The economy of India is characterised as a developing market economy.[44][45] It is the world's fifth-largest economy by nominal GDP and the third-largest by purchasing power parity (PPP). According to the IMF, on a per capita income basis, India ranked 139th by GDP (nominal) and 118th by GDP (PPP) in 2018.[46] From independence in 1947 until 1991, successive governments promoted protectionist economic policies with extensive state intervention and regulation; the end of the Cold War and an acute balance of payments crisis in 1991 led to the adoption of a broad program of economic liberalisation.[47][48] Since the start of the 21st century, annual average GDP growth has been 6% to 7%,[45] and from 2014 to 2018, India was the world's fastest growing major economy, surpassing China.[49][50] Historically, India was the largest economy in the world for most of the two millennia from the 1st until 19th century.[51][52][53]
Economy ofIndia
Mumbai, the financial centre of India[1][2]
CurrencyIndian rupee (INR, ₹)
Fiscal year
1 April – 31 March
Trade organisations
WTO, WCO, SAFTA, BIMSTEC, WFTU, BRICS, G-20, BIS, AIIB, ADB and others
Country group
Developing/Emerging[3]
Lower-middle income economy[4]
Newly industrialized country
Statistics
Population 1,380,004,385 (2020 est.)[5]
GDP
$3.202 trillion (nominal; 2020 est.)[6]
$11.321 trillion (PPP; 2020 est.)[7]
GDP rank
5th (nominal; 2019)
3rd (PPP; 2020)
GDP growth
7.0% (17/18) 6.1% (18/19e)
4.2% (19/20f) −3.2% (20/21f)[8]
GDP per capita
$2,338 (nominal; 2020 est.)[6]
$9,027 (PPP; 2020 est.)[6]
GDP per capita rank
139th (nominal; 2019)
118th (PPP; 2019)
GDP by sector
Agriculture: 15.4%
Industry: 23%
Services: 61.5%
(2017 est.)[9]
GDP by component
Household consumption: 59.1%
Government consumption: 11.5%
Investment in fixed capital: 28.5%
Investment in inventories: 3.9%
Exports of goods and services: 19.1%
Imports of goods and services: −22%
(2017 est.)[9]
Inflation (CPI)
6.58% (February 2020)[10]
3.3% (2020 est.)[7]
Base borrowing rate
6.0% (as on 12 July 2019)[11]
Population below poverty line
6.3% in poverty (2017-18)[12]
60% on less than $3.20/day (2011)[13]
3% in extreme poverty (December 2018)[14][15]
(World Poverty Clock estimate)
Gini coefficient
33.9 medium (2013)[16]
Human Development Index
0.647 medium (2018)[17] (129th)
0.538 low IHDI (2018)[18]
Labour force
494,261,397 (2019)[19]
45.4% employment rate (2018)[20]
Labour force by occupation
Agriculture: 44%
Industry: 25%
Services: 31%
(FY 2018)[21]
Unemployment
5.4% (2019)[22][note 1]
6.1% (FY 2018)[23]
23.3% youth unemployment (15 to 24 year-olds; 2019)[24][note 2]
Main industries
Textiles
chemicals
food processing
agribusiness
handicrafts
petroleum
petrochemicals
gems and jewellery
leather
iron ore
steel
aluminium
cement
mining
metals
retail
machinery
information technology
construction
financial services
electric power
consumer goods
pharmaceuticals
automotive
telecommunications
real estate
paper
transportation equipment[25]
Ease-of-doing-business rank
63rd (easy, 2020)[26]
External
Exports $330 billion (2018–19)[27]
Export goods
Agricultural products 12.8%
Fuels and mining products 13.8%
Manufacturers 70.5%
Others 2.9%[28]
Main export partners
Arab League 17.37%
European Union 17.34%
United States 15.88%
ASEAN 11.38%
China 5.08%
Hong Kong 3.94%
Japan 1.47%
Sri Lanka 1.43%
Other 26.11%[28][29]
Imports $514 billion (2018–19)[27]
Import goods
Agricultural products 8.1%
Fuels and mining products 30%
Manufacturers 51.7%
Other 10.2%[28]
Main import partners
Arab League 19.88%
China 13.68%
ASEAN 11.53%
European Union 11.35%
United States 6.92%
Hong Kong 3.50%
South Korea 3.26%
Japan 2.48%
Other 27.4%[28][29]
FDI stock
Inward: $386.35 billion
Outward: $166.19 billion
(2018)[30]
Current account
−$57.2 billion (June 2019)[31]
Gross external debt
$543.0 billion (2019)[32][33]
Net international investment position
−$436.4 billion (2019)[34]
Public finances
Public debt
₹146.886 trillion (US$2.1 trillion)
69.037% of GDP (2019)[35]
Budget balance
−3.4% (of GDP) (2018-19)[36]Revenues
₹39.29 trillion (US$550 billion)
20.60% of GDP (2018)[37]
Expenses
₹52.03 trillion (US$730 billion)
27.28% of GDP (2018)[37]
Economic aid $2.45 billion (2018)[38]
Credit rating
Standard & Poor's:[39]
BBB− (Domestic)
BBB− (Foreign)
BBB+ (T&C Assessment)
Outlook: Stable
Moody's:[40]
Baa3
Outlook: Stable
Fitch:[41]
BBB−
Outlook: Stable
ARC's Ratings:[42]
BBB+
Outlook: Stable
Foreign reserves
$513.254 billion (03 July 2020)[43] (5th)
Main data source: CIA World Fact Book
All values, unless otherwise stated, are in US dollars.
