REPUBLIC OF INDIA

growth in the country's private sector. Today, India is

considered a mixed economy: the private and public sectors
The Fundamentals of How India co-exist and the country leverages international trade.
Makes Its Money
By VANESSA PAGE Updated December 26, 2023 Citizens can choose their own occupations and start their
own private enterprises. However, in certain areas of the
India is currently one of the fastest-growing economies in economy, such as defense, power, banking, and other
the world, driven primarily by its service, industrial, and industries, the government maintains a monopoly. The
agricultural sectors.1 It is also the world’s fifth-largest country’s economy has grown exponentially–from $288
economy in terms of nominal gross domestic product billion in 1992 to $3.42 trillion in 2022.6
(GDP).2 The World Bank. "GDP (Current US$) - India."

Overall, in 2022, the economy of India grew at a rate of Agricultural Sector

7.2%.3 This growth was primarily due to strong demand for Agriculture, once India’s main source of revenue and
the country's goods and services, in addition to a high level income, has since fallen to approximately 16.7% of the
of industrial activity. The country, once a supplier of country’s GDP, as of 2022.7 However, analysts have
British tea and cotton, now has a diversified economy with pointed out that this fall should not be equated with a
the majority of activity and growth coming from the service decrease in production. Rather, it reflects the large
industry. India is now considered a "global player" in the increases in India’s industrial and service outputs.
world of international economics.4
The agricultural industry in India currently faces some
KEY TAKEAWAYS problems. First, the industry is not as efficient as it could
 India is currently one of the fastest-growing be: millions of small farmers rely on monsoons for the
economies in the world. water necessary for their crop production.8 Agricultural
 Agriculture, once India’s main source of revenue infrastructure is not well developed, so irrigation is sparse
and income, has since fallen to approximately and agricultural product is at risk of spoilage because of a
16.7% of the country’s GDP, as of 2022. lack of adequate storage facilities and distribution channels.
 Over the past 60 years, the service industry in
India has increased from a fraction of the GDP to Today, India is the world's second-largest producer of fruit,
approximately 48.4% in 2022. and the global leading producer of lemons, bananas,
 In 2022, over 6 million foreign tourists visited mangoes, papayas, and limes.9 While forestry is a
India; the World Travel and Tourism Council relatively small contributor to the country's GDP, it is a
calculated that tourism generated 5.9% of India's growing sector and is responsible for producing fuel, wood-
GDP in 2022. based panels, pulp for paper, paper, and paperboard.10 An
additional small percentage of India’s economy comes from
In 2020 and 2021, India's economy was hard hit by the fishing and aquaculture, with shrimp, sardines, mackerel,
COVID-19 pandemic. In 2020, India's second quarter GDP and carp among its significant fisheries.11
came nearly 24% below the second quarter of 2019, as the
pandemic precipitated restrictions on all non-essential Industrial Production
businesses, sharply curtailing economic activity.5 Since Chemicals are big business in India; The petrochemical
then, however, the economy has rebounded in notable industry, which first entered the Indian industrial scene in
ways. the 1970s, experienced rapid growth in the 1980s and
1990s.12
Historical Development of India's Economy
In 1947, after gaining independence from Britain, India In addition to chemicals, India produces a large supply of
formed a centrally-planned economy, also known as a the world’s pharmaceuticals as well as billions of dollars
command economy. With a centrally planned economy, the worth of cars, motorcycles, tools, tractors, machinery, and
government makes the majority of economic decisions forged steel.13
regarding the manufacturing and the distribution of
products. India also mines a large number of gems and common
minerals including iron ore, bauxite, and gold along with
The government focused on developing its heavy industry asbestos, uranium, limestone, and marble. In 2022, for
sector, but this emphasis was eventually deemed example, India mined 780 million tons of coal.14 Oil and
unsustainable. In 1991, India began to loosen its economic gas were extracted at a rate of 29.69 million metric tons and
restrictions and an increased level of liberalization led to 34.02 billion cubic meters, respectively, between 2021 and
2022.15
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Medical tourism to India is also a growing sector. India's

