Economy of India

[Scott Joy]

Summary

The economy of India has transitioned from a mixed planned economy to a mixed middle-income developing social market economy with notable state participation in strategic sectors. It is the world’s fifth-largest economy by nominal GDP and the third-largest by purchasing power parity (PPP). According to the International Monetary Fund (IMF), on a per capita income basis, India ranked 142nd by GDP (nominal) and 125th by GDP (PPP).

From independence in 1947 until 1991, successive governments followed Soviet style planned economy and promoted protectionist economic policies, with extensive state intervention and economic regulation. This is characterised as dirigism, in the form of the License Raj.[45][46] The end of the Cold War and an acute balance of payments crisis in 1991 led to the adoption of a broad economic liberalisation in India.

Since the start of the 21st century, annual average GDP growth has been 6% to 7%,[43] and from 2013 to 2018, India was the world’s fastest growing major economy, surpassing China.[49][50] Economy of the Indian subcontinent was the largest in the world for most of the recorded history up until the onset of colonialism in early 19th century. Share of Indian economy is 7.5% of world economy by PPP terms.

Source: Wikipedia

OnAir Post: Economy of India

About

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, increasing globalisation in India and integration into the global economy.^[55] The economy was slowed in 2017, due to the shocks of “demonetisation” in 2016 and the introduction of the Goods and Services Tax in 2017.^[56] Nearly 70% of India’s GDP is driven by domestic private consumption.^[57] The country remains the world’s sixth-largest consumer market.^[58] Apart from private consumption, India’s GDP is also fueled by government spending, investments, and exports.^[59] In 2020, pandemic had affected trade and India was the world’s 14th-largest importer and the 21st-largest exporter.^[60] India has been a member of the World Trade Organization since 1 January 1995.^[61] It ranks 63rd on the Ease of doing business index and 68th on the Global Competitiveness Report.^[62] Due to extreme rupee/dollar rate fluctuations India’s nominal GDP too fluctuates significantly.^[63] With 50 crore (500 million) workers, the Indian labour force is the world’s second-largest.^[64][65] India has one of the world’s highest number of billionaires and extreme income inequality.^[66][67] Because of several exemptions, barely 2% of Indians pay income taxes.^[68][69]

During the 2008 global financial crisis, the economy faced a mild slowdown. India undertook stimulus measures (both fiscal and monetary) to boost growth and generate demand. In subsequent years, economic growth revived.^[70] According to the 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.^[71]

In 2020, India’s ten largest trading partners were United States, China, United Arab Emirates (UAE), Saudi Arabia, Switzerland, Germany, Hong Kong, Indonesia, South Korea, and Malaysia.^[72] In 2019–20, the foreign direct investment (FDI) in India was $74.4 billion. The leading sectors for FDI inflows were the service sector, the computer industry, and the telecom industry.^[73] India has free trade agreements with several nations, including ASEAN, SAFTA, Mercosur, South Korea, Japan, and several others which are in effect or under negotiating stage.^[74][75]

The service sector makes up 50% of GDP and remains the fastest growing sector, while the industrial sector and the agricultural sector employs a majority of the labor force.^[76] The Bombay Stock Exchange and National Stock Exchange are some of the world’s largest stock exchanges by market capitalisation.^[77] India is the world’s sixth-largest manufacturer, representing 2.6% of global manufacturing output.^[78] Nearly 66% of India’s population is rural,^[79] and contributes about 50% of India’s GDP.^[80] It has the world’s fourth-largest foreign-exchange reserves worth $588,314 billion.^[81] India has a high public debt with 86% of GDP, while its fiscal deficit stood at 6.7% of GDP.^[82] India’s government-owned banks faced mounting bad debt, resulting in low credit growth.^[55] Simultaneously, the NBFC sector has been engulfed in a liquidity crisis.^[83] India faces moderate unemployment, rising income inequality, and a drop in aggregate demand.^[84][85] India’s gross domestic savings rate stood at 31.38 of GDP in FY 2020.^[86] In recent years, independent economists and financial institutions have accused the government of manipulating various economic data, especially GDP growth.^[87][88] India’s overall social spending as a share of GDP in 2021–22 will be 8.6%, which is much lower than the average for OECD nations.^[89][90]

India is the world’s largest manufacturer of generic drugs, and its pharmaceutical sector fulfills over 50% of the global demand for vaccines.^[91] The Indian IT industry is a major exporter of IT services with $196 billion in revenue and employs over 4.47 million people.^[92] India’s chemical industry is extremely diversified and estimated at $178 billion.^[93] The tourism industry contributes about 9.2% of India’s GDP and employs over 4.2 crore (42 million) people.^[94] India ranks second globally in food and agricultural production, while agricultural exports were $35.09 billion.^[80][95] The construction and real estate sector ranks third among the 14 major sectors in terms of direct, indirect, and induced effects in all sectors of the economy.^[96] The Indian textiles industry is estimated at $100 billion and contributes 13% of industrial output and 2.3% of India’s GDP while employs over 4.5 crore (45 million) people directly.^[97] India’s telecommunication industry is the world’s second largest by the number of mobile phone, smartphone, and internet users. It is the world’s 24th-largest oil producer and the third-largest oil consumer.^[98] The Indian automobile industry is the world’s fourth-largest by production.^[99][100] India has retail market worth $1.17 trillion, which contributes over 10% of India’s GDP. It also has one of the world’s fastest growing e-commerce markets.^[101] India has the world’s fourth-largest natural resources, with the mining sector contributing 11% of the country’s industrial GDP and 2.5% of total GDP.^[102] 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.^[103][104]

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