- "Dollar" and "$" refer throughout to the US dollar.
The
Economy of India is the
ninth largest in the world by
nominal GDPGross domestic product refers to the market value of all final goods and services produced within a country in a given period. GDP per capita is often considered an indicator of a country's standard of living....
and the
fourth largest by
purchasing power parity (PPP). The country is a part of the
G-20 major economiesThe Group of Twenty Finance Ministers and Central Bank Governors is a group of finance ministers and central bank governors from 20 major economies: 19 countries plus the European Union, which is represented by the President of the European Council and by the European Central Bank...
and the
BRICSBRICS is an international political organisation of leading emerging economies, arising out of the inclusion of South Africa into the BRIC group in 2010. As of 2011, its five members are Brazil, Russia, India, China and South Africa...
, in addition to being partners of the ASEAN. India has a per capita GDP (PPP) of $3,608(
WBGThe World Bank is an international financial institution that provides loans to developing countries for capital programmes.The World Bank's official goal is the reduction of poverty...
) as per 2010 figures, making it a low-middle income country. The independence-era Indian economy was inspired by the economy of the
Soviet UnionThe Soviet Union , officially the Union of Soviet Socialist Republics , was a constitutionally socialist state that existed in Eurasia between 1922 and 1991....
with socialist practices, large public sectors, high import duties and lesser private participation characterizing it, leading to massive inefficiencies and widespread corruption. However, in 1991, India adopted free market principles and liberalized its economy to international trade under the guidance of current Prime Minister
Manmohan SinghManmohan Singh is the 13th and current Prime Minister of India. He is the only Prime Minister since Jawaharlal Nehru to return to power after completing a full five-year term. A Sikh, he is the first non-Hindu to occupy the office. Singh is also the 7th Prime Minister belonging to the Indian...
, who then was the Finance Minister of India under the leadership of P.V.Narasimha Rao the then Prime Minister. Following these strong economic reforms, the country's economic growth progressed at a rapid pace with very high rates of growth and large increases in the incomes of people. India recorded the highest growth rates in the mid-2000s, and is one of the fastest-growing economies in the world. The growth was led primarily due to a huge increase in the size of the middle class consumer population, a large workforce comprising skilled and non-skilled workers, improvement in education standards and considerable foreign investments. India is the
seventeenth largest exporter and
eleventh largest importer in the world. Economic growth rates are projected at around 7.5%-8% for the financial year 2011-2012.
Overview
Social democratic policies governed India's economy from 1947 to 1991. The economy was characterised by extensive regulation,
protectionismProtectionism is the economic policy of restraining trade between states through methods such as tariffs on imported goods, restrictive quotas, and a variety of other government regulations designed to allow "fair competition" between imports and goods and services produced domestically.This...
, public ownership, pervasive corruption and slow growth. Since 1991, continuing economic liberalisation has moved the country towards a
market-based economyA market economy is an economy in which the prices of goods and services are determined in a free price system. This is often contrasted with a state-directed or planned economy. Market economies can range from hypothetically pure laissez-faire variants to an assortment of real-world mixed...
. A revival of economic reforms and better economic policy in first decade of the 21st century accelerated India's
economic growth rateThe economic development in India followed a socialist-inspired policies for most of its independent history, including state-ownership of many sectors; extensive regulation and red tape known as "Licence Raj"; and isolation from the world economy. India's per capita income increased at only around...
. In recent years, Indian cities have continued to liberalise business regulations. By 2008, India had established itself as the world's
second-fastest growing major economy.
However, as a result of the financial crisis of 2007–2010, coupled with a poor monsoon, India's gross domestic product (GDP) growth rate significantly slowed to 6.7% 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. India’s current account deficit surged to 4.1% of GDP during Q2 FY11 against 3.2% the previous quarter. The unemployment rate for 2009–2010, according to the state Labour Bureau, was 9.4% nationwide, rising to 10.1% in rural areas, where two-thirds of the 1.2 billion population live. As of 2010, India's
public debtGovernment debt is money owed by a central government. In the US, "government debt" may also refer to the debt of a municipal or local government...
stood at 71.84% of GDP which is highest among
BRICIn economics, BRIC is a grouping acronym that refers to the countries of Brazil, Russia, India and China, which are all deemed to be at a similar stage of newly advanced economic development...
nations.
India's large service industry accounts for 57.2% of the country's GDP while the industrial and agricultural sectors contribute 28.6% and 14.6% respectively. Agriculture is the predominant occupation in India, accounting for about 52% of employment. The service sector makes up a further 34%, and industrial sector around 14%. However, statistics from a 2009–10 government survey, which used a smaller
sample sizeSample size determination is the act of choosing the number of observations to include in a statistical sample. The sample size is an important feature of any empirical study in which the goal is to make inferences about a population from a sample...
than earlier surveys, suggested that the share of agriculture in employment had dropped to 45.5%.
Major industries include telecommunications, textiles, chemicals, food processing, steel, transportation equipment, cement, mining, petroleum, machinery, information technology-enabled services and pharmaceuticals. The labour force totals 500 million workers. Major agricultural
productsIn general, the product is defined as a "thing produced by labor or effort" or the "result of an act or a process", and stems from the verb produce, from the Latin prōdūce ' lead or bring forth'. Since 1575, the word "product" has referred to anything produced...
include rice, wheat, oilseed, cotton, jute, tea, sugarcane, potatoes, cattle,
water buffaloThe water buffalo is a domesticated bovid widely kept in Asia, Europe and South America.Water buffalo can also refer to:*Wild water buffalo , the wild ancestor of the domestic water buffalo...
, sheep, goats, poultry and fish. In 2009–2010, India's top five
trading partners are United Arab Emirates, China, United States, Saudi Arabia and Germany.
Previously a closed economy, India's trade and business sector has grown fast. India currently accounts for 1.5% of world trade as of 2007 according to the World Trade Statistics of the WTO in 2006, which valued India's total merchandise trade (counting exports and imports) at $294 billion and India's services trade at $143 billion. Thus, India's global economic engagement in 2006 covering both merchandise and services trade was of the order of $437 billion, up by a record 72% from a level of $253 billion in 2004. India's total trade in goods and services has reached a share of 43% of GDP in 2005–06, up from 16% in 1990–91. India's total merchandisee trade (counting exports and imports) stands at $ 606.7 billion and is currently the 9th largest in the world.
Pre-colonial period (up to 1773)
The citizens of the Indus Valley civilisation, a permanent settlement that flourished between 2800 BC and 1800 BC, practiced 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 supplyWater supply is the provision of water by public utilities, commercial organisations, community endeavours or by individuals, usually via a system of pumps and pipes...
reveals their knowledge of
urban planningUrban planning incorporates areas such as economics, design, ecology, sociology, geography, law, political science, and statistics to guide and ensure the orderly development of settlements and communities....
, which included the world's first urban
sanitationSanitation is the hygienic means of promoting health through prevention of human contact with the hazards of wastes. Hazards can be either physical, microbiological, biological or chemical agents of disease. Wastes that can cause health problems are human and animal feces, solid wastes, domestic...
systems and the existence of a form of municipal government.
