India achieves low overall compliance with international standards and codes, with a score of 38.3 out of 100 in our Standards Compliance Index. India appears reasonably strong in macroeconomic fundamentals, due in part to recent enactments enhancing monetary and fiscal transparency. However, India lags considerably behind international standards in the areas of market infrastructure and financial supervision. In the areas of insolvency framework, and money laundering, a lack of information prevents an assessment. India has made some progress in the areas of corporate governance and banking supervision, through its enactment of the main aspects of the standards, but the quality of implementation has yet to be determined. It has declared its intention to make its payment systems and insurance supervision fully compliant with international principles as well as adopting accounting and auditing standards. A lack of information remains with regard to its securities regulation regime.

Macroeconomic Policy and Data Transparency

India subscribed to the International Monetary Fund's (IMF) Special Data Dissemination Standard (SDDS) on December 27, 1996 and started posting its metadata on the IMF's Dissemination Standards Bulletin Board (DSBB) on October 30, 1997. According to a 2004 IMF Report on the Observance of Standards and Codes (ROSC), and information provided on the DSBB, India meets the SDDS specifications for the timeliness, periodicity and coverage for most data categories. For data on labor market employment, labor market unemployment, labor market wages and earnings, and general government or public sector operation, India uses the flexibility option. According to a 2007 IMF report, the Indian authorities are planning further improvements in the timeliness, periodicity, and coverage of data in a number of statistical areas. India meets the requirements of the SDDS in terms of access to data by the public. According to information provided on the DSBB, India meets most of the SDDS requirements for integrity and quality of data, but falls short in that it does not address terms of confidentiality for certain data categories and does not provide advance notice of methodological changes. More »

Oxford Analytica (OA), in its 2006 report on Monetary Policy Transparency in India, upgraded India's compliance with the International Monetary Fund's (IMF) Monetary Transparency Code to "Compliance in Progress." According to OA, in 2006, the Reserve Bank of India (RBI) institutionalized various changes that had already been under way in the area of its operations and responsibilities. This has contributed to greater clarity of roles and responsibilities of the RBI and thereby increased transparency. The RBI Act of 1934 was amended in 2006 to increase monetary policy flexibility. The RBI already provides a range of publications on monetary policy. A Technical Advisory Committee (TAC) for Monetary Policy, set up in 2005, has continued to discuss policy for the quarter ahead as a preparatory step towards a monetary policy committee. OA notes in its 2006 report that in July 2006, a committee appointed by the RBI released a roadmap towards fuller capital account convertibility, which recommended greater monetary policy transparency. Many of its recommendations would require more operational independence for the central bank. The RBI is studying the report, but, according to OA, there are no proposals at present to provide it with greater statutory autonomy. More »

In 2005, Oxford Analytica (OA) rated India's compliance with the International Monetary Fund's (IMF) Fiscal Transparency Code as "Enacted." OA noted that in 2005, India made several improvements in the area of fiscal responsibility at the state level. The Indian government passed the Fiscal Responsibility and Budget Management Act in 2003, and as of 2005, 21 of 28 states had passed the Act. A new VAT system has been introduced in the majority of states with some success and the remaining states are expected to follow. This simplifies the tax system, but there is still a need to widen the tax base and reduce tax evasion. Coordination for fiscal data gathering should improve with the creation of a National Statistics Organization, although concerns as to the quality of state level fiscal data remain. Initial steps have been taken to move to an accrual accounting system, although it will be some years before it is fully implemented. Analysis of fiscal risks remains underdeveloped in the budget documents. In the context of the 2006 Article IV consultations, IMF staff noted that the favorable near-term outlook provides an ideal opportunity to accelerate fiscal reform and make progress toward medium-term consolidation. More »

Institutional and market infrastructure

According to the Reserve Bank of India's (RBI) Review of the Recommendations of the Advisory Groups Constituted by the Standing Committee on International Financial Standards And Codes in 2004, considerable progress has been made in improving bankruptcy laws in the country from the time the Standing Committee on International Financial Standards and Codes submitted its Report in 2002. The Standing Committee initially observed that bankruptcy law is one area where the Indian situation is far from satisfactory, when evaluated against the best practice norms. India did not have a comprehensive or satisfactory legal framework in this regard. The situation has markedly changed since then. Several legal changes have materialized. Though a comprehensive Act was not enacted, the objectives of the same have been achieved through the changes to Companies Act. However, progress in relation to cross-border insolvency suggested by UNCITRAL Model Law has been slow and there is a need to provide for appropriate legal provisions for the same. In general, there has been an improvement in the bankruptcy regime. However, there is insufficient publicly available information regarding India's compliance with the Principles and Guidelines for Effective Insolvency and Creditor Rights Systems promulgated by the World Bank. More »

