India has Asia’s third largest economy after China and Japan. The country has an extensive industrial and service sector, while more than half the population rely on agriculture, often for their own use. The differences are huge between those who have been part of India’s modernization and those who have not been reached by it. One can hardly speak of a single Indian economy.
Economic growth in India during the 2000s and 2010s was one of the fastest in the world. The country, among other things, has its own nuclear power industry, is a large arms manufacturer and builds its own spacecraft and cars. In the IT industry, India has developed into one of the major software manufacturers. The country’s tourism industry is also economically significant.
Countryaah.com: Major imports by India, covering a full list of top products imported by the country and trade value for each product category.
The development has benefited from good access to well-educated manpower and extended telecommunications and internet connections. Western countries have increasingly placed services on cheaper India, and the service sector is the industry that has grown the most; it now accounts for more than half of the country’s GDP.
At the same time, there are still obstacles in the form of undeveloped infrastructure (roads, electricity networks, etc.), rigid labor market legislation and extensive corruption and bureaucracy.
In the economy, there are major regional differences: in the state of Orissa, over half the population lives in poverty, in Punjab only a few percent. The economic gap is also deep between the city and the countryside. In the big cities there is a rich elite and a fast growing middle class. In the slums and in the countryside there is still a terrible mass poverty.
However, the proportion of poor Indians has decreased, from more than half of the population in the early 1970s to about one fifth by the end of the 2010s. The fastest decline has been in the last decade.
Abbreviationfinder.org: Check this abbreviation website to find three letter ISO codes for all countries in the world, including IND which represents the country of India. Check findjobdescriptions to learn more about India.
Rapid growth, slow reforms
Economic development was for a long time entirely state-controlled and until the 1980s the Indian economy developed more slowly than most other developing countries. When Oxford-educated economist Manmohan Singh took over as finance minister in 1991, India was in a difficult financial crisis. Singh (later prime minister 2004–2014) opened the country’s economy to the outside world and sold state-owned companies to attract foreign investors and boost the economy.
Productivity increased during the 1990s when the Indian companies faced foreign competition. Other reforms went slowly, perhaps because powerful forces within the large state bureaucracy and the business community felt threatened and therefore thwarted them. The privatization of state-owned enterprises went slower than promised, and despite cut subsidies, huge sums still went to unproductive state-owned companies.
The reforms also continued under the Hindu-dominated right-wing government that took office in the spring of 1998. In general, reform policy has always had support across party borders and implemented – albeit at a slow pace – regardless of which party bloc has been in power.
The Congress-led government (2004–2014) saw poverty reduction and distribution issues as particularly important. Investments were made on primary health care, basic education, as well as on increased employment and improved living conditions in rural areas. During the global financial crisis of 2008, the government embarked on economic stimulus packages, which accelerated the manufacturing industry and the service sector.
Already in 2010, the Indian economy grew rapidly again. Only China’s economy grew faster that year. Agricultural production was high, vehicle sales increased, as did lending in the banks. India’s economy got a headache; high inflation forced the central bank to raise the policy rate six times during the year.
In 2012 and 2013, some slowdown occurred. Industrial production slowed somewhat, foreign investment decreased, trade deficit grew and the value of the Indian rupee fell. The government again focused on stimulus measures, including opening the Indian retail trade for foreign investment.
Mixed result for Modi
When Narendra Modi and his business-friendly, Hindu nationalist BJP won government power in the spring of 2014, everything from a million new jobs a month to pledges against both corruption and black trade was promised. A number of reforms were initiated at a rapid pace. Some received praise, others criticized.
Most praised was Modi for a successful investment in opening bank accounts (318 million accounts 2014–2018) to Indian citizens and for the digitization of various types of transfers in the community. The introduction of a new tax system in 2017 that better links the states to a single Indian economy also seems to have worked relatively well. The system has also increased tax revenue to the Treasury. The “Make in India” initiative, which aims to create new jobs and high economic growth by drawing foreign investment into the manufacturing industry with the help of simplified rules for the companies, has also had some success. According to the UN agency UNCTAD, India 2017 was the world’s third most attractive country for foreign investment. Inflation was kept in check during the term of office.