Maritime trade was carried out extensively between
South IndiaSouth India is the area encompassing India's states of Andhra Pradesh, Karnataka, Kerala and Tamil Nadu as well as the union territories of Lakshadweep and Pondicherry, occupying 19.31% of India's area...
and
southeastSoutheast Asia, South-East Asia, South East Asia or Southeastern Asia is a subregion of Asia, consisting of the countries that are geographically south of China, east of India, west of New Guinea and north of Australia. The region lies on the intersection of geological plates, with heavy seismic...
and West Asia from early times until around the fourteenth century AD. Both the
MalabarThe Malabar Coast is a long and narrow coastline on the south-western shore line of the mainland Indian subcontinent. Geographically, it comprises the wettest regions of southern India, as the Western Ghats intercept the moisture-laden monsoon rains, especially on their westward-facing mountain...
and
Coromandel CoastThe Coromandel Coast is the name given to the southeastern coast of the Indian Subcontinent between Cape Comorin and False Divi Point...
s 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. Over time, traders organised themselves into associations which received state patronage. However, 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 and Muslim communities, initially on the Malabar and subsequently on the Coromandel coast. Further north, the Saurashtra and
BengalBengal is a historical and geographical region in the northeast region of the Indian Subcontinent at the apex of the Bay of Bengal. Today, it is mainly divided between the sovereign land of People's Republic of Bangladesh and the Indian state of West Bengal, although some regions of the previous...
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 PassThe Khyber Pass, is a mountain pass linking Pakistan and Afghanistan.The Pass was an integral part of the ancient Silk Road. It is mentioned in the Bible as the "Pesh Habor," and it is one of the oldest known passes in the world....
connecting the
Punjab regionThe Punjab , also spelled Panjab |water]]s"), is a geographical region straddling the border between Pakistan and India which includes Punjab province in Pakistan and the states of the Punjab, Haryana, Himachal Pradesh, Chandigarh and some northern parts of the National Capital Territory of Delhi...
with Afghanistan and onward to the Middle East and Central Asia. Although many kingdoms and rulers issued coins,
barterBarter is a method of exchange by which goods or services are directly exchanged for other goods or services without using a medium of exchange, such as money. It is usually bilateral, but may be multilateral, and usually exists parallel to monetary systems in most developed countries, though to a...
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.
Assessment of India's pre-colonial economy is mostly qualitative, owing to the lack of quantitative information. The Mughal economy functioned on an elaborate system of
coinA coin is a piece of hard material that is standardized in weight, is produced in large quantities in order to facilitate trade, and primarily can be used as a legal tender token for commerce in the designated country, region, or territory....
ed currency, land revenue and trade. Gold, silver and copper coins were issued by the royal
mintsA mint is an industrial facility which manufactures coins for currency.The history of mints correlates closely with the history of coins. One difference is that the history of the mint is usually closely tied to the political situation of an era...
which functioned on the basis of
free coinageCommodity money is money whose value comes from a commodity out of which it is made. It is objects that have value in themselves as well as for use as money....
. 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 agricultureSubsistence agriculture is self-sufficiency farming in which the farmers focus on growing enough food to feed their families. The typical subsistence farm has a range of crops and animals needed by the family to eat and clothe themselves during the year. Planting decisions are made with an eye...
dependent on primitive technology. After the decline of the Mughals, western, central and parts of south and north India were integrated and administered by the
Maratha EmpireThe Maratha Empire or the Maratha Confederacy was an Indian imperial power that existed from 1674 to 1818. At its peak, the empire covered much of South Asia, encompassing a territory of over 2.8 million km²....
. After the loss at the
Third Battle of PanipatThe Third Battle of Panipat took place on 14 January 1761, at Panipat , about 60 miles north of Delhi between a northern expeditionary force of the Maratha Confederacy and a coalition of the King of Afghanistan, Ahmad Shah Abdali with 2 Indian Muslim allies—the Rohilla Afghans of the Doab, and the...
, 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. By the end of the eighteenth century, the British
East India CompanyThe East India Company was an early English joint-stock company that was formed initially for pursuing trade with the East Indies, but that ended up trading mainly with the Indian subcontinent and China...
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.
Colonial period (1773–1947)
Company rule in IndiaCompany rule in India refers to the rule or dominion of the British East India Company on the Indian subcontinent...
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. The economic policies of the
British RajBritish Raj was the British rule in the Indian subcontinent between 1858 and 1947; The term can also refer to the period of dominion...
caused a severe decline in the handicrafts and handloom sectors, due to reduced demand and dipping employment. After the removal of international restrictions by the Charter of 1813, Indian trade expanded substantially and over the long term showed an upward trend. 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.
India's
colonisationColonization occurs whenever any one or more species populate an area. The term, which is derived from the Latin colere, "to inhabit, cultivate, frequent, practice, tend, guard, respect", originally related to humans. However, 19th century biogeographers dominated the term to describe the...
by the British created an institutional environment that, on paper, guaranteed property rights among the colonisers, encouraged
free tradeUnder a free trade policy, prices emerge from supply and demand, and are the sole determinant of resource allocation. 'Free' trade differs from other forms of trade policy where the allocation of goods and services among trading countries are determined by price strategies that may differ from...
, and created a single currency with fixed exchange rates, standardised weights and measures and
capital marketA capital market is a market for securities , where business enterprises and governments can raise long-term funds. It is defined as a market in which money is provided for periods longer than a year, as the raising of short-term funds takes place on other markets...
s. It also established a well-developed system of
railwaysRail transport is a commonly used mode of long-distance transportation in India. Almost all rail operations in India are handled by a state-owned organisation, Indian Railways, Ministry of Railways. The rail network traverses the length and breadth of the country, covering a total length of...
and telegraphs, a civil service that aimed to be free from political interference, a common-law and an adversarial legal system. 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, with industrial development stalled, agriculture unable to feed a rapidly growing population, a largely illiterate and unskilled labour force, and extremely inadequate infrastructure.
The 1872 census revealed that 91.3% of the population of the region constituting present-day India resided in villages, 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.
The impact of the British rule on India's economy is a controversial topic. Leaders of the
Indian independence movementThe term Indian independence movement encompasses a wide area of political organisations, philosophies, and movements which had the common aim of ending first British East India Company rule, and then British imperial authority, in parts of South Asia...
and left-wing people who opposed India's independence movement
economic historiansEconomic history is the study of economies or economic phenomena in the past. Analysis in economic history is undertaken using a combination of historical methods, statistical methods and by applying economic theory to historical situations and institutions...
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 Europe was derived from
the wealth taken from colonies in Asia and Africa. 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 integrationEconomic integration refers to trade unification between different states by the partial or full abolishing of customs tariffs on trade taking place within the borders of each state...
.
Pre-liberalisation period (1947–1991)
Indian
economic policyEconomic policy refers to the actions that governments take in the economic field. It covers the systems for setting interest rates and government budget as well as the labor market, national ownership, and many other areas of government interventions into the economy.Such policies are often...
after independence was influenced by the colonial experience, which was seen by Indian leaders as exploitative, and by those leaders' exposure to democratic socialism as well as the progress achieved by the
economy of the Soviet UnionThe economy of the Union of Soviet Socialist Republics was based on a system of state ownership of the means of production, collective farming, industrial manufacturing and centralized administrative planning...