According to the assessment of accounting and auditing practices conducted by the World Bank in 2004, considerable efforts have been made to align Indian Accounting Standards (ASs) with the International Financial Reporting Standards (IFRSs). The Institute of Chartered Accountants of India (ICAI) uses IFRSs in developing the national standards, departing in some cases from IFRSs, if justified. Over the last years, the ICAI has issued and revised several accounting standards, significantly reducing the gap between ASs and IFRSs. However, differences still exist. Certain IFRS concepts are yet to be adopted, less detailed disclosures are required in some ASs, and certain ASs are narrower in scope than equivalent IFRS. In the October 2006 message to the members of the ICAI, the President of the ICAI T. N. Manoharan announced the creation of an 11-member task force to explore the possibility of adopting all IFRSs in full, without modification, as Indian standards. As stated in the Press Release of the ICAI dated October 14, 2006, the Accounting Standards Board (ASB) of the ICAI, recognizing the growing need of full convergence of its ASs with IFRSs, will examine various issues involved and will formulate a concept paper in this regard. Full convergence would involve adoption of IFRSs in the same form as that issued by the International Accounting Standards Board (IASB) without any modifications. The concept paper would deal with legal, regulatory and other implications and in case the task force recommends full convergence for all enterprises or a class of enterprises such as listed enterprises, it would also consider laying down a road map for full convergence. More »

In April 2004, the World Bank published a Report on the Observance of Standards and Codes (ROSC) on Corporate Governance in India, benchmarking the countries corporate governance framework against the Organization for Economic Cooperation and Development's (OECD) Principles of Corporate Governance. The assessment team noted that since the first Corporate Governance assessment in 2000, a series of legal and regulatory reforms have transformed the Indian corporate governance framework and improved the level of responsibility/accountability of insiders, fairness in the treatment of minority shareholders and stakeholders, board practices, and transparency. The first, voluntary Code of Corporate Governance was published by the Confederation of Indian Industries (CII) in 1998. The Securities and Exchange Board of India (SEBI) followed by setting up the Kumar Mangalam Birla Committee on Corporate Governance, whose recommendations in December 1999 formed the basis for Clause 49 of the Listing Agreement of the Bombay Stock Exchange. SEBI revised Clause 49 in late 2004 on the recommendations of the Narayana Murthy Committee on Corporate Governance, with the revisions coming into effect on January 1, 2006. However, despite these developments, enforcement and implementation of laws and regulations remain important challenges. More »

The Institute of Chartered Accountants of India (ICAI) uses the International Standards on Auditing (ISAs) extensively in developing the national Auditing and Assurance Standards (AASs), according to the assessment of accounting and auditing practices conducted by the World Bank in 2004. The ICAI duly considers ISAs in the standard setting process and may depart from these standards if justified, keeping in mind the local environment and practices. However, there is a gap between AASs and ISAs which is significant in its material effect on assurance engagements. The modifications made to ISAs when adapting to Indian AASs appear to allow a less flexible audit approach, perhaps in order to reduce the extent of auditor's judgment required to properly apply sophisticated auditing standards and procedures. Moreover, as indicated in the assessment prepared by the Centre of Excellence for Standards & Quality of the Institute of Chartered Accountants of Sri Lanka (ICASL) in 2006, India has based AASs on ISAs effective prior to December 15, 2004. Subsequent revisions to ISAs and new ISAs have not been incorporated into Indian requirements. During the period of 2005-2006, the Auditing and Assurance Standards Board (AASB) of the ICAI carried out a project of comparison of AASs vis-à-vis corresponding international standards and suggested the necessary revisions of AASs to bring them in line with the corresponding ISAs. More »

A report by the Asia/Pacific Group on Money Laundering (APGML) in 2005 assesses India's anti-money laundering (AML) regime. However, this report assesses the AML regime existing in India prior to March 2005 and does not incorporate, in its ratings, the Prevention of Money Laundering Act (PMLA) since the implementing rules to the PMLA came into effect only in 2005. India passed the PMLA in 2002 to establish a centralized Anti-Money Laundering/Combating Financing Terrorist (AML/CFT) system. The implementing Rules of the PMLA that came into force on 1 July 2005 have resulted in increased levels of compliance with the Financial Action Task Force (FATF) Recommendations. The PMLA criminalizes money laundering, establishes fines and sentences for money laundering offenses, imposes reporting and record keeping requirements on financial institutions, provides for the seizure and confiscation of criminal proceeds, and provides for the creation of a financial intelligence unit (FIU). As of December 2006, India is a FATF observer and has a two year probationary period to become compliant with FATF norms to become a member. Full FATF membership has been one criterion identified to help India move towards a sufficient AML/CTF regime. In this context, the Government of India (GoI) is seeking to amend the PMLA to block terrorism financing through banking and financial institution channels. However, subsequent to the APGML 2005 assessment, there is no information publicly available as to India's compliance with the Financial Action Task Force (FATF) 40+9 recommendations. More »

