Economy of India

Economy of India

Mumbai, Maharashtra is considered the financial capital of India[1][2]
Currency	Indian rupee (INR) (₹) = 100 Paise
Fiscal year	1 April – 31 March
Trade organizations	WTO, SAFTA, BRICS, G-20, East Asia Summit, G8+5, SAARC, AIIB, BIMSTEC, RCEP, International Monetary Fund, World Bank, SCO, United Nations
Statistics
GDP	$2.25 trillion (nominal; 2016)[3] $8.72 trillion (PPP; 2016)[3]
GDP rank	7th (nominal) / 3rd (PPP)
GDP growth	7.6% (2015-16)[4]
GDP per capita	$1,718 (nominal; 2016)[3] $6,658 (PPP; 2016)[3]
GDP per capita rank	140th (nominal) / 122nd (PPP)
GDP by sector	Agriculture: 17% Industry: 29.7% Services: 45% (2015 est.)[5]
Inflation (CPI)	4.20% (October 2016)[6]
Base borrowing rate	6.75% (as of 4 November 2016)[7]
Population below poverty line	21.2% of population below the poverty line of $1.90/day (2011, World Bank)[8]
Gini coefficient	35.1 (2011)[9]
Human Development Index	0.609 (2014)[10]
Labour force	502.1 million (2015 est.)[11]
Labour force by occupation	Agriculture: 49% Industry: 20% Services: 31% (2012 est.)
Unemployment	4.9% Urban 5.1% Rural 5.0% National (2016, Labour Bureau)[12]
Average gross salary	GNI per capita: $1,590 yearly per person (2015);[13] GNI per capita (PPP): $6,020 yearly per person (2015);[14] Average household income: $8,671 yearly (2016)[15]
Main industries	software, petroleum products, chemicals, pharmaceuticals, agriculture, textiles, steel, transportation equipment, machinery, leather, cement, mining, construction[16][17]
Ease-of-doing-business rank	130 (2017) ( 1 YoY)[18]
External
Exports	$272.4 billion (2015 est.)[19]
Export goods	software, petrochemicals, agriculture, leather, jewellery, engineering goods,[20] pharmaceuticals, textiles, chemicals, transportation, ores and other commodities[17]
Main export partners	European Union (16.9%)  United States (15.2%)  United Arab Emirates (11.3%)  Hong Kong (4.6%) (2015)[19]
Imports	$409.2 billion (2015 est.)[19]
Import goods	crude oil, gold and precious stones, electronics, engineering goods,[20] chemicals, plastics, coal and ores, iron and steel, vegetable oil and other commodities[17]
Main import partners	China (15.8%)  European Union (11.2%)  Saudi Arabia (5.5%)   Switzerland (5.4%) (2015)[19]
FDI stock	Inward: $282.27 billion Outward: $138.97 billion (2015)[21]
Current account	1.1% of GDP ($22.1 billion) (2015–16)[22]
Gross external debt	$479.7 billion (as of 30 June 2016)[23][24]
Net international investment position	-$353.1 billion (as of 30 June 2016)[25] ( $8.1 billion QoQ)
Public finances
Public debt	66.5% of GDP (2016)[26][27]
Budget deficit	3.9% of GDP (2015–16)[27][28]
Revenues	₹31.98 trillion (US$480 billion) (2016,IMF)[29]
Expenses	₹38.09 trillion (US$570 billion) (2016,IMF)[29]
Economic aid	$2.98 billion (2014)[30]
Credit rating	BBB- (Domestic) BBB- (Foreign) BBB+ (T&C Assessment) Outlook: Stable (Standard & Poor's)[31]
Foreign reserves	$367.04 billion (8th) (as on 18 November 2016)[32]
Main data source: CIA World Fact Book All values, unless otherwise stated, are in US dollars.

The economy of India is the seventh-largest economy in the world measured by nominal GDP and the third-largest by purchasing power parity (PPP).^[33] The country is classified as a newly industrialised country, one of the G-20 major economies, a member of BRICS and a developing economy with an average growth rate of approximately 7% over the last two decades. Maharashtra is the wealthiest Indian state and has an annual nominal GDP of US$250 billion, nearly equal to that of Portugal and Pakistan and accounts for 12% of the Indian GDP followed by the states of Tamil Nadu (US$150 billion) and Uttar Pradesh (US$130 billion). India's economy became the world's fastest growing major economy in the last quarter of 2014, replacing the People's Republic of China.^[34]

The long-term growth prospective of the Indian economy is positive due to its young population, corresponding low dependency ratio, healthy savings ^[35] and investment rates, and increasing integration into the global economy.^[36] The Indian economy has the potential to become the world's 3rd-largest economy by the next decade, and one of the two largest economies by mid-century.^[37][38][39] And the outlook for short-term growth is also good as according to the IMF, the Indian economy is the "bright spot" in the global landscape.^[40] India also topped the World Bank's growth outlook for 2015-16 for the first time with the economy having grown 7.6% in 2015-16 and expected to grow 8.0%+ in 2016-17.^[41]

India has one of the fastest growing service sectors in the world with annual growth rate of above 9% since 2001, which contributed to 57% of GDP in 2012-13.^[42] India has become a major exporter of IT services, BPO services, and software services with $167.0 billion worth of service exports in 2013-14. It is also the fastest-growing part of the economy.^[43] The IT industry continues to be the largest private sector employer in India.^[44][45] India is also the third largest start-up hub in the world with over 3,100 technology start-ups in 2014-15^[46] The agricultural sector is the largest employer in India's economy but contributes to a declining share of its GDP (17% in 2013-14). India ranks second worldwide in farm output.^[47] The Industry sector has held a constant share of its economic contribution (26% of GDP in 2013-14).^[48] The Indian auto mobile industry is one of the largest in the world with an annual production of 21.48 million vehicles (mostly two and three wheelers) in FY 2013-14.^[49] India has $600 billion worth of retail market in 2015 and one of world's fastest growing E-Commerce markets.^[50][51]

India's two major stock exchanges, Bombay Stock Exchange and National Stock Exchange of India, had a market capitalisation of US$1.71 trillion and US$1.68 trillion respectively as of Feb 2015, which ranks 11th & 12 largest in the world respectively according to the World Federation of Exchanges.^[52] India is also home to world's third largest billionaires pool with 111 billionaires in 2016 and the fourth largest number of ultra-high-net-worth households that have more than US$100 million.^[53]

India is a member of the Commonwealth of Nations,^[54] the South Asian Association for Regional Cooperation, the Non Aligned Movement, the G20, the G8+5, the International Monetary Fund, the World Bank, the World Trade Organisation, the United Nations, the Shanghai Cooperation Organisation, the New Development BRICS Bank the Asian Infrastructure Investment Bank and Missile Technology Control Regime.