The long-term growth perspective of the Indian economy remains positive due to its young population and corresponding low dependency ratio, healthy savings and investment rates, and is increasing integration into the global economy.[9] The economy slowed in 2017, due to shocks of "demonetisation" in 2016 and introduction of Goods and Services Tax in 2017.[9] Nearly 60% of India's GDP is driven by domestic private consumption[54] and continues to remain the world's sixth-largest consumer market.[55] Apart from private consumption, India's GDP is also fueled by government spending, investment, and exports.[56] In 2018, India was the world's tenth-largest importer and the nineteenth-largest exporter.[57] India has been a member of World Trade Organization since 1 January 1995.[58] It ranks 63rd on Ease of doing business index and 68th on Global Competitiveness Report.[59] With 520-million-workers, the Indian labour force is the world's second-largest as of 2019. India has one of the world's highest number of billionaires and extreme income inequality.[60][61] Since India has a vast informal economy, barely 2% of Indians pay income taxes.[62] During the 2008 global financial crisis the economy faced mild slowdown, India undertook stimulus measures (both fiscal and monetary) to boost growth and generate demand; in subsequent years economic growth revived.[63] According to 2017 PricewaterhouseCoopers (PwC) report, India's GDP at purchasing power parity could overtake that of the United States by 2050.[64] According to World Bank, to achieve sustainable economic development India must focus on public sector reform, infrastructure, agricultural and rural development, removal of land and labour regulations, financial inclusion, spur private investment and exports, education and public health.[65]
In 2019, India's ten largest trading partners were USA, China, UAE, Saudi Arabia, Hong Kong, Iraq, Singapore, Germany, South Korea and Switzerland.[66] In 2018–19, the foreign direct investment (FDI) in India was $64.4 billion with service sector, computer, and telecom industry remains leading sectors for FDI inflows.[67] India has free trade agreements with several nations, including ASEAN, SAFTA, Mercosur, South Korea, Japan and few others which are in effect or under negotiating stage.[68][69] The service sector makes up 55.6% of GDP and remains the fastest growing sector, while the industrial sector and the agricultural sector employs majority of the labor force.[70] The Bombay Stock Exchange and National Stock Exchange are one of the world's largest stock exchanges by market capitalization.[71] India is the world's sixth-largest manufacturer, representing 3% of global manufacturing output and employs over 57 million people.[72][73] Nearly 66% of India's population is rural whose primary source of livelihood is agriculture[74], and contributes about 50% of India's GDP.[75] It has the world's seventh-largest foreign-exchange reserves worth $476 billion.[43] India has a high national debt with 68% of GDP, while its fiscal deficit remained at 3.4% of GDP.[35][36] However, as per 2019 CAG report, the actual fiscal deficit is 5.85% of GDP.[76] India's government-owned banks faced mounting bad debt, resulting in low credit growth,[9] simultaneously the NBFC sector has been engulfed in a liquidity crisis.[77] India faces high unemployment, rising income inequality, and major slump in aggregate demand.[78][79] In recent years, independent economists and financial institutions have accused the government of fudging various economic data, especially GDP growth.[80][81]
India ranks second globally in food and agricultural production, while agricultural exports were $38.5 billion.[75][82] The construction and real estate sector is the second largest employer after agriculture, and a vital sector to gauge economic activity.[83] The Indian textiles industry is estimated at $150 billion and contributes 7% of industrial output and 2% of India's GDP while employs over 45 million people directly.[84] The Indian IT industry is a major exporter of IT services with $180 billion in revenue and employs over four million people.[85] India's telecommunication industry is the world's second largest by number of mobile phone, smartphone, and internet users. It is the world's tenth-largest oil producer and the third-largest oil consumer.[86] The Indian automobile industry is the world's fourth largest by production.[87][88] It has $672 billion worth of retail market which contributes over 10% of India's GDP and has one of world's fastest growing e-commerce markets.[89] India has the world's fourth-largest natural resources, with mining sector contributes 11% of the country's industrial GDP and 2.5% of total GDP.[90] It is also the world's second-largest coal producer, the second-largest cement producer, the second-largest steel producer, and the third-largest electricity producer.[91][92]
History
Main articles: Economic history of India and Timeline of the economy of the Indian subcontinent
The spice trade between India and Europe was the main catalyst for the Age of Discovery.[93]
Tharisapalli plates granted to Saint Thomas Christians by South Indian Chera ruler Sthanu Ravi Varma testify that merchant guilds and trade corporations played a very significant role in the economy and social life during the Kulasekhara period of Kerala, India.[94]
Atashgah is a temple built by Indian traders before 1745, west of the Caspian Sea. The inscription shown, is a Sanskrit invocation of Lord Shiva.