. Domestic policy tended towards protectionism, with a strong emphasis on import substitution industrialisation,
economic interventionismEconomic interventionism is an action taken by a government in a market economy or market-oriented mixed economy, beyond the basic regulation of fraud and enforcement of contracts, in an effort to affect its own economy...
, a large
public sectorThe public sector, sometimes referred to as the state sector, is a part of the state that deals with either the production, delivery and allocation of goods and services by and for the government or its citizens, whether national, regional or local/municipal.Examples of public sector activity range...
, business regulation, and central planning, while trade and foreign investment policies were relatively liberal.
Five-Year Plans of IndiaThe economy of India is based in part on planning through its five-year plans, which are developed, executed and monitored by the Planning Commission. The tenth plan completed its term in March 2007 and the eleventh plan is currently underway...
resembled central planning in the
Soviet UnionThe Soviet Union , officially the Union of Soviet Socialist Republics , was a constitutionally socialist state that existed in Eurasia between 1922 and 1991....
. Steel, mining, machine tools, telecommunications, insurance, and power plants, among other industries, were effectively nationalised in the mid-1950s.
Jawaharlal NehruJawaharlal Nehru , often referred to with the epithet of Panditji, was an Indian statesman who became the first Prime Minister of independent India and became noted for his “neutralist” policies in foreign affairs. He was also one of the principal leaders of India’s independence movement in the...
, the first
prime minister of IndiaThe Prime Minister of India , as addressed to in the Constitution of India — Prime Minister for the Union, is the chief of government, head of the Council of Ministers and the leader of the majority party in parliament...
, along with the statistician
Prasanta Chandra MahalanobisPrasanta Chandra Mahalanobis FRS was an Indian scientist and applied statistician. He is best remembered for the Mahalanobis distance, a statistical measure. He made pioneering studies in anthropometry in India...
, formulated and oversaw economic policy during the initial years of the country's existence. They expected favorable outcomes from their strategy, involving the rapid development of
heavy industryHeavy industry does not have a single fixed meaning as compared to light industry. It can mean production of products which are either heavy in weight or in the processes leading to their production. In general, it is a popular term used within the name of many Japanese and Korean firms, meaning...
by both public and
private sectorIn economics, the private sector is that part of the economy, sometimes referred to as the citizen sector, which is run by private individuals or groups, usually as a means of enterprise for profit, and is not controlled by the state...
s, and based on direct and indirect state intervention, rather than the more extreme
Soviet-styleThe economy of the Union of Soviet Socialist Republics was based on a system of state ownership of the means of production, collective farming, industrial manufacturing and centralized administrative planning...
central command system. The policy of concentrating simultaneously on capital- and technology-intensive heavy industry and subsidising manual, low-skill cottage industries was criticised by economist
Milton FriedmanMilton Friedman was an American economist, statistician, academic, and author who taught at the University of Chicago for more than three decades...
, who thought it would waste capital and labour, and retard the development of small manufacturers. The rate of growth of the Indian economy in the first three decades after independence was derisively referred to as the
Hindu rate of growthThe Hindu rate of growth is a controversial and derogatory expression used to refer to the low annual growth rate of the socialist economy of India before 1991, which stagnated around 3.5% from 1950s to 1980s, while per capita income growth averaged 1.3%....
by economists, because of the unfavourable comparison with growth rates in other Asian countries.
Since 1965, the use of
high-yielding varieties of seedsIn agriculture and gardening, hybrid seed is seed produced by cross-pollinated plants. In hybrid seed production, the crosses are specific and controlled. The advantage of growing hybrid seed compared to inbred lines comes from heterosis...
, increased fertilisers and improved
irrigationIrrigation may be defined as the science of artificial application of water to the land or soil. It is used to assist in the growing of agricultural crops, maintenance of landscapes, and revegetation of disturbed soils in dry areas and during periods of inadequate rainfall...
facilities collectively contributed to the
Green Revolution in IndiaThe introduction of high-yielding varieties of seeds and the increased use of fertilizers and irrigation are known collectively as the Green Revolution, which provided the increase in production needed to make India self-sufficient in food grains, thus improving agriculture 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. However, it has also been criticised as an unsustainable effort, resulting in the growth of capitalistic farming, ignoring institutional reforms and widening income disparities.
Post-liberalisation period (since 1991)
.
In the late 1970s, the government led by
Morarji DesaiMorarji Ranchhodji Desai was an Indian independence activist and the fourth Prime Minister of India from 1977–79. He was the first Indian Prime Minister who did not belong to the Indian National Congress...
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. He also raised the income tax levels at one point to a maximum of 97.5%, a record in the world for non-communist economies. However, the subsequent government policy of Fabian socialism hampered the benefits of the economy, leading to high fiscal deficits and a worsening current account. The collapse of the Soviet Union, which was India's major trading partner, and the
Gulf WarThe Persian Gulf War , commonly referred to as simply the Gulf War, was a war waged by a U.N.-authorized coalition force from 34 nations led by the United States, against Iraq in response to Iraq's invasion and annexation of Kuwait.The war is also known under other names, such as the First Gulf...
, 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. India asked for a $1.8 billion bailout loan from the
International Monetary FundThe International Monetary Fund is an organization of 187 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world...
(IMF), which in return demanded reforms.
In response, Prime Minister
Narasimha RaoNarasimha Rao or Narasimharao is one of the Indian names.* Pamulaparthi Venkata Narasimha Rao served as the 10th Prime Minister of India.* Modireddy Venkat Narasimha Rao, is a former Indian cricketer....
, along with his finance minister
Manmohan SinghManmohan Singh is the 13th and current Prime Minister of India. He is the only Prime Minister since Jawaharlal Nehru to return to power after completing a full five-year term. A Sikh, he is the first non-Hindu to occupy the office. Singh is also the 7th Prime Minister belonging to the Indian...
, initiated the economic liberalisation of 1991. The reforms did away with the
Licence RajLicence Raj, the Permit Raj, refers to the elaborate licenses, regulations and accompanying red tape that were required to set up and run businesses in India between 1947 and 1990....
, reduced tariffs and interest rates and ended many public monopolies, allowing automatic approval of
foreign direct investmentForeign direct investment or foreign investment refers to the net inflows of investment to acquire a lasting management interest in an enterprise operating in an economy other than that of the investor.. It is the sum of equity capital,other long-term capital, and short-term capital as shown in...
in many sectors. 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. By the turn of the 20th century, India had progressed towards a free-market economy, with a substantial reduction in state control of the economy and increased financial liberalisation. This has been accompanied by increases in life expectancy, literacy rates and food security, although the beneficiaries have largely been urban residents.
While the credit rating of India was hit by its
nuclear weapons tests in 1998Pokharan-II refers to test explosions of five nuclear devices, three on 11 May and two on 13 May 1998, conducted by India at the Pokhran test range. These nuclear tests resulted in a variety of sanctions against India by a number of major states....
, it has since been raised to investment level in 2003 by S&P and Moody's. In 2003,
Goldman SachsThe Goldman Sachs Group, Inc. is an American multinational bulge bracket investment banking and securities firm that engages in global investment banking, securities, investment management, and other financial services primarily with institutional clients...
