The economy of India, measured in USD exchange-rate terms, is the twelfth largest inthe world, with a GDP of $1.2 trillion (2008) . Recently, Indias growth has moderateddue to the world recession, but before it recorded a GDP growth rate of 9.1% for thefiscal year 2007–2008 which makes its growth the second fastest among emergingeconomies in the world, after China. At this rate of sustained growth many economistsforecast that India would, over the coming decades, have a more pronounced economiceffect on the world stage. Despite this phenomenal rate of growth, Indias largepopulation has an estimated per capita income of $3,963, measured by PPP, and $941,measured in nominal terms, as of 2007.Indias economy is diverse and consist of various activities including manufacturing,agriculture and services. Although most of the Indian workforce still earns its livelihooddirectly or indirectly through agriculture and manufacturing, high tech services are agrowing sector and play an increasingly important role in Indias economy. The advent ofthe digital age, and the large number of young and educated populace fluent in English, isgradually transforming India as an important back office destination for globaloutsourcing of customer services and technical support. India is a major exporter ofhighly-skilled workers in software and financial services, and software engineering.Other sectors like manufacturing, telecommunication, shipbuilding, aviation , tourismand retailing are showing strong potentials with higher growth rates.India followed a socialist-inspired approach for most of its independent history, withstrict government control over private sector participation, foreign trade, and foreigndirect investment. However, since the early 1990s, India has gradually opened up itsmarkets through economic reforms by reducing government controls on foreign trade andinvestment. The privatisation of publicly owned industries and the opening up of certainsectors to private and foreign interests has proceeded slowly amid political debate.India faces a fast-growing population and the challenge of reducing economic and socialinequality. Poverty remains a serious problem, although it has declined significantly sinceindependence.Contents[hide] • 1 History o 1.1 Pre-colonial o 1.2 Colonial o 1.3 Independence to 1991 o 1.4 After 1991 • 2 Government intervention o 2.1 State planning and the mixed economy o 2.2 Public expenditure o 2.3 Public receipts o 2.4 General budget
• 3 Currency system • 4 Natural resources • 5 Physical infrastructure • 6 Financial institutions • 7 Sectors o 7.1 Agriculture o 7.2 Industry o 7.3 Services o 7.4 Banking and finance • 8 Socio-economic characteristics o 8.1 Poverty o 8.2 Corruption o 8.3 Occupations and unemployment o 8.4 Regional imbalance • 9 External trade and investment o 9.1 Global trade relations o 9.2 Balance of payments o 9.3 Foreign direct investment in India • 10 See also • 11 Notes • 12 References • 13 External links  HistoryMain articles: Economic history of India and Timeline of the economy of IndiaIndias economic history can be broadly divided into three eras, beginning with the pre-colonial period lasting up to the 17th century. The advent of British colonisation startedthe colonial period in the 17th century, which ended with independence in 1947. Thethird period stretches from independence in 1947 until now. Pre-colonialThe citizens of the Indus Valley civilisation, a permanent and predominantly urbansettlement that flourished between 2800 BC and 1800 BC, practiced agriculture,domesticated animals, used uniform weights and measures, made tools and weapons, andtraded with other cities. Evidence of well planned streets, a drainage system and watersupply reveals their knowledge of urban planning, which included the worlds first urbansanitation systems and the existence of a form of municipal government.