Information Technology (IT) and Business Services market for medical tourism is expected to touch the $13
Outsourcing billion mark by 2026, according to estimates published by
Over the past 60 years, the service industry in India has the Federation of Indian Chambers of Commerce and
increased from a fraction of the GDP to approximately Industry (FICCI).20 Medical tourism is popular in India
48.4% in 2022.16 India—with its high population of because of the low-cost of health care and compliance with
skilled, English-speaking, and educated people—is a great international standards. Customers come from all over the
place for doing business. world for heart, hip, and plastic surgery procedures, and a
small number of people take advantage of India’s
Among the leading services industries in the country are commercial surrogate facilities.
telecommunications, IT, and software, and workers are
employed by both domestic and international companies What Is India's Biggest Export?
including Intel (INTC), Texas Instruments (TXN), Yahoo India's biggest exports fall under the refined petroleum
(YHOO), Meta (META), Google (GOOG), and Microsoft product group. Other major exports by value include
(MSFT). diamonds, packaged medicines, jewelry, and rice.21

Business process outsourcing (BPO) is a less significant but Where Does Money Come From in India?
more well-known industry in India and is led by companies The Reserve Bank of India (RBI) is the country's central
like American Express (AXP), IBM (IBM), Hewlett- bank, and it's tasked with regulating the country's currency
Packard (HPQ), and Dell. BPO is the fastest-growing and credit systems. The bank also uses monetary policy to
segment of the ITES (Information Technology Enabled ensure financial stability and prints currency. It began
Services) industry in India thanks to economies of scale, operations in April of 1935.
cost advantages, risk mitigation, and competency. BPO in
India, which started around the mid-90s, has grown by Which Is India's Largest Trading Partner?
leaps and bounds. India's top export destination is the United States, followed
by the United Arab Emirates, the Netherlands, and
Retail Services Singapore. The country's biggest importing partner is
The retail sector in India is huge. But it's not just apparel, China, followed by Russia and the United States.21
electronics, or traditional consumer retail that are booming;
agricultural retail, which is important in an inflation- The Bottom Line
conscious country like India, is also significant. However, India has become a rising economic power in the 21st
in recent years, the issue of agricultural wastage has come century. Between the years 2011 and 2015, more than 90
to the forefront. It is estimated that from 2018-2021, over million people in India rose out of extreme poverty, thanks
400,000 tons of wheat and rice were wasted due to storage in part to robust economic growth that has improved the
and transportation issues. This is enough to feed over 80 overall standards of living in the country.4
million people within the country.17 Reports suggest there The World Bank. "India Overview."
is littlet storage for Indian agricultural products, and experts
believe that the solution to the massive waste issue is an According to the World Bank, India experience 6.9% GDP
urgent issue in need of policy, technological, and expansion in the fiscal year ending in 2023; it is expected to
infrastructure-based responses. The Indian government is rise to 6.3% in the following year.4 Among the other major
purported to be exploring a range of potential ways to emerging economies, India is one of the fastest-growing. It
address the issue. has also become a focus of investors across the globe1.

Other Services
Other parts of India’s service industry include electricity
production and tourism. The country is largely dependent
on fossil fuels oil, gas, and coal but it is increasingly adding
capacity to produce hydroelectricity, wind, solar, and
nuclear power.

In 2022, over 6.19 million foreign tourists visited India.18

In that year, the estimated foreign exchange earnings from
tourism in India was $16.928 billion.18 The World Travel
1
and Tourism Council calculated that tourism generated https://www.investopedia.com/articles/investing/043015/fundamentals-how-india-makes-its-money.asp#citation-19

5.9% of India's GDP in 2022.19

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After real GDP contracted in FY20/21 due to the COVID-
The World Bank In India 19 pandemic, growth bounced back strongly in FY21/22,
supported by accommodative monetary and fiscal policies
Last Updated: Sep 27, 2023
and wide vaccine coverage. Consequently, in 2022, India
emerged as one of the fastest growing economies in the
With a population of more than 1.4 billion, India is the world, despite significant challenges in the global
world’s largest democracy. Over the past decade, the environment – including renewed disruptions of supply
country’s integration into the global economy has been lines following the rise in geopolitical tensions, the
accompanied by economic growth. India has now emerged synchronized tightening of global monetary policies, and
as a global player. inflationary pressures.