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.
Industry and services
Industry accounts for 28% of the GDP and employ 14% of the total workforce. In absolute terms, India is
12th in the world in terms of nominal factory output. The Indian industrial sector underwent significant changes as a result of the economic reforms of 1991, which removed import restrictions, brought in foreign competition, led to privatisation of certain public sector industries, liberalised the FDI regime, improved infrastructure and led to an expansion in the production of
fast moving consumer goodsFast moving consumer goods or Consumer Packaged Goods are products that are sold quickly and at relatively low cost. Examples include non-durable goods such as soft drinks, toiletries, and grocery items...
. 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.
Textile manufacturing is the second largest source of employment after agriculture and accounts for 20% of manufacturing output, providing employment to over 20 million people. As stated in late January, by the then Minister of Textiles, India, Shri Shankersinh Vaghela, the transformation of the textile industry from a degrading to rapidly developing industry, has become the biggest achievement of the central government. After freeing the industry in 2004–2005 from a number of limitations, primarily financial, the government gave the green light to the flow of massive investment – both domestic and foreign. During the period from 2004 to 2008, total investment amounted to 27 billion dollars. By 2012, still convinced of the government, this figure will reach 38 billion as expected; these investments in 2012 will create an additional sector of more than 17 million jobs. But demand for Indian textiles in world markets continues to fall. According to Union Minister for Commerce and Industries Kamal Nath, only during 2008–2009 fiscal year (which ends 31 March) textile and clothing industry will be forced to cut about 800 thousand new jobs – nearly half of the rate of two million, which will have to go all the export-oriented sectors of Indian economy to soften the impact of the global crisis.
Ludhiana produces 90% of woollens in India and is known as the Manchester of India.
TirupurTiruppur pronounced as is a textile city located on the banks of Noyyal River. It is also called Dollar city. It is the administrative headquarters of the Tiruppur district. It forms a part of the ancient Kongu Nadu region of South India, where its people were the first to establish territorial...
has gained universal recognition as the leading source of hosiery, knitted garments, casual wear and sportswear.
India is
13th in services output. The services sector provides employment to 23% of the work force and is growing quickly, with a growth rate of 7.5% in 1991–2000, up from 4.5% in 1951–80. It has the largest share in the GDP, accounting for 55% in 2007, up from 15% in 1950. Information technology and
business process outsourcingBusiness process outsourcing is a subset of outsourcing that involves the contracting of the operations and responsibilities of specific business functions to a third-party service provider. Originally, this was associated with manufacturing firms, such as Coca Cola that outsourced large segments...
are among the fastest growing sectors, having a cumulative growth rate of revenue 33.6% between 1997–98 and 2002–03 and contributing to 25% of the country's total exports in 2007–08. 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 sideSupply and demand is an economic model of price determination in a market. It concludes that in a competitive market, the unit price for a particular good will vary until it settles at a point where the quantity demanded by consumers will equal the quantity supplied by producers , resulting in an...
, matched on the demand side by increased demand from foreign consumers interested in India's service exports, or those looking to
outsourceOutsourcing is the process of contracting a business function to someone else.-Overview:The term outsourcing is used inconsistently but usually involves the contracting out of a business function - commonly one previously performed in-house - to an external provider...
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. In 2009, seven Indian firms were listed among the top 15 technology outsourcing companies in the world.
Mining forms an important segment of the Indian economy, with the country producing 79 different minerals (excluding fuel and atomic resources) in 2009–10, including iron ore,
manganeseManganese is a chemical element, designated by the symbol Mn. It has the atomic number 25. It is found as a free element in nature , and in many minerals...
,
micaThe mica group of sheet silicate minerals includes several closely related materials having highly perfect basal cleavage. All are monoclinic, with a tendency towards pseudohexagonal crystals, and are similar in chemical composition...
,
bauxiteBauxite is an aluminium ore and is the main source of aluminium. This form of rock consists mostly of the minerals gibbsite Al3, boehmite γ-AlO, and diaspore α-AlO, in a mixture with the two iron oxides goethite and hematite, the clay mineral kaolinite, and small amounts of anatase TiO2...
,
chromiteChromite is an iron chromium oxide: FeCr2O4. It is an oxide mineral belonging to the spinel group. Magnesium can substitute for iron in variable amounts as it forms a solid solution with magnesiochromite ; substitution of aluminium occurs leading to hercynite .-Occurrence:Chromite is found in...
,
limestoneLimestone is a sedimentary rock composed largely of the minerals calcite and aragonite, which are different crystal forms of calcium carbonate . Many limestones are composed from skeletal fragments of marine organisms such as coral or foraminifera....
,
asbestosAsbestos is a set of six naturally occurring silicate minerals used commercially for their desirable physical properties. They all have in common their eponymous, asbestiform habit: long, thin fibrous crystals...
,
fluoriteFluorite is a halide mineral composed of calcium fluoride, CaF2. It is an isometric mineral with a cubic habit, though octahedral and more complex isometric forms are not uncommon...
,
gypsumGypsum is a very soft sulfate mineral composed of calcium sulfate dihydrate, with the chemical formula CaSO4·2H2O. It is found in alabaster, a decorative stone used in Ancient Egypt. It is the second softest mineral on the Mohs Hardness Scale...
,
ochreOchre is the term for both a golden-yellow or light yellow brown color and for a form of earth pigment which produces the color. The pigment can also be used to create a reddish tint known as "red ochre". The more rarely used terms "purple ochre" and "brown ochre" also exist for variant hues...
,
phosphoritePhosphorite, phosphate rock or rock phosphate is a non-detrital sedimentary rock which contains high amounts of phosphate bearing minerals. The phosphate content of phosphorite is at least 15 to 20% which is a large enrichment over the typical sedimentary rock content of less than 0.2%...
and silica sand. Organised retail supermarkets accounts for 24% of the market as of 2008. Regulations prevent most foreign investment in retailing. Moreover, over thirty regulations such as "signboard licences" and "anti-hoarding measures" may have to be complied before a store can open doors. There are taxes for moving goods from state to state, and even within states.
Tourism in IndiaTourism in India is the largest service industry, with a contribution of 6.23% to the national GDP and 8.78% of the total employment in India. India witnesses more than 5.5 million annual foreign tourist arrivals and 740 million domestic tourism visits...
is relatively undeveloped, but growing at double digits. Some hospitals woo
medical tourismMedical tourism is a term initially coined by travel agencies and the mass media to describe the rapidly-growing practice of travelling across international borders to obtain health care...
.
Agriculture
India
ranks second worldwide in farm output. Agriculture and allied sectors like
forestryForestry is the interdisciplinary profession embracing the science, art, and craft of creating, managing, using, and conserving forests and associated resources in a sustainable manner to meet desired goals, needs, and values for human benefit. Forestry is practiced in plantations and natural stands...
, logging and fishing accounted for 15.7% of the GDP in 2009–10, employed 52.1% of the total workforce, and despite a steady decline of its share in the GDP, is still the largest economic sector and a significant piece of the overall socio-economic development of India.
