India - Economic situation and resource mobilization issues

Report No. 4395-IN Economic Situation of India and Resource Mobilization Issues FILE COPY April 11, 1983 South Asia Programs India Division FOR OFFICIAL USE ONLY Document of the World Bank This document has a restricted distribution and may be used by recipients only in the performance of their offiial duties Its contents may not otherwise be disclosed without World Bank authorization  CURRENCY AND OTHER EQUIVALENTS Currency Prior to June 6, 1966: US$1.00 = Rs 4.7619 Rs 1.00 = US$0.21 From June 6, 1966 to mid-December 1971: US$1.00 = Rs 7.50 Rs 1.00 = US$0.13333 Mid-December 1971 to end-June 1972: US$1.00 = Rs 7.27927 Rs 1.00 = US$0.1374 After end-June 1972: floating rate Rate end March 1983: US$1.00 = Rs 10.03 Rs 1.00 = US$0.099 7 Rupee trade figures have been converted into dollars by using the prevailing exchange rate up to 1970/71. For subsequent years the following average IMF trade conversion factors/market rates have been used (rupees per US dollar): 1971/72 : 7.444 1975/76 : 8.653 1979/80 8.076 1972/73 : 7.706 1976/77 : 8.939 1980/81 : 7.893 1973/74 : 7.791 1977/78 : 8.563 1981/82 : 8.929 1974/75 : 7.976 1978/79 : 8.206 1982/83 9.611 Weights Unless otherwise specified all weight measures are metric. Years The Indian fiscal year runs from April 1 through March 31. i  FOR OFFICIAL USE ONLY TITLE ECONOMIC SITUATION OF INDIA AND RESOURCE MOBILIZATION ISSUES COUNTRY: INDIA REGION SOUTH ASIA SECTOR COUNTRY ECONOMIC REPORT TYPE CLASSIF MM/YY LANGUAGE 4396-IN CEM Restricted 04 83 English PUBDATE 8304 ABSTRACT This report updates the economic situation and prospects of India through Indian fiscal year 1982/83. The report reviews resource mobili- zation issues and policies in the domestic economy and in its relations with international economy. Building on the last year's economic report, which focused on issues of efficiency, sectoral discussions on agriculture, energy and transport review the opportunities for raising resources while improving the efficiency of the use and generation of resources. This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.   Acknowledgement This report was prepared in the World Bank's New Delhi Office by members of the Office, and of the India Division, under the direction of Attila Sonmez. The contributors were Leslie Abbie, Zafer Ecevit, Roger Grawe, Christopher Hall, James Harrison, Felipe Morris, Armando Pinell-Siles, Kiem Phan, V.J. Ravishankar and Sunanda Sengupta. Hall and Ravishankar along with P. Rajagopalan also provided statistical and research support. Several research institutions in India and individual consultants contributed background material to the report.   ECONOMIC SITUATION OF INDIA AND RESOURCE MOBILIZATION ISSUES Table of Contents Page No. Basic Data Summary and Conclusions ............................................ i PART I: CHAPTER 1: Current Developments. 1 A. Overview ..............................................1 B. Sectoral Developments. 3 C. Economic Adjustment ............................ ,l PART II: Raising Resources for Investment. 17 CHiAPTER 2: Donestic Resource Mobilization .21 A. Introduction .................. 21 B. Scope and Prospects for Additional Resource Mobilization 24 C. Taxation .29 D. Public Enterprises. 