For a continuous duration of nearly 1700 years from the year 1 AD, India was the top most economy constituting 35 to 40% of world GDP.[95] The combination of protectionist, import-substitution, Fabian socialism, and social democratic-inspired policies governed India for sometime after the end of British rule. The economy was then characterised by extensive regulation, protectionism, public ownership of large monopolies, pervasive corruption and slow growth.[47][48][96] Since 1991, continuing economic liberalisation has moved the country towards a market-based economy.[47][48] By 2008, India had established itself as one of the world's faster-growing economies.
Ancient and medieval eras
Indus Valley Civilisation
The citizens of the Indus Valley Civilisation, a permanent settlement that flourished between 2800 BC and 1800 BC, practised agriculture, domesticated animals, used uniform weights and measures, made tools and weapons, and traded with other cities. Evidence of well-planned streets, a drainage system and water supply reveals their knowledge of urban planning, which included the first-known urban sanitation systems and the existence of a form of municipal government.[97]
West Coast
Maritime trade was carried out extensively between South India and Southeast and West Asia from early times until around the fourteenth century AD. Both the Malabar and Coromandel Coasts were the sites of important trading centres from as early as the first century BC, used for import and export as well as transit points between the Mediterranean region and southeast Asia.[98] Over time, traders organised themselves into associations which received state patronage. Historians Tapan Raychaudhuri and Irfan Habib claim this state patronage for overseas trade came to an end by the thirteenth century AD, when it was largely taken over by the local Parsi, Jewish, Syrian Christian and Muslim communities, initially on the Malabar and subsequently on the Coromandel coast.[99]
Silk Route
Other scholars suggest trading from India to West Asia and Eastern Europe was active between the 14th and 18th centuries.[100][101][102] During this period, Indian traders settled in Surakhani, a suburb of greater Baku, Azerbaijan. These traders built a Hindu temple, which suggests commerce was active and prosperous for Indians by the 17th century.[103][104][105][106]
Further north, the Saurashtra and Bengal coasts played an important role in maritime trade, and the Gangetic plains and the Indus valley housed several centres of river-borne commerce. Most overland trade was carried out via the Khyber Pass connecting the Punjab region with Afghanistan and onward to the Middle East and Central Asia.[107] Although many kingdoms and rulers issued coins, barter was prevalent. Villages paid a portion of their agricultural produce as revenue to the rulers, while their craftsmen received a part of the crops at harvest time for their services.[108]
Silver coin of the Maurya Empire, 3rd century BC.
Silver coin of the Gupta dynasty, 5th century AD.
Mughal era (1526–1793)
Main article: Mughal economy
See also: Muslin trade in Bengal and Economy of the Kingdom of Mysore
The Indian economy was large and prosperous under the Mughal Empire, up until the 18th century.[109] Sean Harkin estimates China and India may have accounted for 60 to 70 percent of world GDP in the 17th century. The Mughal economy functioned on an elaborate system of coined currency, land revenue and trade. Gold, silver and copper coins were issued by the royal mints which functioned on the basis of free coinage.[110] The political stability and uniform revenue policy resulting from a centralised administration under the Mughals, coupled with a well-developed internal trade network, ensured that India–before the arrival of the British–was to a large extent economically unified, despite having a traditional agrarian economy characterised by a predominance of subsistence agriculture,[111] with 64% of the workforce in the primary sector (including agriculture), but with 36% of the workforce also in the secondary and tertiary sectors,[112] higher than in Europe, where 65–90% of its workforce were in agriculture in 1700 and 65–75% were in agriculture in 1750.[113] Agricultural production increased under Mughal agrarian reforms,[109] with Indian agriculture being advanced compared to Europe at the time, such as the widespread use of the seed drill among Indian peasants before its adoption in European agriculture,[114] and higher per-capita agricultural output and standards of consumption.[115]
Mughal princes wearing muslin robes in 1665 CE.
The Mughal Empire had a thriving industrial manufacturing economy, with India producing about 25% of the world's industrial output up until 1750,[116] making it the most important manufacturing center in international trade.[117] Manufactured goods and cash crops from the Mughal Empire were sold throughout the world. Key industries included textiles, shipbuilding, and steel, and processed exports included cotton textiles, yarns, thread, silk, jute products, metalware, and foods such as sugar, oils and butter.[109] Cities and towns boomed under the Mughal Empire, which had a relatively high degree of urbanization for its time, with 15% of its population living in urban centres, higher than the percentage of the urban population in contemporary Europe at the time and higher than that of British India in the 19th century.[118]
In early modern Europe, there was significant demand for products from Mughal India, particularly cotton textiles, as well as goods such as spices, peppers, indigo, silks, and saltpeter (for use in munitions).[109] European fashion, for example, became increasingly dependent on Mughal Indian textiles and silks. From the late 17th century to the early 18th century, Mughal India accounted for 95% of British imports from Asia, and the Bengal Subah province alone accounted for 40% of Dutch imports from Asia.[119] In contrast, there was very little demand for European goods in Mughal India, which was largely self-sufficient.[109] Indian goods, especially those from Bengal, were also exported in large quantities to other Asian markets, such as Indonesia and Japan.[120] At the time, Mughal Bengal was the most important center of cotton textile production.[121]
In the early 18th century, the Mughal Empire declined, as it lost western, central and parts of south and north India to the Maratha Empire, which integrated and continued to administer those regions.[122] The decline of the Mughal Empire led to decreased agricultural productivity, which in turn negatively affected the textile industry.[123] The subcontinent's dominant economic power in the post-Mughal era was the Bengal Subah in the east., which continued to maintain thriving textile industries and relatively high real wages.[124] However, the former was devastated by the Maratha invasions of Bengal[125][126] and then British colonization in the mid-18th century.[124] After the loss at the Third Battle of Panipat, the Maratha Empire disintegrated into several confederate states, and the resulting political instability and armed conflict severely affected economic life in several parts of the country – although this was mitigated by localised prosperity in the new provincial kingdoms.[122] By the late eighteenth century, the British East India Company had entered the Indian political theatre and established its dominance over other European powers. This marked a determinative shift in India's trade, and a less-powerful impact on the rest of the economy.[127]
British era (1793–1947)
Main articles: Economy of India under Company rule and Economy of India under the British Raj
There is no doubt that our grievances against the British Empire had a sound basis. As the painstaking statistical work of the Cambridge historian Angus Maddison has shown, India's share of world income collapsed from 22.6% in 1700, almost equal to Europe's share of 23.3% at that time, to as low as 3.8% in 1952. Indeed, at the beginning of the 20th century, "the brightest jewel in the British Crown" was the poorest country in the world in terms of per capita income.