YieldsIn agriculture, crop yield is not only a measure of the yield of cereal per unit area of land under cultivation, yield is also the seed generation of the plant itself...
per unit area of all crops have 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 IndiaThe introduction of high-yielding varieties of seeds and the increased use of fertilizers and irrigation are known collectively as the Green Revolution, which provided the increase in production needed to make India self-sufficient in food grains, thus improving agriculture in India...
. However, international comparisons reveal the average yield in India is generally 30% to 50% of the highest average yield in the world. Indian states
Uttar PradeshUttar Pradesh abbreviation U.P. , is a state located in the northern part of India. With a population of over 200 million people, it is India's most populous state, as well as the world's most populous sub-national entity...
, Punjab, Haryana,
Madhya PradeshMadhya Pradesh , often called the Heart of India, is a state in central India. Its capital is Bhopal and Indore is the largest city....
,
Andhra PradeshAndhra Pradesh , is one of the 28 states of India, situated on the southeastern coast of India. It is India's fourth largest state by area and fifth largest by population. Its capital and largest city by population is Hyderabad.The total GDP of Andhra Pradesh is $100 billion and is ranked third...
,
BiharBihar is a state in eastern India. It is the 12th largest state in terms of geographical size at and 3rd largest by population. Almost 58% of Biharis are below the age of 25, which is the highest proportion in India....
, West Bengal and
MaharashtraMaharashtra is a state located in India. It is the second most populous after Uttar Pradesh and third largest state by area in India...
are key agricultural contributing states of India.
India receives an average annual rainfall of 1208 millimetres (47.6 in) and a total annual
precipitationIn meteorology, precipitation In meteorology, precipitation In meteorology, precipitation (also known as one of the classes of hydrometeors, which are atmospheric water phenomena is any product of the condensation of atmospheric water vapor that falls under gravity. The main forms of precipitation...
of 4000 billion cubic metres, with the total utilisable water resources, including surface and
groundwaterGroundwater is water located beneath the ground surface in soil pore spaces and in the fractures of rock formations. A unit of rock or an unconsolidated deposit is called an aquifer when it can yield a usable quantity of water. The depth at which soil pore spaces or fractures and voids in rock...
, amounting to 1123 billion cubic metres. 546820 square kilometre of the land area, or about 39% of the total cultivated area, is irrigated. 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 2008, India had the world's third largest fishing industry.
India is the largest producer in the world of milk, jute and pulses, and also has the world's second largest cattle population with 175 million animals in 2008. It is the second largest producer of rice, wheat, sugarcane, cotton and
groundnutsThe peanut, or groundnut , is a species in the legume or "bean" family , so it is not a nut. The peanut was probably first cultivated in the valleys of Peru. It is an annual herbaceous plant growing tall...
, 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 million tons in 2005.
Banking and finance
The Indian
money marketThe money market is a component of the financial markets for assets involved in short-term borrowing and lending with original maturities of one year or shorter time frames. Trading in the money markets involves Treasury bills, commercial paper, bankers' acceptances, certificates of deposit,...
is classified into the organised sector, comprising private, public and foreign owned
commercial bankAfter the implementation of the Glass–Steagall Act, the U.S. Congress required that banks engage only in banking activities, whereas investment banks were limited to capital market activities. As the two no longer have to be under separate ownership under U.S...
s and
cooperativeA cooperative is a business organization owned and operated by a group of individuals for their mutual benefit...
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 companiesNon-bank financial companies are financial institutions that provide banking services without meeting the legal definition of a bank, i.e. one that does not hold a banking license. These institutions are not allowed to take deposits from the public. Nonetheless, all operations of these...
. The unorganised sector and
microcreditMicrocredit is the extension of very small loans to those in poverty designed to spur entrepreneurship. These individuals lack collateral, steady employment and a verifiable credit history and therefore cannot meet even the most minimal qualifications to gain access to traditional credit...
are still preferred over traditional banks in rural and sub-urban areas, especially for non-productive purposes, like ceremonies and short duration loans.
Prime Minister
Indira GandhiIndira Priyadarshini Gandhara was an Indian politician who served as the third Prime Minister of India for three consecutive terms and a fourth term . She was assassinated by Sikh extremists...
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 in 1970–71 to 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.
India's gross domestic saving in 2006–07 as a percentage of GDP stood at a high 32.7%. More than half of personal savings are invested in physical assets such as land, houses, cattle, and gold. The 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. 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.
Energy and power
India's
oil reservesThe total estimated amount of oil in an oil reservoir, including both producible and non-producible oil, is called oil in place. However, because of reservoir characteristics and limitations in petroleum extraction technologies, only a fraction of this oil can be brought to the surface, and it is...
meet 25% of the country's domestic oil demand. As of 2009, India's total proven oil reserves stood at 775 million metric tonnes while gas reserves stood at 1074 billion cubic metres. Oil and natural gas fields are located offshore at Mumbai High,
Krishna Godavari BasinKrishna-Godavari basin is a peri-cratonic passive margin basin in India. It is spread across more than 50,000 square kilometers in the Krishna River and Godavari River basins in Andhra Pradesh. The site is known for the D-6 block where Reliance Industries discovered the biggest natural gas reserves...
and the Cauvery Delta, and onshore mainly in the states of
AssamAssam , also, rarely, Assam Valley and formerly the Assam Province , is a northeastern state of India and is one of the most culturally and geographically distinct regions of the country...
, Gujarat and
RajasthanRājasthān the land of Rajasthanis, , is the largest state of the Republic of India by area. It is located in the northwest of India. It encompasses most of the area of the large, inhospitable Great Indian Desert , which has an edge paralleling the Sutlej-Indus river valley along its border with...
. India is the fourth largest consumer of oil in the world and imported $82.1 billion worth of oil in the first three quarters of 2010, 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 CorporationThe Oil and Natural Gas Corporation Limited is an Indian state-owned oil and gas company headquartered in New Delhi, India. It is one of the largest Asia-based oil and gas exploration and production companies, and produces around 77% of India's total crude oil production and around 81% of...
(ONGC), Hindustan Petroleum Corporation Limited (HPCL) 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.
As of 2010, India had an installed power generation capacity of 164,835 megawatts (MW), of which thermal power contributed 64.6%,
hydroelectricityHydroelectricity is the term referring to electricity generated by hydropower; the production of electrical power through the use of the gravitational force of falling or flowing water. It is the most widely used form of renewable energy...
24.7%, other sources of
renewable energyRenewable energy is energy which comes from natural resources such as sunlight, wind, rain, tides, and geothermal heat, which are renewable . About 16% of global final energy consumption comes from renewables, with 10% coming from traditional biomass, which is mainly used for heating, and 3.4% from...
7.7%, and
nuclear powerNuclear power is the use of sustained nuclear fission to generate heat and electricity. Nuclear power plants provide about 6% of the world's energy and 13–14% of the world's electricity, with the U.S., France, and Japan together accounting for about 50% of nuclear generated electricity...
2.9%. India meets most of its domestic energy demand through its 106 billion tonnes of coal reserves. India is also rich in certain renewable sources of energy with significant future potential such as
solarIndia is densely populated and has high solar insolation, an ideal combination for using solar power in India. India is already a leader in wind power generation...
