The economy of India is a middle income developing mixed economy. It is the world’s sixth-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 145th by GDP (nominal) and 122th by GDP (PPP). From independence in 1947 until 1991, successive governments promoted protectionist economic policies, with extensive state intervention and economic regulation. This is characterised as dirigism, in the form of the License Raj. 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%, and from 2013 to 2018, India was the world’s fastest growing major economy, surpassing China. Historically, India was the largest economy in the world for most of the two millennia from the 1st until the 19th century.
India has emerged as the fastest growing major economy in the world and is expected to be one of the top three economic powers in the world over the next 10-15 years, backed by its robust democracy and strong partnerships.
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. The economy slowed in 2017, due to shocks of “demonetisation” in 2016 and the introduction of the Goods and Services Tax in 2017. Nearly 60% of India’s GDP is driven by domestic private consumption. The country remains the world’s sixth-largest consumer market. Apart from private consumption, India’s GDP is also fueled by government spending, investment, and exports. In 2019, India was the world’s ninth-largest importer and the twelfth-largest exporter. India has been a member of the World Trade Organization since 1 January 1995. It ranks 63rd on the Ease of doing business index and 68th on the Global Competitiveness Report. With 500 million workers, the Indian labour force was the world’s second-largest as of 2019. India has one of the world’s highest number of billionaires and extreme income inequality. Since India has a vast informal economy, barely 2% of Indians pay income taxes.
Market Size :-
India’s gross domestic product (GDP) at current prices stood at Rs. 51.23 lakh crore (US$ 694.93 billion) in the first quarter of FY22, as per the provisional estimates of gross domestic product for the first quarter of 2021-22.
India is the fourth-largest unicorn base in the world with over 21 unicorns collectively valued at US$ 73.2 billion, as per the Hurun Global Unicorn List. By 2025, India is expected to have ~100 unicorns by 2025 and will create ~1.1 million direct jobs according to the Nasscom-Zinnov report ‘Indian Tech Start-up’.
India needs to increase its rate of employment growth and create 90 million non-farm jobs between 2023 and 2030’s, for productivity and economic growth according to McKinsey Global Institute. Net employment rate needs to grow by 1.5% per year from 2023 to 2030 to achieve 8-8.5% GDP growth between 2023 and 2030.
According to data from the Department of Economic Affairs, as of August 27, 2021, foreign exchange reserves in India reached US$ 633.5 billion mark.
Recent Developments :-
With an improvement in the economic scenario, there have been investments across various sectors of the economy. The private equity – venture capital (PE-VC) sector recorded investments worth US$ 10.7 billion across 137 deals in August 2021, registering a 5x YoY growth. Some of the important recent developments in Indian economy are as follows:
- India’s merchandise exports between April 2021 and August 2021 were estimated at US$ 164.10 billion (a 67.33% YoY increase). Merchandise imports between April 2021 and August 2021 were estimated at US$ 219.63 billion (an 80.89% YoY growth).
- In August 2021, the Manufacturing Purchasing Managers’ Index (PMI) in India stood at 52.3.
- The gross GST (Goods and Services Tax) revenue collection stood at Rs. 112,020 crore (US$ 15.21 billion) in August 2021.
- According to the Department for Promotion of Industry and Internal Trade (DPIIT), FDI equity inflow in India stood at US$ 547.2 billion between April 2000 and June 2021.
- India’s Index of Industrial Production (IIP) for July 2021 stood at 131.4 against 122.6 for June 2021.
- Consumer Food Price Index (CFPI) – Combined inflation was 3.11 in August 2021 against 3.96 in July 2021.
- Consumer Price Index (CPI) – Combined inflation was 5.30 in August 2021 against 5.59 in July 2021.
- Foreign portfolio investors (FPIs) invested US$ 2.5 billion in India in August 2021.
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. According to the 2017 PricewaterhouseCoopers (PwC) report, India’s GDP at purchasing power parity could overtake that of the United States by 2050. 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.
In 2020, India’s ten largest trading partners were the United States, China, the United Arab Emirates (UAE), Saudi Arabia, Switzerland, Germany, Hong Kong, Indonesia, South Korea, and Malaysia. 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. 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.
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. The Bombay Stock Exchange and National Stock Exchange are some of the world’s largest stock exchanges by market capitalization.India is the world’s sixth-largest manufacturer, representing 3% of global manufacturing output, and employs over 57 million people. Nearly 66% of India’s population is rural, and contributes about 50% of India’s GDP. It has the world’s fourth-largest foreign-exchange reserves worth $634.965 billion.India has a high public debt with 86% of GDP, while its fiscal deficit stood at 9.5% of GDP. India’s government-owned banks faced mounting bad debt, resulting in low credit growth. Simultaneously, the NBFC sector has been engulfed in a liquidity crisis. India faces moderate unemployment, rising income inequality, and a drop in aggregate demand. India’s gross domestic savings rate stood at 30.1% of GDP in FY 2019. In recent years, independent economists and financial institutions have accused the government of fudging various economic data, especially GDP growth. India’s GDP in Q1 FY22 (Rs 32.38 lakh crore) is nearly nine per cent below the Q1 FY20 level (Rs 35.67 lakh crore) in 2021.
India is the world’s largest manufacturer of generic drugs, and its pharmaceutical sector fulfills over 50% of the global demand for vaccines. The Indian IT industry is a major exporter of IT services with $191 billion in revenue and employs over four million people. India’s chemical industry is extremely diversified and estimated at $178 billion. The tourism industry contributes about 9.2% of India’s GDP and employs over 42 million people. India ranks second globally in food and agricultural production, while agricultural exports were $35.09 billion. 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. 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 45 million people directly. 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 23th-largest oil producer and the third-largest oil consumer. The Indian automobile industry is the world’s fifth-largest by production. 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. 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. 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.
*__India currently has around $630 million in foreign exchange__*
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