— Manmohan Singh[128]
The global contribution to world's GDP by major economies from 1 CE to 2003 CE according to Angus Maddison's estimates.[51] Up until the 18th century, China and India were the two largest economies by GDP output.
From the beginning of the 19th century, the British East India Company's gradual expansion and consolidation of power brought a major change in taxation and agricultural policies, which tended to promote commercialisation of agriculture with a focus on trade, resulting in decreased production of food crops, mass impoverishment and destitution of farmers, and in the short term, led to numerous famines.[129] The economic policies of the British Raj caused a severe decline in the handicrafts and handloom sectors, due to reduced demand and dipping employment.[130] After the removal of international restrictions by the Charter of 1813, Indian trade expanded substantially with steady growth.[131] The result was a significant transfer of capital from India to England, which, due to the colonial policies of the British, led to a massive drain of revenue rather than any systematic effort at modernisation of the domestic economy.[132]
Estimated GDP per capita of India and United Kingdom during 1700–1950 in 1990 US$ according to Maddison.[133] However, Maddison's estimates for 18th-century India have been criticized as gross underestimates,[134] Bairoch estimates India had a higher GDP per capita in the 18th century,[135][136] and Parthasarathi's findings show higher real wages in 18th-century Bengal and Mysore.[137][116] But there is consensus that India's per capita GDP and income stagnated during the colonial era, starting in the late 18th century.[138]
Under British rule, India's share of the world economy declined from 24.4% in 1700 down to 4.2% in 1950. India's GDP (PPP) per capita was stagnant during the Mughal Empire and began to decline prior to the onset of British rule.[52] India's share of global industrial output declined from 25% in 1750 down to 2% in 1900.[116] At the same time, the United Kingdom's share of the world economy rose from 2.9% in 1700 up to 9% in 1870. The British East India Company, following their conquest of Bengal in 1757, had forced open the large Indian market to British goods, which could be sold in India without tariffs or duties, compared to local Indian producers who were heavily taxed, while in Britain protectionist policies such as bans and high tariffs were implemented to restrict Indian textiles from being sold there, whereas raw cotton was imported from India without tariffs to British factories which manufactured textiles from Indian cotton and sold them back to the Indian market. British economic policies gave them a monopoly over India's large market and cotton resources.[139][140][141] India served as both a significant supplier of raw goods to British manufacturers and a large captive market for British manufactured goods.[142]
British territorial expansion in India throughout the 19th century created an institutional environment that, on paper, guaranteed property rights among the colonisers, encouraged free trade, and created a single currency with fixed exchange rates, standardised weights and measures and capital markets within the company-held territories. It also established a system of railways and telegraphs, a civil service that aimed to be free from political interference, a common-law and an adversarial legal system.[143] This coincided with major changes in the world economy – industrialisation, and significant growth in production and trade. However, at the end of colonial rule, India inherited an economy that was one of the poorest in the developing world,[144] with industrial development stalled, agriculture unable to feed a rapidly growing population, a largely illiterate and unskilled labour force, and extremely inadequate infrastructure.[145]
The 1872 census revealed that 91.3% of the population of the region constituting present-day India resided in villages.[146] This was a decline from the earlier Mughal era, when 85% of the population resided in villages and 15% in urban centers under Akbar's reign in 1600.[147] Urbanisation generally remained sluggish in British India until the 1920s, due to the lack of industrialisation and absence of adequate transportation. Subsequently, the policy of discriminating protection (where certain important industries were given financial protection by the state), coupled with the Second World War, saw the development and dispersal of industries, encouraging rural–urban migration, and in particular the large port cities of Bombay, Calcutta and Madras grew rapidly. Despite this, only one-sixth of India's population lived in cities by 1951.[148]
The impact of British rule on India's economy is a controversial topic. Leaders of the Indian independence movement and economic historians have blamed colonial rule for the dismal state of India's economy in its aftermath and argued that financial strength required for industrial development in Britain was derived from the wealth taken from India. At the same time, right-wing historians have countered that India's low economic performance was due to various sectors being in a state of growth and decline due to changes brought in by colonialism and a world that was moving towards industrialisation and economic integration.[149]