,
windThe development of wind power in India began in the 1990s, and has significantly increased in the last few years. Although a relative newcomer to the wind industry compared with Denmark or the US, India has the fifth largest installed wind power capacity in the world...
and biofuels (jatropha, sugarcane). India's huge
thoriumThorium is a natural radioactive chemical element with the symbol Th and atomic number 90. It was discovered in 1828 and named after Thor, the Norse god of thunder....
reserves – about 25% of world's reserves – are expected to fuel the country's ambitious
nuclear energy programNuclear power is the fourth-largest source of electricity in India after thermal, hydroelectric and renewable sources of electricity. As of 2010, India has 20 nuclear reactors in operation in six nuclear power plants, generating 4,780 MW while seven other reactors are under construction and...
in the long-run. India's dwindling uranium reserves stagnated the growth of nuclear energy in the country for many years. However, the Indo-US nuclear deal has paved the way for India to import uranium from other countries.
External trade and investment
Global trade relations
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 investmentForeign direct investment or foreign investment refers to the net inflows of investment to acquire a lasting management interest in an enterprise operating in an economy other than that of the investor.. It is the sum of equity capital,other long-term capital, and short-term capital as shown in...
(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 IndianA Non-Resident Indian is an Indian citizen who has migrated to another country, a person of Indian origin who is born outside India, or a person of Indian origin who resides permanently outside India. Other terms with the same meaning are overseas Indian and expatriate Indian...
s. 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.
Since liberalisation, the value of India's international trade has increased sharply, with the contribution of total trade in goods and services to the GDP rising from 16% in 1990–91 to 43% in 2005–06. India's major trading partners are the
European UnionThe European Union is an economic and political union of 27 independent member states which are located primarily in Europe. The EU traces its origins from the European Coal and Steel Community and the European Economic Community , formed by six countries in 1958...
, China, the United States and the United Arab Emirates. 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. In November 2010, exports increased 22.3% year-on-year to , while imports were up 7.5% at . Trade deficit for the same month dropped from in 2009 to in 2010.
India is a founding-member of
General Agreement on Tariffs and TradeThe General Agreement on Tariffs and Trade was negotiated during the UN Conference on Trade and Employment and was the outcome of the failure of negotiating governments to create the International Trade Organization . GATT was signed in 1947 and lasted until 1993, when it was replaced by the World...
(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 worldA developing country, also known as a less-developed country, is a nation with a low level of material well-being. Since no single definition of the term developing country is recognized internationally, the levels of development may vary widely within so-called developing countries...
. For instance, India has continued its opposition to the inclusion of such matters as labour and environment issues and other
non-tariff barriers to tradeNon-tariff barriers to trade are trade barriers that restrict imports but are not in the usual form of a tariff. Some common examples of NTB's are anti-dumping measures and countervailing duties, which, although they are called "non-tariff" barriers, have the effect of tariffs once they are...
into the WTO policies.
Balance of payments
Since independence, India's
balance of paymentsBalance of payments accounts are an accounting record of all monetary transactions between a country and the rest of the world.These transactions include payments for the country's exports and imports of goods, services, financial capital, and financial transfers...
on its
current accountIn economics, the current account is one of the two primary components of the balance of payments, the other being the capital account. The current account is the sum of the balance of trade , net factor income and net transfer payments .The current account balance is one of two major...
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. 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. India's growing oil import bill is seen as the main driver behind the large current account deficit, which rose to $118.7 billion, or 9.7% of GDP, in 2008–09. Between January and October 2010, India imported $82.1 billion worth of crude oil.
Due to the global late-2000s recession, both Indian exports and imports declined by 29.2% and 39.2% respectively in June 2009. The steep decline was because countries hit hardest by the global recession, such as United States and members of the European Union, account for more than 60% of Indian exports. However, since the decline in imports was much sharper compared to the decline in exports, India's trade deficit reduced to . As of June 2011, exports and imports have both registered impressive growth with monthly exports reaching $25.9 billion for the month of May 2011 and monthly imports reaching $40.9 billion for the same month. This represents a year on year growth of 56.9% for exports and 54.1% for imports.
India's reliance on external assistance and concessional debt has decreased since liberalisation of the economy, and the
debt service ratioIn economics and government finance, debt service ratio is the ratio of debt service payments of a country to that country’s export earnings. A country's international finances are healthier when this ratio is low...
decreased from 35.3% in 1990–91 to 4.4% in 2008–09. In India,
External Commercial BorrowingAn external commercial borrowing is an instrument used in India to facilitate the access to foreign money by Indian corporations and PSUs ....
s (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 ActThe Foreign Exchange Management Act was an act passed in the winter session of Parliament in 1999 which replaced Foreign Exchange Regulation Act. This act seeks to make offenses related to foreign exchange civil offenses...
of 1999. India's foreign exchange reserves have steadily risen from $5.8 billion in March 1991 to $283.5 billion in December 2009.
Foreign direct investment
Share of top five investing countries in FDI inflows. (2000–2010)
| 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 fourth-largest economy in the world in PPP terms, India is a preferred destination for FDI; 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 policies were a significant hindrance. However, due to positive economic reforms aimed at deregulating the economy and stimulating foreign investment, India has positioned itself as one of the front-runners of the rapidly growing
Asia-Pacific regionAsia-Pacific region may refer to:*Asia-Pacific, a geographic designation*Asia-Pacific Scout Region *Pacific Rim, countries and cities located around the edge of the Pacific Ocean...
. 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.
During 2000–10, the country attracted $178 billion as FDI. 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 havenA tax haven is a state or a country or territory where certain taxes are levied at a low rate or not at all while offering due process, good governance and a low corruption rate....
, effectively creating a zero-taxation FDI channel.
India's recently liberalised FDI policy (2005) allows 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. Despite a number of changes in the FDI policy to remove caps in most sectors, there still remains an unfinished agenda of permitting greater FDI in politically sensitive areas such as insurance and retailing. The total FDI equity inflow into India in 2008–09 stood at , a growth of 25% in rupee terms over the previous period..
Currency
The
Indian rupeeThe Indian rupee is the official currency of the Republic of India. The issuance of the currency is controlled by the Reserve Bank of India....
is the only
legal tenderLegal tender is a medium of payment allowed by law or recognized by a legal system to be valid for meeting a financial obligation. Paper currency is a common form of legal tender in many countries....
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 paise. The highest-denomination banknote is the 1,000 rupee note; the lowest-denomination coin in circulation is the 10 paise coin. However, with effect from 30 June 2011, 50 paise is the minimum coin accepted in the markets as all denominations below have ceased to be legal currency.
India's monetary system is managed by the Reserve Bank of India (RBI), the country's
central bankA central bank, reserve bank, or monetary authority is a public institution that usually issues the currency, regulates the money supply, and controls the interest rates in a country. Central banks often also oversee the commercial banking system of their respective countries...
. 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.
The rupee was linked to the British pound from 1927–1946 and then the U.S. dollar till 1975 through a
fixed exchange rateA fixed exchange rate, sometimes called a pegged exchange rate, is a type of exchange rate regime wherein a currency's value is matched to the value of another single currency or to a basket of other currencies, or to another measure of value, such as gold.A fixed exchange rate is usually used to...