India is one of the fastest growing economies of the world In FY22/23, India’s real GDP expanded at an estimated 6.9
and is poised to continue on this path, with aspirations to percent. Growth was underpinned by robust domestic
reach high middle income status by 2047, the centenary of demand, strong investment activity bolstered by the
Indian independence. It is also committed to ensuring that government’s push for investment in infrastructure, and
its continued growth path is equipped to deal with the buoyant private consumption, particularly among higher
challenges of climate change, and in line with its goal of income earners. The composition of domestic demand also
achieving net-zero emissions by 2070. changed, with government consumption being lower due to
fiscal consolidation.
The growth of the past two decades has also led to India
making remarkable progress in reducing extreme poverty. Since Q3 FY22/23, however, there have been signs of
Between 2011 and 2019, the country is estimated to have moderation, although the overall growth momentum
halved the share of the population living in extreme poverty remains robust. The persisting headwinds – rising
- below $2.15 per person per day (2017 PPP) (World Bank borrowing costs, tightening financial conditions and
Poverty and Inequality Portal and Macro Poverty Outlook, ongoing inflationary pressures – are expected to weigh on
Spring 2023). In recent years, however, the pace of poverty India’s growth in FY23/24. Real GDP growth is likely to
reduction has slowed especially during the COVID-19 moderate to 6.3 percent in FY23/24 from the estimated 6.9
pandemic, but has since moderated in 2021-22. percent in FY22/23.

Certain challenges persist. Inequality in consumption Both the general government fiscal deficit and public debt
continues, with a Gini index of around 35 over the past two to GDP ratio increased sharply in FY20/21 and have been
decades. Child malnutrition has remained high, with 35.5 declining gradually since then, with the fiscal deficit falling
percent of children under the age of 5 years being stunted, from over 13 percent in FY20/21 to an estimated 9.4
with the figure rising to 67 percent for children in the 6-59 percent in FY22/23. Public debt has fallen from over 87
months age group. Headline employment indicators have percent of GDP to around 83 percent over the same period.
improved since 2020 but concerns remain about the quality The consolidation has largely been driven by an increase in
of jobs created and the real growth in wages, as well as revenues and a gradual withdrawal of pandemic-related
around the low participation of women in the laborforce. stimulus measures. At the same time, the government has
remained committed to increasing capital spending,
India’s aspiration to achieve high income status by 2047 particularly on infrastructure, to boost growth and
will need to be realized through a climate-resilient growth competitiveness2.
process that delivers broad-based gains to the bottom half
of the population. Growth-oriented reforms will need to be
accompanied by an expansion in good jobs that keeps pace
with the number of labor market entrants. At the same time,
gaps in economic participation will need to be addressed,
including by bringing more women into the workforce.

The World Bank is partnering with the government in this

effort by helping strengthen policies, institutions, and
investments to create a better future for the country and its
people through green, resilient, and inclusive development.

2
Economic Outlook https://www.worldbank.org/en/country/india/overview

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conditions will remain conducive for private investment,”
World Bank: India’s Growth to said Dhruv Sharma, Senior Economist, World Bank, and
lead author of the report. “The volume of foreign direct
Remain Resilient Despite Global investment is also likely to grow in India as rebalancing of
the global value chain continues.”
Challenges
The World Bank expects fiscal consolidation to continue in
FY23/24 with the central government fiscal deficit
NEW DELHI, October 3, 2023—India continues to show
projected to continue to decline from 6.4% to 5.9% of
resilience against the backdrop of a challenging global
GDP. Public debt is expected to stabilize at 83% of GDP.
environment, according to World Bank’s latest India
On the external front, the current account deficit is
Development Update (IDU).
expected to narrow to 1.4% of GDP, and it will be
adequately financed by foreign investment flows and
The IDU, the Bank’s flagship half yearly report on the
supported by large foreign reserves.
Indian economy, observes that despite significant global
challenges, India was one of the fastest-growing major
OUTLOOK
economies in FY22/23 at 7.2%. India’s growth rate was the
second highest among G20 countries and almost twice the
average for emerging market economies. This resilience
was underpinned by robust domestic demand, strong public
infrastructure investment and a strengthening financial
sector. Bank credit growth increased to 15.8% in the first
quarter of FY23/24 compared with 13.3% in the first
quarter of FY22/23.

