated Rajiv Gandhi in the1980s. The process is likely to be much more transparent this time.

—but India and Pakistanco-operate on the pitch

and in power

The Pakistani cricket team’s tour to India went off well; threatened disruptiondid not materialise and the test resulted in an evenly fought 1-1 draw betweenthe two teams. A more important sign that the two countries can coexist is theagreement, in principle, to buy 300 mw of power annually from Pakistan over aten-year period. The deal is not without obstacles, namely the poor financialposition of India’s state electricity boards (SEBs) and the need to lay a power lineacross one of the world’s most volatile frontiers. But the deal promises to deliverconsiderable benefits to both sides: a reduction in the chronic power shortage inNorth India; a boost to Pakistan’s exports; and a fillip to private power develop-ment in Pakistan. A further indication that nationalism is being subordinated toeconomic sense is the current consideration of a large crossborder energy projectwhich would bring Bangladeshi national gas to India by pipeline.

The US presses India onnuclear weapons

The US is dropping heavy hints that economic sanctions against India, in theform of restrictions on multilateral and bilateral non-humanitarian aid, will be

India 17


dropped as soon as India indicates a willingness to sign the ComprehensiveTest Ban Treaty, which formalises the present unilateral moratorium on furthernuclear test blasts, and an agreement on fissile material production. India isalso willing to make a variety of commitments, such as “no first use” of nuclearweapons, no use against non-weapon states and no export of nuclear tech-nology. Agreement is feasible but not imminent; there are serious stumblingblocks. India wants its “credible minimum nuclear deterrent” to be recognised,while the US wants stronger reassurances than it has been given on missile andweapons material development. (India wants to develop a missile, Agni II, witha range of 2,000 km, as a deterrent against China and will not abandon theprogramme.) India will also not countenance any linkage of these issues to theever-present dispute with Pakistan over Kashmir.

Economic policy

Lethargy over reformsdepresses business—

Over the past few months the government, led by the Bharatiya Janata Party(BJP)—and particularly the prime minister, Atal Bihari Vajpayee—has dis-tanced itself from the antediluvian swadeshi (self-reliance) nationalists amongits supporters. However, the inability of the government to push forward witha number of important economic reforms is damaging its credibility at homeand abroad. Two items of legislation in particular have become litmus tests forthe seriousness of the government in addressing the issue.

An insurance bill has been promised—and obstructed—for years (4th quarter1998, page 16). While in opposition the BJP, along with some leftist parties,helped to sabotage an insurance bill that proposed limited openings for foreigninvestors in the private sector in health insurance. However, led by the primeminister, the current BJP government has defied its own nationalist wing andproposed a new bill. If passed, the bill will establish an insurance regulatoryauthority to oversee a deregulated industry within which the two state com-panies—Life Insurance Corporation (LIC) and General Insurance Corporation(GIC)—will lose their monopoly. It will also allow foreign investors stakes of upto 26% in life and general insurance companies, and reinsurance companies(with an additional 14% stake for foreign institutional investors and non-resident Indians). When the bill was introduced it was assumed that it wouldbe passed quickly, since Congress had stated its support for the legislation. Yet,in some murky power play, the bill was passed to a parliamentary scrutinycommittee where the two parties are jostling for influence. It is not clear if thiswas a serious attempt to obstruct the bill or if Congress is trying to positionitself to take credit for it.

Another emotive issue is a patents bill which, despite the prompting of theprime minister, has also not yet made any headway in parliament. The bill isdesigned to meet the requirements of the World Trade Organisation (WTO)under the trade-related intellectual property rights (TRIPs) agreement. Underthe bill, India—which has a process-based patent regime—would provide theexclusive rights to market new products (which are in effect product patents)thus preventing Indian pharmaceutical companies from replicating patenteddrugs. The new legislation is eagerly sought by Western drug companies, whichhave promised to invest on a significant scale. But it is bitterly resented by

18 India


Indian nationalists and leftist parties—as well as some Indian drug companies(which have successfully developed a generic drug business by finding alterna-tive, and cheaper, ways to produce patented drugs). Congress has proposed ahelpful amendment, which the government has accepted, which will excludefrom the exclusive marketing agreements any native Indian medicine or drugsalready in circulation. Nonetheless, the bill did not go through on the last dayof parliament because members wanted more time “for study”. A governmentminister has acknowledged that one factor behind the hold-up is the lack ofsupport of a key BJP minister, Lal Krishna Advani. Another casualty of theparliamentary session, because of lack of a quorum, was the companies bill,which aims to modernise company law.

—although somemicro-level reforms move

ahead

Although the current government is widely disparaged for its inability to ad-vance reforms, it has done useful things in important infrastructure sectorswhich should now enable projects to proceed quickly: it has started an ambi-tious road programme; created a new funding mechanism for road projects; anddrawn up a standard agreement for developers (see Agriculture and Energy). Inaddition, the BJP-led government has at last made headway in clearing a batchof private power projects, created openings for the private sector in power dis-tribution and established a better framework for power purchase agreements(including a nationwide purchasing agency standing above the state electricityboards). It has even negotiated a provisional power purchase agreement withPakistan, which is as economically useful as it is diplomatically astute. A newapproach to the provision of telecommunications licensing, to involve profit-sharing, is being created to replace the old structure, under which very fewoperators (either cellular or basic) have actually entered production because ofcontinued disagreement over the terms of licences. While there is muchimpatience with the government, which undoubtedly squandered its first fewmonths in office, some headway has been made.

Government borrowing isabove target—

The government is breaking its own borrowing objectives: the target for grossmarket borrowing in 1998/99 (April-March) of Rs790bn ($18.5bn) has alreadybeen breached, reaching Rs815bn by January 11th. Figures for net borrowingshow a similar overshoot: Rs555bn against a target of Rs483bn. The fiscaldeficit, including the oil pool deficit (which is the balancing item for the oilsector), is certain to surpass budget targets. A slowdown in the industrial sectorhas negatively affected receipts from indirect taxes, while agriculture, whichhas been doing well, generates little tax revenue. In the first nine months of thefinancial year revenue from direct taxes rose by 15% compared with the sameperiod in 1997/98, but that from indirect taxes increased by just 3%, and fell inreal terms. The slowdown in trade activity has caused customs duties to fall by16%, year on year, in nominal terms, in the nine-month period.

—despite share sell-offs— Various feats of financial engineering have been employed to help reducegovernment borrowing. The first is the long-promised divestment of shares instate enterprises, from which the government hoped to raise Rs50bn in1998/99. The Container Corporation, Concor, sold shares worth Rs2.25bn inNovember. However, more than one-half of the revenue came from sales tostate-owned financial institutions, which poses the question whether this sale

India 19


can be considered “divestment” or “privatisation” at all. In addition, the 30mshares in the Gas Authority of India (GAIL) were sold on the domestic marketfor Rs1.8bn. Two telecommunications corporations, Videsh Sanchar Nigam(VSNL) and Mahanagar Telephone Nigam (MTNL), are proceeding with a sharesale; although originally envisaged as a global depository receipt (GDR) issue toforeign investors, a share buyback with some share sales to employees is nowthe more likely sale route.

—and other juggling tocover the fiscal deficit

A share sale in the Oil and Natural Gas Company (ONGC) and the Indian OilCorporation (IOC), as well as the sale of a further section of the government’sstake in GAIL, will proceed through a swap arrangement involving other stateenergy companies. According to this plan, IOC, GAIL and ONGC—which arecash-rich—would buy shares in each other from the government. (The first stepwas the acquisition of ONGC shares by IOC and GAIL.)

This might seem as if it is an accounting dodge—and it is. But this process alsohas the supporting objective of achieving greater vertical integration betweenthe various state energy companies. Other state corporations and financialinstitutions—such as the Industrial Credit and Investment Corporation ofIndia (ICICI)—have been approached to see whether they would collaborate insimilar arrangements in an effort to help the government raise cash, given thatthe domestic and foreign markets currently seem unable to absorb share sales.Through these devices, the government may manage to raise Rs70bn in1998/99 (by comparison with the paltry Rs1.7bn raised in 1995/96, Rs3.8bn in1996/97 and Rs9.1bn in 1997/98). However, although these share sales mayhelp to improve public-sector accounts, they do nothing to improve public-sector efficiency, and will most likely not result in the closure of inefficientstate enterprises.

Subsidies are tightened The government is painfully aware that if it wants to reduce the fiscal deficitsubstantially—rather than simply finding ingenious ways to finance the per-sistent budget gaps—it must take some tough decisions on spending. At theend of January the cabinet decided to cut nearly Rs40bn from the subsidies bill,mainly by raising the controlled price of nitrogenous fertilisers and increasingthe prices of wheat, sugar and rice sold in state-administered ration shops. Thedecision was bitterly denounced by both the BJP’s enemies and allies, whoclaim that the reduction will hurt farmers and poor consumers, forcing thegovernment to scale back the reductions. However, the impact on inflation willbe small (only a 0.2-percentage-point increase, according to official estimates),given the comfortable food supply position in the wake of last summer’s goodmonsoons. Moreover, the cut represents only a small proportion of the totalfood and fertiliser subsidy, which is an estimated Rs190bn in 1998/99.

In addition, the government is forcing government departments to cut 10%from their “plan” expenditure budgets, totalling Rs90bn, in 1998/99. As a resultof these cuts, government investment is being postponed, damaging infrastruc-ture sectors (such as transport and energy), as well as areas of social priority(education and health). Cutting investment spending while retaining currentspending is a time-honoured, and rather counterproductive, fiscal dodge.

20 India


India: budget summary(Rs bn)

1997/98 1998/99 1999/2000Actual Budget estimates Revised estimates Budget targets

Revenue receipts 1,339.0 1,619.9 1,576.7 1,828.4

Capital receipts 981.7 1,059.3 1,242.5 1,010.4 Recoveries of loans 83.2 99.1 115.0 110.9 Other receipts 9.1 50.0 90.1 100.0 Borrowings & other liabilities 889.4 910.3 1,037.4 799.6

Total receipts 2,320.7 2,679.3 2,819.1 2,838.8 of which: interest payments 656.4 750.0 772.5 880.0

Total expenditure 2,320.7 2,679.3 2,819.1 2,838.8

Fiscal deficita 889.4 910.3 1,037.4 799.6

a Revenue receipts plus recoveries of loans plus other receipts less total expenditure.

Source: Ministry of Finance, Budget at a Glance.