Several economic historians have argued that real wage decline occurred in the early 19th century, or possibly beginning in the very late 18th century, largely as a result of British imperialism. Economic historian Prasannan Parthasarathi presented earnings data which showed real wages and living standards in 18th century Bengal and Mysore being higher than in Britain, which in turn had the highest living standards in Europe.[137][116] Mysore's average per-capita income was five times higher than subsistence level,[150] i.e. five times higher than $400 (1990 international dollars),[151] or $2,000 per capita. In comparison, the highest national per-capita incomes in 1820 were $1,838 for the Netherlands and $1,706 for Britain.[152] It has also been argued that India went through a period of deindustrialization in the latter half of the 18th century as an indirect outcome of the collapse of the Mughal Empire.[116]
Pre-liberalisation period (1947–1991)
Main article: Licence Raj
Indian economic policy after independence was influenced by the colonial experience, which was seen as exploitative by Indian leaders exposed to British social democracy and the planned economy of the Soviet Union.[145] Domestic policy tended towards protectionism, with a strong emphasis on import substitution industrialisation, economic interventionism, a large government-run public sector, business regulation, and central planning,[153] while trade and foreign investment policies were relatively liberal.[154] Five-Year Plans of India resembled central planning in the Soviet Union. Steel, mining, machine tools, telecommunications, insurance, and power plants, among other industries, were effectively nationalised in the mid-1950s.[155]
Change in per capita GDP of India, 1820–2015. Figures are inflation-adjusted to 1990 International Geary-Khamis dollars.[156][157]
Never talk to me about profit, Jeh, it is a dirty word.
— Nehru, India's Fabian Socialism-inspired first prime minister to industrialist J.R.D. Tata, when Tata suggested state-owned companies should be profitable[158]
Jawaharlal Nehru, the first prime minister of India, along with the statistician Prasanta Chandra Mahalanobis, formulated and oversaw economic policy during the initial years of the country's independence. They expected favourable outcomes from their strategy, involving the rapid development of heavy industry by both public and private sectors, and based on direct and indirect state intervention, rather than the more extreme Soviet-style central command system.[159][160] The policy of concentrating simultaneously on capital- and technology-intensive heavy industry and subsidising manual, low-skill cottage industries was criticised by economist Milton Friedman, who thought it would waste capital and labour, and retard the development of small manufacturers.[161]
I cannot decide how much to borrow, what shares to issue, at what price, what wages and bonus to pay, and what dividend to give. I even need the government's permission for the salary I pay to a senior executive.
— J. R. D. Tata, on the Indian regulatory system, 1969[158]
Since 1965, the use of high-yielding varieties of seeds, increased fertilisers and improved irrigation facilities collectively contributed to the Green Revolution in India, which improved the condition of agriculture by increasing crop productivity, improving crop patterns and strengthening forward and backward linkages between agriculture and industry.[162] However, it has also been criticised as an unsustainable effort, resulting in the growth of capitalistic farming, ignoring institutional reforms and widening income disparities.[163]
In 1984, Rajiv Gandhi promised economic liberalization, he made V. P. Singh the finance minister, who tried to reduce tax-evasion and tax-receipts rose due to this crackdown although taxes were lowered. This process lost its momentum during later tenure of Mr. Gandhi as his government was marred by scandals.
Post-liberalisation period (since 1991)
Main articles: Economic liberalisation in India and Economic development in India
P. V. Narasimha Rao
Manmohan Singh
Economic liberalisation in India was initiated in 1991 by Prime Minister P. V. Narasimha Rao and his then-Finance Minister Dr. Manmohan Singh.[164] Rao was often referred to as Chanakya for his ability to steer tough economic and political legislation through the parliament at a time when he headed a minority government.[165][166]
The collapse of the Soviet Union, which was India's major trading partner, and the Gulf War, which caused a spike in oil prices, resulted in a major balance-of-payments crisis for India, which found itself facing the prospect of defaulting on its loans.[167] India asked for a $1.8 billion bailout loan from the International Monetary Fund (IMF), which in return demanded de-regulation.[168]
In response, the Narasimha Rao government, including Finance Minister Manmohan Singh, initiated economic reforms in 1991. The reforms did away with the Licence Raj, reduced tariffs and interest rates and ended many public monopolies, allowing automatic approval of foreign direct investment in many sectors.[169] Since then, the overall thrust of liberalisation has remained the same, although no government has tried to take on powerful lobbies such as trade unions and farmers, on contentious issues such as reforming labour laws and reducing agricultural subsidies.[170] By the turn of the 21st century, India had progressed towards a free-market economy, with a substantial reduction in state control of the economy and increased financial liberalisation.[171] This has been accompanied by increases in life expectancy, literacy rates, and food security, although urban residents have benefited more than rural residents.[172]
GDP grows exponentially, almost doubling every five years.
Indian GDP growth rate from 1985 to 2016 in red, compared to that of China in green.
