Indian Economy

by BTRIBE
 ANCIENT HISTORY

India's Economic Evolution from 1 CE to 1750:

• India was the world's largest economy for nearly 1700 years, accounting for 35-40% of the
world GDP.
• The Indus Valley civilization flourished between 2800 BCE and 1800 BCE, promoting
agriculture, domestication, and trade.
• Maritime trade was extensive between South India and Southeast and West Asia until
around the 14th century CE.
• Indian traders settled in Surakhani, Azerbaijan, and built a Hindu temple, indicating active
and prosperous commerce.
• China and India may have accounted for 60-70% of world GDP in the 17th century.
• India produced about 25% of the world's industrial output until 1750, mainly cotton textiles
and goods like spices, peppers, indigo, silks, and saltpeter.
 BRITISH ERA

Post-Charter of 1813 Trade and Capital Transfer:

• Indian trade expanded significantly post-Charter of 1813.

• Capital transfer to England led to revenue drain due to British colonial policies.
• India's share of the world economy declined from 24.4% in 1700 to 4.2% in 1950.
• India's share of global industrial output decreased from 25% in 1750 to 2% in 1900.
• 1872 census showed 91.3% of present-day India's population lived in villages.
• Discriminating protection policy and Second World War led to industrial development and
rural-urban migration, especially in large port cities like Bombay, Calcutta, and Madras.
 POST INDEPENDENCE PERIOD

Influenced by colonial experience, leaned towards protectionism, import substitution,

industrialisation, economic interventionism, and a large government-run public sector.
Trade and foreign investment policies were relatively liberal.
Nationalization of industries like steel, mining, machine tools, telecommunications,
insurance, and power plants in the mid-1950s.
The Licence Raj or Permit Raj system, a system of strict government control and
regulation, was in place from the 1950s to the early 1990s.
The Green Revolution since 1965 improved agriculture by increasing crop productivity
and strengthening linkages between agriculture and industry.
In 1984, Rajiv Gandhi promised economic liberalization and appointed V. P. Singh as
finance minister, aiming to reduce tax evasion.
 1990's TO PRESENT

• The collapse of the Soviet Union and the Gulf War led to a balance-of-payments crisis,
threatening India's loans.
• In 1991, reforms eliminated the Licence Raj, reduced tariffs and interest rates, and ended
public monopolies, enabling foreign direct investment.
• Increases in life expectancy, literacy rates, and food security have been observed, with
urban residents benefiting more than rural ones.
• From 2010, India ranked fifth in the world by nominal GDP in 2019, surpassing the UK,
France, Italy, and Brazil.
• GDP growth rate accelerated in 2013–14, reaching 6.4% in 2014–15 and 8.0% in 2015–16.
• Growth rate decelerated in 2016–17 and 2017–18 due to banknote demonetisation and
Goods and Services Tax.
• During the COVID-19 pandemic, the Indian economy contracted by 6.6%.
• In Q1 2022–2023, the Indian economy grew by 13.5%
 DEMONETISATION

• India announced the demonetisation of all ₹500 and ₹1,000 banknotes on 8 November
2016.
• Prime Minister Narendra Modi aimed to curb the shadow economy, increase cashless
transactions, and reduce illicit cash use.
• Prolonged cash shortages followed, with the BSE SENSEX and NIFTY 50 stock indices
falling over 6%.
• The move reduced industrial production and GDP growth rate, resulting in an estimated
loss of 1.5 million jobs.
• Increased digital and cashless transactions occurred, but also led to money laundering and
shifting government goalposts.
• The currency-to-GDP ratio declined from 12.1% in 2015-16 to 10.9% in 2017-18.
• The Purchasing Managers' Index fell sharply from 54.5 in October 2016 to 46.7 in
November 2016.
• Demonetisation led to erosion of agricultural wages and weaker farmer bargaining power.
 GST

• GST is a digitalized version of VAT, enabling tracking of goods and services.