Overview

The combination of protectionist, import-substitution, Fabian socialism, social democratic-inspired policies governed India for sometime after the end of British occupation. The economy was then characterised by extensive regulation, protectionism, public ownership of large monopolies, pervasive corruption and slow growth.^[55][56][57] Since 1991, continuing economic liberalisation has moved the country towards a market-based economy.^[55][56] By 2008, India had established itself as one of the world's faster-growing economies. Growth significantly slowed to 7.0% in 2008–09, but subsequently recovered to 7.4% in 2009–10, while the fiscal deficit rose from 5.9% to a high 6.5% during the same period.^[58] India's current account deficit surged to 4.1% of GDP during Q2 FY11 against 3.2% the previous quarter. The unemployment rate for 2012–13, according to Government of India's Labour Bureau, was 4.7% nationwide, by UPS method;^[59] and 3% by NSSO method.^[60] India's consumer price inflation ranged between 8.9 and 12% over the 2009-2013 period.^[61]

History

Period up to 1793

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 world's first urban sanitation systems and the existence of a form of municipal government.^[62]

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.^[64] Over time, traders organised themselves into associations which received state patronage. Raychaudhuri and 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.^[65]

Other scholars suggest trading from India to West Asia and Eastern Europe was active between 14th and 18th century.^[66][67][68] During this period, Indian traders had settled in Surakhani, a suburb of greater Baku, Azerbaijan. These traders had built a Hindu temple, now preserved by the government of Azerbaijan. French Jesuit Villotte, who lived in Azerbaijan in late 1600s, wrote this Indian temple was revered by Hindus;^[69] the temple has numerous carvings in Sanskrit, dated to be between 1500 and 1745 AD. The Atashgah temple built by the Baku-resident traders from India suggests commerce was active and prosperous for Indians by the 17th century.^{[70][71][72][73]}

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.^[74] 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.^[75]

Sean Harkin estimates China and India may have accounted for 60 to 70 percent of world GDP in the 17th century.^[76]

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.^[77] 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 dependent on primitive technology.^[78] After the decline of the Mughals, western, central and parts of south and north India were integrated and administered by the Maratha Empire. 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 compensated for to some extent by localised prosperity in the new provincial kingdoms.^[79] By the end of the eighteenth century, the British East India Company 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.^[80]

British Era (1793–1947)

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^[81]

From the beginning of 19th century British East India Company's gradual expansion and consolidation of power brought a major change in the 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.^[82] The economic policies of the British Raj caused a severe decline in the handicrafts and handloom sectors, due to reduced demand and dipping employment.^[83] After the removal of international restrictions by the Charter of 1813, Indian trade expanded substantially and over the long term showed an upward trend.^[84] 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.^[85]

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.^[88] 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,^[89] with industrial development stalled, agriculture unable to feed a rapidly growing population, a largely illiterate and unskilled labour force, and extremely inadequate infrastructure.^[90]

The 1872 census revealed that 91.3% of the population of the region constituting present-day India resided in villages,^[91] and urbanisation generally remained sluggish 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.^[92]

The impact of British occupation 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.^[93]

Pre-liberalisation period (1947–1992)

Indian economic policy after independence was influenced by the colonial experience, which was seen by Indian leaders as exploitative, and by those leaders' exposure to British social democracy as well as the planned economy of the Soviet Union.^[90] 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,^[94] while trade and foreign investment policies were relatively liberal.^[95] 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.^[96]

“	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, [97]

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.^[98][99] 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.^[100] The rate of growth of the Indian economy in the first three decades after independence was derisively referred to as the Hindu rate of growth by economists, because of the unfavourable comparison with growth rates in other Asian countries.^[101][102]

“	(In the current Indian regulatory system,) 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 in 1969, [97]

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.^[103] However, it has also been criticised as an unsustainable effort, resulting in the growth of capitalistic farming, ignoring institutional reforms and widening income disparities.^[104]

Subsequently, the Emergency and Garibi Hatao concept under which income tax levels at one point rose to a maximum of 97.5%, a record in the world for non-communist economies, started diluting the earlier efforts.

In the late 1970s, the government led by Morarji Desai eased restrictions on capacity expansion for incumbent companies, removed price controls, reduced corporate taxes and promoted the creation of small-scale industries in large numbers.

Post-liberalisation period (since 1991)

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.^[105] India asked for a $1.8 billion bailout loan from the International Monetary Fund (IMF), which in return demanded de-regulation.^[106]

In response, Prime Minister Narasimha Rao, along with his finance minister Manmohan Singh, initiated the economic liberalisation of 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.^[107] 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.^[108] 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.^[109] This has been accompanied by increases in life expectancy, literacy rates and food security, although urban residents have benefited more than rural residents.^[110]

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 S&P and Moody's.^[111] India enjoyed high growth rates for a period from 2003 to 2007 with growth averaging 9% during this period.^[112] Growth then moderated due to the global financial crisis starting in 2008. 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 and is believed to play a major role in the global economy in the 21st century.^[113][114]

Starting in 2012, India entered a period of more anaemic growth, with growth slowing down to 5.6%. Other economic problems also became apparent: a plunging Indian rupee, a persistent high current account deficit and slow industrial growth. Hit by the US Federal Reserve's decision to taper quantitative easing, foreign investors had been rapidly pulling out money from India though this has now reversed with the stock market at near all-time high and the current account deficit narrowing substantially.

India started recovery in 2014-15 when the growth rate accelerated to 7.2%. In 2015, Indian went through a startup boom and manufacturing growth skyrocketing due to which the growth in 2015-16 accelerated to 7.6%, which means for the first time since 1990 India grew faster than China which registered 6.9% growth in 2015. The economic growth is expected to be 8.0%+ in 2016-17.In Mid 2015 during the global stock market rout, India also witnessed a sharp fall in stock markets and the rupee weakened. It was repeated again in January 2016.

India is ranked 130th out of 190 countries in the World Bank's 2017 ease of doing business index. 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.^[18] 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.^[115]

Sectors

Historically, India has classified and tracked its economy and GDP as three sectors — agriculture, industry and services. Agriculture includes crops, horticulture, milk and animal husbandry, aquaculture, fishing, sericulture, aviculture, forestry and related activities. Industry includes various manufacturing sub-sectors. India's definition of services sector includes its construction, retail, software, IT, communications, hospitality, infrastructure operations, education, health care, banking and insurance, and many other economic activities.^[117][118]

Agriculture

India ranks second worldwide in farm output. Agriculture and allied sectors like forestry, logging and fishing accounted for 17% of the GDP and employed 49% of the total workforce in 2014.^[119] As the Indian economy has diversified and grown, agriculture's contribution to GDP has steadily declined from 1951 to 2011, yet it is still the largest employment source and a significant piece of the overall socio-economic development of India.^[120] Crop yield per unit area of all crops has grown since 1950, due to the special emphasis placed on agriculture in the five-year plans and steady improvements in irrigation, technology, application of modern agricultural practices and provision of agricultural credit and subsidies since the Green Revolution in India. However, international comparisons reveal the average yield in India is generally 30% to 50% of the highest average yield in the world.^[121] The states of Uttar Pradesh, Punjab, Haryana, Madhya Pradesh, Andhra Pradesh, Telangana, Bihar, West Bengal, Gujarat and Maharashtra are key contributors to Indian agriculture.