Silver coin minted during the reign of the Gupta king Kumara Gupta I (AD 414–55)The 1872 census revealed that 99.3% of the population of the region constituting present-day India resided in villages, whose economies were largely isolated and self-sustaining, with agriculture the predominant occupation. This satisfied the foodrequirements of the village and provided raw materials for hand-based industries, such astextiles, food processing and crafts. Although many kingdoms and rulers issued coins,barter was prevalent. Villages paid a portion of their agricultural produce as revenue tothe rulers, while its craftsmen received a part of the crops at harvest time for theirservices.Religion, especially Hinduism, and the caste and the joint family systems, played aninfluential role in shaping economic activities. The caste system functioned much likemedieval European guilds, ensuring the division of labour, providing for the training ofapprentices and, in some cases, allowing manufacturers to achieve narrow specialization.For instance, in certain regions, producing each variety of cloth was the speciality of aparticular sub-caste.Estimates of the per capita income of India (1857–1900) as per 1948–49 prices.Textiles such as muslin, Calicos, shawls, and agricultural products such as pepper,cinnamon, opium and indigo were exported to Europe, the Middle East and South EastAsia in return for gold and silver.Assessment of Indias pre-colonial economy is mostly qualitative, owing to the lack ofquantitative information. One estimate puts the revenue of Akbars Mughal Empire in1600 at £17.5 million, in contrast with the total revenue of Great Britain in 1800, whichtotalled £16 million. India, by the time of the arrival of the British, was a largelytraditional agrarian economy with a dominant subsistence sector dependent on primitivetechnology. It existed alongside a competitively developed network of commerce,manufacturing and credit. After the fall of the Mughals, India was administered byMaratha Empire. The Maratha Empires budget in 1740s, at its peak, was Rs. 100 million.After the loss at Panipat, the Maratha Empire disintegrated into confederate states ofGwalior, Baroda, Indore, Jhansi, Nagpur, Pune and Kolhapur. Gwalior state had a budgetof Rs. 30M. However, at this time, British East India company entered the Indianpolitical theatre. Until 1857, when India was firmly under the British crown, the countryremained in a state of political instability due to internecine wars and conflicts. Colonial
An aerial view of Calcutta Port taken in 1945. Calcutta, which was the economic hub ofBritish India, saw increased industrial activity during World War II.Colonial rule brought a major change in the taxation environment from revenue taxes toproperty taxes resulting in mass impoverishment and destitution of the great majority offarmers. It also created an institutional environment that, on paper, guaranteed propertyrights among the colonizers, encouraged free trade, and created a single currency withfixed exchange rates, standardized weights and measures, capital markets, a welldeveloped system of railways and telegraphs, a civil service that aimed to be free frompolitical interference, and a common-law, adversarial legal system. Indias colonisationby the British coincided with major changes in the world economy—industrialisation,and significant growth in production and trade. However, at the end of colonial rule,India inherited an economy that was one of the poorest in the developing world, withindustrial development stalled, agriculture unable to feed a rapidly growing population,one of the worlds lowest life expectancies, and low rates of literacy.An estimate by Cambridge University historian Angus Maddison reveals that Indiasshare of the world income fell from 22.6% in 1700, comparable to Europes share of23.3%, to a low of 3.8% in 1952. While Indian leaders during the Independencestruggle, and left-nationalist economic historians have blamed colonial rule for the dismalstate of Indias economy in its aftermath, right-wing historians have countered that Indiaseconomic performance was due to various sectors being in a state of growth and decline,resulting from changes brought about by colonialism and a world that was movingtowards industrialisation and economic integration. Independence to 1991Indian economic policy after independence was influenced by the colonial experience(which was seen by Indian leaders as exploitative in nature) and by those leadersexposure to Fabian socialism. Policy tended towards protectionism, with a strongemphasis on import substitution, industrialization, state intervention in labour andfinancial markets, a large public sector, business regulation, and central planning.Jawaharlal Nehru, the first prime minister, along with the statistician Prasanta ChandraMahalanobis, carried on by Indira Gandhi formulated and oversaw economic policy.They expected favourable outcomes from this strategy, because it involved both publicand private sectors and was based on direct and indirect state intervention, rather than themore extreme Soviet-style central command system. The policy of concentratingsimultaneously on capital- and technology-intensive heavy industry and subsidising
