Indian Economy grew by 5.4 per cent in 2001-02 which is considered to be one of the highest growth rates in the world for the year. This growth is supported by a growth rate of 5.7 per cent in agriculture and allied sectors, 3.3 percent in industry and 6.5 per cent in services.

Overall agricultural output is estimated to increase by nearly 7 per cent in 2001-02. Foodgrains production is expected to rise to 209 million tonnes compared with 196 million tonnes in 2000-01. Prospects of agricultural production in 2001-02 are considered to be bright as a result of normal monsoon and relatively favourable distribution of rainfall over time and regions.

While the Indian industry sector grew by 3.3 per cent, with in industry sector segments like construction showed a lower growth in 2000-01, there was marked improvement in the growth rates of manufacturing (from 4.2 per cent in 1999-00 to 6.7 per cent in 2000-01) and mining and quarrying (from 2 per cent to 3.3 per cent during the same period). The growth rate of electricity, gas and water supply remained almost invariant at around 6.2 per cent for both 1999-2000 and 2000-01.

During 1993-94 to 1999-2000 the service sector had achieved consistently high growth rates in the range of 7.1 per cent to 10.5 per cent. But for the first time in 2000-01, the growth rate of the service sector declined to 4.8 per cent due to poor performance by financial sector, trade hotels and restaurants, and community and social services.

The agriculture sector, for so long the mainstay of the Indian economy, now accounts for only about 20 per cent of GDP, yet employs over 50 per cent of the population. For some years after independence, India depended on foreign aid to meet its food needs, but in the last 35 years, food production has risen steadily, mainly due to the increase in irrigated areas and widespread use of high-yield seeds, fertilizers, and pesticides. The country has large grain stockpiles (around 45 million tonnes) and is a net exporter of food grains.

Cash crops, especially tea and coffee, are the major export earners. India is the world's largest producer of tea, with annual production of around 470 million tonnes, of which 200 million tonnes is exported. India also holds around 30 per cent of the world spice market, with exports around 120,000 tonnes per year.

With a view to strengthening the sector, building infrastructure for handling, transportation, and storage of foodgrains has been granted "infrastructure status" and will be eligible for a tax holiday. Further, processors of food and vegetables are exempt from excise duty.

Manufacturing Sector

After a decade of reforms, the manufacturing sector is now gearing up to meet challenges for the new millennium. Investment in Indian companies reached record levels by 1994 and many multinationals decided to set up shop in India to take advantage of the improved financial climate. In an effort to provide a further boost to the industrial manufacturing sector, Foreign Direct Investment (FDI) has been permitted through the automatic route for almost all the industries with certain restrictions. Structural reforms have been undertaken in the excise duty regime with a view to introduce a single rate and simplify the procedures and rules. Indian subsidiaries of multinationals have been permitted to pay royalty to the parent company for license of international brands, etc. Over the period 1992-93 to 1999-2000, the manufacturing sector has recorded an average annual growth rate of 6.3 per cent and in 2001-02; it recorded a growth of 2.8 per cent.

Companies in the manufacturing sector have consolidated around their area of core competence by tying up with foreign companies to acquire new technologies, management expertise, and access to foreign markets. The cost benefits associated with manufacturing in India, has positioned India as a preferred destination for manufacturing and sourcing for global markets.

Financial Sector

An extensive financial and banking sector supports the rapidly expanding Indian economy. India boasts of a wide and sophisticated banking network. The sector also has a number of national and state level financial institutions. These include foreign and institutional investors, investment funds, equipment leasing companies, venture capital funds, etc. Further, the country has a well-established stock market, comprising 23 stock exchanges, with over 9,000 listed companies. Total market capitalisation, on the two dominant stock exchanges, the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE), stood at Rs. 6,926 billion and Rs. 7,604 billion respectively, at the end of December 2000. The Indian capital markets are rapidly moving towards a market that is modern in terms of infrastructure as well as international best practices such as derivative trading with stock index futures, addition to the list of compulsory Demat trading and rolling settlement in certain specified shares, commencement of internet based trading, etc.

The last year witnessed several Indian companies, mobilising resources by tapping the world market through the ADR/GDR route. So as to improve the liquidity in the ADR/GDR market and to give opportunity to Indian shareholders to divest their shareholding in the ADR/GDR market abroad, measures such as two-way fungibility in ADR/GDR issues of Indian companies has been introduced and sponsorship of ADR/ GDR offerings against existing shareholding. In addition to the above, 26 per cent foreign equity has been allowed in the insurance sector and investment and divestment by venture capital funds and companies registered with SEBI has been simplified.