In a 2005 report issued by the Reserve Bank of India (RBI), the authors maintain that India has, by March 2004, made all the systemically important payment systems (SIPS) compliant with the Core Principles, except the Inter-bank Clearings at places other than Mumbai and the High Value Clearing Systems. The RBI acknowledges that there is a need to complete this process in the near future and among its goals for 2006-2007 the RBI has indicated making all Payment Systems in India compliant to the Core Principles for Systemically Important Payment Systems (SIPS). The RBI identifies five systemically important payment systems (SIPS) in its 2006 annual report: the Inter-Bank Checks Clearing Systems (the Inter-bank Clearing); the High Value Checks Clearing System (the High Value Clearing); the Negotiated Dealing System; the Foreign Exchange Clearing System (the Forex Clearing); and the Real Time Gross Settlement (RTGS) System. The Inter-bank Clearing functions in 7 places and the High Value Clearing in 15 places - both are managed by the RBI. The RTGS system is also operated by the RBI. The RBI claims that it has, in line with international best practices in this regard, moved these systems (except the Inter-bank Clearings at places other than Mumbai and the High Value Clearings) to either secure and guaranteed systems or the RTGS system. Nevertheless, there is no comprehensive assessment publicly available regarding India's compliance with the Core Principles for SIPS. More »

Financial Regulation and Supervision

The Advisory Group on Banking Supervision (the Group) of the Reserve Bank of India (RBI) released in 2001 a detailed assessment in regard to qualitative levels of compliance with the Core Principles (CPs) in India using the methodology suggested by the Basel Committee on Banking Supervision (BCBS). The assessments made by the Group indicate a high level of general compliance in regard to most of the principles when evaluated against the recommended essential and additional criteria. The 2001 assessment concluded that the arrangement for supervision of banking in India is almost complete and in comprehensive agreement with most of the 25 core principles laid down by the BCBS. Even in the case of those where the Group has observed significant gaps, these are not cause for any concern and are capable of being bridged within a reasonable timeframe. According to a report by the U.S. Department of Commerce, the Indian banking system is subjected to the highest level of prudential regulations, accounting standards and disclosures, which are almost comparable to international best practices. Furthermore, according to a Bank for International Settlements' 2006 report, prudential norms in India have been brought up to international standards, and similarly as per a 2006 IMF report, there is a favorable perception overseas that India is conforming to best international standards. Regulation and supervision has been guided by the objective of maintaining confidence in the financial system by enhancing its soundness and efficiency. However, subsequent to the 2001 assessment by the RBI, there is no publicly available assessment as to India's compliance with the Core Principles for Effective Banking Supervision. More »

The regulatory responsibility of the securities market in India is vested in the Securities and Exchange Board of India (SEBI), the Reserve Bank of India (RBI), and two government departments - the Ministry of Company Affairs and the Department of Economic Affairs. In the 2004 report issued by the Advisory Group on Securities Market Regulation, it is noted that all the International Organization of Securities Commissions (IOSCO) Guiding Principles for Collective Investment Schemes are fully implemented for mutual funds in India. SEBI is also by and large compliant with the recommendations of the IOSCO CPSS Task Force on Clearing and Settlement. The Task Force is working towards finalization of its recommendations on the settlement system and central counterparties. According to the Advisory Group, further progress in the area of securities market regulation would need to focus on cross-border transactions, self-regulatory organizations (SROs) and on operational areas of trading in securities markets. However, overall, there is insufficient publicly available information regarding India's compliance with IOSCO's Principles and Objectives of Securities Regulation. More »

The Indian approach to standards and codes has been guided by the Standing Committee on International Financial Standards and Codes that was set up by the RBI in consultation with the Government of India in December 1999. The Standing Committee subsequently constituted eleven Advisory/Technical Groups, including the Advisory Group on Insurance Regulation. After evaluating the Indian insurance legislation, the Advisory Group concluded that Indian standards on insurance regulation were on par with international standards; however, they needed to be redeveloped to allow for greater diversity in the business. In 2004, the RBI presented a report that reviewed the progress of implementation of the Advisory Groups' recommendations. According to the RBI's report, over the last few years, the Insurance Regulatory and Development Authority (IRDA) issued several regulations that have helped India's insurance sector to improve its compliance with the International Association of Insurance Supervisors (IAIS) principles and guidelines. While there appeared to be broad compliance with the advocated principles, there were several aspects where progress would be necessary so that all the core principles are implemented in letter and spirit. As of 2004, the IRDA was preparing a self-assessment and contemplated a phased approach for implementing the core principles. However, as of April 2007, the results of the self-assessment were not publicly available. More »

Legend:

Credit Ratings

Moody's Baa3/Stable

Fitch BBB-/Stable

Standard & Poor's BBB-/Stable

Macroeconomic Data

2007 GDP (Current Prices): 1,098.95 billion USD (IMF)

2007 GDP (Per Capita): 978 USD (IMF)

2008 GDP (Growth Forecast): 7.9% (IMF)

2008 Inflation (CPI): 5.2% (IMF)

2007 Unemployment: 7.2% (CIA)

2006 Foreign Direct Investment

FDI (Inward): 16.881 billion USD (UNCTAD)

FDI (Outward): 9.676 billion USD (UNCTAD)

2006 Official Development Assistance

ODA (Received): 1,379 million USD (OECD)

ODA (Disbursed): N/A million USD (OECD)