The tight 1999/2000budget—

The 1999/2000 (April-March) budget, presented at the end of February by thefinance minister, Yashwant Sinha, tightens fiscal policy. Narrowing the budgetdeficit is clearly the goal, but increasing revenue, rather than controlling ex-penditure, is the preferred (or perhaps easier) route.

Direct and indirect taxes have been raised. The corporate and personal tax rates(for those in the top income tier) were raised by 10%. The treatment of indirecttaxes is more complex; the net effect of changes to trade-related taxes appearsmarginally protectionist, owing to the imposition of several surcharges, but thestructure is slightly simpler. The indirect tax measures in the budget include:

• the imposition of a 10% surcharge on basic customs duties and excise taxrates (although petroleum imports are exempt);

• the imposition of a minimum 5% tariff on previously duty-free imports;

• the phasing-out on March 1st (on schedule) of the special customs duty of5%, which had been imposed in two stages in the past two years (although the4% special administrative duty, imposed in 1998/99, was retained);

• the streamlining of the customs duty structure into five rate-bands, fromseven (although those goods which were taxed at a now-defunct rate aretaxable at the higher rate) and the excise duty structure from 11 bands tothree; and

• the reduction of the top customs duty rate from 45% to 40%.

—aims to bring down thefiscal deficit—

Assuming faster GDP growth and, rather ambitiously, privatisation revenue ofRs100bn, the budget projects a reduction in the fiscal deficit to 4% of GDP in1999/2000 (based on the revised GDP figures). According to the old series, in1998/99 the fiscal deficit is estimated at 6.5% of GDP, compared with abudgeted target of 5.6% of GDP.

—but has largely ignoredthe laments of Indian

industry—

The budget partly responded to the laments of some segments of Indian ind-ustry. In the run-up to the budget representatives of several industrial sectorshad pressed for higher import duties which, they argued, would raise revenue

India 21


but (more importantly) offer relief from import competition. Steel producerspressed for the reversal of import duty reductions, while aluminium producerslobbied for higher duties on aluminium scrap and finished products. TheFederation of Indian Chambers of Commerce and Industry (FICCI) argued forhigher tariffs and there were murmurs of approval from the protectionistswadeshi supporters in the BJP. (Other business federations, for example theConfederation of Indian Industry—CII—called for duty reductions.)

Although the steel industry (among several others) was offered a mixed pack-age of measures in the budget, in general the size of the custom duties increaseseems geared to raise revenue, rather than provide much protection to belea-guered manufacturers. The finance minister—who undoubtedly remembersthe harsh verdict given to the 8% import duty surcharge introduced in the1998/99 budget—was more cautious about introducing any measures thatcould be viewed as overtly protectionist. Moreover, an expansion of the web ofimport controls is contrary to international undertakings to reduce tariff levelson a phased basis, and reinforces India’s existing bias towards import substitu-tion and away from export competitiveness.

—although loosermonetary policy should

offer some succour

Just two days after the budget announcement the Reserve Bank of India (RBI,the central bank) introduced a series of measures to loosen monetary policy,rounding out the strategy introduced by Mr Sinha. The RBI’s changes include:

• lowering the bank rate from 9% to 8%;

• lowering the repurchase rate by 2 percentage points; and

• cutting the cash reserve ratio (CRR) by 0.5 percentage points, from 11%to 10.5%.

The across-the-board rate reductions signal that the central bank is comfortablewith a weaker rupee. Although monetary growth has surpassed governmenttargets, the rupee has been stable since late 1998 and inflation is easing, provid-ing the RBI with more room to manoeuvre. However, while these measures aresure to inject liquidity into the banking system, a commensurate decrease inlending rates cannot be assumed. The rates charged to borrowers—even thebest ones—reflect more than just a simple spread above the interest rate on theRBI’s refinancing facility (which banks rarely tap). They also includeexpectations about inflation and, most importantly, the high costs and ineffi-ciencies of the banking system. Consequently, actual lending rates may be slowto respond.

The government isdigging for fiscal gold—

The 1999/2000 budget confirmed speculation that the finance minister intendsto raise more money from gold—for which Indians have an insatiable appetite.India is the world’s largest importer of gold. Until recently, it had strict controlson gold imports, a policy that seems to have encouraged large-scale smuggling.It began to ease import controls in 1991, and in 1997 authorised the import ofgold by designated agencies. Legal gold traffic has soared: in 1998 an estimated700 tonnes of gold were imported—most of it through legal channels—at a costof about $7bn. (Gold probably displaced petroleum goods as the largest importitem (in dollar terms) owing to slumping oil prices.) The gold imported throughlegal channels attracts customs duty and some is re-exported as jewellery. But

22 India


the government, not surprisingly, feels that the vast, unproductive store of valuerepresented by gold bullion and jewellery could be better utilised. A gold bondscheme is being launched, therefore, in which people would be encouraged todeposit gold in return for government bonds, redeemable in gold at a later date.

—and may dip into theoil pool—

Another potential honey-pot being eyed covetously by the finance ministry isthe oil-pool account, which acts as a form of clearing account for the public-sector oil industry. The account is expected to generate a big surplus (Rs175bn)in 1998/99, the result of revenue from fixed-price products running ahead of thecost of imported crude. However, Vazhapady Ramamurthy, the petroleum min-ister, is insisting that the surplus be used to redeem bonds worth Rs130bn issuedto the oil industry a few years ago when the government was trying to plug—what was then—a deficit on this account (together with a further Rs45bn inoutstanding payments owed to the oil industry). The oil industry already con-tributes Rs340bn a year in customs duty and Rs175bn in state levies.

—while replacing thespending spree with a

sinking fund

The government is considering a proposal that would separate out its receiptsfrom asset sales (shares in state enterprises) to create a proper sinking fund forgovernment debt, rather than simply using the proceeds to splurge on recurrentspending. The burden of interest charges on government debt is rising sharply;proposals to manage it on a sustainable basis will be well received by externalcreditors, in particular. The interest bill has risen from Rs500bn in 1995/96 to anestimated Rs750bn in 1998/99. By regularly retiring chunks of debt with moneyfrom the sinking fund, the interest burden could be moderated.

Banks are warned aboutbad loans

The RBI has warned India’s banking sector, and the state-owned banks inparticular, that they must reduce their stock of non-performing loans by im-proving loan management and operational efficiency as well as reconstructingtheir assets (either through mergers or raising capital from shareholders). Bankscannot expect a bail-out by the central bank.

A recent analysis of bank loans by a French bank, Credit Lyonnais, suggeststhat while the amount of non-performing assets grew to Rs457bn in 1997/98,from Rs437bn in 1996/97, as a proportion of total assets it has fallen. Indeed,the ratio of bad loans to assets has decreased steadily over the past four yearsfrom 25% in 1994/95 to 16% in 1997/98. The study suggests a paradoxicalconclusion: although gross non-performing loans will continue to rise, thesituation is not critical, both because overall bank assets are rising as rapidly (ifnot more rapidly) and because loans comprise only 40% of total bank assets(about one-half of the level of exposure of many South-east Asian banks priorto the regional upheaval). The study suggests that Indian banks need to raise$6.5bn for capital adequacy purposes (compared with $25bn in Indonesia,$48bn in Thailand and $63bn in South Korea). The study also suggests thatmost major institutions—including the State Bank of India (SBI), the UnionBank of India (UBI), Syndicate Bank, all the private banks, Industrial Credit andInvestment Corporation of India (ICICI) and the two insurers, GIC and LIC—can be considered healthy; several others are considered to be in “bad health”(Punjab National Bank, Canara Bank, Industrial Development Bank of India,IDBI, and Unit Trust of India, UTI); while a few others (Allahabad Bank, United

0

200

400

600

800

1,000

1994/9595/96

96/9797/98

98/99(a)99/2000(b)

India: interest paymentsRs bn

(a) Revised estimates. (b) Budget estimates. Source: Ministry of Finance

India 23


Bank, Indian Bank, Industrial Finance Corporation of India, IFCI) are classed asrequiring immediate rescue action.

The timetable for a reviewof labour laws is

lengthened—

No Indian government wants to confront the trade unions; consequently,labour reforms have consistently stayed at the bottom of the reform agenda.This reticence exists despite the negative impact on new investment of India’sunreformed “exit policy” (restrictions on the closure of companies and re-trenchment of the workforce). However, the government has pledged to set upa commission of labour to review India’s ossified labour laws. One importantissue that is sure to be addressed is the link between the very tough formallegislation governing the “organised sector” and the vast majority of Indiansworking in small-scale, “non-organised” enterprises, mainly in the country-side, who have little or no legal protection.

—but urban land reformgoes ahead

One piece of genuine legislative reform that is moving forward is the repeal ofthe Urban Land Act, a move that will lift restrictions on urban land ownershipand use. The aim is to free up land for redevelopment, especially housing, andthereby push down the cost of real estate in the cities and alleviate housingshortages. The change is likely to boost the construction and housing sector, aswell as associated capital goods industries (such as steel and cement). Once theold legislation is repealed by an ordinance—which is expected soon—an esti-mated 200,000 ha of land, spread over 64 urban areas in 15 states and Unionterritories, would be freed for use.

The economy

Inflation fever reaches analarming peak—

After several years of single-digit inflation, in 1998 India suddenly experienceda inflationary spike. Annual consumer price inflation for industrial workersreached 18.6% in October and 19.7% in November, compared with 5.5% inOctober 1997. Wholesale inflation has been far less extreme: 7.6%, year onyear, in December, compared with 4.1% in December 1997. Inflationary pres-sures, and prices, appear to have started to ease in early 1999, following there-establishment of a better balance between supply and demand in sensitivecommodity markets (such as those for onions and potatoes).

—and the printing press isdusted off

There seems very little doubt that monetary expansion has been an importantinfluence on the recent spurt of inflation: money supply (M3) was growing by19.5%, year on year, on January 1st 1999, and has been running at around thatlevel for several months—well above the government’s target of 15-15.5%.Some of the increase can be attributed to foreign-exchange inflows, particularlyfrom non-resident Indians buying government bonds. But most of the growthis attributable to government borrowing from the Reserve Bank of India (RBI,the central bank), which has the same effect as printing money. In the firstnine months of the financial year 1998/99 (April-March), there was a Rs200bnincrease in net RBI lending to the government, compared with a mere Rs32bnincrease in the same period of 1997/98.

