India is a parliamentary federal democracy with an indirectly elected president Abdul Kalam .The prime minister,Atal Behari Vajpayee,leads the National Democratic Alliance,a coalition dominated by the Bharatiya Janata Party (BPJ),which won a majority in the October 1999 general election. The urban Indus civilisation flourished in west and north-west India around 5,00 years ago.India was a major exporter of textiles and spices and traded with Arabia. Egypt,Rome, south-east Asia and China. Migrants and invaders from central and western Asia have entered India many times since,if not before,Alexander the Great did so in the 4th century by population and sixth largest in terms of area,exhibits a great diversity of people, religions and culture. In 1526 central Asian warrior,Babur,invaded India and established the Mughal empire .After Vasco Da Gama discovered the sea route to India to via the Cape of Good Hope in 1498, a series of European chartered companies-Portuguese British,Dutch,French and Danish-set up trading posts and colonies in India.The British East India Company eventually dominated and in 1757 the Mughalemperor granted it the right to administer Bengal. By then Mughal dynasty was in decline,and the Marathas from the west had become the dominant power.After the East India Company defeated the Marathas in 1818 it had no military rival.After a major India revolt in 1857 the company deposed the last Mughal emperor, Bahadur Shah,Within months,the Company`s charter to trade with India was abrogated by the British government,which annexed the company`a Indian territories. India`s economic growth remains severely constrained by the large fiscal deficit.It reached 6.6% of GDP in 1991/92, when India experienced a payments crisis.A sustained effort at fiscal restraints brought the deficit down to 4.1%in 1996/97. The succession of weak coalition governments that followed it to rise again,to reach 5.9% in 203/03, while the states ran a deficit equal to an additional 4.2% of GDP.Both the centre and states ran finance their deficits by borrowing from banks,insurance companies pension funds and other institutions,which in turn borrow from the public.Virtually thereby taking resources from productive investment. A Fiscal Responsibility and Budget Management Bill,designed to place a statutory limit on government borrowing,has been in limbo for almost three years. A parliamentary committee watered it down,and even if it were passed it would not apply to the states.In theory the states cannot borrow without the centre`s permission,but the National Democratic Alliance (NDA) is behold to so many regional parties in power in the states that it cannot withhold permission to borrow.As growth has slowed,demand for credit has fallen,and the government has been able to bring down interest rates on its borrowings from an average 11% to8.5% in the past three years.However,this private sector.

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