39 CHAPTER 3: External Resources for Development .43 A. Introduction ....43 B. Recent Trends in Balance of Payments. 45 C. Import Utilization .49 D. Exports - Recent Performance and Policy ..................... 60 E. Trends in Aid: 1972/73 to 1981/82 .70 F. Prospects for Meeting External Resource Requirements .77 ART III: Sectoral Aspects of Resource Mobilization ............... 81 HAPTER 4: Resource Mobilization in Agriculture .85 A. Introduction .85 B. Private Savings and Credit in Agriculture .................... 88 C. Public Expeniditure on Agriculture . 91 D. Public Revenues from the Agricultural Sector .96 E. Direct Taxation of Agriculture ............................... 98 F. Subsidies in Agriculture ...............................,l101 G. Conclusions .106  -2- Page No. CHAPTER 5: Resource Mobilization Issues in the Energy Sector ...... 107 A. Investment and Investment Requirements ....................... 107 B. Prices and Resource Mobilization ............................. 109 C. Coal Prices and Financial Performance of CIL .... ............. 116 D. Power Prices and Financial Performance of the SEBs .... ....... 116 E. Recent Policy Changes in Energy Pricing ...................... 117 F. Resource Mlobilization and Operational Efficiency . ............ 119 CHAPTER 6: Resource Mobilization Issues in Transportation ... ...... 121 A. Introduction ................................................. 121 B. Transport Investment in India and its Financing .... .......... 121 C. General Framework for Pricing Policy in the Transport Sector . 125 D. Resource Mobilization in Railways ............................ 126 E. Road Development and Taxation ................................ 132 F. Finances of State Road Transport IJndertakings (STUs) ... ...... 135 G. Port Pricing Issues ........................ 140  -3- List of Text Tables and Graphs CHAPTER 1 Page No. 1.1 Saving and Investment ......................................1.. 1.2 Sixth Plan Outlays and Expenditure Performance in Selected Sectors ..... .............. 2 1.3 Monsoon Rainfall Index, 1977-1982 ..... .............. 4 1.4 Estimates of Agricultural Production and Input Use 1979/80 to 1982/83 ........ ..................... 5 1.5 Power-Installed Capacity ..................................... 7 1.6 Contribution of Selected Commodities to Increase in Wholesale Price Index (WPI) in Calendar Year 1982 .... ................. 13 1.7 Balance of Payments Summary .................................. 15 Graph 1.1: Index of Industrial Production--Annual Percentage Changes ...... .......................................... .0 Graph 1.2: Annual Percentage in Wholesale (WPI) and Consumer (CPI) Price Indices .... ......... .................... 14 CHAPTER 2 2.1 Macro-economic Indicators, 1980-83 ........... .. .............. 23 2.2 Real Interest Rates . ................. .. ..................... 24 2.3 Savings and Investment Patterns in the Sixth Plan Period, 1980-85 ........................... ........................... 27 2.4 Selected Resource Mobilization Measures and their Impact on Public Savings, 1984/85 ...................................... 29 2.5 Household Income and Savings, 1980/81 .......... .. ............ 