• Implemented on 1 July 2017 through the One Hundred and First Amendment of the Indian
Constitution.
• Single GST includes central excise duty, services tax, additional customs duty, surcharges,
state-level value added tax, and Octroi.
• The GST regime eliminated other levies on inter-state transportation of goods.
• India adopted a dual GST model, with Central GST (CGST) and State GST (SGST) levied for
transactions within a single state.
• The GST Council, led by union finance minister Nirmala Sitharaman, is the governing body.
• Challenges include technological hurdles, complex return filing process, compliance costs,
and transition issues.
 AGRICULTURE, FOREST AND FISHING SECTORS

• India is a major agricultural producer with the most arable land globally.
• Agriculture's contribution to GDP has declined from 1951 to 2011, but remains the largest
employment provider sector.
• Crop-yield-per-unit-area has grown since 1950 due to special emphasis on agriculture and
improvements in irrigation, technology, and modern agricultural practices.
• India's inland water and marine resources provide employment to nearly 6 million people
in the fisheries sector.
• India is the world's second-largest producer of milk, jute, pulses, and cattle.
• It is the second-largest producer of rice, wheat, sugarcane, cotton, groundnuts, fruit and
vegetable, silk, and cashew kernels.
• Foodgrain production stagnated in 2020-21 due to increased costs, price risks, and
inadequate irrigation facilities.
• Various schemes have been attempted to bring an additional 20,000,000 hectares under
irrigation, including the Accelerated Irrigation Benefit Programme (AIBP).
 MINING, RESOURCES AND CHEMICALS SECTORS

Mining Sector:
• Mining sector contributed 3% of GDP and employed 20.14 million people in 2016.
• India has the world's fourth-largest natural resources, contributing 11% of industrial GDP
and 2.5% of total GDP.
• Nearly 50% of India's mining industry is concentrated in eight states.
• 25% of output comes from offshore oil and gas resources.

Steel Industry:
• Over 900 steel plants produce crude steel, with a market value of US$57.8 billion in 2011
and projected to reach US$95.3 billion by 2016.

Chemical Industry:
• Petroleum products and chemicals contribute over 34% of export earnings.
• The chemical industry was the third-largest producer in Asia, contributing 5% of GDP.
• The chemical industry contributed $163 billion in FY18 and is expected to reach $300–400
billion by 2025.
 TRANSPORTATION AND TELECOMMUNICATIONS SECTORS

• Contributes to ~3% of India's GDP and has grown at a 5% CAGR in the past 5 years.
• Employs 1.31 million people and is a major contributor to jobs, GDP, and mobility.
• Plans to manufacture 475 new Vande Bharat trainsets for the next four years.
• Constructed a new Dedicated Freight Corridor (DFC) in two long routes to generate around
42,000 jobs.
• Developing modern mass rapid transit systems to meet urban requirements.
• India is the fourth-largest civil aviation market globally, contributing $30 billion to India's
GDP in 2017.
• The telecommunication sector generated ₹2.20 trillion in revenue in 2014–15, accounting
for 1.94% of total GDP.
 DEFENSE AND ENERGY SECTORS

• Indian Army is the world's third-largest military force and largest volunteer army.
• Defence expenditure increased by 9.8% in fiscal year 2022–23.
• India is the world's second largest arms importer, accounting for 9.5% of global arms
imports between 2016 and 2020.
• India is the fourth-largest consumer of oil, with net oil imports nearly ₹8.2 trillion in 2014–
15.
• India became the world's third-largest electricity producer in 2013.
• India has significant potential for alternative energy sources like solar, wind, and biofuels.
• Recent discoveries in the Tummalapalle belt may be among the top 20 natural uranium
reserves worldwide.
• The Indo-US nuclear deal allows India to import uranium from other countries.
 INFRASTRUCTURE AND CONSTRUCTIONS

• Contributes about 5% of India's GDP.

