India is continuing to move forward with market-oriented economic reforms that began in 1991. Recent reforms include liberalized foreign investment and exchange regimes, industrial decontrol, significant reductions in tariffs and other trade barriers, reform and modernization of the financial sector, significant adjustments in government monetary and fiscal policies, and safeguarding intellectual property rights.

Real GDP growth for the fiscal year ending March 31, 2005 was 6.9%, down from 8.5% growth in the previous year. Growth for the year ending March 31, 2006 is expected to be between 7-7.6%. Foreign portfolio and direct investment inflows have risen significantly in recent years. They have contributed to the $144 billion in foreign exchange reserves at the end October 2005. Government receipts from privatization were about $3 billion in fiscal year 2003-04.

However, economic growth is constrained by inadequate infrastructure, a cumbersome bureaucracy, corruption, labor market rigidities, regulatory and foreign investment controls, the "reservation" of key products for small-scale industries, and high fiscal deficits. The outlook for further trade liberalization is mixed. India eliminated quotas on 1,420 consumer imports in 2002 and has announced its intention to continue to lower customs duties. However, the tax structure is complex, with compounding effects of various taxes.

The United States is India's largest trading partner. Bilateral trade in 2004 was $21.7 billion. Principal U.S. exports are diagnostic or lab reagents, aircraft and parts, advanced machinery, cotton, fertilizers, ferrous waste/scrap metal, and computer hardware. Major U.S. imports from India include textiles and ready-made garments, Internet-enabled services, agricultural and related products, gems and jewelry, leather products, and chemicals.

The rapidly growing software sector is boosting service exports and modernizing India's economy. Revenues from the information technology industry reached a turnover of $16.2 billion in 2004-05. Software exports crossed $17.2 billion in 2004-05, and a similar growth is expected in FY 2005-06. Personal computer penetration is 9 per 1,000 persons. The cellular mobile market is expected to surge to over 70 million subscribers by fiscal year ending 2005 from the present 67 million users. The country has 54 million cable TV customers.

The United States is India's largest investment partner, with a 17% share. India's total inflow of U.S. direct investment is estimated at $3.8 billion in 2004. Proposals for direct foreign investment are considered by the Foreign Investment Promotion Board and generally receive government approval. Automatic approvals are available for investments involving up to 100% foreign equity, depending on the kind of industry. Foreign investment is particularly sought after in power generation, telecommunications, ports, roads, petroleum exploration/processing, and mining.

India's external debt was $123 billion in 2004, up from $111 billion in 2003. Bilateral assistance was approximately $4 billion in 2004-05, with the United States providing about $134.7 million in development assistance. The World Bank plans to double aid to India to almost $3 billion a year, with focus on infrastructure, education, health, and rural livelihoods.