24 India


Official GDP growthprojections are scaled

down—

According to revised estimates from the Central Statistical Office (CSO), realGDP grew by 5.8% in 1998/99, a downward revision of its previous estimate of6%, but still well above private-sector estimates. (The CSO has also produced anew series of national accounts, compiled using a revised methodology andwith a new base year of 1993/94, from 1980/81 previously.) According to theCSO’s estimates, agricultural output rose by more than 5% (compared with a1% contraction in 1997/98), boosting overall growth levels. These figures willin turn be revised; if previous rounds are any indicator, the revisions will mostlikely be upward. But they capture the essence of India’s economy, which isriding largely unscathed through an industrial recession and world economiccrisis on the back of a good monsoon.

—in line with thepersistent sluggishness of

industry

In April-November 1998 industrial growth slowed to 3.5%, from 6.6% in thesame period of 1997. Industrial growth was just 3.1% in November 1998, yearon year. More detailed information for certain subsectors suggests that outputfrom the major infrastructure sectors in April-December rose by a mere 1.8%,year on year, compared with 5.9% in the same period of 1997/98. (The infra-structure subsector accounts for about one-quarter of the total industrialweighting.) Coal output was stagnant, compared with 5% growth in the sameperiod of 1997/98, steel (a 2.8% contraction, compared with 6.7% growth lastyear), crude oil (contracted by 3.6%, compared with growth of 3.8% in1997/98) and cement (3.7% growth in 1998/99, compared with 9% last year)also underperformed. Output growth from oil refineries has been compar-atively constant (growth of 3.2%, compared with 3.5% in 1997/98). The onemajor success story is electricity, output of which rose by 6.6%, year on year, inApril-December 1998, up from 5.9% in the same period of 1997. Output fromthe main industrial sectors (which have a high weighting in the total) has beenstagnant, because of weak demand, high real interest rates, weak export de-mand and, in some areas, severe import competition. However, output in somesmaller sectors—for example information technology, colour televisions, com-puters, refrigerators, tape recorders, pharmaceuticals and motor cycles—hasbeen robust.

“Jobless growth” maycontinue—

Some newly published—but rather dated—figures for employment highlightan alarming trend. In 1995/96 real GDP rose by 7.6% but employment grew byonly 0.6% in the “organised” section of the manufacturing sector, and fell by5% in the transport and communications sector. “Jobless growth”, as occurredin 1995/96, partly explains why Indians are not greatly impressed with thecountry’s recent economic performance. Most of the job growth is occurring ininsecure, temporary employment in the service and agricultural sectors. Manu-facturers seem to be taking advantage of the more liberal environment to raiseproductivity and shed labour, thereby circumventing onerous labour laws. Inthe long term this should help overall employment. But, in the short termmany workers feel cheated.

—as local industryrestructures

In practice, wages and salaries comprise a very small portion of the overall costsof production. A recent survey of 681 manufacturing companies revealed thatwages and salaries made up 5.5% of total costs, a smaller item than interestcharges (5.8%), or power and fuel (6%). Anecdotal evidence suggests that some

India 25


industries (such as steel, cement and fertilisers), finding their profit marginsbadly squeezed by rising costs, are cutting those items where they have somediscretion, such as labour. Major restructuring in several leading Indian com-panies—Tatas, Shaw Wallace, Jindals, Thapar, Aditya Birla, Lloyds, Singhaniasand Escorts—is being accompanied by job losses.

Agriculture

Winter grain productionfigures are scaled back

Delayed and heavy rains have prompted the government to scale back estimatesfor the 1998/99 winter grain harvest to around 101m tonnes, which is nearlylevel with the 1997/98 (July-June) winter harvest. But favourable groundwaterconditions have underpinned very bullish projections for the summer (kharif)foodgrain crop. The annual harvest is now forecast to reach 195m tonnes,compared with 192m tonnes in 1997/98. Within this total, the wheat crop isprojected to rise by 4.9%, while those of rice and coarse material are forecast tocontract by 0.1% and 6.6% respectively. Food stocks are very comfortable: inSeptember stocks were 25m tonnes, compared with 15m tonnes in September1997. A change in consumption habits may explain the swelling stocks: asincomes rise, consumption is shifting to goods such as milk, eggs and vege-tables, leaving the low-quality, poor man’s grain on the shelf.

A bumper cotton crop— Cotton crop estimates must be treated with caution: projections tend to fluctu-ate sharply over the course of the year, and differ depending on whether theyoriginate from cotton growers or millers. In 1997/98 (October-September) in-itial estimates placed the annual crop at 16.9m bales, a projection that later fellto 14.8m bales and finished at 15.8m bales. In 1998/99 opening estimatesprojected a record 17.5m bales; but at the end of January estimates were low-ered to 16.6m bales. Assuming that the final result is near the latest estimate,the balance between supply (16.6m bales plus 3m bales of stock) and demand(16.2m bales including exports) will be comfortable.

—is matched by a recordtea output—

In 1998 tea production is estimated to have surged to a record high of 860m kg,a 50m kg increase on 1997 levels. (Tea figures are normally available on acalendar-year basis reflecting a different cycle for monsoon crops.) Coinciden-tally, a new purchase agreement has been signed with Russia, for the export of100m kg a year, which will help to sustain export demand in coming years. In1998 reduced buying by Russia and a global surplus in tea exerted a downwardpressure on prices—a trend that is likely to continue in 1999. A global surplus—the result of record harvests in India, as well as Sri Lanka and Kenya—willdepress world tea prices, which the EIU forecasts will fall by 17.4% and 10.8%in 1999 and 2000 respectively.

—but vegetable oilimports are up too

According to national sources, India must import an additional 400,000 tonnesof edible oil in the 1998/99 crop year (November-October), bringing the totalto 2.4m tonnes—just above our previous estimate of 2.3m tonnes (4th quarter1998, page 21). Demand for vegetable oils is expected to rise to over 8m tonnes(from 7.8m in 1997/98), while domestic production is estimated at 7m tonnes(up from 6.3m tonnes). Although the gap between supply and demand hasnarrowed, additional imports are necessary for the replenishment of stocks and

26 India


contingencies, following the disasters that occurred last year when panic-buying led to a 100% increase in the market price of edible oils.

Energy

A few private powerprojects move ahead

In late 1998 the government awarded counter-guarantees for three more “fast-track” private power projects (the 250-mw project in Tamil Nadu involving theUS company CMS Energy and the Swiss company ABB; a 1,040-mw projectinvolving Hinduja-National Power and National Power of the UK; and a1,084-mw project in Maharashtra by Alsthorn, GEC of the UK and EDF of Franceand the Ispat group—4th quarter 1998, page 25). When operational (and afterthey have achieved financial closure, obtained final clearances and completedconstruction), these projects will add 2,370 mw to total capacity.

—as India’s power sectorpolicy takes shape

The BJP-led government is slowly constructing a more coherent strategy toaddress private-sector participation in the power sector. So far, the policies ofsuccessive governments have produced little except the completion of the firststage of the Dahbol project (involving a US power company, Enron) and twosmaller projects, which together have a capacity of 1,000 mw (compared withthe 17,000 mw in private-power capacity targeted in the 1997-2002 plan).Work on the 1,040-mw project in Visakhaptnam is likely to begin soon; but theother two face further obstacles. Meanwhile the second phase of the Dahbolproject, involving the addition of 1,444 mw of capacity, is proceeding.

However, the government is taking steps to speed up the expansion of thepower sector—and the entry of private investors. A policy has been announcedfor “mega-projects” (including thermal projects with capacity in excess of1,000 mw and hydropower projects with a minimum 230 mw of capacity)under which developers will be prequalified through competitive, tariff-basedbidding. These projects will also be able to negotiate power purchase agree-ments with the new power trading corporations (PTCs), which will also arrangefor distribution to states with secure regulation (and private distribution sys-tems in large cities). In addition, projects will be eligible for a 10-year relieffrom import duty and income tax. One project—the 3,960-mw Hirma projectin Orissa—is being allowed to go ahead without competitive tendering.

These proposals include two important new ideas. First, developers will be ableto circumvent the bankrupt and inefficient state electricity boards (SEBs) byselling their power to a new intermediary, the PTCs. Second, emphasis has alsoshifted to locations on the coast or near coal mines, reducing dependence onthe railways and Coal India, although this will not affect projects that havealready been launched, including those described above. Other policy initia-tives include:

• clearer guidelines for liquid fuel-based projects. (In the past the Indian OilCompany has blocked power projects because they could weaken its monopolyover high-cost naphtha);

• easier procedures, more flexible tariff structures and a tax on non-hydropower to encourage hydropower projects;

India 27


• new legislation, now implemented, making it easier to invest in powerdistribution, and making interstate trade in power easier;

• the establishment of a central electricity regulatory commission to set stand-ards for state-level regulation and facilitate distribution between states; and

• simplified clearances for new projects which are not among the eight “fast-track” projects. (The government claims that 18 projects—public- and private-sector—are now very near to closure.)

India’s oil import bill falls Demand for imported oil products is now estimated at 19.3m tonnes in1998/99, down from earlier projections of 23.3m tonnes. Demand for diesel isexpected to record the largest drop (by about 5m tonnes), because of lowerconsumption and higher domestic production. But crude oil imports are ex-pected to rise from an estimated 37m tonnes to 39.4m tonnes. Reduced importvolumes and lower world prices will help to bring down the total net import billfor oil and oil products; the oil import bill for 1998/99 is projected at $6.88bn,according to the government, down from the original $8.42bn estimate.

Infrastructure and telecommunications

Infrastructure shows fewreturns on all the talk—

Years of negotiation concerning private investment in infrastructure haveborne little fruit: three private power projects are up and running, and a hand-ful of others are in preparation; several private port projects are under construc-tion; a private airport is being built; a limited cellular telephone system hasbeen set up; and there is an even more limited private basic telecommun-ications network. Huge investments in new infrastructure are needed if Indiahopes to sustain faster growth; but only a small fraction has taken place be-cause of constraints on public funding and the difficulties of making headwayon the complex regulatory and financing issues. The government recently tookone useful step, allowing automatic approval for 100%-foreign investments, ofup to Rs15bn ($351m), in a variety of infrastructure activities (roads, includingtoll roads, bridges, ports and harbours). This increases access to the automaticapproval route to those with wholly foreign ownership; previously the limitwas 74% foreign equity.

—but several highwayprojects get the go-ahead—

The ratio of rhetoric to action has been especially high in road development,where motorways financed through a build-operate-transfer (BOT) model havebeen much discussed by the Ministry of Surface Transport, but are far fromrealisation. However, a few encouraging developments have occurred. Thegovernment has launched an ambitious plan that aims to lay 7,200 km ofhigh-speed road corridors crossing the country (north to south, and east towest) and which will eventually be merged with a “golden quadrangle” four-lane system linking Bombay (Mumbai), Calcutta, Delhi and Madras (Chennai),and a wider 13,500-km expressway network (entirely funded by the privatesector on a toll basis).

