Nature of Indian Economy

India today is one of the largest economies in the world. In terms of size, it is the sixth-largest economy globally. This growth has been possible because of factors like globalisation, high investment, a young population, and a low dependency ratio (meaning fewer dependents compared to the working population).

According to the International Monetary Fund (IMF), India’s rank is different when measured in terms of GDP size and per capita income:

Rank (as per IMF)	India’s Rank
By GDP (Nominal)	4th
By GDP (Purchasing Power Parity – PPP)	3rd

By the end of 2018, India was the fastest-growing major economy in the world – even faster than China. But after 2017, growth slowed down due to:

• Demonetisation (2016)
• Introduction of GST (2017)
• COVID-19 pandemic (2020–2021)

Even with these challenges, India is moving in the right direction towards becoming a stronger economy.

History of the Indian Economy

India’s economy has a very long and rich history. Let’s look at it step by step:

Ancient & Medieval India

• For nearly 2000 years (1st to 17th century), India contributed 35–40% of the world’s total economy.
• India was famous for agriculture, textiles, spices, metal works, and trade.

Mughal Era (16th – 18th century)

• Around 1750, during the Mughal Empire, India produced about 25% of the world’s industrial output.
• India was the largest manufacturing hub of the world, especially known for its textiles.
• Almost 95% of Asian goods exported to Europe were from India. Imports were very small, showing India was self-sufficient.

British Colonial Period (1757–1947)

• With British control, India’s economy was exploited.
• Wealth was drained, industries collapsed, and agriculture was heavily taxed.
• India’s share in the world economy dropped from 24.4% (1700) to just 4.2% (1950).

Period	India’s Share in World Economy
1st – 17th Century	35–40%
1750 (Mughal Period)	25% of world industry
1700 (Before British)	24.4%
1950 (After British)	4.2%

Nature of the Indian Economy

India is called a mixed economy. That means:

• Some parts are run by private businesses (like companies, industries, start-ups).
• Some parts are controlled by the government (like railways, defence, public health).

Major Features

• Service sector dominates – contributes around 60% of India’s GDP.
• Agriculture is still important – gives jobs to more than 50% of India’s population.
• Industry is growing – especially manufacturing, steel, automobiles, and chemicals.

Sector-wise Contribution to the Economy

The Indian economy has three main sectors:

Sector	Contribution to GDP (Approx.)	Key Activities
Agriculture	14%	Crops, dairy, fisheries, forestry, horticulture
Industry	27%	Manufacturing, mining, construction, energy
Services	59%	IT, banking, insurance, transport, healthcare, education

👉 Over the years, the share of agriculture has gone down, while industry and services have gone up.

Salient Features of the Indian Economy

Although India is growing fast, it still faces many problems that keep it in the category of a developing economy. Let’s understand them:

1. Poor Infrastructure

• India needs around $100 billion for improving roads, electricity, safe drinking water, and sanitation.
• Without good infrastructure, industries and agriculture cannot grow at full potential.

2. Imperfect Markets

• Prices of goods vary a lot from one region to another due to weak supply chains.
• Middlemen often exploit both farmers and consumers.

3. Low Per Capita Income

• Per capita income = total income ÷ population.
• Since India’s population is very large, income per person is still low.
• This reduces people’s purchasing power, and overall demand stays low.

4. High Population Growth

• India is the second-most populous country in the world.
• Large population = high demand for food, jobs, education, and housing.
• If resources don’t grow at the same speed, poverty and unemployment rise.

5. Poverty

• India still has millions of people living below the poverty line.
• Poor people cannot contribute much to the economy, creating a poverty cycle.

6. Unadvanced Technology

• Many industries still use labour-intensive methods.
• Lack of modern machinery reduces productivity.

7. Income Inequality

• A very small section of people controls a huge part of India’s wealth.
• Around 1% of Indians own 53% of the total wealth.
• This creates social and economic inequality.

8. Agro-based Economy

• More than 50% of people depend on agriculture.
• But agriculture contributes only 14% to GDP.
• This imbalance shows low productivity in farming.

9. Low Capital Formation

• People save less due to low income.
• Less saving = less investment = slower growth.

10. Social Issues

• Caste system, communalism, gender inequality, and illiteracy still affect India’s growth.

Indian Economy in 2021–2022

India has set a goal to become a $5 trillion economy by 2025.
At the end of 2021, India’s nominal GDP was $3.29 trillion.
If GDP grows at 8% per year, this goal can be achieved.

Key Economic Indicators (2021–22)

Indicator	Value
Nominal GDP (2021)	$3.29 trillion
GST Collection (Jan 2022)	₹1.38 trillion (US$ 18.42 billion)
FDI Inflows (2000–2021)	US$ 547.2 billion
IIP (Nov 2021)	128.5 (up from 126.7 in 2020)
Food Inflation (CFPI, 2021–22)	2.9% (down from 9.1%)
CPI Inflation (2021–22)	5.2% (down from 6.6%)
Foreign Portfolio Investment (2021)	₹50,009 crore (US$ 6.68 billion)

These figures show that despite challenges like COVID-19, India is still moving ahead.

The Indian economy is one of the fastest-growing in the world. It has a rich history, a diverse structure, and a bright future. However, problems like poverty, unemployment, inequality, and poor infrastructure must be solved.

India’s goal is to become a $5 trillion economy by 2025. To achieve this, it must:

• Improve infrastructure
• Encourage innovation and technology
• Reduce income inequality
• Focus on education and skill development
• Strengthen agriculture and industry

If these challenges are handled well, India can truly become a developed nation in the coming decades.