India receives an average annual rainfall of 1,208 millimetres (47.6 in) and a total annual precipitation of 4000 billion cubic metres, with the total utilisable water resources, including surface and groundwater, amounting to 1123 billion cubic metres.^[122] 546,820 square kilometres (211,130 sq mi) of the land area, or about 39% of the total cultivated area, is irrigated.^[123] India's inland water resources including rivers, canals, ponds and lakes and marine resources comprising the east and west coasts of the Indian Ocean and other gulfs and bays provide employment to nearly six million people in the fisheries sector. In 2010, India had the world's sixth largest fishing industry.^[124]

India is the largest producer in the world of milk, jute and pulses, and also has the world's second largest cattle population with 170 million animals in 2011.^[126] It is the second largest producer of rice, wheat, sugarcane, cotton and groundnuts, as well as the second largest fruit and vegetable producer, accounting for 10.9% and 8.6% of the world fruit and vegetable production respectively. India is also the second largest producer and the largest consumer of silk in the world, producing 77,000 tons in 2005.^[127] India is the largest exporter of cashew kernels and cashew nut shell liquid (CNSL). Foreign exchange earned by the country through the export of cashew kernels during 2011-12 reached Rs.4,390 crore based on statistics from the Cashew Export Promotion Council of India (CEPCI). 131,000 tonnes of kernels were exported during 2011-12.^[128] There are about 600 cashew processing units in Kollam, Kerala.^[129] India's foodgrains production remained stagnant at approximately 252 million tonnes (MT) during both the 2015-16 and 2014-15 crop years (July- June).^[130] India exports several agriculture products, such as Basmati rice, wheat, cereals, spices, fresh fruits, dry fruits, buffalo beef meat, cotton, tea, coffee and other cash crops particularly to the Middle East, Southeast and East Asian countries. It earns about 10 percent of its export earnings from this trade.^[17]

Industry

Industry accounts for 26% of GDP and employs 22% of the total workforce.^[131] According to the World Bank, India's industrial manufacturing GDP output in 2015 was 6th largest in the world on current US dollar basis ($559 billion),^[132] and 9th largest on inflation adjusted constant 2005 US dollar basis ($197.1 billion).^[133] The Indian industrial sector underwent significant changes as a result of the economic liberalisation in India economic reforms of 1991, which removed import restrictions, brought in foreign competition, led to the privatisation of certain government owned public sector industries, liberalised the Foreign direct investment (FDI) regime,^[134] improved infrastructure and led to an expansion in the production of fast-moving consumer goods.^[135] Post-liberalisation, the Indian private sector was faced with increasing domestic as well as foreign competition, including the threat of cheaper Chinese imports. It has since handled the change by squeezing costs, revamping management, and relying on cheap labour and new technology. However, this has also reduced employment generation even by smaller manufacturers who earlier relied on relatively labour-intensive processes.^[136]

Petroleum products and chemicals

Petroleum products and chemicals are a major contributor to India's industrial GDP, and together they contribute over 34% of its export earnings. India hosts many oil refinery and petrochemical operations, including the world's largest refinery complex in Jamnagar that processes 1.24 million barrels of crude per day.^[137] By volume, the Indian chemical industry was the third largest producer in Asia, and it alone contributed 5% of its GDP. India is one of the top 5 world producers of agrochemicals, polymers and plastics, dyes and various organic and inorganic chemicals.^[138] Despite being a large producer and exporter of chemicals, India is a net importer of chemicals given its domestic demand for products.^[139]

Pharmaceuticals

The Indian pharmaceutical industry has grown in recent years to become a major manufacturer of health care products to the world. India produced about 8 per cent of the global pharmaceutical supply in 2011 by value, including over 60,000 generic brands of medicines sold around the world.^[140] It is one of the fastest-growing sub-sectors of its industry and a significant contributor of India's export earnings. The state of Gujarat has become a hub for the manufacture and export of pharmaceuticals and APIs.^[141] The industry is expected to double from its 2012 levels to US$55 billion by 2020, according to a McKinsey report.^[142]

Engineering

The engineering industry of India is the largest sub-sector of its industry GDP and is one of three largest foreign exchange earning sectors for the country.^[143] It includes transport equipment, machine tools, capital goods, transformers, switchgears, furnaces, cast and forged simple to precision parts for turbines, automobiles and railways. The industry employs about four million workers. On a value-added basis, India's engineering industry sector exported $67 billion worth of engineering goods in the 2013-14 fiscal year, and served part of the domestic demand for engineering goods.^[144]

The engineering industry of India includes its growing car, motorcycle and scooters industry, as well as productivity machinery such as tractors. India manufactured and assembled about 18 million passenger and utility vehicles in 2011, of which 2.3 million were exported.^[145] India is the world's largest producer of and the largest market for tractors, accounting for 29% of world's tractor production in 2013.^[145][146] India is the 12th largest producer and 7th largest consumer of machine tools in the world.^[145]

Gems and jewellery

India is one of the world's largest diamonds and gem polishing and jewellery manufacturing centre; it is also one of the two largest consumers of gold.^[149][150] After crude oil and petroleum products, the export and import of gold, precious metals, precious stones, gems and jewellery accounts for the largest portion of India's global trade. The industry contributes about 7% of India's GDP, employs millions, and is a major source of its foreign exchange earnings.^[151] The gems and jewellery industry, in 2013, created ₹251,000 crore (US$37 billion) in economic output on value added basis. It is growing sector of Indian economy, and A.T. Kearney projects it to grow to ₹500,000 crore (US$74 billion) by 2018.^[152]

The gems and jewellery industry has been an ancient art and continuous economic activity in India, traced over several thousand years.^[153] Till 18th century, India was the world's only known major reliable source of diamond mining and its processing.^[149] Now, South Africa and Australia are the major sources of diamonds and precious metals, but along with Antwerp, New York, and Ramat Gan, Indian cities such as Surat and Mumbai are the hubs of world's jewellery polishing, cutting, precision finishing, supply and trade. Unlike other centres, the gems and jewellery economic activity in India is primarily artisans driven, is manual, the sector is highly fragmented, and 96% of the industry is served by family owned operations.

Indian gem and jewellery economy's particular strength is in precision cutting, polishing and processing small diamonds (below one carat).^[149] Yet, India is also a hub for processing of larger diamonds, pearls and other precious stones. About 11 out of 12 diamonds set in any jewellery in the world are cut and polished in India.^[154] It is also a major hub of gold and other precious metal-based precision jewellery industry. Its domestic demand for gold and jewellery products is another driver of India's GDP.^[152]

Textile

Textile industry contributes about 4 per cent to the country's GDP, 14 per cent of the industrial production, and 17 per cent to export earnings.^[155] India's textile industry has transformed from a declining sector to a rapidly developing one in recent years. After freeing the industry in 2004–2005 from a number of limitations, primarily financial, the government gave a green light to massive investment inflows – both domestic and foreign. During the period from 2004 to 2008, total investment into textile sector increased by 27 billion dollars. Ludhiana produces 90% of woollens in India and is known as the Manchester of India. Tirupur has gained universal recognition as the leading source of hosiery, knitted garments, casual wear and sportswear. Expanding textile centres such as Ichalkaranji enjoy one of the highest per capita incomes in the country.^[156] India's cotton farms, fibre and textile industry provides employment to 45 million people in India,^[155] including some child labour (1%). The sector is estimated to employ around 400,000 children under the age of 18.^[157]

Mining

India's mining industry was the 4th largest producer of minerals in the world by volume, and 8th largest producer by value in 2009.^[158] In 2013, it mined and processed 89 minerals, of which 4 were fuel, 3 were atomic energy minerals, and 80 non-fuel.^[159] The government owned public sector accounted for 68% of mineral produced by volume, in 2011-12.^[160]