The large-scale road programmes are aspirational rather than immediatelypractical. But work is beginning on parts of the system. In Bangalore, the primeminister, Atal Bihari Vajpayee, launched the first stage of a six-lane carriageway

28 India


on National Highway 7, which will link Bangalore with Tamil Nadu. Work issimultaneously starting at around 20 other points (on which 150 enquiriesfrom contractors have been received) around the country. The central govern-ment appears to be advancing the contract tendering process, while simultane-ously negotiating terms with potential investors. So far, the reaction of foreignconstruction companies has been lukewarm, but these companies will beneeded if large projects are to get under way. In order to attract greater private-sector participation, the government has cleared a model concession agree-ment (for Indian and foreign companies willing to tackle large projects) whichprovides for 50% of any increase in tolls to reflect changes in general inflation(although large operators seek even greater concessions). In addition, fundsfrom a new, dedicated road fund, financed by a 1 rupee levy on a litre of diesel,will be earmarked for road development.

—ports show someprogress—

The port sector is one area where real progress has been made with privateoperators. Six port projects with private-sector involvement are under con-struction; there have been hopes of adding, through private companies, 76mtonnes of the 172m tonnes of extra capacity that the government estimateswill be necessary in the years to 2002. Indian ports handled 250m tonnes oftraffic in 1997/98. In addition, the various port trusts are currently subject torestructuring to enable them to operate in a more commercial manner.

—and some airports arebeing developed—

The government has also tried to engage private-sector involvement in airportdevelopment. One project, involving private equity and government-guaranteed debt, is getting under way at Cochin, although a more ambitiousproject (involving the Indian conglomerate Tata, the US aerospace companyRaytheon, and Singapore Airport) for an international airport at Bangalore wasshelved after disagreement on fees, land ownership and ground access.

—amid the fog The annual paralysis of Delhi airport amid the winter fogs in December andJanuary has come to symbolise to many travellers the inadequacy of India’sairport system. This year, as always, thousands of travellers were stranded ordiverted on to other flights because Delhi’s radar system was deemed incapableof navigating through the dense fog. After seemingly endless disputes withunions, a new system (by Raytheon) has now been installed. But much morewill have to be done—and done quickly—if projected growth in demand is tobe met. In 1996/97 airports handled 24.3m domestic passengers (a 10% rise on1995/96 levels), 122m international passengers (6% annual growth) and480,000 tonnes of international cargo (10% growth). The state airlines are in anequally poor state. Indian Airlines is scheduled to lose Rs350m ($8.2m) in1998/99 and Air India Rs3.4bn. They are preparing to pool their losses in amerger and, it is hoped, to rationalise some of their overlapping facilities.

But the private telecomsoperators are stuck

The dispute between government authorities and the cellular telephone opera-tors over the terms of their contracts is now deadlocked (3rd quarter 1998,page 29; 4th quarter 1998, page 27). The cellular licence fee system has provedcrippling for the companies, many of whom seriously overbid for their li-cences, mainly because the market has not developed as rapidly as they ex-pected. Only 1m subscribers were recorded at the end of 1998; cellular

India 29


operators had hoped to reach that target by March 1998. Some of the operatorsare trying to sell their licences, but cannot find buyers. However, the govern-ment is working towards a compromise involving a revenue-sharing formulawhich may allow the companies to stay afloat. The situation of the basictelecoms companies is even worse: of the six licensees, only two (in MadhyaPradesh and Maharashtra) began operating in 1998.

The government appears to be groping towards a new policy that will enable afresh round of bidding to take place. A new strategy would involve two newprinciples: a formula for revenue-sharing (between operators and the depart-ment of telecommunications) rather than blind bidding; and an auctioning-offof the spectrum, which will break the built-in duopoly in both cellular andbasic services within prescribed circles. The consequence may well be fewercompanies offering a more profitable and trouble-free service.

Foreign trade and payments

The trade deficit isdoubling—

The trade deficit continues to widen (4th quarter 1998, page 31). Poor exportgrowth is largely to blame: in the first eight months of 1998/99 (April-March)merchandise exports totalled $28.2bn, a 4% contraction on the same period of1997/98, according to government statistics. Merchandise imports rose by9.5% year on year, to $38.2bn. Consequently, the trade deficit (fob-cif)doubled, from $3.4bn in April-November 1997/98 to $6.7bn in the same periodof 1998/99. On a calendar-year basis, the EIU estimates that the trade deficit(fob-fob) exceeded $15bn, compared with $10.3bn in 1997.

—as dollar exports fall— Exports were weak, despite the introduction of a steady stream of initiatives bythe commerce ministry that allowed tax exemptions and lower interest rateson pre-shipment credit. In addition, the government refunded 44% of totalcustoms revenue in April-October 1998 to exporters under a duty-reliefscheme. The government blames the “world recession”; the poor external en-vironment is certainly a factor in the weak performance of steel, iron ore andchemicals exports. However, a lack of Indian export competitiveness in gen-eral, owing to supply bottlenecks, quality and price limitations, is perhapsmore germane. Currency movements also played a part: while dollar exportsfell by 4%, rupee exports rose by 11.3%, reflecting the nominal devaluation ofthe rupee in 1998.

—and imports expand,despite soft oil prices

Rapid import growth has occurred, despite the windfall of lower oil prices.According to government statistics, during April-November the dollar-denominated oil import bill fell by 25% year on year, to $3.9bn. However,demand for other import items swelled: the import of gold (and silver) grew byRs22bn ($515m) to Rs103bn (although this is almost entirely attributable tothe switch from unofficial to official import channels); the sugar import billrose from zero in April-November 1997 to Rs5bn; edible oil imports nearlydoubled, from Rs17bn to Rs33bn; the import of electronics goods rose fromRs33bn to Rs43bn; and spending on imported project needs—capital goods foroil and gas, power and fertiliser—rose from Rs23bn to Rs43bn.

30 India


Higher freight chargeswill boost service costs

Although trade activity slowed, the cost of trade-related services is likely tohave increased in 1998. One damaging development, which will badly affectIndia’s exports to the US (the country’s largest export market), is a large in-crease—by more than 50%—in container charges on the main shipping lines.The increase in charges is due to the impact of the economic downturn in Asia:shipping containers are travelling with full loads to the US but returningempty. Consequently, unit costs have risen. Indian exporters have little choice,particularly on routes to the west coast of the US, unless they transship throughSingapore. The profits on high-volume, low-margin products (such as tea,garments and leather goods) are particularly hard-hit by higher shipping costs.

Anti-dumping actionagainst steel imports is

started—

Several segments of Indian industry have long demanded the imposition ofanti-dumping duties in those areas of standardised commodity manufacture(such as steel and bulk chemicals) where there is spare capacity in India as wellas oversupply (and weak prices) in world markets. In December the govern-ment decided to impose anti-dumping duties (amounting, in effect, to anadditional 20% duty) on imports of hot-rolled steel products from countries ofthe former Soviet Union. Indian steel producers will now be able to raise theirprices and margins while resisting pressure to offer heavy discounts. Havingsavoured this victory, the steel industry may now take aim at low-cost steelsupplies from South Korea and other Asian countries that have experiencedlarge devaluations.

Although the new duties are being enthusiastically greeted by the steel ind-ustry, the wider policy is questionable. The steel imports subject to these dutiesmay well not be “dumped” goods in a technical sense (that is, when the pricelevied in the export market is lower than that charged in the domestic market).Some Indian exports (including steel) are, in fact, currently being investigatedon dumping grounds by the US and the EU.

—and debt buybacksbecome more attractive

The large discounts available on India paper trading in international markets(Eurobonds) are rendering the buyback of this debt by Indian companies anincreasingly attractive opportunity. Investment guidelines have been relaxedto enable foreign direct investment and global depository receipt (GDR) pro-ceeds to be used to retire Eurobonds. By replacing their debt in this way, Indiancompanies can improve their balance sheets. Moreover, they can replace for-eign debt with domestic debt: the decline in Indian interest rates has raised therelative attractiveness of domestic borrowing. Ironically, foreign borrowing wasoriginally undertaken for the opposite reason.

India 31


India: external reserves($ bn)

1996 1997 1998 4th Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr

Reserves incl gold 23,784 26,050 29,002 29,146 27,568 28,757 26,769 28,895 29,833

Reserves excl gold 20,170 22,664 25,702 26,017 24,688 26,260 24,297 26,490 27,341Source: IMF, International Financial Statistics.

Foreign-exchange reservescontinue to pile up—

Although the trade position appears to be deteriorating, the foreign-exchangeposition remains very comfortable. At the end of January foreign-exchangereserves had risen to $27.5bn, from $23.4bn a year earlier, according to govern-ment statistics. Taking into account gold and special drawing rights, totalreserves were worth $30.5bn—a record high. Total reserves are sufficient tocover eight months of imports.

In contrast with many of its South-east Asian neighbours, India has not beenforced to deploy its reserves in defence of a fixed exchange rate; this is partlybecause the country has limited capital-convertibility and partly because theexchange rate has been allowed to float whenever it is under pressure.

—and there has been nopressure on the rupee

India is beginning to emerge as an oasis of currency stability in the troubled,unstable world of emerging markets; the rupee has remained unaffected byrecent concerns over the stability of the Chinese and Brazilian currencies. Afterhitting a low of Rs43.7:$1 in August, the rupee has traded in a narrow range—Rs42.25:$1-Rs42.55:$1—for four months. A recent poll of 22 Indian banks,companies and securities houses forecasts a gradual fall in the value of therupee over the next year—to Rs44.35:$1 by December 1999, reflecting inflationdifferentials with India’s main trading partners and a gentle decline in interestrates. The poor export performance is also likely to encourage the Reserve Bankof India (the central bank) to allow this slide with minimal intervention.

0

5

10

15

20

25

30

Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

Foreign exchange

Gold

India: international reserves$ bn

Source: IMF, International Financial Statistics.

