Economy of India

India has an economy ranked tenth in the world in terms of currency conversion (GNP), and fourth largest in terms of PPP. It recorded one of the fastest growth rate (8.1%) for the fourth quarter of 2005. India’s per-capita income (by purchasing power parity) is USUSD 3,200, ranked 125th according to the World Bank.

India’s foreign exchange reserves amount to over USUSD 145 billion. Mumbai is the nation’s financial capital, and is also home to the headquarters of both the Reserve Bank of India and the pre-eminent Bombay Stock Exchange. While a quarter of Indians still live below the poverty line, a large middle class has now emerged along with the rapid growth of the IT and service industries.

The Indian economy has shed much of its historical dependence on agriculture, which now contributes about 21% to the GDP. Other important industries are mining, petroleum, diamond polishing, films, textiles, IT and business process outsourcing (BPO) services, pharmaceuticals and chemicals and handicrafts. Most of India’s industrial regions are centred around major cities. In recent years, India has emerged as one of the largest players in the software and BPO service industries, with revenues of USUSD 17.2 billion in 2004 to 2005. Many small-scale industries provide steady employment to workers in small towns and villages.

While India receives only around three million foreign visitors a year, tourism is still an important but under-developed source of national income. Tourism contributes 5.3% of India’s GDP. The actual employment generation, both direct and indirect, is estimated to be 42 million, or about 10% of India’s work force. In monetary terms, it contributes about USUSD 4 billion in foreign exchange. India’s major trading partners are the United States, Japan, China and the United Arab Emirates.

India’s main exports include agricultural products, textile goods, gems and jewelry, software services, engineering goods, chemicals and leather products, while its main imports are crude oil, machinery, gems, fertiliser, and chemicals. For the year 2004, India’s total exports stood at USUSD 69.18 billion, while the imports were worth at US USD 89.33 billion.

The economy of India is the fourth-largest in the world as measured by purchasing power parity (PPP), with a GDP of US USD 3.36 trillion. When measured in USD exchange-rate terms, it is the tenth largest in the world, with a GDP of US USD 691.87 billion (2004). India was the second fastest growing major economy in the world, with a GDP growth rate of 8.1% at the end of the first quarter of 2005-2006. However, India’s huge population results in a relatively low per capita income of USD 3,100 at PPP.

The country’s economy is diverse and encompasses agriculture, handicrafts, industries and a multitude of services. Services are the major source of economic growth in India today, though two-thirds of the Indian workforce earn their livelihood directly or indirectly through agriculture. In recent times, India has also capitalised on its large number of highly educated people who are fluent in the English language to become a major exporter of software services, financial services and software engineers.

India has adhered to a socialist-inspired approach for most of its independent history, with strict government control over private sector participation, foreign trade, and foreign direct investment. Since the early 1990s, India has gradually opened up its markets through economic reforms by reducing government controls on foreign trade and investment. Privatisation of public-owned industries and opening up of certain sectors to private and foreign players has proceeded slowly amid political debate.

The socio-economic problems India faces are a burgeoning population and lack of infrastructure, as well as growing inequality and unemployment. Poverty also remains a problem although it has seen a decrease of 10% since the 1980s.

History

India’s economic history can be broadly compartmentalised into three eras, beginning with the pre-colonial period lasting up to the 17th century. The advent of British colonisation of the Indian subcontinent started the colonial period in the 17th century, which ended with the Indian independence in 1947. The third period is the post-independence period after 1947.

Pre-colonial

The citizens of the Indus Valley civilisation, a permanent and predominantly urban settlement that flourished between 2800 BC and 1800 BC practised 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 supply reveals their knowledge of urban planning, which included the world’s first urban sanitation systems, and the existence of some form of municipal government.

Much of the population of the region constituting present-day India resided in villages,[1] whose economies were largely isolated and self-sustaining, with agriculture being the predominant occupation of the populace.

It satisfied the food requirements of the village and also provided raw materials for hand-based industries like textile, food processing and crafts. Although many kingdoms and rulers issued coins, barter was still widely prevalent. Villages paid a portion of their agricultural produce as revenue, while its craftsmen received a part of the crops at harvest time for their services.

Religion, especially Hinduism, the caste and the joint family systems, played an influential role in shaping economic activities. The caste system, despite its social drawbacks, functioned much like medieval European guilds, ensuring the division of labour, providing for the training of apprentices and in some cases led certain manufacturers to practise super specialisation. For instance, in certain regions, each variety of cloth produced was the speciality of a particular sub-caste.

Superstitions about foreign travel among Hindus meant that a large part of India’s foreign trade was carried out by foreigners and Muslims. Indian textiles like muslin, Calicos, shawls, agricultural products like pepper, cinnamon, opium and indigo were exported to Europe, Middle East and South East Asia in return for gold and silver.