Nearly 50% of India's mining industry, by output value, is concentrated in eight states - Odisha, Rajasthan, Chhattisgarh, Andhra Pradesh, Telangana, Jharkhand, Madhya Pradesh and Karnataka. Another 25% of the output by value comes from its offshore oil and gas resources.^[160] India operated about 3,000 mines in 2010, half of which were coal, limestone and iron ore.^[161] On output value basis, India's was one of five largest producers of mica, chromite, coal, lignite, iron ore, bauxite, barites, zinc, manganese; while being one of the 10 largest global producers of many other minerals.^[158][160] India was fourth largest producer of steel in the world in 2013,^[162] and seventh largest producer of aluminium.^[163]

India's mineral resources are vast.^[164] However, its mining industry has declined — contributing 2.3% of its GDP in 2010 compared to 3% in 2000, and employed 2.9 million people — a decreasing percentage of its total labour. India is a net importer of many minerals including coal. India's mining sector decline is because of complex permit, regulatory and administrative procedures that take 6 to 20 fold more time than other mining countries such as Australia and South Africa, inadequate infrastructure, shortage of capital resources, and slow adoption of ecologically and environmentally sustainable technologies.^[160][165]

Defence

Pulp and paper

Services

India's services sector has the largest share in the GDP, accounting for 57% in 2012, up from 15% in 1950.^[131] It is the 7th largest in the world by nominal GDP, and third largest when purchasing power is taken into account. The services sector provides employment to 27% of the work force. Information technology and business process outsourcing are among the fastest-growing sectors, having a cumulative growth rate of revenue 33.6% between 1997 and 1998 and 2002–03 and contributing to 25% of the country's total exports in 2007–08.^[166]

Aviation

India is the ninth largest civil aviation market in the world having a potential of becoming third largest aviation market by 2020. It recorded an air traffic of 163 million passengers in 2013, estimated to be 60 million international passengers by 2017. The market is also estimated to have 800 aircraft by 2020.^[167] In 2015, Boeing projected India's demand for aircraft to touch 1,740, valued at $240 billion, over the next 20 years in India. This would account for 4.3 per cent of global volumes. According to Airbus, India will be one of the top three aviation markets globally in the next 20 years. Airbus is expecting an annual growth rate of over 11 per cent for the domestic market in India over the next ten years, while the combined growth rate for domestic and international routes would also be more than 10 per cent.^[168]

Civil aviation in India traces its beginnings back to the year 1911, when the first commercial civil aviation flight took off from Allahabad for Naini on 18 February. Henri Pequet, a French aviator, carried 6,500 mails on a Humber biplane.^[169] On October 15, 1932, J.R.D. Tata flew a consignment of mail from Karachi to Juhu Airport. His airline later became Air India.^[170] In March 1953, the Indian Parliament passed the Air Corporations Act. India's airline industry was nationalised and the eight domestic airlines operating independently at that time, Deccan Airways, Airways India, Bharat Airways, Himalayan Aviation, Kalinga Airlines, Indian National Airways, Air India and Air Services of India were merged into two government owned entities. Indian Airlines focussed on domestic routes and Air India International on international services.^[169] The International Airports Authority of India (IAAI) was constituted in 1972 while the National Airports Authority was constituted in 1986. The Bureau of Civil Aviation Security was established in 1987 following the tragic crash of Air India Flight 182. East-West Airlines was the first national level private airline to operate in the country after the government de-regularised the civil aviation sector in 1991. The government allowed private airlines to operate charter and non-scheduled services under the ‘Air Taxi’ Scheme until 1994, when the Air Corporation Act was repealed and private airlines could now operate scheduled services. Private airlines like Jet Airways, Air Sahara, Modiluft, Damania Airways and NEPC Airlines among others commenced domestic operations during this period.^[169]

The aviation industry experienced a rapid transformation following deregulation. More than half a dozen low-cost carriers entered the Indian market in 2004–05. Major new entrants included Air Deccan, Air Sahara, Kingfisher Airlines, SpiceJet, GoAir, Paramount Airways and IndiGo. Kingfisher Airlines became the first Indian air carrier on 15 June 2005 to order Airbus A380 aircraft worth US$3 billion.^[171][172] However, Indian aviation industry would struggle due to an economic slowdown, rising fuel and operation costs. This led to consolidation, buy outs and discontinuations in the Indian airline industry. In 2007, Air Sahara and Air Deccan were acquired by Jet Airways and Kingfisher Airlines respectively. Paramount Airways ceased operations in 2010 and Kingfisher shut down in 2012. Etihad Airways agreed to acquire 24% stake in Jet in 2013. AirAsia India, a low cost carrier operating as a joint venture between Air Asia and Tata Sons launched in 2014. As of 2013–14, only IndiGo and GoAir were generating profits.^[173]

Banking and finance

The Indian money market is classified into the organised sector, comprising private, public and foreign owned commercial banks and cooperative banks, together known as scheduled banks, and the unorganised sector, which includes individual or family owned indigenous bankers or money lenders and non-banking financial companies.^[174] The unorganised sector and microcredit are still preferred over traditional banks in rural and sub-urban areas, especially for non-productive purposes, like ceremonies and short duration loans.^[175]

Prime Minister Indira Gandhi nationalised 14 banks in 1969, followed by six others in 1980, and made it mandatory for banks to provide 40% of their net credit to priority sectors like agriculture, small-scale industry, retail trade, small businesses, etc. to ensure that the banks fulfill their social and developmental goals. Since then, the number of bank branches has increased from 8,260 in 1969 to 72,170 in 2007 and the population covered by a branch decreased from 63,800 to 15,000 during the same period. The total bank deposits increased from ₹59.1 billion (US$880 million) in 1970–71 to ₹38,309.22 billion (US$570 billion) in 2008–09. Despite an increase of rural branches, from 1,860 or 22% of the total number of branches in 1969 to 30,590 or 42% in 2007, only 32,270 out of 500,000 villages are covered by a scheduled bank.^[176][177]

India's gross domestic saving in 2006–07 as a percentage of GDP stood at a high 32.8%.^[178] More than half of personal savings are invested in physical assets such as land, houses, cattle, and gold.^[179] The government owned public sector banks hold over 75% of total assets of the banking industry, with the private and foreign banks holding 18.2% and 6.5% respectively.^[180] Since liberalisation, the government has approved significant banking reforms. While some of these relate to nationalised banks, like encouraging mergers, reducing government interference and increasing profitability and competitiveness, other reforms have opened up the banking and insurance sectors to private and foreign players.^[181][182]

Information technology

The information technology industry in India consists of two major components: IT services and business process outsourcing (BPO). The sector has increased its contribution to India's GDP from 1.2% in 1998 to 7.5% in 2012.^[183] According to NASSCOM, the sector aggregated revenues of US$147 billion in 2015, where export revenue stood at US$99 billion and domestic at US$48 billion, growing by over 13%.^[183]