199519951995199519951995199519951995199519951995199519951995199519951995199519951995 9696 9797971995 961995 9696 979797 981995 961995 961995 961995 961995 961995 961995 961995 961995 961995 9619951995199519951995 961995 96 97 98

43

42

41

40

39

38

Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan

India: exchange rateRs:$; inverted scale


199819981998199819981998199819981998199819981998199819981998199819981998199819981998 99991998 991998 99991998 991998 991998 991998 991998 991998 991998 991998 991998 991998 9919981998199819981998 991998 99

32 India


Nepal

Political structure

Official name Kingdom of Nepal

Form of state Constitutional monarchy

Head of state The sovereign, currently King Birendra, is head of state and commander-in-chief of thearmed forces

The executive Prime minister heads a Council of Ministers appointed from among the electedmembers of the House of Representatives

National legislature Bicameral: upper house, National Assembly, 60 members (35 elected by the lowerhouse, 15 elected by heads of local committees and others in the electoral college, 10appointed by the sovereign); lower house, House of Representatives, 205 memberselected to five-year terms from single-member constituencies

Legal system Supreme Court acts as court of appeal and review as well as having powers of originaljurisdiction; presides over 11 appellate courts and 75 district courts

National government In December 1998 the Nepali Congress party (with 88 seats) formed a coalitiongovernment with the support of the Communist Party of Nepal-Unified MarxistLeninist (49 seats) and the Nepal Sadbhavana Party (3 seats). This is the sixthgovernment formed after the mid-term poll of November 1994

National elections November 15th 1994; next election scheduled for May 3rd 1999

Main political organisations Nepali Congress (NC); Communist Party of Nepal-Unified Marxist Leninist(CPN-UML); Communist Party of Nepal-Marxist Leninist (CPN-ML); NationalDemocratic Party (NDP, Thapa faction); National Democratic Party (NDP, Chandfaction); Nepal Workers’ and Peasants’ Party (NeWPP); Nepal Sadbhavana Party (NSP)

Council of Ministers Prime minister, minister of royal palace affairs, agriculture, defence, foreign affairs, forest & soil conservation, housing & physical planning, labour, land reform & management, work & transport Girija Prasad Koirala (NC)

Key ministers Commerce, youth, sport & culture Purna Bahadur Khadka (NC) Education, women & social welfare Kul Bahadur Gurung (NC)Finance, law & justice Bharat Mohan Adhikari (CPN-UML)Health, & water resources Pradip Nepal (CPN-UML)Home affairs Govinda Raj Joshi (NC)Industry Gajendra Narayan Singh (NSP)Information & communications, & parliamentary affairs Jaya Prakash Prasad Gupta (NC) Local development Amrit Kumar Bohara (CPN-UML) Population & environment Ramesh Nath Pandey (appointed)Tourism, civil aviation, science & technology Bhim Bahadur Rawal (CPN-UML)

Central bank governor Satyendra Pyara Shrestha

Nepal 33


Economic structure

Latest available figures

Economic indicatorsa 1994 1995 1996 1997 1998

GDP at factor costb (NRs bn) 199.3 219.2 248.9 280.6 293.5

Real GDP growthbc (%) 7.9 2.9 5.7 3.9 2.3

Consumer price inflation (av; %) 8.4 7.6 9.4 2.9 7.8

Population (mid-year; m) 20.9 21.5 21.1 22.6 n/a

Exports fob ($ m) 368.7 349.9 388.7 410.5 n/a

Imports fob ($ m) 1,158.9 1,310.8 1,494.7 1,718.6 n/a

Current-account balance ($ m) –351.9 –356.4 –326.6 –418.1 n/a

Reserves excl gold (mid-Dec; $ m) 693.6 586.4 571.4 626.2 n/a

Public external debtd (year-end; $ m) 2,320 2,399 2,413 n/a n/a

Exchange rate (av; NRs:$) 49.4 51.9 57.0 58.0 66.0

February 26th 1999 NRs66.76:$1

% of % ofOrigins of gross domestic product 1997/98b total Components of gross domestic product 1996/97b total

Agriculture, forestry & fishing 40.8 Private consumption 78.1

Mining & quarrying 0.5 Government consumption 9.1

Manufacturing 8.8 Gross fixed capital formation 20.9

Electricity, gas & water 0.8 Change in stock 4.2

Construction 9.2 Exports of goods & non-factor services 26.3

Trade, hotels etc 11.3 Import of goods & non-factor services –38.6

Transport & communications 7.8 GDP at market prices 100.0

Finance & real estate 10.2

Social services 10.4

GDP at factor cost (less bank charges) 99.8

Principal exports 1997/98be NRs m Principal imports 1997/98be NRs m

Woollen carpets 8,485 Petroleum products 9,093

Garments 7,006 Transport equipment & parts 3,960

Pulses 1,051 Medicine 2,842

Jute goods 725 Cotton fabrics 2,583

Hides & skins 544 Chemicals & fertiliser 1,895

Total incl others 27,468 Total incl others 88,797

Main destinations of exports 1996/97f % of total Main origins of imports 1996/97f % of total

Germany 34.0 India 26.9

US 26.4 Hong Kong 21.1

India 24.2 Singapore 10.4

Bangladesh 2.2 UAE 5.8

Italy 1.8 Japan 4.1

Switzerland 1.5 UK 3.3

Austria 1.4 China 3.1

a All figures are sourced from the IMF’s International Financial Statistics unless otherwise indicated. b Fiscal years ending July 15th. c At factor cost.d World Bank, Global Development Finance. e Central Bureau of Statistics, Statistical Yearbook of Nepal, 1997. f FNCCI, Nepal and the World: AStatistical Profile, 1998.

34 Nepal


Outlook for 1999-2000

The result of the Maygeneral election—

Nepal faces a general election in early May 1999, following the fall in Decemberof the coalition government, which comprised the Nepali Congress (NC) andthe Communist Party of Nepal-Marxist Leninist (CPN-ML). It was the latest ina string of coalition governments formed after the 1994 election, which gaveNepal a hung parliament and, consequently, was a constant source of politicalinstability as successive coalition governments failed to retain a majority. Anelection government has been formed by the NC, the Communist Party of Nepal-Unified Marxist Leninist (CPN-UML) and the Nepal Sadbhavana Party (NSP).

—is hard to predict There are no opinion polls in Nepal from which to gauge the comparativesupport of political parties in the forthcoming general election. However, theNC, which is the largest party in Nepal’s current parliament, and the CPN-UML(the current coalition partner and, until December 1998, the NC’s main oppos-ition) look set to return as the two largest parties. Both are keen to lead a newadministration. The race is sure to be close; consequently, another hungparliament—and another period of horsetrading—cannot be ruled out.

Difficult policy problemslie ahead—

The next government will have to tackle a number of difficult policy problems.The first is poverty. Nepal is one of the poorest countries in the world, witharound 42% of the population living below the poverty line, and with limitedresources and a weak infrastructural base. The economic malaise and deepen-ing income disparities have undermined faith in democracy and fuelled somediscontent with the political status quo. Regardless of the configuration of thenext government, the prospects for the Nepali economy remain bleak as aresult of the paucity of principled political leadership in any party, withnegative implications for development and poverty reduction.

—including thesimmering insurgency

The disaffection created by poverty will remain a breeding ground for politicalextremism, fuelling the insurgency led by the Communist Party of Nepal-Maoist (CPN-M). The Nepali authorities regularly claim to have brought theunrest under control. However, persistent poverty, the remoteness of the areaand the charisma of the CPN-M’s leaders—in particular, its general secretary,

40

60

80

100

120

140

160

1980. 82 . 84 . 86 . 88 . 90 . 92 . 94 . 96 . 98

Nepal: Nepalese rupee real exchange rates (c)1980=100

NRs:$NRs:$NRs:$NRs:$NRs:$NRs:$NRs:$NRs:$NRs:$NRs:$NRs:$NRs:$NRs:$NRs:$NRs:$NRs:$NRs:$NRs:$NRs:$

NRs:¥

NRs:$

NRs:¥NRs:¥

NRs:DMNRs:DMNRs:DM

NRs:$

NRs:¥

NRs:$

NRs:¥NRs:¥

NRs:DMNRs:DMNRs:DM

98(b)

NRs:$

NRs:¥

NRs:$

NRs:¥

NRs:$

NRs:¥

NRs:$

NRs:¥

NRs:$

NRs:¥

NRs:$

NRs:¥

NRs:$

NRs:¥

NRs:$

NRs:¥

NRs:$

NRs:¥

NRs:$

NRs:¥

NRs:DM

98(b)98(b)

0

1

2

3

4

5

6

7

8

9

1994 95 96 97 98(b)

Nepal (a)

Asia excl Japan

Nepal: gross domestic product% change, year on year

(a) Fiscal years beginning July 16th. (b) EIU estimates. (c) Nominalexchange rates adjusted for changes in relative consumer prices.Sources: EIU; IMF, International Financial Statistics; World EconomicOutlook.

Nepal 35


Pushpa Kamal Dhala (known as Comrade Prachandra), and its intellectualfigurehead, Baburam Bhattarai—will continue to complicate any efforts to sup-press the unrest. Moreover, the Maoists will try to expand their sphere ofinfluence by building alliances with ethnic minority tribal groups.

Review

The political scene

The CPN-ML pulls out ofthe coalition—

The government led by the prime minister, Girija Prasad Koirala, lost its major-ity in December 1998, after eight ministers, two state ministers and threeassistant ministers from the Communist Party of Nepal-Marxist Leninist (CPN-ML) tendered their resignations, and the party withdrew from its coalition withMr Koirala’s centrist Nepali Congress (NC). The CPN-ML had joined the minor-ity NC in government in August 1998, establishing a majority government,and helping the NC to pass the 1998/99 (July 15th-July 14th) budget.

The CPN-ML and the NC, like their many predecessors, made an unlikely pair.The CPN-ML had disagreed with Mr Koirala on most policy issues, includingthe implementation of price rises, the government’s handling of a Maoistinsurgency in the west of the country, its negotiations with India over thedisputed border territory of Kalapani and the CPN-ML’s demand for a review ofthe controversial Peace and Friendship Treaty, signed with India in 1950. InNovember 1998 the CPN-ML issued a series of ultimatums to the prime min-ister, threatening to withdraw from the government unless these issues wereresolved. Other left-wing parties, including the main opposition CommunistParty of Nepal-Unified Marxist Leninist (CPN-UML), joined the protest againstthe government.

—leading to aconstitutional impasse

Following the collapse of his government, Mr Koirala recommended to Nepal’sconstitutional monarch, King Birendra, that elections be called by the end ofMarch 1999. However, the king returned from treatment abroad for a heartcomplaint to reject Mr Koirala’s recommendation. In line with a SupremeCourt ruling in 1995 that the leader of a minority government cannot callelections while the possibility of forming a new government remains, the kinginstead accepted opposition demands for a special session of parliament todebate a motion of no confidence against Mr Koirala.