. 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 U.S. dollar, the
Japanese yenThe is the official currency of Japan. It is the third most traded currency in the foreign exchange market after the United States dollar and the euro. It is also widely used as a reserve currency after the U.S. dollar, the euro and the pound sterling...
and the Deutsche mark. Since 2003, the rupee has been steadily appreciating against the U.S. dollar. In 2009, a rising rupee prompted the Government of India to purchase 200 tons of gold for $6.7 billion from the IMF.
Income and consumption
India's
gross national incomeThe GNI consists of: the personal consumption expenditures, the gross private investment, the government consumption expenditures, the net income from assets abroad , and the gross exports of goods and services, after deducting two components: the gross imports of goods and services, and the...
per capita had experienced astonishing growth rates since 2002.India's Per Capita Income has tripled from $ 423 in 2002–03 to $ 1219 in 2010–11, averaging 14.4% growth over these eight years. It will further go up to $ 1440 during 2011–12 fiscal. Indian official estimates of the extent of poverty have been subject to debate, with concerns being raised about the methodology for the determination of the poverty line. As of 2005, according to World Bank statistics, 75.6% of the population lived on less than $2 a day (PPP), while 41.6% of the population was living below the new international poverty line of $1.25 (PPP) per day. However, data released in 2009 by the Government of India estimated that 37% of the population lived below the poverty line.
Housing is modest. According to
The Times of IndiaThe Times of India is an Indian English-language daily newspaper. TOI has the largest circulation among all English-language newspaper in the world, across all formats . It is owned and managed by Bennett, Coleman & Co. Ltd...
, a majority of Indians had a per capita space equivalent to or less than a 100 square feet (9.3 m²) room for their basic living needs, and one-third of urban Indians lived in "homes too cramped to exceed even the minimum requirements of a prison cell in the US." The average is 103 sq ft (9.6 m²) per person in rural areas and 117 sq ft (10.9 m²) per person in urban areas.
Around half of Indian children are malnourished. The proportion of underweight children is nearly double that of Sub-Saharan Africa. However, India has not had any major
faminesFamine has been a recurrent feature of life in the Indian sub-continental countries of India, Pakistan and Bangladesh, and reached its numerically deadliest peak in the late eighteenth and nineteenth centuries. Historical and legendary evidence names some 90 famines in 2,500 years of history. There...
since Independence.
Since the early 1950s, successive governments have implemented various schemes to alleviate poverty, under central planning, that have met with partial success. All these programmes have relied upon the strategies of the
Food for work programme and
National Rural Employment Programme of the 1980s, which attempted to use the unemployed to generate productive assets and build rural infrastructure. In August 2005, the
Parliament of IndiaThe Parliament of India is the supreme legislative body in India. Founded in 1919, the Parliament alone possesses legislative supremacy and thereby ultimate power over all political bodies in India. The Parliament of India comprises the President and the two Houses, Lok Sabha and Rajya Sabha...
, in response to the perceived failure of economic growth to generate employment for the rural poor, passed the
Rural Employment Guarantee Bill into law, guaranteeing 100 days of minimum wage employment to every rural household in all the
districts of IndiaA district is an administrative division of an Indian state or territory. Districts are further subdivided, in some cases into Sub-Divisions, and otherwise directly into tehsils or talukas.District officials include:...
. The Parliament of India also refused to accept Union Government's argument that it had taken adequate measures to reduce incidence of poverty in India.The question of whether economic reforms have reduced poverty has fuelled debates without generating clear-cut answers and has also increased political pressure against further economic reforms, especially those involving the downsizing of labour and cutting agricultural subsidies. Recent statistics in 2010 point out that the number of high income households has crossed lower income households.
Employment
Agricultural and allied sectors accounted for about 52.1% of the total workforce in 2009–10. While agriculture has faced stagnation in growth, services have seen a steady growth. Of the total workforce, 7% is in the organised sector, two-thirds of which are in the public sector. The NSSO survey estimated that in 2004–05, 8.3% of the population was unemployed, an increase of 2.2% over 1993 levels, with unemployment uniformly higher in urban areas and among women. Growth of labour stagnated at around 2% for the decade between 1994–2005, about the same as that for the preceding decade. Avenues for employment generation have been identified in the IT and travel and tourism sectors, which have been experiencing high annual growth rates of above 9%.
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. 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. 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. 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.
Child labour in India is a complex problem that is basically rooted in poverty, coupled with a failure of governmental policy, which has focused on subsidising higher rather than elementary education, as a result benefiting the privileged rather than the poorer sections of society. The Indian government is implementing the world's largest child labour elimination program, with primary education targeted for ~250 million. Numerous non-governmental and voluntary organisations are also involved. Special investigation cells have been set up in states to enforce existing laws banning the employment of children under 14 in hazardous industries. The allocation of the Government of India for the eradication of child labour was $21 million in 2007. Public campaigns, provision of meals in school and other incentives have proven successful in increasing attendance rates in schools in some states.
In 2009–10,
remittancesRemittances to India are money transfers from Indian workers employed outside the country to friends or relatives in India. India is the world's leading receiver of remittances, claiming more than 12% of the world's remittances in 2007. Remittances to India account for approximately 3% of the...
from Indian migrants overseas stood at , the highest in the world, but their share in FDI remained low at around 1%. India ranked 133rd on the
Ease of Doing Business IndexThe Ease of Doing Business Index is an index created by the World Bank. Higher rankings indicate better, usually simpler, regulations for businesses and stronger protections of property rights...
2010, behind countries such as China (89th), Pakistan (85th), and Nigeria (125th).
Economic trends and issues
In the revised 2007 figures, based on increased and sustaining growth, more inflows into foreign direct investment, Goldman Sachs predicts that "from 2007 to 2020, India’s GDP per capita in US$ terms will quadruple", and that the Indian economy will surpass the United States (in US$) by 2043. In spite of the high growth rate, the report stated that India would continue to remain a low-income country for decades to come but could be a "motor for the world economy" if it fulfills its growth potential.
Agriculture
India's population is growing faster than its ability to produce rice and wheat. The low productivity in India is a result of several factors. According to the World Bank, India's large agricultural subsidies are hampering productivity-enhancing investment. While overregulation of agriculture has increased costs, price risks and uncertainty, governmental intervention in labour, land, and credit markets are hurting the market. Infrastructure and services are inadequate. Further, the average size of land holdings is very small, with 70% of holdings being less than one hectare in size. The partial failure of land reforms in many states, exacerbated by poorly maintained or non-existent land records, has resulted in
sharecroppingSharecropping is a system of agriculture in which a landowner allows a tenant to use the land in return for a share of the crop produced on the land . This should not be confused with a crop fixed rent contract, in which a landowner allows a tenant to use the land in return for a fixed amount of...
with cultivators lacking ownership rights, and consequently low productivity of labour. Adoption of modern agricultural practices and use of
technologyAgricultural machinery is machinery used in the operation of an agricultural area or farm.-Hand tools:The first person to turn from the hunting and gathering lifestyle to farming probably did so by using his bare hands, and perhaps some sticks or stones. Tools such as knives, scythes, and wooden...
is inadequate, hampered by ignorance of such practices, high costs, illiteracy, slow progress in implementing land reforms, inadequate or inefficient finance and marketing services for farm produce and impracticality in the case of small land holdings. The allocation of water is inefficient, unsustainable and inequitable. The irrigation infrastructure is deteriorating. Irrigation facilities are inadequate, as revealed by the fact that only 39% of the total cultivable land was irrigated as of 2010, resulting in farmers still being dependent on rainfall, specifically the monsoon season, which is often inconsistent and unevenly distributed across the country.