The growth in the IT sector is attributed to increased specialisation, and an availability of a large pool of low cost, highly skilled, educated and fluent English-speaking workers, on the supply side, matched on the demand side by increased demand from foreign consumers interested in India's service exports, or those looking to outsource their operations. The share of the Indian IT industry in the country's GDP increased from 4.8% in 2005–06 to 7% in 2008.^[184] In 2009, seven Indian firms were listed among the top 15 technology outsourcing companies in the world.^[185]

The business process outsourcing services in the outsourcing industry in India caters mainly to Western operations of multinational corporations (MNCs). As of 2012, around 2.8 million people work in outsourcing sector.^[186] Annual revenues are around $11 billion,^[186] around 1% of GDP. Around 2.5 million people graduate in India every year. Wages are rising by 10–15 percent as a result of skill shortage.^[186]

Insurance

India became the 10th largest insurance market in the world in 2013, rising from 15th rank in 2011.^[187][188] At a total market size of US$66.4 billion in 2013, it remains small compared to world's major economies, and Indian insurance market accounts for 2% of world's annual insurance business. India's life and non-life insurance industry has been growing at 20% double digit growth rates and this growth is expected to continue through 2021.^[189] Indian economy retains about 360 million active life insurance policies, the largest in the world.^[189] Of the 52 insurance companies in India, 24 are active in life insurance business. The life insurance industry in the country is projected to increase at double digit compounded annual growth rates through 2019, with targets to reach US$1 trillion annual notional values by 2021.^[189]

The industry which reported a growth rate of around 10 percent during the period 1996–97 to 2000–01 has, post opening up the sector, reported average annual growth of 15.85% over the period 2001–02 to 2010–11. In addition, the specialised insurers Export Credit Guarantee Corporation and Agriculture Insurance Company (AIC) are offering credit guarantee and crop insurance respectively. AIC, which has initially offering coverage under the National Agriculture Insurance Company (NAIS), has now started providing crop insurance cover on commercial line as well. It has introduced several innovative products such as weather insurance and specific crop related products. The premium underwritten by the non life insurers during 2010–11 was Rs 42,576 crore as against Rs 34,620 crore in 2009–10. The growth was satisfactory, particularly in the view of the across the broad cuts in the tariff rates. The private insurers underwrote premium of Rs 17,424 crore as against rs Rs 13,977 crore in 2009–10. The public sector insurers on the other hand, underwrote a premium of Rs 25,151.8 in 2010–11 as against Rs 20,643.5 crore in 2009–10, i.e. a growth of 21.8% as against 14.5% in 2009–10.

The Indian insurance business has in the past remained under developed with low levels of insurance penetration. Post liberalisation sector has succeeded in raising the levels of insurance penetration from 2.3 (life 1.8 and non life 0.7) in 2000 to 5.1 (life 4.4 and non life 0.7) in 2010.

Electricity sector

The primary energy consumption in India is the third biggest after China and USA with 5.3% global share in the year 2015.^[190] Coal and crude oil together account for 85% of the primary energy consumption of India. India's oil reserves meet 25% of the country's domestic oil demand.^[181][191] As of April 2015, India's total proven crude oil reserves is 763.476 million metric tons, while gas reserves stood at 1,490 billion cubic metres (53 trillion cubic feet).^[192] Oil and natural gas fields are located offshore at Bombay High, Krishna Godavari Basin and the Cauvery Delta, and onshore mainly in the states of Assam, Gujarat and Rajasthan. India is the fourth largest consumer of oil in the world and net oil imports are nearly ₹820,000 crore (US$120 billion) worth of oil in 2014-15,^[192] which had an adverse effect on its current account deficit. The petroleum industry in India mostly consists of public sector companies such as Oil and Natural Gas Corporation (ONGC), Hindustan Petroleum Corporation Limited (HPCL), Bharat Petroleum Corporation Limited (BPCL) and Indian Oil Corporation Limited (IOCL). There are some major private Indian companies in the oil sector such as Reliance Industries Limited (RIL) which operates the world's largest oil refining complex.^[193]

India became the world's third largest producer of electricity in the year 2013 with 4.8% global share in electricity generation surpassing Japan and Russia.^[194] By the end of the calendar year 2015, India has become electricity surplus with many of the power stations idling for want of electricity demand.^[195] The utility electricity sector had an installed capacity of 303 GW as of 31 May 2016 of which thermal power contributed 69.8%, hydroelectricity 15.2%, other sources of renewable energy 13.0%, and nuclear power 2.1%.^[196] India meets most of its domestic electricity demand through its 106 billion tonnes of proven coal reserves.^[197] India is also rich in certain alternative sources of energy with significant future potential such as solar, wind and biofuels (jatropha, sugarcane). India's dwindling uranium reserves stagnated the growth of nuclear energy in the country for many years.^[198] Recent discoveries of natural uranium in Tummalapalle belt, which promises to be one of the top 20 of the world's reserves,^{[199][200][201]} and an estimated reserve of 846,477 metric tons (933,081 short tons) of thorium^[202] – about 25% of world's reserves – are expected to fuel the country's ambitious nuclear energy program in the long-run. The Indo-US nuclear deal has also paved the way for India to import uranium from other countries.^[203]

Infrastructure

India's infrastructure and transport sector contributes about 5% of its GDP. India has a road network of over 5,472,144 kilometres (3,400,233 mi) as on 31 March 2015, the second largest road network in the world. At 1.66 km of roads per square kilometre of land, the quantitative density of India's road network is higher than that of Japan (0.91) and the United States (0.67), and far higher than that of China (0.46), Brazil (0.18) or Russia (0.08).^[204] However, qualitatively India's roads are a mix of modern highways and narrow, unpaved roads, and are being improved.^[205] As on 31 March 2015, 61.05% of Indian roads were paved.^[204] India has the lowest kilometre lane road density per 100,000 people among G-27 countries — leading to traffic congestion. It is upgrading its infrastructure. As of May 2014, India had completed and placed in use over 22,600 kilometres of recently built 4 or 6-lane highways connecting most of its major manufacturing, commercial and cultural centres.^[206] India's road infrastructure carries 60% of freight and 87% of passenger traffic.^[207]

Indian Railways is the fourth largest rail network in the world, with a track length of 114,500 kilometers and 7,172 stations. This government owned and operated railway network carried an average of 23 million passengers a day, and over a billion tonnes of freight a year.^[208] India has a coastline of 7,500 kilometres with 13 major ports and 60 operational non-major ports, which together handle 95% of the country's external trade by volume and 70% by value (rest handled by air).^[209] Nhava Sheva, Mumbai is the largest public port, while Mundra is the largest private sea port.^[210] The airport infrastructure of India includes 125 airports,^[211] of which 66 airports are licensed to handle both passengers and logistics.^[212]

Retail

Retail industry contributes between 14–15%^[213][214] to 20% of India's GDP.^[215] The Indian retail market is estimated to be US$600billion and one of the top five retail markets in the world by economic value. India is one of the fastest-growing retail market in the world,^[216][217] and is projected to reach $1.3 trillion by 2020.^[215][218]