This was the third time in four years that such a debate had been called. Theprecedent was set in August 1995, when the Supreme Court overruled the thenprime minister, Man Mohan Adhikari, in his attempt to dissolve parliamentand call a general election. Mr Adhikari lost the vote of confidence, and hisgovernment fell in September. In 1997 the then prime minister, Surya BahadurThapa, narrowly survived a vote of confidence in similar circumstances—anddid not renew his call for fresh elections. However, Mr Koirala insisted that hewould renew his recommendation to hold early elections, a demand supportedby most opposition parties as the only way to bring stability to Nepali politics.

36 Nepal


But political bargainingsaves the day—

In the run-up to the vote of confidence on December 24th, Mr Koirala faced acombined opposition of 115 MPs—12 more than the 50% needed to defeathim. Mr Koirala’s NC held extensive negotiations with opposition parties in anattempt to establish alliances sufficient to win the vote; the central committeesof key political parties met to debate their course of action. Several oppositionparties supported Mr Koirala’s call for early elections to bring to an end fouryears of political instability in Nepal. However, they insisted that free and fairelections could only be held under a crossparty administration, and perhapsone established with the sole purpose of administering the vote.

Just days before the vote the main opposition CPN-UML and the regionalNepal Sadbhavana Party (NSP) agreed to form a coalition with the NC, in a dealthat would allow Mr Koirala to continue as prime minister. The CPN-UML hadbeen one of the staunchest critics of Mr Koirala’s government. However, theparty backed his demand for early elections and agreed to support his adminis-tration if national elections were called by April 1999. Even after the newcoalition was announced, four opposition parties stuck to their demand for avote of no confidence against Mr Koirala.

—and a new governmentis formed—

Only days before a special session of parliament was called to debate the voteof no confidence against the government Mr Koirala formally resigned as thehead of his minority administration and staked his claim to form a new,majority coalition with the CPN-UML and the NSP. Two days later, onDecember 23rd—just eight months after he first formed a government with theCPN-ML—Mr Koirala was sworn in as leader of the three-party coalition.

The new government was required to prove its majority within 30 days. How-ever, with a comfortable majority of just under two-thirds of parliament,Mr Koirala’s position was secured and a measure of calm returned to the polit-ical scene. Mr Koirala maintained that he would stick to his call for freshelections once his administration had proved its majority, recommending thatthey be held in April 1999—seven months ahead of schedule.

—with one surprisingappointee

Mr Koirala appointed a cabinet of 11 ministers, which is small by recent stand-ards in Nepali politics. Four ministers were appointed from his own NC party,four from the CPN-UML and one from the NSP. For the first time in eight yearsthe cabinet also included a minister nominated by the king, Ramesh NathPandey, who serves as the king’s representative in the National Assembly (theupper house of parliament). It was the first time since 1990—when KingBirendra gave up absolute power in order to re-establish a democratic politicalsystem in Nepal—that a popularly elected government in Nepal had includeda royal nominee.

Mr Pandey assumed the cabinet post of minister for population and environ-ment. Members of the CPN-UML were assigned the key ministries of financeand water resources. Three ministers in the new cabinet were retained fromMr Koirala’s outgoing administration, including the home affairs minister,Govinda Raj Joshi. Mr Koirala assumed the foreign and defence portfolios.

A triumphant vote ofconfidence—

On January 18th Mr Koirala won a vote of confidence with the support of 136MPs in the 205-member House of Representatives (lower house). This time the

Nepal 37


king accepted Mr Koirala’s recommendation that elections be called, agreeingto hold them in May 1999.

—will be followed by anunusual election

The forthcoming general election has already seen some unusual develop-ments. For the first time, the main political parties have announced their primeministerial candidates during the campaigning period. The NC will put forwardtheir former president, Krishna Prasad Bhattarai, and the CPN-UML’s candidateis their leader, Mr Adhikari.

The two candidates are also standing from the same prestigious constituency,Kathmandu-1. Mr Adhikari’s CPN-UML has won two general elections and twoby-elections from this constituency over the past eight years. However, thesplit in the party in March 1998—into the CPN-UML and the CPN-ML—suggests that Mr Adhikari’s position is not as certain. But nor is Mr Bhattaraicertain to win, in a constituency that has already twice voted against him. Theface-off is not absolute: in an effort to improve their chances of a seat inparliament, both men are also standing in second constituencies. Old friendsbut political rivals, Mr Adhikari and Mr Bhattarai are both over 75 years oldand each has previously served as prime minister.

The insurgency in thewest continues—

High levels of poverty have contributed to an ongoing insurgency in the westof Nepal, mainly around Rukum and Rolpa, led by the Communist Party ofNepal-Maoist (CPN-M). Official figures report that fighting between the groupand government security forces has claimed 350 lives since it began in February1996, although human rights groups suggest that the figure is as high as 1,500.A crackdown in the region has been criticised by opposition parties, who haveaccused the government of targeting innocent citizens. The Nepali authori-ties regularly claim to have brought the insurgency under control, but clearlyhave not.

—as does the dispute overBhutanese refugees

Nepal is also embroiled in an international dispute over the fate of around100,000 Nepali-speaking refugees from Bhutan, who have been living in UN-runcamps in east Nepal for the past eight years. The UN High Commissioner forRefugees (UNHCR) has registered more than 94,000 names in the camps, andestimates that a further 10,000 have not registered or are living outside thecamps. The Nepali government has insisted that the refugees should return toBhutan, but the Bhutanese authorities say that the refugees are from Nepal. InNovember 1998 an official delegation including the Nepali home affairsminister travelled to Bhutan to resume talks on the issue, agreeing to meet againin 1999.

The king has providedcontinuity amid

the crisis—

King Birendra is 53 and came to the throne in 1972. He is one of the few figuresof constitutional continuity in Nepal, and his heart attack in early November,and subsequent absence abroad for treatment, added to a sense of intensepolitical instability in the country. However, King Birendra’s role in stabilisinga fraught political scene following the government’s collapse in December1998 suggests a tenable constitutional arrangement.

—and reinforces tieswith India

Towards the end of January 1999 King Birendra paid a state visit to India asguest of honour at India’s Republic Day celebrations. As the world’s only Hindu

38 Nepal


monarchy, Nepal has a solid foundation in its relations with India, home to theworld’s largest Hindu population. The six-day trip was an important opportun-ity for the Nepali monarch to strengthen his country’s links with its hugeneighbour, and followed the renewal on January 5th of the Indo-Nepal transittreaty. The new treaty is valid for seven years and incorporates an automaticrenewal for a further seven years (unless either of the parties decides to termi-nate the treaty, giving six months prior notice).

Relations between the two countries are generally equable. As a small, land-locked country with limited resources, Nepal is largely dependent on India,while India is keen to retain control over Nepal as a convenient buffer betweenitself and China. However, Nepal’s coexistence with India is complicated andseveral points of contention remain. Both countries contest the ownership ofKalapani, a strip of land bordering India, Nepal and China. Nepal has demandedthat India withdraw troops from the security posts it established at Kalapaniduring the Sino-Indian border war in 1962, saying that it has prior claim to thearea. India, in turn, has demanded that Nepal curb the activities of Pakistaniintelligence agencies that it claims are operating from Nepali territory.

Economic policy and the economy

Development spendingslips—

Development spending has slipped. In the first five months of 1998/99(July 15th-July 14th), development spending fell by 17.4%, while current ex-penditure rose by 13.4%, according to Nepal Rastra Bank (NRB, the centralbank). The decline in development expenditure is the result of a combinationof factors, including political instability and a high turnover of projects staff,both of which have led to a delay in project implementation. The retirement ofabout a dozen secretaries at the end of 1998 could further delay implement-ation decisions. The main donors have consistently criticised Nepal’s failure toexpedite project implementation.

Although revenue has helped to reduce the government’s budget deficit by42.9% year on year in the same five-month period, the target for the full yearwill probably be missed. According to NRB data, revenue collection totalled justNRs12bn in the five months of 1998/99, compared with a target of NRs40bn forthe year. The slow implementation of value-added tax (VAT) may be adverselyaffecting revenue mobilisation and targets. In early September an agreement wasreached between the Ministry of Finance and the Federation of NepaleseChambers of Commerce and Industry (FNCCI) to increase the exemption forVAT from NRs3m to NRs4.5m (4th quarter 1998, page 42). However, imple-mentation is still a problem. According to representatives of the business com-munity, their accounts have not been accepted by the VAT office, delaying thetimely submission of their tax payment. From the government’s point of view,this looks suspiciously like non-compliance.

—while privatisationshows progress and

problems—

The privatisation of state assets is progressing haltingly. The sale of a 75% stakein the Butwal Power Company (BPC) is already under way. Among the pros-pective bidders, a Norwegian company, Intercraft, is tipped to be a potentialbuyer. BPC was established with the assistance of the Norwegian Agency forDevelopment Co-operation (Norad); it owns and operates two hydropower

Nepal 39


plants (with total installed capacity of 17 mw). BPC also owns about 15% ofHimal Power, the developer, owner and operator of the 60-mw Khimti hydro-power project, which is commissioned to be completed by 2000. Meanwhile,the sale of a 65% stake in the Nepal Tea Development Corporation (NTDC) hascome to a halt, following the failure of the largest bidder to deposit the agreedsum (4th quarter 1998, page 43).

Necessary works are under way to privatise the Nepal TelecommunicationsCorporation (NTC) and the Royal Nepal Airlines Corporation (RNAC). TheDanish International Development Agency (Danida) is supporting the govern-ment’s efforts to privatise NTC. The UK-funded Adam Smith Institute isadvising the Ministry of Finance in its privatisation efforts.

However, the privatisation programme, which was initiated by the NepaliCongress (NC) government in 1992, is still subject to criticism. Successivegovernments have privatised 16 state-owned enterprises, while 22 state-ownedcompanies are listed for future privatisation. However, the annual report pub-lished by the auditor-general has asserted that the assets of the privatisedenterprises were undervalued, on average by 29%.

—as the central bankurges smaller spreads

Growth of private-sector credit has been dwindling in the past few years, result-ing in excess liquidity in the commercial banking system. Rather than lendingto productive projects, commercial bank lending has tended to flow into risk-free investments (such as government Treasury bills). Meanwhile, the businesssector is critical of the high lending rates charged by the banks, despite theirapparent ample liquidity.