• Second-largest road network globally, covering over 5,472,144 km.
• 7,500 km coastline with 13 major ports, 15 private ports, and 60 operational non-major
ports.
• Kandla Port, New Kandla, and Mundra are the largest public and private sea ports.
• Airport infrastructure includes 125 airports, with 66 licensed for passenger and cargo
handling.
• Construction industry contributes $288 billion to GDP and employs 60.42 million people.
• Real estate sector offers significant business opportunities and employment
opportunities.
• 2023 Union budget focuses on infrastructure with ₹10 trillion direct investment.
 FINANCE AND TRADE

• Financial services industry contributed $809 billion (37% of GDP) and employed 14.17
million people in 2016.
• Banking sector contributed $407 billion (19% of GDP) and employed 5.5 million people.
• Nationalization of 14 banks in 1969 and 1980 mandated 40% of net credit to priority
sectors.
• Gross domestic savings in 2006–07 stood at 32.8%, with over half invested in physical
assets.
• Government-owned public-sector banks hold over 75% of total banking industry assets.
• Retail industry, excluding wholesale, contributed $793 billion (10% of GDP) and employed
35 million people in 2020.
 TOURISM AND ENTERTAINMENT INDUSTRIES

• Tourism generated 9.4% of India's GDP in 2017 and supported 41.622 million jobs.
• The sector is predicted to grow by 6.9% to ₹32.05 trillion by 2028.
• Over 10 million foreign tourists arrived in India in 2017, a 15.6% growth from 2016.
• India's medical tourism sector is rapidly expanding, estimated to be worth $7–8 billion by
2020.
• The Indian cinema industry is projected to generate around Rs 16,198 crore by 2026.
• The Recorded Music industry is making steady progress at a CAGR of 13.6% due to
streaming models.
 SECURITY MARKET

• Launched by Bombay Stock Exchange in 1875 and Ahmedabad Stock Exchange in 1894.
• BSE and NSE have market capitalisations of US$1.71 trillion and US$1.68 trillion
respectively.
• NSE is the largest stock exchange in India, with 96% trading volume.
• IPO market in India is small compared to NYSE and NASDAQ, raising US$300 million in
2013 and US$1.4 billion in 2012.
• Security laws reformed in 2013 allowing Indian companies to list securities overseas,
domestically, or concurrently.
 FINANCIAL GLOBALIZATION

• India's world trade accounts for 2.7% of global trade, up from 1.2% in 2006.
• Prior to liberalisation, India was isolated from global markets and foreign direct
investment was restricted.
• The value of India's international trade has increased to 63,0801 billion in 2003–04 from
12.50 billion in 1950–51.
• Economic growth has led to an average annual rate of growth from 3.5% (1980–1990) to
7.7% (2002–2012), peaking at 9.5% from 2005 to 2008.
• India is the world's leading receiver of remittances, with remittances estimated at between
$22 billion and $25.7 billion in 2006.
• The Netscape IPO created more job opportunities for Indians, including those outsourced
from other countries.
• Globalization has enabled occupation mobility in India through the "high-tech revolution"
and employment, contributing to the dismantling of existing social structures.
• Globalization has also led to a reduction of poverty and upward movement of lower
classes, enhancing skills and income through education and training.
 CURRENCY

• The Indian rupee (₹) is the only legal tender in India and is also accepted in Nepal and
Bhutan.
• The Reserve Bank of India (RBI) manages the monetary system, acting as the central bank,
regulator, supervisor, banker, custodian of foreign exchange reserves, and issuer of
currency.
• The rupee was linked to the British pound from 1927 to 1946, then to the US dollar until
1975.
• In 1991, the rupee was devalued by around 19% due to the collapse of the Soviet Union.
• In 1992, a Liberalized Exchange Rate Mechanism (LERMS) was introduced, requiring
exporters to surrender 40% of their foreign exchange earnings to the RBI.
• The value of the rupee has been largely determined by market forces since 1991.
• The rupee reached an all-time low in October 2022.
 INCOME AND CONSUMPTION