India's retailing industry mostly consists of the local mother and pop store, owner manned shops and street vendors. Organised retail supermarkets are growing but small, with a market share of 4% as of 2008.^[219] In 2012 government permitted 51% FDI in multi brand retail and 100% FDI in single brand retail. However, a lack of back end warehouse retail infrastructure, as well as state level permits and red tape continues to limit organised retail's growth in Indian economy.^[220] Over thirty regulations such as "signboard licences" and "anti-hoarding measures" have to be complied before a store can open doors. There are taxes for moving goods from state to state, and even within states.^[219] The lack of infrastructure and efficient retail network, according to The Wall Street Journal, causes a third of India's agriculture produce to be lost from spoilage.^[221]

Tourism

The World Travel & Tourism Council calculated that tourism generated ₹8.31 lakh crore (US$120 billion) or 6.3% of the nation's GDP in 2015 and supported 37.315 million jobs, 8.7% of its total employment. The sector is predicted to grow at an average annual rate of 7.5% to ₹18.36 lakh crore (US$270 billion) by 2025 (7.2% of GDP).^[222] India attracted 8.027 million international tourist arrivals 2015, compared to 7.679 million in 2014, a growth of 4.5%.^[223] India earned $21.07 billion in foreign exchange earnings from tourism receipts in 2015.^[224] International tourism to India has seen a steady growth, year on year, from 2.37 million arrivals in 1997 to 8.03 million arrivals in 2015. The United States is the largest source of international tourists to India, while European Union nations and Japan are other major sources of international tourists.^[225][226] Less than 10% of international tourists visit the Taj Mahal, with majority visiting other cultural, thematic and holiday circuits.^[227] Over 12 million Indian citizens take international trips each year for tourism, while domestic tourism within India adds about 740 million Indian travellers.^[225]

India has a fast-growing medical tourism sector of its health care economy offering low cost health and long term care.^[228][229] In October 2015, India's medical tourism sector was estimated to be worth US$3 billion. It is projected to grow to $7–8 billion by 2020.^[230] In 2014, 184,298 foreign patients traveled to India to seek medical treatment.^[231]

Construction

Education

Entertainment industry

Healthcare

Printing

Telecommunications

The telecommunication sector generated ₹2.20 lakh crore (US$33 billion) in revenue in 2014-15, accounting for 1.94% of total GDP.^[232] India is the second largest market in the world by number of telephone users (both fixed and mobile phone) with 1.053 billion subscribers as on 31 August 2016. It has one of the lowest call tariffs in the world enabled by mega telecom operators and hyper-competition among them. India has the world's third-largest Internet user-base. As on 31 March 2016, there were 342.65 million internet subscribers in the country.^[233]

Industry estimates indicate that there are over 554 million TV consumers in India as of 2012.^[234] India is the largest Direct-to-Home (DTH) television market in the world by number of subscribers. As of May 2016, there were 84.80 million DTH subscribers in the country.^[235]

Foreign trade and investment

Foreign trade

Until the liberalisation of 1991, India was largely and intentionally isolated from the world markets, to protect its economy and to achieve self-reliance. Foreign trade was subject to import tariffs, export taxes and quantitative restrictions, while foreign direct investment (FDI) was restricted by upper-limit equity participation, restrictions on technology transfer, export obligations and government approvals; these approvals were needed for nearly 60% of new FDI in the industrial sector. The restrictions ensured that FDI averaged only around $200 million annually between 1985 and 1991; a large percentage of the capital flows consisted of foreign aid, commercial borrowing and deposits of non-resident Indians.^[236] India's exports were stagnant for the first 15 years after independence, due to general neglect of trade policy by the government of that period. Imports in the same period, due to industrialisation being nascent, consisted predominantly of machinery, raw materials and consumer goods.^[237]

Since liberalisation, the value of India's international trade has increased sharply,^[238] with the contribution of total trade in goods and services to the GDP rising from 16% in 1990–91 to 47% in 2008–10.^[239][240] India accounts for 1.44% of exports and 2.12% of imports for merchandise trade and 3.34% of exports and 3.31% of imports for commercial services trade worldwide.^[240] India's major trading partners are the European Union, China, the United States of America and the United Arab Emirates.^[241] In 2006–07, major export commodities included engineering goods, petroleum products, chemicals and pharmaceuticals, gems and jewellery, textiles and garments, agricultural products, iron ore and other minerals. Major import commodities included crude oil and related products, machinery, electronic goods, gold and silver.^[242] In November 2010, exports increased 22.3% year-on-year to ₹850.63 billion (US$13 billion), while imports were up 7.5% at ₹1,251.33 billion (US$19 billion). Trade deficit for the same month dropped from ₹468.65 billion (US$7.0 billion) in 2009 to ₹400.7 billion (US$6.0 billion) in 2010.^[243]

India is a founding-member of General Agreement on Tariffs and Trade (GATT) since 1947 and its successor, the WTO. While participating actively in its general council meetings, India has been crucial in voicing the concerns of the developing world. For instance, India has continued its opposition to the inclusion of such matters as labour and environment issues and other non-tariff barriers to trade into the WTO policies.^[244]

Balance of payments

Since independence, India's balance of payments on its current account has been negative. Since economic liberalisation in the 1990s, precipitated by a balance of payment crisis, India's exports rose consistently, covering 80.3% of its imports in 2002–03, up from 66.2% in 1990–91.^[245] However, the global economic slump followed by a general deceleration in world trade saw the exports as a percentage of imports drop to 61.4% in 2008–09.^[246] India's growing oil import bill is seen as the main driver behind the large current account deficit,^[247] which rose to $118.7 billion, or 11.11% of GDP, in 2008–09.^[248] Between January and October 2010, India imported $82.1 billion worth of crude oil.^[247]

Indian economy has run a trade deficit every year over 2002-2012 period, with a merchandise trade deficit of US$189 billion in 2011-12.^[249] Its trade with China has the largest deficit, about $31 billion in 2013.^[250]

India's reliance on external assistance and concessional debt has decreased since liberalisation of the economy, and the debt service ratio decreased from 35.3% in 1990–91 to 4.4% in 2008–09.^[251] In India, External Commercial Borrowings (ECBs), or commercial loans from non-resident lenders, are being permitted by the Government for providing an additional source of funds to Indian corporates. The Ministry of Finance monitors and regulates them through ECB policy guidelines issued by the Reserve Bank of India under the Foreign Exchange Management Act of 1999.^[252] India's foreign exchange reserves have steadily risen from $5.8 billion in March 1991 to $318.6 billion in December 2009. ^[253] In 2012, the United Kingdom announced an end to all financial aid to India, citing the growth and robustness of Indian economy.^[254][255]

Foreign direct investment

Share of top five investing countries in FDI inflows. (2000–2010)^[256]

Rank	Country	Inflows (million USD)	Inflows (%)
1	Mauritius	50,164	42.00
2	Singapore	11,275	9.00
3	USA	8,914	7.00
4	UK	6,158	5.00
5	Netherlands	4,968	4.00

As the third-largest economy in the world in PPP terms, India has attracted foreign direct investment;^[257] During the year 2011, FDI inflow into India stood at $36.5 billion, 51.1% higher than 2010 figure of $24.15 billion. India has strengths in telecommunication, information technology and other significant areas such as auto components, chemicals, apparels, pharmaceuticals, and jewellery. Despite a surge in foreign investments, rigid FDI ^[258] policies were a significant hindrance. Over time, India has adopted a number of FDI reforms.^[257] India has a large pool of skilled managerial and technical expertise. The size of the middle-class population stands at 300 million and represents a growing consumer market.^[259]