The NRB has resorted to a number of monetary policy measures to boostinvestment. In December 1997 it reduced its refinancing rate (the interest ratecharged to financial institutions) from 11% to 9%, in order to encourage com-mercial banks to cut their lending rates. This did not occur, in part becausebanks had no need to resort to borrowing from the central bank, given theirliquidity position. This was followed in April 1998 by a reduction on the cashreserve ratio (CRR) of commercial banks, aimed at pumping more liquidity intothe financial market. In December 1998 the NRB directed commercial banks tomaintain an interest-rate spread (the difference between borrowing rates andlending rates) of no more than 5 percentage points. However, it is doubtful thatthe reduction in the spread will achieve the intended objective. Nearly 65% oftotal banking transactions are executed by the state-owned commercial banks;the inefficiency of these banks creates the large interest-rate spreads.

Poor growth inagricultural output—

After rising by just 3.9% in 1997/98, real GDP growth is estimated at between2% and 3% in 1998/99. According to the Institute of Development Studies inKathmandu, agricultural output is projected to grow by just 1.5-2.5%, as aresult of poor production of maize, millet and paddy.

An increase in the output from agriculture—which comprises about 42% ofGDP—has been due to an increase in the area under cultivation, rather than animprovement in productivity. Poor infrastructure (including the irrigation sys-tem and roads) and the irregular supply of agriculture inputs from the state-owned Agriculture Input Corporation also hamper expansion in this sector. In

40 Nepal


one positive move, the government has deregulated fertiliser marketing, and isalso planning to eliminate the fertiliser subsidy by July 1999, in accordancewith the Agriculture Perspective Plan (APP).

—is matched by slowgrowth in other sectors—

In the past, higher GDP growth rates were driven in large part by faster growthin non-agriculture sectors, such as transport and communications, hotel andrestaurant businesses, manufacturing industries, finance and construction ac-tivities. Expansion in these sectors, which was observed mainly in urban areas,was triggered partly by the economic liberalisation measures pursued in 1992.However, since then political instability seems to have sharply curtailed privateinvestment. The 1996/97 Manufacturing Census, released by the CentralBureau of Statistics, recorded a decline both in the number of industrial estab-lishments and in employment in the five years since 1991/92, by 17% and 12%respectively.

—pinning Nepal to thebottom of the

development index

The Nepal Human Development Report 1998, published by the UN DevelopmentProgramme (UNDP), places Nepal at a low level of human development. Of the174 countries assessed in the UNDP’s human development index—whichgauges the overall achievements in a country based on longevity, knowledgeand a decent standard of living, measured by life expectancy, educationalattainment (adult literacy and combined primary, secondary and tertiary enrol-ment) and adjusted income—Nepal ranks 152nd; among Asian countries, onlyBhutan scores lower. The report attests to a very slow improvement in humandevelopment, as well as a high degree of disparity in the level of developmentbetween rural and urban areas, between the mountains, hills and plains, andbetween men and women.

Inflation hits doubledigits—

Inflation continues to rise sharply. In mid-November 1998 the national con-sumer price index rose by 18.5% year on year, compared with less than 1% inthe same period in 1997. The rise was attributed mainly to an 86% increase inthe retail price of vegetables (especially potatoes and onions) and fruit. Ascarcity of goods was triggered by damage to crops caused by cold weather. Inaddition, the recent spike in food prices in India may have drawn Nepaliexports, reducing supply. Furthermore, domestic oil prices rose by 63% (despitesoft international prices) and spices by 33% in the same period. Rice prices alsorose sharply. The floods in Bangladesh damaged the rice crop and created anattractive market for paddy exporters from eastern Nepal. The sudden surge inrice exports led the government to impose quantity, price and exit-point re-strictions in December 1998, in an effort to avert a rice shortage and stem aincrease in rice prices.

—and the trade deficitfalls, thanks to India’s

new gold policy—

The trade balance has narrowed sharply. In the first nine months of 1998exports (fob) rose by 29.6%, from NRs17.1bn in January-September 1997 toNRs22.2bn in the same period of 1998. However, imports (cif) shrank by19.4%, from NRs77.8bn in the first nine months of 1997 to NRs62.7bn in thesame period of 1998.

The sharp reduction in merchandise imports is attributable in large part to thedecline in gold imports, following the further liberalisation of gold importsinto India in 1997; previous restrictions encouraged the import into Nepal of

Nepal 41


gold destined for illegal import into India through the open border. In recentyears gold has comprised about one-fifth of Nepal’s total import bill, which haswidened the trade deficit but boosted customs revenue. An increase in the tariffon gold imports into India in late 1998 may encourage a rise in smuggling, buta return to pre-1997 levels is not anticipated.

—and slightly betterexports—

The rise is exports is also good news. However, the export base remains stub-bornly narrow, with hand-knotted woollen carpets and ready-made garmentsrepresenting about 80% of Nepal’s exports. Moreover, these exports dependlargely on single markets and so are vulnerable to sudden market changes:Germany buys more than 80% of Nepal’s rugs, while the United States is thelargest buyer of its clothes. However, India is still Nepal’s principal tradingpartner. Nepal’s trade deficit with India appears to be narrowing, albeit slowly.The promotion of a number of Indian joint-venture industries in Nepal haveboosted the country’s exports to India, as have revisions to the bilateraltrade treaty.

—boostingforeign-exchange reserves

The improving trade position is one factor behind the rising levels of foreign-exchange reserves. As of November 1998 foreign-exchange reserves (excludinggold) were $723.5m, up from $618.4m at the end of 1997.

Sectoral review

The ADB offers supportfor a water project—

The Asian Development Bank (ADB) has allocated $5m to conduct an engineer-ing study on a multimillion-dollar water supply project, the MelamchiDrinking Water Project. The project would involve the supply of pipe-water tothe Kathmandu Valley from the reservoir built on the Melamchi river. Waterwould be channelled through a 27-km tunnel.

Kathmandu continues to suffer acute shortages of drinking water, particularlyin the dry season, owing to growing urbanisation and deforestation. Currentwater supply, of about 140,000 cu metres/day, only meets around half of totalwater demand.

Both bilateral and multilateral agencies are expected to become involved in theMelamchi project: the Norwegian Agency for Development Co-operation(Norad) is expected to help finance the Melamchi diversion; the ADB will fundbulk distribution; the World Bank is expected to finance the distribution sys-tem; and the Overseas Economic Co-operation Fund (OECF) is slated to fundwater treatment. As a condition of its assistance, the World Bank is pushing thegovernment to revise the water tariff and to privatise the drinking water sys-tem. The Butwal Power Company (BPC), which is awaiting privatisation, isexpected to be awarded the contract for the project’s tunnelling work.

—and hotel investmentflourishes—

In general, both domestic and foreign industrial investment in Nepal is slack.However, there are several new projects in the tourism industry, particularlyhotels. In 1998 several big hotels opened, such as the Radisson and thePhulbari. A huge project by Hyatt International, the Tara Gaon Regency Hotel,is under construction.

42 Nepal


The government designated 1998 Visit Nepal Year (VNY) and aimed to attract500,000 tourists to the country. The target was just missed: although touristarrivals rose by 12%, earnings declined. However, the outlook is still positive.Nepal earns around NRs10bn ($150m) each year from tourism; along withhydropower, and agriculture and allied industries, tourism is viewed as one ofthe most viable sectors in the economy. Nepal’s scenic beauty, propitiousclimate, numerous historical sites and friendly populace underscore thepotential for this industry.

—despite the RNAC’s woes The operation of the national carrier, Royal Nepal Airlines Corporation(RNAC), however, has contributed little to the growth of tourism, while thelack of flights in 1998 may have undermined the tourist targets set for VNY.The bloated state-owned airline badly muddled a lease agreement to hire aplane from a US company. The RNAC contracted to lease a B-757 with ChaseAir and made an advance payment of $780,000. But the plane never arrived.The public accounts committee undertook a formal investigation and blamedthe management of the RNAC for mishandling the deal. However, one-half ofthe advance was later returned.

The aviation business ison the rise—

The other sections of the aviation sector are doing brisk business. A privateairline, Necon Air, started international flights to Patna and Lucknow in India.Other private airlines, including Yeti Airways, Buddha Air, Gorkha Airlines andCosmic Air, have begun domestic flights. Following the liberalisation of theaviation business in 1992, eight private-sector airline companies have begunoperating. While some international airlines have cancelled routes to Nepal,others have entered and remained. In order to handle the expanding aviationbusiness, the government has transformed its Department of Civil Aviationinto an autonomous Civil Aviation Authority.

—and hydropowerprojects inch ahead

The completion of the 144-mw, Kali Gandaki A hydropower project, due by2000, is expected to be delayed further, as a result of disagreements betweenthe Nepal Electricity Authority and the Italian contractor, Impregilo, whicharose in November. Similarly, a one-week strike by the construction workers inlate December cost the project an additional NRs60m.

When the hydropower projects that are currently under construction are com-pleted, Nepal’s hydropower capacity will double. In addition, the US energycompany Enron—which withdrew from the giant, 10,000-mw, KarnaliChisapani hydropower project in April 1998—now again appears interested inNepal. Nepal’s mountainous topography creates a rich potential for hydro-power development, which could be tapped for domestic use and for export.However, since the debacle of the Arun III hydropower project in 1995(4th quarter 1995, pages 50-51), hydropower politics have been a widely de-bated, and thus slow-moving, issue in Nepal.