The IDU expects that global headwinds will continue to

persist and intensify due to high global interest rates,
geopolitical tensions, and sluggish global demand. As a The India Development Update is a companion piece to the
result, global economic growth is also set to slow down South Asia Development Update, a twice-a-year World
over the medium term against a background of these Bank report that examines economic developments and
combined factors. prospects in the South Asia region and analyzes policy
challenges faced by countries. The October 2023 edition
In this context, the World Bank forecasts India’s GDP titled Toward Faster, Cleaner Growth shows growth in
growth for FY23/24 to be at 6.3%. The expected South Asia is higher than any other developing country
moderation is mainly due to challenging external conditions region in the world, but slower than its pre-pandemic pace
and waning pent-up demand. However, service sector and not fast enough to meet its development goals. The
activity is expected to remain strong with growth of 7.4% report also includes short and long-term policy
and investment growth is also projected to remain robust at recommendations for countries in the region to manage
8.9%. fiscal risks and accelerate growth, including by boosting
private sector investment and seizing opportunities created
“An adverse global environment will continue to pose by the global energy transition3.
challenges in the short-term," said Auguste Tano Kouame,
World Bank's Country Director in India. “Tapping public
spending that crowds in more private investments will
create more favorable conditions for India to seize global
opportunities in the future and thus achieve higher growth.”

Adverse weather conditions contributed to a spike in

inflation in recent months. Headline inflation rose to 7.8%
in July due to a surge in prices of food items like wheat and
rice. Inflation is expected to decrease gradually as food
prices normalize and government measures increase the
supply of key commodities.
3
“While the spike in headline inflation may temporarily https://www.worldbank.org/en/news/press-release/2023/10/03/india-s-growth-to-remain-resilient-despite-global-

constrain consumption, we project a moderation. Overall challenges#:~:text=India's%20growth%20rate%20was%20the,and%20a%20strengthening%20financial%20sector.

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6] Human Capital
India has the world’s fifth largest economy in measures of One major advantage of India’s vast population is within
GDP. It has the third largest purchasing power in the world. the scope of human capital. And most of these human
When we talk about the global economy, India is one of its resources are youths. They are educated and skilled, giving
fastest emerging players. Since our liberalization in 1991, India a huge advantage in the global market. They now
the economy has opened up and given us plenty of need adequate employment opportunities to be successful.
opportunities to succeed. Let us look at some of the
important features of the Indian Economy & GDP and 7] Immense Growth of Service Sector
solve some questions relevant to the bank exams. India has one of the fastest growing service industries in the
world. Due to the immense growth in sectors like e-
Important Features of the Indian Economy & GDP commerce, IT sectors, BPO etc. the service sector of India
is booming. It employs nearly 28.6% of the total population
1] Gross Domestic Product and contributes 54%t o the GVA.
India had a GDP of 2.26 lac crore dollars in the year 2016.
It showed a healthy growth rate of 7.1%. The World Bank Measures of Economic Development
has forecasted a healthy growth rate of 7.3% in the year
2018-19 as well and this augments well for the Indian and Social Welfare
economy. It is predicted that if the current flow of events
continues, by 2028 India will be the third largest economy The nation’s economic development and social welfare are
in the world, overtaking Japan’s economy. also considered to measure the nation’s prosperity.
Economic development is a concept and an activity in
2] Low Per Capita Income general to assess the core competencies of a nation and it’s
While our GDP is quite healthy, the per capita income of innovation, and use the of available resources. This process
Indians is very low in comparison to other developed improves the political, economic, and social well being of
economies. One reason is the vast 1.2 billion population of the people. When we discuss economic development we
India. For the first time in 2016-17, the per capita income often discuss terms like modernization, industrialization,
rose above 1 lac, roughly recorded at 1861.50$. To better and so on. Many times you confuse industrial development
understand the low levels, the same per capita income in with economic development.
the USA was $ 52,195.
Economic development is just policy with aims at
3] Indian Economy is a Mixed Economy improving the social well-being as well as economic
In the Indian economy, both private sector and public conditions of the nation.
sector companies co-exist in perfect harmony. The big
industries, especially those for vast public use, are public While economic growth is a result of rising in GDP as well
sector companies. Some examples are MTNL, Mahanagar as market productivity. There are various needs we need to
Gas etc. And the economy has seen a huge boost in the consider while measuring economic development. Here,
private sector as well since the liberalization in 1991. below we will explain these factors in detail.
Hence India is the perfect example of a mixed economy.
1. Rise in real per capita income
4] Agriculture is the most important sector 2. Quality of life and expectancy
It would not be incorrect to call the Indian economy an 3. Real gross national product
agricultural based economy. Agriculture to date employs 4. Human development index
more than fifty percent of India’s workforce either directly 5. Gender-related development index
or indirectly. The agricultural sector contributes to some 6. Poverty index
18% of our GDP. In 2017 it accounted for 12.7% of our
total exports as well. Rise in Real per Capita Income
One of the factors that measure the economic development
5] Uneven Wealth Distribution of a nation is the rise in real per capita income.
The income and wealth disparity in the Indian economy is There’s a perception that whenever the income of
one of the worst in the world. According to some reports, individual increases than it’s real income increases.
the top 1% of the rich population has amassed 53% of the And when this happens the person is happy and prosperous.
wealth in India. And even with the fast-growing economy, But there are some limitations to this.
the rich just become richer and the poor stay the same. It is These limitations through per capita income do not
the second worst unequal wealth distribution in the world determine whether the rise is due to equal distribution or
after Russia. unequal distribution.