India's liberalised its FDI policy in 2005, allowing up to a 100% FDI stake in ventures. Industrial policy reforms have substantially reduced industrial licensing requirements, removed restrictions on expansion and facilitated easy access to foreign technology and foreign direct investment FDI. The upward moving growth curve of the real-estate sector owes some credit to a booming economy and liberalised FDI regime. In March 2005, the government amended the rules to allow 100% FDI in the construction sector, including built-up infrastructure and construction development projects comprising housing, commercial premises, hospitals, educational institutions, recreational facilities, and city- and regional-level infrastructure.^[260] Over 2012-14, India extended these reforms to defence, telecom, oil, retail, aviation and a number of other sectors.^[261][262]

During 2000–10, the country attracted $178 billion as FDI.^[263] The inordinately high investment from Mauritius is due to routing of international funds through the country given significant tax advantages; double taxation is avoided due to a tax treaty between India and Mauritius, and Mauritius is a capital gains tax haven, effectively creating a zero-taxation FDI channel.^[264]

From India Since 2000, Indian companies have expanded overseas, investing FDI and creating jobs outside India. Over the 2006-2010 period, FDI by Indian companies outside India amounted to 1.34 per cent of its GDP.^[265] Indian companies have deployed FDI and started operations in the United States,^[266] while others have expanded in Europe and Africa.^[267] The Indian company Tata is United Kingdom's largest manufacturer and private sector employer.^[268][269]

Currency

Year	INR₹ per US$ (average annual)[270]
1975	9.4058
1980	7.8800
1985	12.3640
1990	17.4992
1995	32.4198
2000	44.9401
2005	44.1000
2010	45.7393
2013	58.5515
2014	61.4000
2015	64.05

The Indian rupee (₹) is the only legal tender in India, and is also accepted as legal tender in the neighbouring Nepal and Bhutan, both of which peg their currency to that of the Indian rupee. The rupee is divided into 100 paisas. The highest-denomination banknote is the ₹ 2,000 note; the lowest-denomination coin in circulation is the 50 paise coin;^[271] with effect from 30 June 2011 all denominations below 50 paise have ceased to be legal currency.^[272][273] India's monetary system is managed by the Reserve Bank of India (RBI), the country's central bank.^[274] Established on 1 April 1935 and nationalised in 1949, the RBI serves as the nation's monetary authority, regulator and supervisor of the monetary system, banker to the government, custodian of foreign exchange reserves, and as an issuer of currency. It is governed by a central board of directors, headed by a governor who is appointed by the Government of India.^[275]

The rupee was linked to the British pound from 1927 to 1946 and then the US dollar till 1975 through a fixed exchange rate. It was devalued in September 1975 and the system of fixed par rate was replaced with a basket of four major international currencies – the British pound, the US dollar, the Japanese yen and the Deutsche mark.^[276] In 1991, after the collapse of its largest trading partner Soviet Union, India faced the major foreign exchange crisis and the rupee was devalued by around 19% in two stages on 1 and 2 July. In 1992 a Liberalized Exchange Rate Mechanism – LERMS- was introduced. Under LERMS exporters had to surrender 40 percent of their foreign exchange earnings to the RBI at the RBI determined exchange rate. The balance 60% was allowed to be converted at the market determined exchange rate. In 1994 the rupee was convertible on the current account, with some capital controls.^[277]

After the sharp devaluation in 1991 and transition to current account convertibility in 1994, the value of the rupee is largely determined by the market forces. The rupee has been fairly stable during the decade 2000 to 2010. In September 2013, the rupee touched an all-time low 68.27 to the US dollar.^[278]

Income and consumption

India's gross national income per capita had experienced high growth rates since 2002. India's Per Capita Income has tripled from Rs. 19,040 in 2002–03 to Rs. 53,331 in 2010–11, averaging 13.7% growth over these eight years peaking 15.6% in 2010–11.^[280] 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, not household.^[281] On a household basis, the average income in India was $6,671 per household in 2011.^[282]

Per 2011 census, India has about 330 million houses and 247 million households. The household size in India has dropped in recent years, with 2011 census reporting 50% of households have 4 or less members. The average per 2011 census was 4.8 members per household, and included surviving grandparents.^[283][284] These households produced a GDP of about $1.7 trillion.^[285] The household consumption patterns per 2011 census: 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 from their house in urban areas and 500 metres from the house in rural areas; 67% of the households have access to electricity; 63% of households have landline or mobile telephone connection; 43% have a television; 26% have either a two-wheel (motorcycle) or four wheel (car) vehicle. Compared to 2001, these income and consumption trends represent moderate to significant improvements.^[283] One report in 2010 claimed that the number of high income households has crossed lower income households.^[286]

Poverty

The World Bank reviewed and proposed revisions in May 2014, to its older poverty calculation methodology of 2005 and purchasing power parity basis for measuring poverty worldwide, including India. According to this revised methodology, the world had 872.3 million people below the new poverty line, of which 179.6 million people lived in India. In other words, India with 17.5% of total world's population, had 20.6% share of world's poorest in 2013.^[288] According to a 2005-2006 survey,^[289] 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 46 in 188 countries on this metric.^[290]

Since the early 1960s, successive governments have implemented various schemes to alleviate poverty, under central planning, that have met with partial success.^[291] In 2005, Indian government enacted the Mahatma Gandhi National Rural Employment Guarantee Act, guaranteeing 100 days of minimum wage employment to every rural household in all the districts of India.^[292] In 2011, this Rural Employment Guarantee programme was widely criticised as no more effective than other poverty reduction programs in India. Despite its best intentions, MGNREGA is beset with controversy about corrupt officials, deficit financing as the source of funds, poor quality of infrastructure built under this program, and unintended destructive effect on poverty.^{[293][294][295]} Other studies suggest that the Rural Employment Guarantee welfare program has helped in reducing rural poverty in some cases.^[296][297] Yet other studies report that India's economic growth has been the driver of sustainable employment and poverty reduction, but a sizeable population remains in poverty.^[298][299]

Employment

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.^[59] Of the total workforce, 7% is in the organised sector, two-thirds of which are in the government controlled public sector.^[300] About 51.2% of the labour in India is self-employed.^[59] 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.^[301]

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 setting up businesses, skill honing, 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 has also put political pressure on further reforms.^[302][303] 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.^[304][305] 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.^[306] Further, inequalities and inadequacies in the education system have been identified as an obstacle preventing the benefits of increased employment opportunities from reaching all sectors of society.^[307]

Child labour in India is a complex problem that is basically rooted in poverty. The Indian government has implemented, since the 1990s, a variety of programs to eliminate child labour. These have included setting up schools, launching free school lunch program, setting up special investigation cells and others.^[308][309] Desai et al. state 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 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.^[310]

India has the largest diaspora around the world, an estimated 16 million people,^[311] 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 alone have employed another 2 million Indian construction workers during its construction boom in recent decades.^[312] In 2009–10, remittances from Indian migrants overseas stood at ₹2,500 billion (US$37 billion), the highest in the world, but their share in FDI remained low at around 1%.^[313]

Economic trends and issues

With 1.27 billion people and the world's third-largest economy in terms of purchasing power, India's recent growth and development has been one of the most significant achievements of our times. Over the six and half decades since independence, the country has brought about a landmark agricultural revolution that has transformed the nation from chronic dependence on grain imports into a global agricultural powerhouse that is now a net exporter of food. Life expectancy has more than doubled, literacy rates have quadrupled, health conditions have improved. India will soon have the largest and youngest workforce the world has ever seen. At the same time, the country is in the midst of a massive wave of urbanization as some 10 million people move to towns and cities each year in search of jobs and opportunity. It is the largest rural-urban migration of this century. Massive investments will be needed to create the jobs, housing, and infrastructure to meet soaring aspirations and make towns and cities more livable and green.