While the credit rating of India was hit by its nuclear weapons tests in 1998, it has since been raised to investment level in 2003 by Standard & Poor's (S&P) and Moody's.[173] India experienced high growth rates, averaging 9% from 2003 to 2007.[174] Growth then moderated in 2008 due to the global financial crisis. In 2003, Goldman Sachs predicted that India's GDP in current prices would overtake France and Italy by 2020, Germany, UK and Russia by 2025 and Japan by 2035, making it the third-largest economy of the world, behind the US and China. India is often seen by most economists as a rising economic superpower which will play a major role in the 21st-century global economy.[175][176][needs update]
Starting in 2012,[clarification needed] India entered a period of reduced growth, which slowed to 5.6%. Other economic problems also became apparent: a plunging Indian rupee, a persistent high current account deficit and slow industrial growth.
India started recovery in 2013–14 when the GDP growth rate accelerated to 6.4% from the previous year's 5.5%. The acceleration continued through 2014–15 and 2015–16 with growth rates of 7.5% and 8.0% respectively. For the first time since 1990, India grew faster than China which registered 6.9% growth in 2015.[needs update] However the growth rate subsequently decelerated, to 7.1% and 6.6% in 2016–17 and 2017–18 respectively,[177] partly because of the disruptive effects of 2016 Indian banknote demonetisation and the Goods and Services Tax (India).[178]
India is ranked 63rd out of 190 countries in the World Bank's 2020 ease of doing business index, up 14 points from the last year's 100 and up 37 points in just two years.[179] In terms of dealing with construction permits and enforcing contracts, it is ranked among the 10 worst in the world, while it has a relatively favourable ranking when it comes to protecting minority investors or getting credit.[26] The strong efforts taken by the Department of Industrial Policy and Promotion (DIPP) to boost ease of doing business rankings at the state level is said to impact the overall rankings of India.[180]
Impact of COVID-19 pandemic (2020)
Main article: Economic impact of the COVID-19 pandemic in India
During the COVID-19 pandemic, numerous rating agencies downgraded India's GDP predictions for FY21 to negative figures,[181][182] signalling a recession in India, the most severe since 1979.[183][184] According to a Dun & Bradstreet report, the country is likely to suffer a recession in the third quarter of FY2020 as a result of the over 2 month long nation-wide lockdown imposed to curb the spread of COVID-19.[185]
DataSectorsAgricultureManufacturing and IndustryServicesMining and ConstructionForeign trade and investmentCurrencyIncome and consumption
Main article: Income in India
Gini index of India compared to other countries per World Bank data tables as of 2014.[385]
India's gross national income per capita had experienced high growth rates since 2002. It tripled from ₹19,040 in 2002–03 to ₹53,331 in 2010–11, averaging 13.7% growth each of these eight years, with peak growth of 15.6% in 2010–11.[386] However growth in the inflation-adjusted per-capita income of the nation slowed to 5.6% in 2010–11, down from 6.4% in the previous year. These consumption levels are on an individual basis.[387] The average family income in India was $6,671 per household in 2011.[388]
According to 2011 census data, India has about 330 million houses and 247 million households. The household size in India has dropped in recent years, the 2011 census reporting 50% of households have four or fewer members, with an average 4.8 members per household including surviving grandparents.[389][390] These households produced a GDP of about $1.7 trillion.[391] Consumption patterns note: approximately 67% of households use firewood, crop residue or cow-dung cakes for cooking purposes; 53% do not have sanitation or drainage facilities on premises; 83% have water supply within their premises or 100 metres (330 ft) from their house in urban areas and 500 metres (1,600 ft) from the house in rural areas; 67% of the households have access to electricity; 63% of households have landline or mobile telephone service; 43% have a television; 26% have either a two- or four-wheel motor vehicle. Compared to 2001, these income and consumption trends represent moderate to significant improvements.[389] One report in 2010 claimed that high-income households outnumber low-income households.[392]
Countries by nominal GNI per capita according to the Atlas method (2016)[385]
New World Wealth publishes reports tracking the total wealth of countries, which is measured as the private wealth held by all residents of a country. According to New World Wealth, India's total wealth increased from $3,165 billion in 2007 to $8,230 billion in 2017, a growth rate of 160%. India's total wealth decreased by 1% from $8.23 trillion in 2017 to $8.148 trillion in 2018, making it the sixth wealthiest nation in the world. There are 20,730 multimillionaires (7th largest in the world)[393] and 118 billionaires in India (3rd largest in the world). With 327,100 high net-worth individuals (HNWI), India is home to the 9th highest number of HNWIs in the world. Mumbai is the wealthiest Indian city and the 12th wealthiest in the world, with a total net worth of $941 billion in 2018. Twenty-eight billionaires reside in the city, ranked ninth worldwide.[394] As of December 2016, the next wealthiest cities in India were Delhi ($450 billion), Bangalore ($320 billion), Hyderabad ($310 billion), Kolkata ($290 billion), Chennai ($150 billion) and Gurgaon ($110 billion).[395][396]
The Global Wealth Migration Review 2019 report, published by New World Wealth, found that 5,000 HNWI's emigrated from India in 2018, or about 2% of all HNWIs in the country. Australia, Canada and the United States were among the top destination countries.[397] The report also projected that private wealth in India would grow by around 180% to reach $22,814 billion by 2028.[394]
Poverty
Main article: Poverty in India
Poverty rate map of India by prevalence in 2012, among its states and union territories.