30 2.6 International Comparisons of Taxation Patterns ....... ........ 31 2.7 The Distribution Across Sectors of Effective Taxes as a Percentage of Consumers' Prices, 1979/80 .......... ........... 32 2.8 Effective Indirect Tax Burdens, 1979/80 ......... .. ........... 34 2.9 Nominal and Effective Taxes as a Percentage of Corresponding Expenditures ........................ ......................... 35 2.10 Gross Operating Surplus in Savings and Investment in Depart- mental and Non-Departmental Enterprises, 1970/71-1980/81 ..... 40 List of Annexure Tables A.2.1 Cost Structure of Industries ................................. 42 Graph 2.1: Gross Investment Rates ............................. 26 CHAPTER 3 3.1 Balance of Payments .............. ............. 44 3.2 Annual Growth Rates of Major Imports, 1980/81-1982/83 ........ 46 3.3 Estimated Volume Growth of India's Exports .................. . 47 3.4 Composition of Imports ....................................... 49 3.5 Annual Volume Growth Rates of Imports .... .................... 50 3.6 Indian Imports, their Growth, Variability and Relation to Domestic Production ....................... 52 3.7 Import Volume Indices .................. .. .................... 54  -4- Page No. 3.8 Indices of Import Licenses Issued (1978/79 = 100) ............ 55 3.9 Import Content of Raw Material Purchases Exporting Firms ..... 56 3.10 Foreign Collaboration Approvals .............................. 57 3.11 Customs Duty Incidence .................. .. ................... 58 3.12 The Structure of Customs Duties, 1979/80 ......... .. .......... 59 3.13 Indian Exports--1980/81 to 1983/84 ............ .. ............. 61 3.14 Estimated Volume Growth of Manufactures Exports, 1982/83 ..... 62 3.15 Market Composition of Indian and LDC Exports ................. 64 3.16 Comipetitiveness Indices for Selected Asian Countries ......... 66 3.17 Aid Commitments and Disburserments ...... 72 3.18 Aid Commitments and Disbursements ............ .. .............. 74 3.19 Terms of Consortium Aid ,... 75 3.20 Disbursement Rates ....................... 76 Graph 3.1: Nominal and Real Effective Exchange Rates, 1968-82 ...... 68 Graph 3.2: Nominal and Real Effective Exchange Rates, 1980-82 ...... 69 Graph 3.3: Commitments by Major Donor Groups ...................... 71 CHAPTER 4 4.1 Indicators of Resource Use and Generation in Agriculture, 1974/75-1981/82 .............. 85 4.2 Annual Increases in Agricultural Financial Assets and Liabilities, 1961-72 to 1978/79 ............. .. ............... 89 4.3 Public Expenditure on Agriculture .. 92 4.4 Real Plan Expenditure in Agriculture ........... .. ............ 93 4.5 Public Revenues frorm Agriculture: 1974/75- 981/82 .. ......... 97 4.6 Major Agricultural Subsidies: 1974/75-1981/82 .............. . 102 CHAPTER 5 5.1 Real Investment in Power, Coal and Oil Sectors .107 5.2 Energy Sector--Total Resource Generation and Investment 108 5.3 Investment and Resource Mobilization in the Power, Coal and Oil Subsectors ................................... 110 5.4 Retail Petroleum. Products Prices ...................... 111 5.5 Comparison of Domestic Price of Petroleum Products with Border Prices ............. . . . ................. 113 5.6 International Spot Steam Coal Prices ................ . 114 5.7 Electricity Tariffs and Long-Run Marginal Cost (LRMC) in Selected SEBs ............... 115 5.8 Coal India Limited--Selected Financial Indicators ............. 116 5.9 State Electricity Boards--Financial Indicators 1974/75-1980/81 117 CHAPTER 6 6.1 Allocation of Public Funds for Transport in Indian Development Plans ..123 6.2 Sixth Plan Outlay for Transport Investment . .124 6.3 Plan Expenditures in Indian Railways ............... 126 6.4 Indian Railways Financial Performnance ..128 6.5 Financial Cost of Social Obligation of the Railways . .130 6.6 Index of Unit Revenue vs. Input Cost ............... 131 6.7 Road Transport Taxation ................. .. ................... 133  -5- Page No. 6.8 Comparison of Expenditure on Roads and Bridges with Road Transport Taxation .................. .............. . 134 6.9 Road Transport Taxation and GDP at Factor Cost . .134 6.10 Productivity Indicators of State Transport Undertakings 136 6.11 Financial Losses of State Transport Undertakings . . 136 6.12 Comparison of Costs and Fares . . . 137 6.13 Incidence of Taxation on STUs .. 138 6.14 Finances of Selected City Bus Services, 1980/81 . .139 6.15 Operating Surplus (or Deficit) of Major Ports . .140 6.16 Expenditure on Plan Schemes by Major Ports and Source of Funds .. 141 Graph 6.1: Ratio of Appropriations for Depreciation Reserve Fund to Railway Capital Stock ..129   Page 1 INDIA - SOCIAL INDICATORS DATA SHEET INDIA REFERENCE GROUPS (WEIGHTED AVFRAGES AREA (THOUSAND SQ. KM.) MOST RECENT ESTIMATE- TOTAL 3287.6 MOST RECENT LOW INCOME MIDDLE INCOME AGRICULTURAL 1818.2 1960 /b 1970 /b ESTIMATE /b ASIA 6 PACIFIC ASIA & PACIFIC GNP PER CAPITA (US$) 70.0 110.0 240.0 261.4 890.1 ENERGY CONSUMPTION PER CAPITA (KILOGRAMS OF COAL EQUIVALENT) 111.2 152.5 194.4 448.7 701.7 POPULATION AND VITAL STATISTICS POPULATION, MID-YEAR (THOUS.) 434850.0 547569.0 673207.0 URBAN POPULATION (PERCENT OF TOTAL) 17.9 19.7 22.3 17.3 32.4 POPULATION PROJECTIONS POPULATION IN YEAR 2000 (MILLIONS) 994.1 STATIONARY POPULATION (MILLIONS) 1694.4 YEAR STATIONARY POPULATION IS REACHED 2115 POPULATION DENSITY PER SQ. KM. 132.3 166.6 200.6 158.1 255.9 PER SQ. KR. AGRICULTURAL LAND 247.0 307.8 362.8 355.9 1748.0 POPULATION AGE STRUCTURE (PERCENT) 0-14 YRS. 40.9 42.7 40.2 36.8 39.9 15-64 YRS. 54.5 54.2 56.8 59.7 56.8 65 YRS. AND ABOVE 4.6 3.1 3.0 3.5 3.3 POPULATION GROWTH RATE (PERCENT) TOTAL 1.8 2.3 2.1 2.0 2.3 URBAN 2.5 3.3 3.3 3.3 3.9 CRUDE BIRTH RATE (PER THOUSAND) 43.7 40.0 35.6 29.3 31.8 CRUDE DEATH RATE (PER THOUSAND) 21.8 16.7 13.6 11.0 9.8 GROSS REPRODUCTION RATE 2.9 2.7 2.4 2.0 2.0 FAMILY PLANNING ACCEPTORS, ANNUAL (T}IOUSANDS) 64.0 3782.0 5619.0 USERS (PERCENT OF MARRIED WOMEN) .. 12.0 22.6 19.3 36.3 FOOD AND NUTRITION INDEX OF FOOD PRODUCTION PER CAPITA (1969-71=100) 98.0 102.0 99.0 108.1 115.6 PER CAPITA SUPPLY OF CALORIES (PERCENT OF REQUIREMENTS) 95.6 90.4 88.8/c 97.3 106.4 PROTEINS (GRAMS PER DAY) 53.6 49.7 48.4/c 56.9 54.4 OF WHICH ANIMAL AND PULSE 17.2 14.8 13.1/E 20.0 13.9 CHILD (AGES 1-4) MORTALITY RATE 26.2 20.7 17.4 10.9 6.7 HEALTH LIFE EXPECTANCY AT BIRTH (YEARS) 43.2 48.1 51.8 57.8 59.8 INFANT MORTALITY RATE (PER TqOLUSAND) 165.0 139.0 123.4 89.1 63.7 ACCESS TO SAFE WATER (PERCENT OF POPULATION) TOTAL .. 