• India's gross national income per capita tripled from ₹19,040 in 2002–03 to ₹53,331 in
2010–11.
• Inflation-adjusted per-capita income growth slowed to 5.6% in 2010–11.
• 50% of households have four or fewer members, with an average of 4.8 members per
household.
• India's total wealth increased from $3,165 billion in 2007 to $8,230 billion in 2017, a 160%
growth rate.
• In 2018, 5,000 HNWI's emigrated from India, with Australia, Canada, and the United States
as top destination countries.
• Private wealth in India is projected to grow by around 180% to reach $22,814 billion by
2028.
• In May 2014, 872.3 million people were below the new poverty line, with 179.6 million living
in India.
• Governments have implemented various schemes to alleviate poverty, including the
Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA).
 EMPLOYMENT

• Agricultural and allied sectors accounted for 52% of the workforce in 2009-10.
• Construction and infrastructure services accounted for 20.3% of employment in 2012-13.
• 7% of the workforce is in the organised sector, with two-thirds in the government-
controlled public sector.
• 51.2% of the workforce is self-employed.
• Unemployment rate dropped to 7.2% in 2022, a significant improvement from 8.1% in the
previous quarter.
• Child labour below 10 is rare, with only 2% of children working for wage.
• India has the largest diaspora globally, with the Middle East region being the largest
employment source.
• Trade unions had a combined membership of 24,601,589 in 2002, with AITUC being the
oldest.
 ECONOMIC ISSUES

• India's public sector corruption ranking improved from 95th to 79th place in 2016.
• Computerisation of services, vigilance commissions, and the 2005 Right to Information
Act have reduced corruption.
• India's literacy rate increased from 52.2% in 1991 to 74.04% in 2011.
• State disparities exist in income, literacy rates, life expectancy, and living conditions.
• Maharashtra, Tamil Nadu, Gujarat, and Karnataka are projected to account for almost 50%
of India's GDP by 2030.
• South Indian states are projected to contribute 35% of India's GDP by 2030.
• India has the world's highest social cost of carbon.
• Climate change could lead to GDP loss and poverty rate rise.
 INDIA’s POSITION IN GLOBAL ECONOMIC GROWTH

India's Global Economic Growth Projected to Rise by 2%

• Monsoon: Despite 6% below expected rainfall, the spatial distribution is even.
• Capital Expenditure: State capital expenditure is at 25%, while Centre's is at 37%.
• New Company Registrations: Around 93,000 companies were registered in the first half of 2023-24, an increase of 58% from
59,000 five years ago.
• Credit Growth: All scheduled commercial banks' credit growth has been accelerating since early 2022.
• Formalization of the Economy: Approximately 40% of new credit accounts added in the last nine years are from individuals
with no prior credit history.

Challenges
• Weak Demand: Demand for goods and services has been stagnant or declining due to low income growth, high inflation,
unemployment, and the impact of the Covid-19 pandemic.
• Unemployment: Despite rapid economic growth, unemployment remains a serious issue in both rural and urban areas.
• Poor Infrastructure: India lacks adequate infrastructure, hampering its economic development and competitiveness.
• Balance of Payments Deterioration: India's current account deficit means its imports exceed its exports, affecting its export
competitiveness.
• Geopolitical Tensions: India's geopolitical relationships can impact regional stability and potentially affect economic
prospects.
• Trade Imbalances: India faces trade imbalances with some of its major trading partners.