In May 2014, the World Bank reviewed and proposed revisions to its poverty calculation methodology of 2005 and purchasing-power-parity basis for measuring poverty. According to the revised methodology, the world had 872.3 million people below the new poverty line, of which 179.6 million lived in India. With 17.5% of the total world's population, India had a 20.6% share of world's poorest in 2013.[398] According to a 2005–2006 survey,[399] India had about 61 million children under the age of 5 who were chronically malnourished. A 2011 UNICEF report stated that between 1990 and 2010, India achieved a 45 percent reduction in under age 5 mortality rates, and now ranks 46th of 188 countries on this metric.[400]
Since the early 1960s, successive governments have implemented various schemes to alleviate poverty, under central planning, that have met with partial success.[401] In 2005, the government enacted the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA), guaranteeing 100 days of minimum wage employment to every rural household in all the districts of India.[402] In 2011, it was widely criticised and beset with controversy for corrupt officials, deficit financing as the source of funds, poor quality of infrastructure built under the programme, and unintended destructive effects.[403][404][405] Other studies suggest that the programme has helped reduce rural poverty in some cases.[406][407] Yet other studies report that India's economic growth has been the driver of sustainable employment and poverty reduction, though a sizeable population remains in poverty.[408][409] India lifted 271 million people out of poverty between 2006 and 2016, recording the fastest reductions in the multidimensional poverty index values during the period with strong improvements in areas such as assets, cooking fuel, sanitation and nutrition.[410]
On the 2019 Global Hunger Index India ranked 102nd (out of 117 countries), being categorized as 'serious' in severity.
Employment
See also: Labour in India, Indian labour law, Child labour in India, and Unemployment in India
Agricultural and allied sectors accounted for about 52.1% of the total workforce in 2009–10. While agriculture employment has fallen over time in percentage of labour employed, services which includes construction and infrastructure have seen a steady growth accounting for 20.3% of employment in 2012–13.[411] Of the total workforce, 7% is in the organised sector, two-thirds of which are in the government-controlled public sector.[412] About 51.2% of the workforce in India is self-employed.[411] According to a 2005–06 survey, there is a gender gap in employment and salaries. In rural areas, both men and women are primarily self-employed, mostly in agriculture. In urban areas, salaried work was the largest source of employment for both men and women in 2006.[413]
Unemployment in India is characterised by chronic (disguised) unemployment. Government schemes that target eradication of both poverty and unemployment – which in recent decades has sent millions of poor and unskilled people into urban areas in search of livelihoods – attempt to solve the problem by providing financial assistance for starting businesses, honing skills, setting up public sector enterprises, reservations in governments, etc. The decline in organised employment, due to the decreased role of the public sector after liberalisation, has further underlined the need for focusing on better education and created political pressure for further reforms.[414][415] India's labour regulations are heavy, even by developing country standards, and analysts have urged the government to abolish or modify them in order to make the environment more conducive for employment generation.[416][417] The 11th five-year plan has also identified the need for a congenial environment to be created for employment generation, by reducing the number of permissions and other bureaucratic clearances required.[418] Inequalities and inadequacies in the education system have been identified as an obstacle, which prevents the benefits of increased employment opportunities from reaching all sectors of society.[419]
Child labour in India is a complex problem that is rooted in poverty. Since the 1990s, the government has implemented a variety of programs to eliminate child labour. These have included setting up schools, launching free school lunch programs, creating special investigation cells, etc.[420][421] Author Sonalde Desai stated that recent studies on child labour in India have found some pockets of industries in which children are employed, but overall, relatively few Indian children are employed. Child labour below the age of 10 is now rare. In the 10–14 age group, the latest surveys find only 2% of children working for wage, while another 9% work within their home or rural farms assisting their parents in times of high work demand such as sowing and harvesting of crops.[422]
India has the largest diaspora around the world, an estimated 16 million people,[423] many of whom work overseas and remit funds back to their families. The Middle East region is the largest source of employment of expat Indians. The crude oil production and infrastructure industry of Saudi Arabia employs over 2 million expat Indians. Cities such as Dubai and Abu Dhabi in United Arab Emirates have employed another 2 million Indians during the construction boom in recent decades.[424] In 2009–10, remittances from Indian migrants overseas stood at ₹2,500 billion (US$35 billion), the highest in the world, but their share in FDI remained low at around 1%.[425]
Economic issues
Corruption
Main articles: Corruption in India and Indian black money
Corruption Perceptions Index for India compared to other countries, 2018
Corruption has been a pervasive problem in India.[426] A 2005 study by Transparency International (TI) found that more than half of those surveyed had first-hand experience of paying a bribe or peddling influence to get a job done in a public office in the previous year.[427] A follow-up study in 2008 found this rate to be 40 percent.[428] In 2011, TI ranked India at 95th place amongst 183 countries in perceived levels of public sector corruption.[429] By 2016, India saw a reduction in corruption and its ranking improved to 79th place.[430]
In 1996, red tape, bureaucracy and the Licence Raj were suggested as a cause for the institutionalised corruption and inefficiency.[431] More recent reports[432][433][434] suggest the causes of corruption include excessive regulations and approval requirements, mandated spending programs, monopoly of certain goods and service providers by government-controlled institutions, bureaucracy with discretionary powers, and lack of transparent laws and processes.