— World Bank: "India Country Overview 2013"^[314]

Agriculture

Agriculture is an important part of Indian economy. At around 1.53 million square km, India has the second largest amount of arable land of any country after the USA,with percentage of cultivated land compared to total land area being close to 52℅, second highest after Bangladesh(over 68℅) among major labour-intensive agricultural economies. Although the total land area of the country is only slightly more than one third of China's or the USA's, India's arable land is marginally smaller than that of the U.S, and marginally bigger than China's. In 2008, a New York Times article claimed, with the right technology and policies, India could contribute to feeding not just itself but the world. However, agricultural output of India lags far behind its potential.^[315] The low productivity in India is a result of several factors. According to the World Bank, India's large agricultural subsidies are distorting what farmers grow and they are hampering productivity-enhancing investment. While over-regulation of agriculture has increased costs, price risks and uncertainty, governmental intervention in labour, land, and credit markets are hurting the market. Infrastructure such as rural roads, electricity, ports, food storage, retail markets and services are inadequate.^[316] Further, the average size of land holdings is very small, with 70% of holdings being less than one hectare in size.^[317] Irrigation facilities are inadequate, as revealed by the fact that only 46% of the total cultivable land was irrigated as of 2016,^[123] resulting in farmers still being dependent on rainfall, specifically the monsoon season, which is often inconsistent and unevenly distributed across the country.^[318] To bring an additional two crore hectares of land under irrigation through various agriculture schemes including Accelerated Irrigation Benefit Programme (AIBP)for which a provision of Rs 80,000 crore has been sanctioned in the union budget.^[319] Farmer incomes are low also in part because of lack of food storage and distribution infrastructure. A third of India's agriculture produce is lost from spoilage.^[221]

Corruption

Corruption has been one of the pervasive problems affecting India. A 2005 study by Transparency International (TI) found that more than half of those surveyed had firsthand experience of paying bribe or peddling influence to get a job done in a public office in the previous year.^[320] A follow-on 2008 TI study found this rate to be 40 percent.^[321] In 2011, Transparency International ranked India at 95th place amongst 183 countries in perceived levels of public sector corruption and in 2014 India saw a reduction in corruption and improved the ranking to 85th place.^[322]

In 1996, red tape, bureaucracy and the Licence Raj were suggested as a cause for the institutionalised corruption and inefficiency.^[323] More recent reports^{[324][325][326]} suggest the causes of [[corruption in /ref> During the year 2011, FDI inflow into India stood at $36.5/ref>India]] 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.

The Right to Information Act (2005) which requires government officials to furnish information requested by citizens or face punitive action, computerisation of services, and various central and state government acts that established vigilance commissions, have considerably reduced corruption and opened up avenues to redress grievances.^[320]

In 2011, the Indian government concluded that most spending fails to reach its intended recipients. A large, cumbersome and tumor-like bureaucracy sponges up or siphons off spending budgets.^[327] India's absence rates are one of 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.^[328][329] 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.^[330]

The Indian economy has an underground economy, with a 2006 report alleging that the Swiss Bankers Association suggested India topped the worldwide list for black money with almost $1,456 billion stashed in Swiss banks. This amounts to 13 times the country's total external debt.^[331][332] These allegations have been denied by Swiss Banking Association. James Nason, the Head of International Communications for Swiss Banking Association, suggests "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 Narendra Modi, the Prime Minister of India, on 8 November 2016, involved the demonetization of all 500 and 1000 rupee bank notes in order to bring out black money into the economy. New 500 and 2000 rupee notes have replaced the 500 and 1000 rupee notes. ^[333][334]

Education

India has made huge progress in terms of increasing primary education attendance rate and expanding literacy to approximately three-fourths of the population.^[335] 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.^[336] However, the literacy rate of 74% is still lower than the worldwide average and the country suffers from a high drop-out rate.^[337] Further, the literacy rates and educational opportunities vary by region, gender, urban and rural areas, and among different social groups.^[338][339]

Economic disparities

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^[314]

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.^[340] Six low-income states – Assam, Chhattisgarh, Nagaland, Madhya Pradesh, Odisha and Uttar Sikkim – are home to more than one-third of India's population.^[341] Severe disparities exist among states in terms of income, literacy rates, life expectancy and living conditions.^[342]

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, but the results have not been very encouraging since these measures in fact increased inefficiency and hampered effective industrial growth.^[343] After liberalisation, the more advanced states have been better placed to benefit from them, with well-developed infrastructure and an educated and skilled workforce, which attract the manufacturing and service sectors. The governments of backward regions are trying to reduce disparities by offering tax holidays and cheap land, and focusing more on sectors like tourism which, although being geographically and historically determined, can become a source of growth and develops faster than other sectors.^[344][345] India's income Gini coefficient is 33.9, according to The World Bank, indicating overall income distribution to be more uniform than East Asia, Latin America and Africa that have higher Gini coefficients.^[9]

There is a continuing debate on whether India's economic expansion has been pro-poor or anti-poor.^[346] Studies suggest that the economic growth has been pro-poor and has reduced poverty in India.^[346][347]

Security markets

The development of Indian security markets began with launch of Bombay Stock Exchange (BSE), Mumbai in July 1875 and Ahmedabad Stock exchange in 1894 and 22 other exchange in various cities over the years. 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.^[348] 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 respectively as of Feb 2015, according to World Federation of Exchanges.^[52][349]

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 and Young states^[350] that the low IPO activity reflects market conditions as well as slow government approval process 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 concurrently.^[351] 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.^[350]

See also

• Economic Advisory Council
• Economic development in India

Events:

• Late-2000s recession
• Oil price increases since 2003

Lists:

• List of companies of India
• List of the largest trading partners of India
• Income in India
• Trade unions in India
• Economic history of India
• Minerals in India
• Iron and Steel Industry in India

Notes

References

Books

Papers and reports

Further reading

Books

Articles

• Kaur, Ravinder (2012). "India Inc. and its Moral Discontent". Economic and Political Weekly. 
• Kaur, Ravinder (2015). "Good Times, Brought to you by Brand Modi". Archived from the original on 18 May 2015. 

News

External links

Wikimedia Commons has media related to Economy of India.

Wikiquote has quotations related to: Economy of India

Government

• Ministry of Finance, Government of India
• Department of Commerce, Government of India
• Department of Industrial Policy & Promotion
• Office of the Economic Adviser
• Investment and Trade in India
• Union Budget & Economic Survey
• Reserve Bank of India's database on the Indian economy

General statistics

• India Home - World Bank
• India and the IMF
• UNdata | country profile | India
• CIA – The World Factbook – India