| The Indian economy had achieved high growth rates of more than 7% each year since 2003, peaking at 9.7% in 2006. Only in 2008 did output slip - to 5.1% - due to the bursting of the domestic shares and other asset bubbles in the wake of the global economic crisis. In contrast to other Asian emerging markets, Indias economy is driven mainly by domestic consumption, with exports accounting for only 15% of GDP. The external sector has traditionally been dominated by services: especially information and communication technology [ICT], and business service outsourcing. Real GDP growth stood at 9.1% last year, with an 8.4% increase in the last quarter, driven by the booming services and manufacturing sectors and private consumption. However, this strong domestic demand still contrasts with the poor economic progress of the agricultural sector, which still accounts for a sixth of GDP and employs 45% of the workforce, but suffers from major inefficiencies and is heavily dependent on the yearly monsoon season. Consumer price inflation was 12% in 2010 as food prices rose sharply and prices for capital goods, shares and real estate also tended to increase rapidly. Fuel price increases have contributed to the overall price inflation as has the inability of the supply capacity of the Indian economy to keep pace with demand. High consumer prices are an increasing concern, undermining the purchasing power of the many poorer households. To curb inflation, the Reserve Bank of India [RBI] has tightened monetary policy by repeatedly raising key short-term interest rates] since March 2010. Beside the high budget deficit, Indias main structural deficiencies are: the underdevelopment of the agricultural sector; poor infrastructure; inflexible labour laws; excessive bureaucracy; rigid land laws [Land Acquisition Act], and a shortage of skilled labour due to the poor education of most of the population. Sector performance: many growth industries The sheer size of the potential consumer market presents immense opportunities, as has been demonstrated by the phenomenal growth of the mobile telecommunications sector. In a relatively short time, subscriber levels have reached 584 million [mostly on pre-pay tariffs], equating to a 49% penetration rate. That said, the telecommunications subsector may face some difficulties over the coming year due to strong competition and decreased average revenue per user [ARPU]. Therefore, further consolidation seems inevitable. The vast internal market and comparatively low manufacturing costs have encouraged interest from a range of businesses looking to invest in India. This has stimulated growth in a number of sectors in addition to the rapidly expanding telecoms sector. The growth in sales of new vehicles remains strong, reflecting the increased purchasing power of the Indian middle class. More recently, increases in raw material costs and escalating fuel prices have prompted growth in sales of two-wheeled vehicles. The rebound in the automotive sector has had a positive impact on other sectors, such as steel. Growth in Indias output of crude steel slowed to 2.7% in 2009, but increased again by 6.4% in 2010, and Indian steelmakers have resumed expansion projects that were shelved during the global economic crisis. The pharmaceuticals industry in India has a large market for both exports and domestic consumption. However, although this market is currently valued at around US$ 16.3 billion, individual spending on pharmaceutical product per capita in India on pharmaceuticals is actually very low given the size of its population. Prospects for the ICT sector are quite good, as a result of increased levels of disposable income and relatively low levels of PC penetration in India. Textiles, particularly those parts of the industry focused on exports to the US and Europe, suffered strongly during the global crisis 2008/2009, but have shown some signs of recovery since then, although problems persist for many companies. In the food and drink sector, mass grocery is still in its infancy, hampered by distribution problems caused by Indias poor infrastructure. However, as the government and the private sector both plan major investments in upgrading, construction and sectors related to infrastructure and in heavy engineering and power, these can expect growth in the coming years. Outlook: Further growth expected Indias economic fundamentals remain relatively strong, with GDP forecast to grow 9% this year and 8.7% in 2012. However, the high [domestic] public debt and the persistently high budget deficit remain structural problems. In its budget plan for the fiscal year 2011/12, the government laid emphasis on the reduction of the budget deficit [to 4.6% of GDP], while at the same tine increasing relief measures for the poor [e.g. provide cheap grain] to counter risen food prices. The administration expects to bridge this gap with the help of rising tax revenues from the expected 9% economic growth. It also plans to liberalise domestic petroleum prices and cut down fuel subsidies. However, high oil prices pose a risk for this measure, as this would force the government to spend more on subsidising fuel to cushion the social consequences of passing on prices to consumers - and thus increase public spending and the budget deficit. Persistently high consumer price inflation, caused by rising food prices, would also force the government to increase food subsidies beyond the planned level. At the same time, tax earnings could be lower than expected if the governments growth forecast proves to be too optimistic, leading to decreased revenues. Therefore, many potential pitfalls remain which could mean that the target of a budget deficit of 4.6% of GDP is too ambitious. More public-private investment partnerships for infrastructure projects are needed, and the government plans to increase incentives for private investors. So far, private sector participation in infrastructure development has been concentrated mainly in the telecoms sector, with such participation in other areas [sanitation, power generation, roads and railways] much lower than expected. Consequently, there is a continuing problem of power and water shortages in all Indias major cities. The government is still deferring major structural reforms to stimulate FDI, i.e. to allow foreign investment in the retail sector. However, a long-term growth rate of 8% to 9% is considered sustainable, provided that the [albeit slow] economic reform progress does not falter. Trading with Indian companies Financial data is available for large corporations and larger mid-size companies. It can be difficult to get hold of financial data for smaller companies particularly partnerships and sole proprietorships. Traditionally, Indian business houses show only marginal profits, to avoid taxation. The real profitability of Indian companies is often far higher than that revealed in the balance sheet. Understanding the private wealth and standing of company owners and managers can be important when assessing credit risk in India. Crédito y Caución, as parto of the Atradius Group, uses a variety of sources to check companies standing, including information suppliers, the internet and local partners. Crédito y Caución may also ask a companys customers to assist us where we draw a blank, as supportive trading experience can be useful. Insolvencies are uncommon. Winding up a company by petition can take a very long time, so is very much a last resort for recovery of debt. General trade terms Open account trade is the norm 60/90 day terms are prevalent for export transactions into India. Letters of Credit are rare except for large value contracts with state or state-owned entities. If they are used, great care should be taken in presenting the documents in exactly the correct form as otherwise the buyer may exploit any discrepancy by delaying payment. Retention of Title is not common in India and, even if specifically stipulated on the invoice, is legally very difficult to enforce. Post dated cheques are common in domestic trade transactions. The Indian law takes cheque fraud seriously - it can lead to criminal action. This tool is most effective if the cheque is signed by the company proprietor. | 