Other changes have been criticized. This applies not least to the decision in November 2016 to scrap 86 per cent of all banknotes on the Indian market at short notice. It was an attempt to address crimes such as tax evasion and money laundering, which was partly successful, but the measure also affected poor Indians with savings in cash (mainly peasants and people living in the informal sector). In many cases, they lost their assets because they had no bank account to deposit the banknotes on. The promise of a million new jobs per month was not fulfilled, which created frustration among the more than one million young Indians who join the country’s workforce each month.
The rapid currency reform combined with falling producer prices in agriculture made it difficult for many farmers from 2017 to manage their supply. They began to conduct mass demonstrations against economic policy. When the states of Uttar Pradesh and Maharashtra granted farmers amortization of debt in April and June respectively, demands for the same increased in other states.
Growth is slowing down
At the beginning of the 2019 election year, the BJP government made a series of pledges to poor rural households – a large electoral group. A new government-funded program was promised to cover healthcare costs up to a certain limit of about 100 million poor households. Thousands of health clinics will be built where the poor can get free medicines and examinations. The subsidies to agriculture should increase as the state buys more crops at a minimum price than before. Tens of thousands of local marketplaces will be renovated and money will be spent on new rural road construction and basic education.
At the same time, it was clear that the Indian economy was starting to slow down and that unemployment had risen to record levels. After the election victory, the Modi government took a series of measures to stimulate the economy. It sought to attract new foreign investment to the coal mines, the manufacturing industry, parts of the retail trade and the digital media market. The central bank granted the government extra funding for the Treasury.
During the quarter July-September 2019, the growth rate in the Indian economy was the lowest in over six years – 4.5 percent. In the same quarter of 2018, growth was 7.0 percent. This was the sixth consecutive quarter as the growth rate slowed. The development posed a major challenge to the Modi government whose promises of millions of new jobs seemed to be becoming increasingly difficult to fulfill. Finance Minister Sitharaman tried to reverse the trend by easing restrictions on foreign investment in key sectors, lowering corporate taxes and carrying out more sales. The central bank of India cut its key rate five times in 2019.
At the beginning of 2020, official statistics showed that GDP growth in 2019 was the lowest since the 2008 financial crisis. The slowdown was partly due to a decrease in foreign investment and a slowdown in the manufacturing industry. In order to increase domestic consumption and foreign investment willingness, the government allowed a larger budget deficit than planned for 2020; public costs were allowed to be higher than planned and some taxes were lowered, for example for low-income earners. Farmers received increased support for investments in solar energy; the idea was that they could sell electricity to the local electricity market.
Corona pandemic beats the economy
In May 2020, Prime Minister Modi presented an economic stimulus package that represented 10 percent of the country’s GDP. The $ 266 billion that the package consisted of would go to help employees and small and medium-sized businesses hard hit by the corona pandemic. No details of the stimulus package emerged, but Modi stressed that India needs to become more self-sufficient and that the Indians should buy locally produced goods to support the country’s businesses. In April, about 122 million Indians lost their jobs because of the shutdown of the country, according to the Bombay-based think tank Center for Monitoring Indian Economy.
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FACTS – FINANCE
GDP per person
US $ 2,016 (2018)
Total GDP
US $ 2,726,323 million (2018)
GDP growth
7.0 percent (2018)
Agriculture’s share of GDP
14.5 percent (2018)
Manufacturing industry’s share of GDP
15.0 percent (2018)
The service sector’s share of GDP
49.0 percent (2018)
Inflation
3.4 percent (2019)
Government debt’s share of GDP
68.1 percent (2018)
External debt
US $ 513,209 M (2017)
Currency
rupee
Merchandise exports
US $ 332,087 million (2018)
Imports
US $ 518,779 million (2018)
Current account
– US $ 65 599 million (2018)
Commodity trade’s share of GDP
31 percent (2018)
Main export goods
machinery, vehicles, iron and steel, chemicals, oil products; pearls, gems and jewelery; clothing, fabrics and sports articles; technologically advanced industrial products (eg computer software)
