India flag India: Economic and Political Overview

The economic context of India

Economic Indicators

For the latest updates on the key economic responses from governments to address the economic impact of the COVID-19 pandemic, please consult the IMF's policy tracking platform Policy Responses to COVID-19.

According to the IMF, the Indian economy grew by an estimated 9.5% in 2021, mainly driven by strong exports and domestic private investment. The measures put in place by the government to contain the virus have aggravated pre-existing issues throughout the country. Private consumption is likely to recover slowly due to a weak outlook, as an increase in unemployment brought by the pandemic sent millions of migrant workers back to rural areas, as jobs in cities were lost. Still, according to the IMF, the economy is expected to continue a steady growth in the coming years, registering an estimated GDP growth of 8.5% in 2022 and 6.6% in 2023.

India’s broad range of fiscal stimuli and health responses to the pandemic have proven their effectiveness in 2021, as they supported the country's continuing recovery and helped to mitigate the long lasting impacts of the COVID-19 crisis. The country’s general government deficit stood at -9.4% by the end of 2021, and should decrease slightly in 2022 and 2023, reaching -9.2% and -8.6%, respectively. According to the IMF, the inflation decreased to 5.6% in 2021, and is expected to decrease to 4.9% in 2022 and 4.3% in 2023. The level of public debt remains high - it was estimated at 90.6% in 2021 - but is expected to decrease in the next two years, to 88.8% in 2022 and 88.1% in 2023. The government is focused on reducing inequality, as it seeks to implement growth oriented reforms to get the economy back on track, such as MSME incentives, infrastructure sector boost, agriculture infrastructure, micro food enterprises, increased public employment outlay, and special liquidity window. According to the government, the MSME sector is crucial for the inclusive growth of the economy and, as such, it's become a major priority, with various programmes for the development and promotion of MSMEs being put in place across the country.

India is expected to overtake China as the world’s most populous country by 2024. It has the world’s largest youth population, nevertheless, according to the OECD, over 30% of India's youth are NEETs (not in employment, education or training). India continues to suffer from a low GDP per capita (USD 2,098), and almost 25% of the population still lives below the poverty line (about one-third of the world’s population living on under USD 1.90/day lives in India) and the country's inequalities are very strong: the richest 1% of the population own 53% of the country’s wealth. Additionally, the informal sector, where the vast majority of India’s labour force is employed, has been particularly affected by the COVID-19 pandemic, increasing their risk of slipping back into poverty. According to the CMIE, India's unemployment rate stood at 7.7% of total labour force in 2021.

 
Main Indicators 201920202021 (e)2022 (e)2023 (e)
GDP (billions USD) 2,870.502,660.242,946.063,250.083,515.19
GDP (Constant Prices, Annual % Change) 4.0-7.39.09.07.1
GDP per Capita (USD) 2,0991,930e2,1162,3132,479
General Government Balance (in % of GDP) -7.4-8.9-9.4-9.2-8.6
General Government Gross Debt (in % of GDP) 74.189.6e90.688.888.1
Inflation Rate (%) 4.86.25.64.94.3
Current Account (billions USD) -24.5524.01-30.37-44.64-52.04
Current Account (in % of GDP) -0.90.9-1.0-1.4-1.5

Source: IMF – World Economic Outlook Database, October 2021

Note: (e) Estimated Data

Main Sectors of Industry

India is the world's fourth agricultural power. As a central pillar of the Indian economy, agriculture contributes 18.3% of the GDP and employs 42.6% of the active population. The country's main agricultural products are wheat, millet, rice, corn, sugar cane, tea, potatoes, cotton, bananas, guava, mango, lemon, papaya and chickpea. India is also the fifth largest producer of cattle and sheep, as well as the second largest in fishing production in the world. The spices sector is also very pronounced, particularly the production of ginger, pepper and chili. In 2021, agriculture was a key sector in India’s economic recovery from the COVID-19 crisis as the industry registered a sustained and robust growth. That's because the pandemic led many who lived in India's cities to move back to their ancestral lands, which resulted in a boost of agricultural activity.

The industry sector employs 25.1% of the workforce and accounts for 23.5% of GDP. Coal is the country's main energy source, with India being the world's third largest producer of coal. In the manufacturing industry, textile plays a predominant role, and, in terms of size, the chemical industry is the second largest industrial sector. After a sharp decline in industrial production experienced in the early days of the pandemic, 2021 saw a significant increase in industrial output. Although a rebound in manufacturing was seen throughout the entire secondary sector, the greatest recovery was registered in the cement and steel industries.

The services sector is the most dynamic part of the Indian economy. It contributes to almost half of its GDP (48.8%), but it only employs 32.2% of its workforce. The rapidly growing software sector has been boosting the export of services and modernising the Indian economy: the country has capitalised on its large educated English-speaking population to become a major exporter of IT services, business outsourcing services and software workers. Although the services sector was hit the hardest during the early days of the pandemic, it showed a steady recovery in 2021 as vaccination rates rose and people's mobility increased. The sector's recovery was mainly driven by customer-facing services and air cargo services.

 
Breakdown of Economic Activity By Sector Agriculture Industry Services
Employment By Sector (in % of Total Employment) 42.6 25.1 32.3
Value Added (in % of GDP) 18.3 23.2 49.3
Value Added (Annual % Change) 3.0 -8.2 -8.1

Source: World Bank, Latest Available Data. Because of rounding, the sum of the percentages may be smaller/greater than 100%.

 

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Indicator of Economic Freedom

Definition:

The Economic freedom index measure ten components of economic freedom, grouped into four broad categories or pillars of economic freedom: Rule of Law (property rights, freedom from corruption); Limited Government (fiscal freedom, government spending); Regulatory Efficiency (business freedom, labour freedom, monetary freedom); and Open Markets (trade freedom, investment freedom, financial freedom). Each of the freedoms within these four broad categories is individually scored on a scale of 0 to 100. A country’s overall economic freedom score is a simple average of its scores on the 10 individual freedoms.}}

Score:
56,5/100
World Rank:
121
Regional Rank:
26

Economic freedom in the world (interactive map)
Source: Index of Economic Freedom, Heritage Foundation

 

Business environment ranking

Definition:

The business rankings model measures the quality or attractiveness of the business environment in the 82 countries covered by The Economist Intelligence Unit’s Country Forecast reports. It examines ten separate criteria or categories, covering the political environment, the macroeconomic environment, market opportunities, policy towards free enterprise and competition, policy towards foreign investment, foreign trade and exchange controls, taxes, financing, the labour market and infrastructure.

Score:
5.74/10
World Rank:
58/82

Source: The Economist Intelligence Unit - Business Environment Rankings 2020-2024

 

Country Risk

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Latest Update: June 2022

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