Computerisation of services, various central and state vigilance commissions, and the 2005 Right to Information Act – which requires government officials to furnish information requested by citizens or face punitive action – have considerably reduced corruption and opened avenues to redress grievances.[427]
In 2011, the Indian government concluded that most spending fails to reach its intended recipients, as the large and inefficient bureaucracy consumes budgets.[435] India's absence rates are among the worst in the world; one study found that 25% of public sector teachers and 40% of government-owned public-sector medical workers could not be found at the workplace.[436][437] Similarly, there are many issues facing Indian scientists, with demands for transparency, a meritocratic system, and an overhaul of the bureaucratic agencies that oversee science and technology.[438]
India has an underground economy, with a 2006 report alleging that India topped the worldwide list for black money with almost $1,456 billion stashed in Swiss banks. This would amount to 13 times the country's total external debt.[439][440] These allegations have been denied by the Swiss Banking Association. James Nason, the Head of International Communications for the Swiss Banking Association, suggested "The (black money) figures were rapidly picked up in the Indian media and in Indian opposition circles, and circulated as gospel truth. However, this story was a complete fabrication. The Swiss Bankers Association never published such a report. Anyone claiming to have such figures (for India) should be forced to identify their source and explain the methodology used to produce them." A recent step taken by Prime Minister Modi, on 8 November 2016, involved the demonetization of all 500 and 1000 rupee bank notes (replaced by new 500 and 2000 rupee notes) in order to return black money into the economy.[441][442]
Education
Main articles: Education in India and Literacy in India
University of Calcutta, established in 1857, was the first multidisciplinary and secular Western-style institution in Asia.
India has made progress increasing the primary education attendance rate and expanding literacy to approximately three-fourths of the population.[443] India's literacy rate had grown from 52.2% in 1991 to 74.04% in 2011. The right to education at elementary level has been made one of the fundamental rights under the eighty-sixth Amendment of 2002, and legislation has been enacted to further the objective of providing free education to all children.[444] However, the literacy rate of 74% is lower than the worldwide average and the country suffers from a high drop-out rate.[445] Literacy rates and educational opportunities vary by region, gender, urban and rural areas, and among different social groups.[446][447]
Economic disparities
Main articles: Economic disparities in India and Poverty in India
Economic disparities among the states and union territories of India, on GDP per capita, PPP basis in 2011
Poverty rates in India's poorest states are three to four times higher than those in the more advanced states. While India's average annual per capita income was $1,410 in 2011 – placing it among the poorest of the world's middle-income countries – it was just $436 in Uttar Pradesh (which has more people than Brazil) and only $294 in Bihar, one of India's poorest states.
— World Bank: India Country Overview 2013[448]
A critical problem facing India's economy is the sharp and growing regional variations among India's different states and territories in terms of poverty, availability of infrastructure and socio-economic development.[449] Six low-income states – Assam, Chhattisgarh, Nagaland, Madhya Pradesh, Odisha and Uttar Pradesh – are home to more than one-third of India's population.[450] Severe disparities exist among states in terms of income, literacy rates, life expectancy and living conditions.[451]
The five-year plans, especially in the pre-liberalisation era, attempted to reduce regional disparities by encouraging industrial development in the interior regions and distributing industries across states. The results have been discouraging as these measures increased inefficiency and hampered effective industrial growth.[452] The more advanced states have been better placed to benefit from liberalisation, with well-developed infrastructure and an educated and skilled workforce, which attract the manufacturing and service sectors. Governments of less-advanced states have tried to reduce disparities by offering tax holidays and cheap land, and focused on sectors like tourism which can develop faster than other sectors.[453][454] India's income Gini coefficient is 33.9, according to the United Nations Development Program (UNDP), indicating overall income distribution to be more uniform than East Asia, Latin America and Africa.[16] The Global Wealth Migration Review 2019 report, published by New World Wealth, estimated that 48% of India's total wealth was held by high-net worth individuals.[394]
There is a continuing debate on whether India's economic expansion has been pro-poor or anti-poor.[455] Studies suggest that economic growth has been pro-poor and has reduced poverty in India.[455][456]
Security markets
Bombay Stock Exchange in Mumbai, which is Asia's first stock exchange.[457]
The development of Indian security markets began with the launch of the Bombay Stock Exchange (BSE) in July 1875 and Ahmedabad Stock exchange in 1894. Since then, 22 other exchanges have traded in Indian cities. In 2014, India's stock exchange market became the 10th largest in the world by market capitalisation, just above those of South Korea and Australia.[458] India's two major stock exchanges, BSE and National Stock Exchange of India, had a market capitalisation of US$1.71 trillion and US$1.68 trillion as of February 2015, according to World Federation of Exchanges.[459][460]
The initial public offering (IPO) market in India has been small compared to NYSE and NASDAQ, raising US$300 million in 2013 and US$1.4 billion in 2012. Ernst & Young stated[461] that the low IPO activity reflects market conditions, slow government approval processes and complex regulations. Before 2013, Indian companies were not allowed to list their securities internationally without first completing an IPO in India. In 2013, these security laws were reformed and Indian companies can now choose where they want to list first: overseas, domestically, or both concurrently.[462] Further, security laws have been revised to ease overseas listings of already-listed companies, to increase liquidity for private equity and international investors in Indian companies.[461]
