India - Progress and challenges in economic transition

Report No. 11761-IN India Progress and Challenges in Economic Transition May 24, 1993 Country Operations, Industry and Finance Division India Country Department South Asia Region FOR OFFICIAL USE ONLY - XI C RMCROFICHE COPY R~eport No. :11761-I ye EO 4 < X w^Title: PROGRESS AND CHALLENGES IN ECO Author: OTOO, S. Ext. :80359 Room:G 3117 Dept. :SA2CI '' 'b d * '- 's O %'S ' W ' - o ,- - 0 ; VA- -4'- ~4 - -43~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~'44- __-,:i4r _,4~ _4 ,--_ j, - -r,- ' i;rl '4444-.@ : 4- ,, 4, ''4,,9 ', - -ss,,,,f;  CUJRRECY Currency Rs/US$ Official Market1 Prior to June, 1966 4.76 June 6, 1966 to mid-December 1971 7.50 Mid-December 1971 to end-June 1972 7.28 1971/72 7.44 1972/73 7.71 1973/74 7.79 1974/75 7.98 1975/76 8.65 1976/77 8.94 1977/78 8.56 1978/79 8.21 1979/80 8.08 1980/81 7.89 1931/82 8.93 1982/83 9.63 1983/84 10.31 1984/85 11.89 1985/86 12.24 1986/87 12.79 1987/88 12.97 1988/89 14.48 1989/90 16.66 1990/91 17.95 1991/92 24.52 1992/93 26.41 30.65 February 1993 26.20 32.65 March 1993 31.53 Source: IMF, International Financial Statistics (IFS), line "rf., and Reserve Bank Of India. Note: The Indian fiscal year runs from April 1 through March 31. I A dual exchange rate system was created in March 1992, with a free market for about 60 percent of foreign exchange transactions. The exchange rate was reunified at the beginning of March 1993 at the free market rate.  FOR OMCIAL US ONdLY TITLE INDIA: STABIHZING AND REFORMING THE ECONOMY COUNTRY : INDIA REGION SOUTH ASIA SECTOR COUNTRY ECONOMIC RwOfl TYPE CLASIFICATION MM/YY LANGUAGE 1176-IN CEM Restricted 05/93 English ABSTRACT The 1992/93 fiscal year marked the first full year of the comprehensive adjustment program inidated by the Govenment of India in mid-1991, and substantial fiuther progress was made in stabilizing and reforming the Indian economy. Real GDP rose by about 4 percent, imlation fell to single-igit levels and foreign exchange reserves were increased to over US$6.7 billion (equivalent to 3.6 month of imports). A number of important policy measures have been adopted recenty that are likely to improve economic performance and development prospects-in particular, a reunification of the exchange rate, further rationalization and reductions of customs tariffs, additional steps to liberalize the financial sector and foreign investment code, and a Union budget that provides for increased spending on social and rural sectors, while reducing frther the overall fiscal deficit. The foregoing notwithstanding, the Indian authorities face a number of serious macroeconomic challenges-particularly in the areas of fiscal and balance of payments management. A large agenda of strucual and sectoral reform remans as well-notably in the areas of taxation, trade and financial policies, and for the public enterprise, agricultural and social sectors. This document has a restticted distribution and may be used by recipients only in the performance of their offcial duties. Its contents may not otherwise be disclosed without World Bank authorization.  ADB Asian Development Bank BICP Burea of Industria Costs and Prices BIPR Board for Industria and Financia Recorstruction BIS Bank for International Settement BOT Buid-Operate-Transfer caI Cotton Corporaton of India CCS Cash Compensatoiy Scheme CEM Country Economic MemoraAndu CHC Community Health Care Center cis Commonwealth of Independent States CONCOR Containe Corporation CRR Cash Riesev Ra,io CSO Central Ststical Organizatio DFHI Discount and Finance House of Inxia DOT Departent of Telwcommunicatoio EC European Community EGiF Employment Geneation Fund EOU Export-Oriented Unit EXIM Export-Import EPZ Export Procesing Zone PCBOD Foreign Currency (Banks and Other) Deposit PCI Food Corporaton of lnda" PCNR Foreipn Currecy Non-Resident PCON Foreign Currency (Ordinar Non-Reatriable) P1DI Foreig Direct Investment PERA Foreign Exchang Reguation Act (1973) FSU Former Soviet Union GATr General Agreement on Trade and Tariff GCH General Cunrency Area GNFS Goods and Non-factor Services GOI Governmen of India ha Hectare HDC High Density Road Coridor IA Indian Airline lAS Indian Administratve Service IBRD International Bank for Reconsrcion and Development ICDS InertdChild Development Servies ID Irrigation Department IDA ItrainlDe-velopmen Agency IMBntratoa Monetary Fund IR Indian Railways IRDP Integrated Rural Development Progrmme kWh Kilowatt/hour LRtMC Long-Run Marginal Cost MLT Medium- and Long-Term  MODVAT Modified Value Added Tax MOP Ministry of Finae MOHFW Ministry of Health and Family Welfre MOST Mistry of Surface Transport MOU Memorandum of Unestading MW Megawatt NABARD National Bank for Agricultural and Rual Development NAFTA North American Free Trade Agreemet NDDB National Dairy Development Board NGO Non-Govemental Organization NHA National Highway Authority NIPFP National Institute of Public Finance and Policy NRER Non-Resident (Extenal) Rupee NRF National Renewal Fund NRGF National Renewal Grant Fund NRI Non-Resident Indian NSS National Sample Survey NTC National Textile Corporation O&M Operation & Mai ance ONGC Oil and Natral Gas Coporation PDS Public Distribution System PHC Public Health Care Center PSBR Public Sector Borrowing Reqirement PSE Public Sector Enterprise PWD Public Works Deatmen QR Quantiative Restriction RBI Reserve Bank of India REP (Import) Rplenishment License RPA Rupee Payments Area RRB Regional Rura Bank SEB State Electricity Board SEBI Secrities and Exchange Board of fndia SICA Sick Industrial Companes Act SIL Special lIport License S&L Savings and LAn Institution SLR Statutory Liquidity Ratio UNDP United Nations Development Progrm UPE Universal Primary Eduation USAID United States Agency for Inteational Development UT Union Trust (Territory) VAT Value Added Tax WPI Wholesale Price Index  INDU