Economy of India
The economy of India is the tenth-largest in the world by nominal GDP and the third-largest by purchasing power parity (PPP). The country is one of the G-20 major economies, a member of BRICS and a developing economy that is among the top 20 global traders according to the WTO. India was the 19th-largest merchandise and the 6th largest services exporter in the world in 2013; it imported a total of $616.7 billion worth of merchandise and services in 2013, as the 12th-largest merchandise and 7th largest services importer. India’s economic growth slowed to 4.7% for the 2013–14 fiscal year, in contrast to higher economic growth rates in 2000s. IMF projects India’s GDP to grow at 5.4% over 2014-15. Agriculture sector is the largest employer in India’s economy but contributes a declining share of its GDP (13.7% in 2012-13). Its manufacturing industry has held a constant share of its economic contribution, while the fastest-growing part of the economy has been its services sector – which includes construction, telecom, software and information technologies, infrastructure, tourism, education, health care, travel, trade, banking and others components of its economy.
INDIA’S ECONOMY HAS MADE great strides in the years since independence. In 1947 the country was poor and shattered by the violence and economic and physical disruption involved in the partition from Pakistan. The economy had stagnated since the late nineteenth century, and industrial development had been restrained to preserve the area as a market for British manufacturers. In fiscal year (FY–see Glossary) 1950, agriculture, forestry, and fishing accounted for 58.9 percent of the gross domestic product (GDP–see Glossary) and for a much larger proportion of employment. Manufacturing, which was dominated by the jute and cotton textile industries, accounted for only 10.3 percent of GDP at that time.
India’s new leaders sought to use the power of the state to direct economic growth and reduce widespread poverty. The public sector came to dominate heavy industry, transportation, and telecommunications. The private sector produced most consumer goods but was controlled directly by a variety of government regulations and financial institutions that provided major financing for large private-sector projects. Government emphasized self-sufficiency rather than foreign trade and imposed strict controls on imports and exports. In the 1950s, there was steady economic growth, but results in the 1960s and 1970s were less encouraging.
Beginning in the late 1970s, successive Indian governments sought to reduce state control of the economy. Progress toward that goal was slow but steady, and many analysts attributed the stronger growth of the 1980s to those efforts. In the late 1980s, however, India relied on foreign borrowing to finance development plans to a greater extent than before. As a result, when the price of oil rose sharply in August 1990, the nation faced a balance of payments crisis. The need for emergency loans led the government to make a greater commitment to economic liberalization than it had up to this time. In the early 1990s, India’s postindependence development pattern of strong centralized planning, regulation and control of private enterprise, state ownership of many large units of production, trade protectionism, and strict limits on foreign capital was increasingly questioned not only by policy makers but also by most of the intelligentsia.
As India moved into the mid-1990s, the economic outlook was mixed. Most analysts believed that economic liberalization would continue, although there was disagreement about the speed and scale of the measures that would be implemented. It seemed likely that India would come close to or equal the relatively impressive rate of economic growth attained in the 1980s, but that the poorest sections of the population might not benefit.
India’s diverse economy encompasses traditional village farming, modern agriculture, handicrafts, a wide range of modern industries, and a multitude of services. Services are the major source of economic growth, accounting for more than half of India’s output with less than one third of its labor force. About three-fifths of the work force is in agriculture, leading the United Progressive Alliance (UPA) government to articulate an economic reform program that includes developing basic infrastructure to improve the lives of the rural poor and boost economic performance. The government has reduced controls on foreign trade and investment. Higher limits on foreign direct investment were permitted in a few key sectors, such as telecommunications.
However, tariff spikes in sensitive categories, including agriculture, and incremental progress on economic reforms still hinder foreign access to India’s vast and growing market. Privatization of government-owned industries remains stalled and continues to generate political debate; populist pressure from within the UPA government and from its Left Front allies continues to restrain needed initiatives. The economy has posted an average growth rate of more than 7% in the decade since 1997, reducing poverty by about 10 percentage points. India achieved 8.5% GDP growth in 2006, and again in 2007, significantly expanding production of manufactures. India is capitalizing on its large numbers of well-educated people skilled in the English language to become a major exporter of software services and software workers.
Economic expansion has helped New Delhi continue to make progress in reducing its federal fiscal deficit. However, strong growth combined with easy consumer credit and a real estate boom fueled inflation concerns in 2006 and 2007, leading to a series of central bank interest rate hikes that have slowed credit growth and eased inflation concerns. The huge and growing population is the fundamental social, economic, and environmental problem.