Corruption
Corruption has been one of the pervasive problems affecting India. The economic reforms of 1991 reduced the
red tapeRed tape is excessive regulation or rigid conformity to formal rules that is considered redundant or bureaucratic and hinders or prevents action or decision-making...
, bureaucracy and the
Licence Raj that were largely blamed for the institutionalised corruption and inefficiency. Yet, a 2005 study by
Transparency InternationalTransparency International is a non-governmental organization that monitors and publicizes corporate and political corruption in international development. It publishes an annual Corruption Perceptions Index, a comparative listing of corruption worldwide...
(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.
The
Right to Information ActThe Right to Information Act 2005 is an Act of the Parliament of India "to provide for setting out the practical regime of right to information for citizens." The Act applies to all States and Union Territories of India except the State of Jammu and Kashmir. Jammu and Kashmir has its own 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. The 2010 report by TI ranks India at 87th place and states that significant setbacks were made by India in reducing corruption.
The current government has concluded that most spending fails to reach its intended recipients. A large, cumbersome and overworked bureaucracy also contributes to administrative inefficiency. India's absence rates are one of the worst in the world; one study found that 25% of public sector teachers and 40% of public sector medical workers could not be found at the workplace.
The Indian economy continues to face the problem of an
underground economyA black market or underground economy is a market in goods or services which operates outside the formal one supported by established state power. Typically the totality of such activity is referred to with the definite article as a complement to the official economies, by market for such goods and...
with a 2006 estimate by the Swiss Banking Association suggesting that 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.
Education
India has made huge progress in terms of increasing primary education attendance rate and expanding
literacyLiteracy in India is key for socio-economic progress, and the Indian literacy rate grew to 74.04% in 2011 from 12% at the end of British rule in 1947. Although this was a greater than sixfold improvement, the level is well below the world average literacy rate of 84%, and India currently has the...
to approximately three-fourth of the population. 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. However, the literacy rate of 74% is still lower than the worldwide average and the country suffers from a high dropout rate. Further, there exists a severe disparity in literacy rates and educational opportunities between males and females, urban and rural areas, and among different social groups.
Infrastructure
In the past, development of infrastructure was completely in the hands of the public sector and was plagued by slow progress, poor quality and inefficiency. India's low spending on power, construction, transportation, telecommunications and real estate, at $31 billion or 6% of GDP in 2002 had prevented India from sustaining higher growth rates. This has prompted the government to partially open up infrastructure to the private sector allowing foreign investment, and most public infrastructure, barring railways, is today constructed and maintained by private contractors, in exchange for tax and other concessions from the government.
Some 600 million Indians have no electricity at all. While 80% of Indian villages have at least an electricity line, just 44% of rural households have access to electricity. Some half of the electricity is stolen, compared with 3% in China. The stolen electricity amounts to 1.5% of GDP. Transmission and distribution losses amount to around 20%, as a result of an inefficient distribution system, handled mostly by cash-strapped state-run enterprises. Almost all of the electricity in India is produced by the public sector. Power outages are common, and many buy their own power generators to ensure electricity supply. As of 2006–07 the electricity production was at 652.2 billion kWh, with an installed capacity of 128400 MW. In 2007, electricity demand exceeded supply by 15%. However, reforms brought about by the
Electricity Act of 2003The Electricity Act, 2003 is a revolutionary piece of legislation enforced in India that aims to transform the power sector in India.The act covers major issues involving generation, distribution, transmission and trading in power...
caused far-reaching policy changes, including mandating the separation of generation, transmission and distribution aspects of electricity, abolishing licencing requirements in generation and opening up the sector to private players, thereby paving the way for creating a competitive market-based electricity sector. Substantial improvements in water supply infrastructure, both in urban and rural areas, have taken place over the past decade, with the proportion of the population having access to safe drinking water rising from 66% in 1991 to 92% in 2001 in rural areas, and from 82% to 98% in urban areas. however, quality and availability of water supply remains a major problem even in urban India, with most cities getting water for only a few hours during the day.
India has
the world's third largest road networkIndia has a road network of over 3.314 million kilometres of roadway, making it the third largest road network in the world. At 0.66 km of highway per square kilometer of land the density of India’s highway network is slightly higher than that of the United States and far higher than...
, covering about 3.3 million kilometers and carrying 65% of freight and 80% of passenger traffic. Container traffic is growing at 15% a year. India has a national teledensity rate of 67.67% with 806.1 million telephone subscribers, two-thirds of them in urban areas, but Internet use is rare—there were only 10.29 million broadband lines in India in September 2010. However, this is growing and is expected to boom following the expansion of
3G3G or 3rd generation mobile telecommunications is a generation of standards for mobile phones and mobile telecommunication services fulfilling the International Mobile Telecommunications-2000 specifications by the International Telecommunication Union...
and
wimaxWiMAX is a communication technology for wirelessly delivering high-speed Internet service to large geographical areas. The 2005 WiMAX revision provided bit rates up to 40 Mbit/s with the 2011 update up to 1 Gbit/s for fixed stations...
services.
Economic disparities
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. Six low-income states –
BiharBihar is a state in eastern India. It is the 12th largest state in terms of geographical size at and 3rd largest by population. Almost 58% of Biharis are below the age of 25, which is the highest proportion in India....
, Chhattisgarh,
JharkhandJharkhand is a state in eastern India. It was carved out of the southern part of Bihar on 15 November 2000. Jharkhand shares its border with the states of Bihar to the north, Uttar Pradesh and Chhattisgarh to the west, Orissa to the south, and West Bengal to the east...
, Madhya Pradesh,
OrissaOrissa , officially Odisha since Nov 2011, is a state of India, located on the east coast of India, by the Bay of Bengal. It is the modern name of the ancient nation of Kalinga, which was invaded by the Maurya Emperor Ashoka in 261 BC. The modern state of Orissa was established on 1 April...
and
Uttar PradeshUttar Pradesh abbreviation U.P. , is a state located in the northern part of India. With a population of over 200 million people, it is India's most populous state, as well as the world's most populous sub-national entity...
– are home to more than one third of India's population. Severe disparities exist among states in terms of income, literacy rates, life expectancy and living conditions.
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. 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.
See also
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
India's per capita income is $ 1219, ranked 142nd in the world, while its per capita purchasing power parity of US$ 3,608 is ranked 129th...
- Trade unions in India
- Economic history of India
The known Economic history of India begins with the Indus Valley civilization. The Indus civilization's economy appears to have depended significantly on trade, which was facilitated by advances in transport. Around 600 BC, the Mahajanapadas minted punch-marked silver coins. The period was marked...
Further reading
Books
Articles
News
External links
Government of India websites
Publications and statistics