Way Forward
• Boosting Private Investment
• Increasing Competitiveness
• Promoting Green Growth
• Maintaining Stability in the Economy
 BIOGAS- GREEN ECONOMY

Amul Dairy, a food industry pioneer, is investing ₹230 crore in four new bio-CNG plants in Banaskantha.
• BioCNG, or biomethane, is a renewable and clean-burning transportation fuel produced by upgrading biogas to natural gas
quality. BioCNG is a safe and cleaner fuel as it does not produce any residue or smoke.
• It is economically viable as it can be produced locally from waste materials, saving transportation and storage costs, creating
local jobs, and reducing energy import bills. BioCNG can also generate bio-fertilizers, improving soil quality and crop yield.
• The government announced a phased mandatory blending of Compressed Bio-Gas (CBG) in Compressed Natural Gas (CNG)
and Piped Natural Gas (PNG) segments of the City Gas Distribution (CGD) sector in October 2023.
• The CBO aims to stimulate demand for CBG in the CGD sector, reduce Liquefied Natural Gas (LNG) imports, save in forex,
promote a circular economy, and assist in achieving net zero emission targets.

Challenges and Measures for CBG Blending Obligation:

• Availability of Feedstock, Lack of Adequate Infrastructure and Technology, Coordination and Cooperation among Various
Stakeholders, Awareness and Acceptance of CBG as a viable Alternative.

Measures taken by the Government

• Central financial assistance for setting up of plants for generation of Biogas/Bio-CNG.
• Concession on custom duty for import of machinery and components required for initial setting up of projects.
• Additional Central Assistance for Municipal Solid Wastes (MSW) based CBG plants under Swachh Bharat Mission Urban 2.0.

Policy and Regulatory Framework for Effective Implementation:

• Clearly defined targets and timelines, Streamlined regulations, Financial incentives, Capacity building and infrastructure
development, Technical assistance, Financial assistance, Grid integration, Quality standards, Awareness and market
development, Public awareness campaigns, Industry engagement, Technology demonstration, Focus on rural development,
Promote feedstock diversification.
 HIDDEN COSTS OF AGRIFOOD SYSTEMS

The State of Food and Agriculture 2023 Report by the United Nations Food and Agriculture Organization (FAO) reveals the
hidden costs of agrifood systems, including environmental, health, and social costs. The report, the first to assess these costs
at a national level across 154 countries, reveals that the global hidden costs of agrifood systems were approximately 12.7
trillion dollars in 2020, equivalent to almost 10% of world GDP.
• Globally, 73% of the quantified hidden costs in 2020 were associated with dietary patterns leading to obesity and non-
communicable diseases (NCDs), causing labor productivity losses.
• The environmental hidden costs from agriculture, accounting for more than 20% of these costs, are equivalent to almost
one-third of agricultural value added.
• The report suggests that the incomes of the moderately poor working in agrifood systems need to increase by 57% in low-
income countries and 27% in lower-middle-income countries.

In the Context of India:

• India's total hidden costs of agrifood systems were approximately USD 1.1 trillion, the third largest in the world after China
and the United States.
• The burden of disease (productivity losses from dietary patterns) had the largest share (60%) among hidden costs in India.
• Intensive agricultural practices in India have eroded seed sovereignty, disrupted Indigenous knowledge systems, and led to a
transition from a variety of crops to single-crop plantations.
• The privatization and deregulation of agricultural inputs have increased indebtedness among agrarian households.
• The expansion of rice and sugarcane cultivation affects biodiversity, increases the pressure on groundwater resources, and
contributes to air and water pollution.

The Way Forward to Minimize the Hidden Costs of Agrifood Systems in India:
• Crop Diversification, Cultivating Climate-Resilient Crop Varieties, Precision Irrigation, Variable Rate Fertilization,
Government Policy Changes, Building Justice into the Agrifood Business, FAO’s True Cost Accounting Approach.
 MAKE-IN-INDIA