17.0 33.0 32.9 32.0 LRBAN .. 60.0 83.0 70.7 51.9 RURAL .. 6.0 20.0 22.2 20.5 ACCESS TO EXCRETA DISPOSAL (PERCENT OF POPULATION) TOTAL *- 18.0 20.0 18.1 37.7 URBAN *- 85.0 87.0 72.7 65.7 RURAL .. 1.0 2.0 4.7 24.0 POPULATION PER PHYSICIAN 4850.4 4889.0 3630.6 3297.8 8540.4 POPULATION PER NURSING PERSON 10975.3/d 8296.5 5696.1 4929.3 4829.4 POPULATION PER HOSPITAL BED TOTAL 2178.7 1612.9 1311.0/e 1100.4 1047.5 URBAN .. .. 362.3/i 301.3 651.6 RURAL .. .. 10432.8/e 5815.7 2597.6 ADMISSIONS PER HOSPITAL BED .. .. .. .. 27.0 HOUSING AVERAGE SIZE OF HOUSEHOLD TOTAL 5.2 5.6 5.2 URBAN 5.2 5.6 4.8 RURAL 5.2 5.6 5.3 AVERAGE NUMBER OF PERSONS PER ROOM TOTAL 2.6 2.8 LRBAN 2.6 2.8 RURAL 2.6 2.8 ACCESS TO ELECTRICITY (PERCENT OF DWELLINGS) TOTAL .. .. .. URBAN .. .. .. RURAL .. .. ..  Page 2 INDIA - SOCIAL INDICATORS DATA SHEET INDIA REFERENCE GROUPS (WEIGTETD AVE GES - MOST RECENT ESTIMATE)- MOST RECENT LOW INCOME MIDDLE INCOME 1960 /b 1970 /b ESTIMATE /b ASIA & PACIFIC ASIA & PACIFIC EDUCATION ADJUSTED ENROLLMENT RATIOS PRLMARY: TOTAL 61.0 73.0 78.0/c 97.4 96.2 MALE 80.0 90.0 92.0/% 101.0 99.8 FEMALE 40.0 56.0 63.0/i 87.8 92.1 SECONDARY: TOTAL 20.0 26.0 27.0/c 53.0 37.6 MALE 30.0 36.0 36.0/i 63.8 41.1 FEMALE 10.0 15.0 17.0/p 41.3 34.1 VOCATIONAL ENROL. (% OF SECONDARY) 8.0 1.0 0.7/f 1.7 20.8 PUPIL-TEACHER RATIO PRIMARY 46.1 41.5 51.8/c 37.7 35.5 SECONDARY 16.0 20.9 .. 20.2 25.0 ADULT LITERACY RATE (PERCENT) 2S.0 33.4 36.0 52.1 73.1 CONSUMPTION PASSENGER CARS PER THOUSAND POPULATION 0.6 1.1 1.3/c 1.5 9.8 RADIO RECEIVERS PER THOUSAND POPULATION 4.9 21.5 33.6 35.4 116.5 TV RECEIVLRS PER THOUSAND POPULATION 0.0 0.0 1.0 3.2 37.6 NEWSPAPER ("DAILY GENERAL INTEREST") CIRCULATION PER THOUSAND POPULATION 10.6 16.0 19.8 16.4 53.7 CINEMA ANNUAL ATTENDANCE PER CAPITA 4.1 4.1 3.7 3.6 2.8 LABOR FORCE TOTAL LABOR FORCE (THOUSANDS) 185951.1 219194.2 264204.4 FEMALE (PERCENT) 30.7 32.5 31.8 29.5 33.6 AGRICULTURE (PERCENT) 74.0 74.0 69.3 70.0 52.2 INDUSTRY (PERCENT) 11.0 11.0 13.2 15.0 17.9 PARTICIPATION RATE (PERCENT) TOTAL 42.8 40.0 39.2 40.0 38.5 MALE 57.0 52.4 51.8 51.8 50.5 FEMALE 27.3 26.9 25.9 23.8 26.6 ECONOMIC DEPENDENCY RATIO 1.1 1.1 1.1 1.0 1.1 INCOME DISTRIBUTION PERCENT OF PRIVATE INCOME RECEIVED BY HIGHEST 5 PERCENT OF HOUSEHOLDS 26.7 26. 3/ 22.2/f HIGHEST 20 PERCENT CF HOUSEHOLDS 51.7 48.9!g 49.4/f LOWEST 20 PERCENT OF HOUSEHOLDS 4.1 6.774 7.0/f LOWEST 40 PERCENT OF HOUSEHOLDS 13.6 17.2Zi 16.2/f POVERTY TARGET GROUPS ESTIMATED ABSOLUTE POVERTY INCOME LEVEL (US$ PER CAPITA) URBAN .. .. 132.0 133.8 194.7 RURAL .. .. 114.0 111.1 155.1 ESTIMATED RELATIVE POVERTY INCOME LEVEL (US$ PER CAPITA) URBAN .. .. .. .. 178.2 RURAL .. .. .. .. 164.9 ESTIMATED POPULATION BELOW ABSOLUTE POVERTY INCOME LEVEL (PERCENT) URBAN .. .. 40.3 43.8 24.4 RURAL .. .. 50.7 51.7 41.1 Not available Not applicable. NOTES la The group averages for each indicator are population-weighted arithmetic means. Coverage of countries among the indicators depends on availability of data and is not uniform. /b Unless otherwise noted, data for 1960 refer to any year between 1959 and 1961; for 1970, between 1969 and 1971; and for Most Recent Estimate, between 1978 and 1980. /c 1977; /d 1962; /e 1976; /f 1975; /I 1964-65. 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