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Same is the case with the quality of goods and services For this index, the microdata which is available from
being provided and consumed. Further, the quality of surveys is used. This data is collected on the basis of
public goods also affects economic welfare. deprivation of toilet, water, cooking fuel, assets, etc. Based
on the availability of these factors each person is termed as
Quality of Life and Expectancy poor and nonpoor.
When the basic facilities like water, electricity, and housing The indicators are decided on this basis. For education, they
are available to anyone that the quality of life is considered consider two factors, school attainment, and school
as good in that nation. attendance. School attainment is to determine when no
Here the measuring factor is the needs of the people. These member of the family has attended at least 6 years of
needs are basic needs like access to health, sanitation, schooling.
education, nutrition, etc. While school attendance is determined when the child is of
For this, the main factor is the infant mortality rate. This is the school age is not attending the school. Similarly, for
the death rate of a child who is less than a year old. While health, the factors are child mortality and health.
life expectancy is the average life of the population that While for the standard of living the factors are drinking
lives. water, electricity, sanitation, and cooking fuel4.

Real Gross National Product

As mentioned above, GNP, as well as GDP, are the
measuring factors for economic development of a nation.
Increase in both of these ensures that the larger availability
of the good and services in that country. If this supports the
standard of living of the people than it increases the
economic conditions of the nation.
But there are some limitations to this as well. Like the
increase in the size of GDP does not directly means the
more availability of services and goods.
Whenever the GDP is calculated for the current prices,
there may be an increase due to price rise. This does not
mean the availability of goods and services have increased.

Human Development Index

It includes several factors like long and healthy living, the
welfare of the people, etc. This index also includes the
standard of living of people, literacy rate, and purchasing
power parity in terms of real income.

Gender-related development index

This is popularly known as GDI. This is used to measure
gender inequalities by measuring three basic dimensions of
human development. They are education, health, and
economic resources.
They measure education by calculating expectancy years
for schooling for males and females. While health measures
the male and female life expectancy during the time of
birth.
While economic resources are the command over them is
measured by income earned by males as well as females.
This index is useful to show the inequality between male
and female in the above-mentioned dimensions.

Poverty Index
The poverty index which is otherwise called
multidimensional poverty index aka MPI helps in
identifying various factors. These various factors are health,
the standard of living, and education. 4
https://www.toppr.com/guides/general-awareness/economy/indian-economy/#:~:text=Hence%20India%20is%20the
%20perfect%20example%20of%20a%20mixed%20economy.