Nepal 43


Quarterly indicators and trade data

India: quarterly indicators of economic activity

1996 1997 1998

3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr

Agricultural production Annual totals

Tea ’000 tonnes ( 780 ) ( 810a ) ( 860a )

Fruit “ ( 37,189a ) ( 37,189a ) ( 37,189a )

Vegetables ” ( 54,967 ) ( 54,967a ) ( 54,967a )

Industrial production Monthly av

General 1990=100 139 142 153 153 146 150 162 152 150b n/a

Mining “ 110 124 132 123 121 131 141 123 124b n/a

Manufacturing ” 143 142 152 143 145 154 160 151 148b n/a

Electricity “ 144 151 156 153 157 157 170 169 169b n/a

Mining

Crude petroleum m b/d 0.73 0.73 0.75 0.76 0.76 0.76 0.76 0.73 0.73 0.73c

Employment End-Qtr

Applications for

employment m 37.74 37.22 37.60 38.05 39.05 39.14 n/a n/a n/a n/a

Prices Monthly av

Consumer prices 1990=100 183.6 187.0 188.1 189.9 192.9 197.4 205.1 209.6 221.2b n/a

change year on year % 8.6 9.2 10.6 7.7 5.1 5.6 9.0 10.4 n/a n/a

Wholesale:

domestic 1990=100 178 180 181 182 184 188 190 194 200 n/a

agricultural productsd “ 194 187 201 199 200 202 213e n/a n/a n/a

manufacturing “ 170 173 173 175 177 179 180e n/a n/a n/a

Money & banking End-Qtr

M1, seasonally adj Rs bn 2,124.5 2,186.1 2,249.4 2,324.1 2,376.4 2,461.1 2,490.5 2,535.6 2,560.6f n/a


Bank rate “ 12.00 12.00 12.00 10.00 10.00 9.00 10.50 9.00 9.00f n/a

Monthly av

Share price index 1990=100 259.7 214.1 223.2 221.4 245.3 223.2 211.3 226.7 197.1 n/a

Foreign trade Qtrly totals

Exports fob Rs bn 285 285 328 300 315 312 337 311 247g n/a

Imports cif “ 315 340 395 355 352 393 415 412 201g n/a

Exchange holdings End-Qtr

Reserve Bank & govt reserves:

goldh $ m 3,687 3,606 3,367 3,287 3,102 2,929 2,812 2,584 2,487 2,532

SDRs “ 57 122 2 3 30 77 1 81 14 83

foreign exchange ” 18,433 19,742 22,367 25,404 25,697 24,324 25,975 23,933 26,184 26,958

Exchange rate

Market rate Rs:$ 35.76 35.93 35.91 35.82 36.18 39.28 39.50 42.47 42.49 42.48

Note. Annual figures of most of the series shown above will be found in the Country Profile.a Estimate. b Average for July-August. c Forecast for 1 Qtr 1999, 0.73; forecast for 2 Qtr 1999, 0.73; forecast for 3 Qtr 1999, 0.72. d Food,non-food and minerals. e January only. f End-August. g Total for July-August. h End-quarter holdings at quarter’s average of London daily priceless 25%.

Sources: FAO; IMF, International Financial Statistics; Reserve Bank of India, Bulletin; IEA, Monthly Oil Market Report.



Nepal: quarterly indicators of economic activity

1996 1997 1998

3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr

Prices Monthly av

Consumer prices 1990=100 192.3 194.6 189.4 190.2 195.0 196.6 197.6 202.4 211.8a n/a


Money End-Qtr

M1, seasonally adj NRs m 35,652 36,266 37,162 38,315 38,603 39,420 41,435 42,713b n/a n/a

change year on year % 6.7 5.9 1.8 6.8 8.3 8.7 11.5 n/a n/a n/a

Foreign trade Qtrly totals

Exports fob NRs m 4,698 5,894 5,813 5,661 5,658 6,206 6,919 7,851 7,441 5,606c

Imports cif “ 20,434 20,713 27,270 26,875 23,666 21,738 21,245 22,822 18,679 12,522c

Exchange holdings End-Qtr

Goldd $ m 44.1 43.2 40.3 39.4 37.1 35.2 34.4 33.1 33.1 33.9e

Foreign exchange “ 585.9 563.1 609.6 641.8 611.7 618.4 649.0 713.9 700.1 723.5e

Exchange rate

Market rate NRs:$ 57.0 57.0 57.0 57.0 57.8 63.3 63.4 68.3 68.3 67.7

Note. Annual figures of most of the series shown above will be found in the Country Profile.a July only. b End-April. c Total for October-November. d End-quarter holdings at quarter’s average of London daily price less 25%.e End-November.


India: foreign trade($ m)

Total US Germany Belg-Lux Japan

Apr-Mar Apr-Mar Apr-Mar Apr-Mar Apr-Mar Apr-Mar Apr-Mar Apr-Mar Apr-Mar Apr-Mar

Imports cif 1994/95 1995/96 1994/95 1995/96 1994/95 1995/96 1994/95 1995/96 1994/95 1995/96

Food 769 862 125 122 9 3 1 2 1 0

of which:

cereals & preparations 24 130 19 13 0 0 0 0 0 0

fruit & vegetables 539 589 47 49 2 1 0 1 0 0

Wood & cork 233 256 1 4 1 1 0 1 0 0

Pulp 275 232 86 90 4 4 0 0 0 0

Textile fibres 631 448 90 38 10 8 7 5 31 20

Crude fertilisers & minerals 441 356 46 17 4 2 0 1 4 2

Metal ores & scrap 824 826 264 179 26 37 12 15 19 20

Coal 923 994 0 1 0 0 0 0 18 12

Petroleum & products 7,602 10,162 66 67 10 5 1 2 12 14

Chemicals 5,617 4,961 790 661 422 336 78 80 311 296

Paper etc & manufactures 467 493 26 44 34 46 4 3 11 8

Textile yarn, cloth & mnfrs 345 339 14 18 21 19 3 4 19 14

Diamonds 2,050 2,867 45 41 2 8 1,334 1,883 1 2

Iron & steel 1,429 1,359 53 75 237 205 68 62 201 202

Non-ferrous metals 1,241 1,426 49 89 43 45 16 29 25 38

Metal manufactures 278 313 40 53 53 56 9 9 41 44

Machinery & transport equip 7,375 7,320 1,340 1,434 1,414 1,231 87 79 1,088 1,060

of which:

road vehicles 456 578 16 24 93 80 0 0 249 291

other transport equipment 638 904 334 464 36 9 3 2 18 2

Scientific instruments etc 769 635 191 143 108 73 21 18 182 148

Total incl others 36,592 39,113 3,830 3,615 3,137 2,829 1,691 2,235 2,462 2,186

continued

Quarterly indicators and trade data 45


Total US UK Japan Germany

Apr-Mar Apr-Mar Apr-Mar Apr-Mar Apr-Mar Apr-Mar Apr-Mar Apr-Mar Apr-Mar Apr-Mar

Exports fob 1994/95 1995/96 1994/95 1995/96 1994/95 1995/96 1994/95 1995/96 1994/95 1995/96

Fish & products 1,000 1,122 98 109 54 51 415 478 7 11

Fruit & vegetables 682 665 124 154 35 46 31 29 19 19

Coffee 449 402 49 49 4 2 26 20 43 52

Tea 349 292 9 15 38 41 9 9 22 18

Spices 180 253 33 84 9 13 4 7 5 5

Animal feeding stuffs 706 997 0 1 10 4 38 57 8 3

Tobacco & manufactures 133 213 3 4 23 41 1 1 7 21

Textile fibres & waste 90 475 3 8 10 12 14 42 2 5

Crude minerals & fertilisers 276 277 21 18 3 3 31 22 7 5

Metal ores & scrap 699 695 23 28 1 3 295 267 0 1

Crude animal & vegetable

materials 310 356 113 126 18 20 33 43 26 28

Petroleum & products 463 490 0 0 0 0 0 0 0 0

Chemicals 2,580 3,009 275 421 136 155 65 89 192 196

Leather & manufactures 469 390 30 32 24 19 9 4 62 51

Textile yarn & thread 1,349 1,800 21 83 88 109 52 78 39 33

Cotton fabrics 960 1,008 171 195 127 115 7 8 47 47

Other fabrics & manufactures 2,049 2,128 410 484 189 200 88 70 295 300

of which:

carpets etc 624 656 206 225 25 29 31 21 176 178

Diamonds 4,582 4,028 1,366 1,325 26 28 703 439 38 33

Iron & steel 941 983 86 108 28 33 111 100 39 20

Metal manufactures 652 715 156 206 76 77 16 8 40 36

Machinery & transport eqpt 2,376 2,736 301 515 184 226 20 26 112 110

of which:

road vehicles 876 870 73 136 41 41 3 3 33 28

Clothing & footwear 4,702 4,796 1,346 1,497 510 519 127 96 697 681

Total incl others 31,650 33,404 5,502 6,554 1,998 2,046 2,208 2,005 1,967 1,888

Source: UN, External Trade Statistics, series D.



India: major partners’ tradea

($ m; monthly averages)

Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Sep Jan-Sep 1991 1992 1993 1994 1995 1996 1997 1997 1998

Exports to India fobUS (fas) 166.6 159.8 230.1 191.2 274.7 277.4 301.3 308.0 288.5 Saudi Arabia 91.3 119.5 110.6 104.3 130.0 183.9b 195.4b 198.4b 240.2c

Belg-Lux 115.6 117.8 153.8 154.3 220.3 209.9 239.4 255.4 231.7 Japan 126.9 123.9 127.5 170.6 211.9 202.9 184.0 176.7 195.1 Germany 121.3 151.2 151.4 172.9 266.2 259.7 214.0 209.8 179.0 UK 149.5 138.0 141.2 167.3 221.3 221.5 215.1 224.8 176.7 UAEb 75.3 55.1 49.8 99.0 120.8 125.6 114.7 113.0 129.7c

South Korea 39.1 36.5 150.3 96.7 93.7 98.1 95.9 84.6 120.9 Australia 43.6 48.8 51.7 52.7 67.8 78.8 104.8 107.2 116.9 Italy 37.4 40.3 41.1 58.2 92.7 94.3 87.5 83.2 92.5

Imports from India cifUS 285.3 338.7 407.1 472.6 506.7 544.1 642.7 637.6 743.5 UK 114.2 125.8 136.1 164.4 188.8 209.5 221.6 220.3 202.9 Germany 140.1 143.5 163.1 179.0 209.5 220.5 199.7 204.4 201.7 Japan 182.5 169.8 189.8 221.1 243.1 237.4 221.8 224.8 183.7 Hong Kong 59.2 62.8 101.8 121.8 156.2 164.1 177.2 184.1 164.3d

UAE 52.4 69.2 90.6 95.2 107.5 117.8 121.3b 109.2b 138.2c

Belg-Lux 55.7 52.8 65.9 78.0 93.2 100.3 98.5 99.6 132.7 Italy 57.4 63.9 63.2 82.7 113.6 103.4 110.2 112.1 121.7 France 52.3 59.9 63.8 75.3 96.9 95.7 92.0 95.7 101.2 South Korea 40.4 39.8 43.6 48.7 66.3 82.3 78.0 80.0 51.8

a Figures from partners’ trade accounts; imports cif; exports fob, unless otherwise indicated. b Estimate. c Estimate for January-June.d January-June.

Sources: US Department of Commerce News, FT900; OECD, Monthly Statistics of Foreign Trade; IMF, Direction of Trade Statistics, annual, quarterly.

Quarterly indicators and trade data 47


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