• The Union Government has flagged over a dozen conditions that hindered local suppliers from participating in the bidding
process.
• These conditions violate the Public Procurement (Preference to Make in India) Order, 2017, which aims to protect local
suppliers' interests and promote manufacturing in India.
• The Make in India Programme, launched in 2014, aims to transform India into a leading global manufacturing and investment
destination.
• The initiative has made significant accomplishments across 27 sectors, including strategic sectors of manufacturing and
services.
• The objectives include attracting foreign investment, developing the existing industry base, increasing manufacturing sector
growth, creating 100 million jobs by 2022, and promoting export-led growth.
• The four Pillars of the Make in India Programme include:
- New Processes: Embracing 'Ease of Doing Business', developing industrial corridors, strengthening existing infrastructure,
and designing a fast-paced registration system.
- New Infrastructure: Developing industrial corridors, strengthening existing infrastructure, and designing a fast-paced
registration system.
- New Sectors: Identifying 27 sectors in manufacturing, infrastructure, and service activities.
• Outcomes include increased Foreign Direct Investment (FDI) inflows, Production Linked Incentive (PLI) schemes, and related
initiatives like the National Single Window System (NSWS), PM Gati Shakti Programme, and a USD 10 billion incentive scheme
for building a semiconductor, display, and design ecosystem.
 INTERNATIONALIZATION OF INDIAN CURRENCY

Internationalisation involves increasing use of the local currency in cross-border transactions.

The process involves promoting the rupee for import and export trade, current account transactions, and capital account
transactions.
The Indian rupee was widely used as legal tender in the United Arab Emirates, Kuwait, Bahrain, Oman, and Qatar in the 1950s.
The devaluation of India’s currency by 1966 led to the introduction of sovereign currencies in these countries.

Benefits of Internationalisation of Rupee:

Appreciated Currency Value, Reduced Exchange Rate Volatility, Geopolitical Advantages.

Challenges:
Limited International Demand, Convertibility Concern, Demonetization Impact, Triffin’s Dilemma.

Steps Towards Internationalization:

RBI put in place the mechanism for rupee trade settlement with as many as 18 countries in March 2023.
RBI enabled external commercial borrowings in Rupees.

What Can be Done to Pace-up Internationalization of Rupee:

Aim for full Convertibility and Trade Settlement: Encourage Indian exporters and importers to invoice transactions in rupees.
Develop a more liquid rupee bond market and recalibrate the foreign portfolio investor (FPI) regime.
Expand the Real-Time Gross Settlement (RTGS) system and provide tax incentives to foreign businesses utilizing the rupee in India.
Increase currency swap agreements and include the rupee in the Special Drawing Rights (SDR) basket.

Lessons from China's Experience

China's approach to internationalizing the Renminbi provides valuable insights for India.
 FINANCIAL INCLUSION THROUGH DPI

India's digital public infrastructure, including Adhaar, Unified Payments Interface (UPI), and DigiLocker, has revolutionized
financial inclusion and attracted global interest.
The India Stack, the country's DPI, has improved access, usage, and quality dimensions of financial inclusion.
Adhaar, introduced in 2009, has reduced barriers to entry to formal financial services, with 1.3bn Indians covered under
the scheme and 462.5m low-cost bank accounts opened.
UPI, introduced in 2016, has transformed the payments landscape, with over 300m consumers and 500m merchants on
the platform.
The third layer includes data storage of official documents linked to individuals’ Adhaar card details, which can be verified
and shared with consent.
During the Covid-19 pandemic, approximately $4.5bn was directly transferred into the bank accounts of 160m
beneficiaries based on the unique ID numbers.
The success of the DPI in India can be attributed to strategic clarity at the top echelons of power, emergence of new
players in the space, and continued innovation and evolution of the system.
India's DPI model has found resonance in other countries, with policy-makers working to elevate its status on the global
stage.
A Modular Open Source Identity Platform was launched in 2018 to offer a publicly accessible version of Adhaar-like
technology to other countries.
India has furthered the conversation around DPI, asserting itself as a thought leader in the area.
The future roadmap envisions real-time cross-border payments and increased financial inclusion.
Challenges remain at the national level, including sustaining efforts for financial inclusion and ensuring regulation is at
pace with innovation.
Despite challenges around privacy and data protection, India's journey with DPI provides a compelling model for nations
aiming to foster financial inclusion and embrace the digital future.