FII inflows were USD 2.34 billion (January 2001 to June 2001) compared to USD 1.5 billion for 2000, showing an upward trend despite depressed stock market indices. Net cumulative FII inflows crossed USD 14 billion (June 2001).

Services Sector

The main thrust to industrial growth has come from the services sector. Services contribute to 41 per cent of the GDP. Rapidly, the quality and complexity of the type of services being marketed is on the rise to match worldwide standards. Whether it is financial services, software services or accounting services, this sector is highly professional and provides a major impetus to the economy. Interestingly, this sector is populated with a range of players who cater to a niche market.

India is fast becoming a major force in the Information Technology sector. According to the National Association of Software and Service Companies (NASSCOM), over 185 Fortune 500 companies use Indian software services. This potential is increasingly being tapped by the world's software giants such as Microsoft, Hughes and Computer Associates who have made substantial investments in India. A number of multi-nationals have leveraged the relative cost advantage and highly skilled manpower base available in India, and have established shared services and call centres in India to cater to their worldwide needs.

The software industry was one of the fastest growing sectors in the last decade with a compound annual growth rate exceeding 50 per cent. Software service exports increased from US$ 4.02 billion in 1999-2000 to US$ 6.3 billion in 2000-01, thereby registering a growth of 57 per cent. India's success in the software sector can be largely attributed to the industry's ability to cultivate superior knowledge through intensive R&D efforts and the expertise in applying the knowledge in commercially viable technologies.

Indian Industrial Sector

INDUSTRIAL GROWTH RATES: USE BASED

*Quick Estimates
 Source: C.S.O.

India: Key Industries

Steel: The iron and steel industry in India is over 122 years old. However, a concerted effort to increase the steel output was made only in the early years of planning. Three integrated steel plants were set up at Bhilai, Durgapur and Rourkela. Later two more steel plants, at Bokaro and Vishakhapatnam, were set up. Private sector plants, of which the Tata Iron and Steel Company (TISCO) is the biggest, have been allowed to raise their capacity.

TISCO and a large number of mini steel plants in the country contribute about 40 per cent of the steel production in the country. The Government has given a push to sponge iron plants to meet the secondary sector's requirement of steel scrap.

Engineering and Machine Tools: Among the Third-World countries, India is a major exporter of heavy and light engineering goods, producing a wide range of items. The bulk of capital goods required for power projects, fertilizer, cement, steel and petrochemical plants and mining equipment are made in India. The country also makes construction machinery, equipment for irrigation projects, diesel engines, tractors, transport vehicles, cotton textile and sugar mill machinery. The engineering industry has shown its capacity to manufacture large-size plants and equipment for various sectors like power, fertilizer, and cement. Lately, air pollution control equipments are also being made in the country. The heavy electrical industry meets the entire domestic demand.

Electronics: The electronics industry in India has made rapid strides in recent years. The country produces electronics items worth over Rs. 200 billion annually. The Software Technology Park scheme for attracting investments has proved successful. The relative low cost of production in India makes items made in India competitive in the world market.

Some of the major items manufactured in India are computers, communication equipment, broadcasting and strategic electronics, television sets, microwave ovens, and washing machines.

The compound growth of the computer industry has been 50 per cent during the last five years. With the availability of trained technical manpower, computers have been identified as a major thrust area. Special emphasis has been given to software export.

The Indian software industry has developed skill and expertise in areas like design and implementation of management information and decision support systems, banking, insurance and financial applications, artificial intelligence and fifth generation systems.

Recognition for the Indian computer software industry has been global. Indian software enterprises have completed projects for reputed international organisations in 43 countries.

Textiles: Textiles, the largest industry in the country employing about 20 million people, account for one-third of India's total exports. During 2000-01, textile exports were estimated at Rs. 49,831 crore, which is more than the export during 1999-2000.which was Rs. 40,178 crore. In recent years, several controls have been removed and in October 1996, a new Long-Term Quota policy was announced to boost exports.

Public Sector: The public sector contributed to the initial development of infrastructure and diversification of industrial base. It is now being exposed to competition. Part equity of some units is being disinvested. But many core and strategic areas, important for economy and self-reliance, will remain in the public sector.

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