India Intelligence Report

   FDI Target at USD12B, Exports Up

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Export - Import Data

  April 2006 March 2005
Exports 8.34 6.56
Imports 12.56 10.42
Non-Oil Imports 8.40 7.33
Oil Imports 4.15 3.08
Trade Deficit 4.21 3.85

Amount in Billions of USD

Despite the Stock Market meltdown, India projected a USD 12B Foreign Direct Investment (FDI) this year and reported a year on year 27% rise in merchandise exports and USD 20.52% in imports.

Oil makes up 33% of Indian imports which grew at 34.65%. Non-oil imports grew at 14.56%. The trade deficit also grew by 9% but when oil is taken out of the equation, the trade deficit figure drops to an inconsequential number. India is an energy deficient county and it needs to import more oil and natural gas to fund its economic growth. Unless the inflow, exports, and capacity to raise money such as debt, disinvestment, and increased taxes goes up, the absolute deficit will grow exponentially.

Despite recent stock market melt downs, India is setting itself an aggressive target of USD 12 billion this year or a 42% rise from last years USD 8.4 billion. Revealing the project, Department of Industrial Policy Promotion Secretary Ajay Dua said that he expects USD 8 billion to come as equity investments and the rest for reinvested earnings and capital inflows and predicted that countries like Japan, Taiwan, and South Korea would invest in India. However, the US and the European Union (especially The Netherlands) will invest most.

Dua also indicated process modification that would facilitate easier investment such as an electronic form submission process that would be ready by March 2007 to cut down human interface time. Also, the Comprehensive Economic Cooperation Agreement with Singapore was also expected to bring a large FDI through that country. Currently, 35% of investments are routed through Mauritius because India has a double-taxation avoidance treaty with that country. However, he was insistent that FDI in retail will not be allowed since that could displace traditional shopkeepers.

The sudden decline in the stock market caused steep fall in the Rupee. However, a JP Morgan report said that compared to other emerging markets and currencies, the Indian Rupee held up well. In fact, its volatility was only second least after the Government controlled Chinese Yuan. Some currencies such as the Brazilian Real and Turkish Lira have depreciated by over 10% since May 12, 2006.

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