manual, low-skill cottage industries was criticized by economist Milton Friedman, whothought it would waste capital and labour, and retard the development of smallmanufacturers.Indias low average growth rate from 1947–80 was derisively referred to as the Hindurate of growth, because of the unfavourable comparison with growth rates in other Asiancountries, especially the "East Asian Tigers". After 1991P. V. Narasimha Rao also called the "Father of Indian Economic Reforms."In the late 80s, the government led by Rajiv Gandhi eased restrictions on capacityexpansion for incumbents, removed price controls and reduced corporate taxes. Whilethis increased the rate of growth, it also led to high fiscal deficits and a worsening currentaccount. The collapse of the Soviet Union, which was Indias major trading partner, andthe first Gulf War, which caused a spike in oil prices, caused a major balance-of-payments crisis for India, which found itself facing the prospect of defaulting on its loans. In response, Prime Minister Narasimha Rao along with his finance ministerManmohan Singh initiated the economic liberalisation of 1991. The reforms did awaywith the Licence Raj (investment, industrial and import licensing) and ended many publicmonopolies, allowing automatic approval of foreign direct investment in many sectors.Since then, the overall direction of liberalisation has remained the same, irrespective ofthe ruling party, although no party has tried to take on powerful lobbies such as the tradeunions and farmers, or contentious issues such as reforming labour laws and reducingagricultural subsidies.Manmohan Singh widely credited for initiating economic reforms in India.Since 1990 India has emerged as one of the wealthiest economies in the developingworld; during this period, the economy has grown constantly, but with a few major
setbacks. This has been accompanied by increases in life expectancy, literacy rates andfood security.While the credit rating of India was hit by its nuclear tests in 1998, it has been raised toinvestment level in 2007 by S&P and Moodys. In 2003, Goldman Sachs predicted thatIndias GDP in current prices will overtake France and Italy by 2020, Germany, UK andRussia by 2025 and Japan by 2035. By 2035, it was projected to be the third largesteconomy of the world, behind US and China. In the revised 2007 figures, based onincreased and sustaining growth, more inflows into foreign direct investment, GoldmanSachs predicts that "from 2007 to 2020, India’s GDP per capita in US$ terms willquadruple", and that the Indian economy will surpass the United States (in US$) by 2043. Government intervention State planning and the mixed economyMain article: Five-Year Plans of IndiaAsias oldest stock exchange, the Bombay Stock Exchange, is also Asias fourth largeststock exchange in terms of market capitalization. The National Stock Exchange of Indiais Asias fifth largest. The government of India regulates stock exchanges across thecountry through Securities Contracts Act.After independence, India opted for a centrally planned economy to try to achieve aneffective and equitable allocation of national resources and balanced economicdevelopment. The process of formulation and direction of the Five-Year Plans is carried
out by the Planning Commission, headed by the Prime Minister of India as itschairperson.Indias mixed economy combines features of both capitalist market economy and thesocialist planned economy, but has shifted more towards the former over the past decade.The public sector generally covers areas which are deemed too important or notprofitable enough to leave to the market, including such services as the railways andpostal system. Since independence, there have been phases of nationalizing such areas asbanking. More recently, there have been phases of privatizing such sectors. Public expenditureThe number of people employed in non-agricultural occupations in the public and privatesectors. Totals are rounded. Private sector data relates to non-agriculture establishmentswith 10 or more employees.Major improvements in educational standards across India has helped its economic rise.Shown here is the Indian School of Business at Hyderabad, ranked number 20 in globalMBA rankings by the Financial Times of London in 2008Indias public expenditure is classified as development expenditure, comprising centralplan expenditure and central assistance and non-development expenditures; thesecategories can each be divided into capital expenditure and revenue expenditure. Centralplan expenditure is allocated to development schemes outlined in the plans of the centralgovernment and public sector undertakings; central assistance refers to financialassistance and developmental loans given for plans of the state governments and unionterritories. Non-development capital expenditure comprises capital defense expenditure,loans to public enterprises, states and union territories and foreign governments, whilenon-development revenue expenditure comprises revenue defence expenditure,administrative expenditure, subsidies, debt relief to farmers, postal deficit, pensions,social and economic services (education, health, agriculture, science and technology),grants to states and union territories and foreign governments.Indias non-development revenue expenditure has increased nearly fivefold in 2003–04since 1990–91 and more than tenfold since 1985–1986. Interest payments are the singlelargest item of expenditure and accounted for more than 40% of the total nondevelopment expenditure in the 2003–04 budget. Defence expenditure increased fourfoldduring the same period and has been increasing due to Indias desire to project its militaryprowess beyond South Asia. In 2007, Indias defence spending stood at US$26.5 billion. Administrative expenses are compounded by a large salary and pension bill, which
rises periodically due to revisions in wages, dearness allowance etc. subsidies on food,fertilizers, education and petroleum and other merit and non-merit subsidies account arenot only continuously rising, especially because of rising crude oil and food prices, butare also harder to rein in, because of political compulsions. Public receiptsRegional office of the State Bank of India (SBI), Indias largest bank, in Mumbai. Thegovernment of India is the largest shareholder in SBI.India has a three-tier tax structure, wherein the constitution empowers the uniongovernment to levy income tax, tax on capital transactions (wealth tax, inheritance tax),sales tax, service tax, customs and excise duties and the state governments to levy salestax on intrastate sale of goods, tax on entertainment and professions, excise duties onmanufacture of alcohol, stamp duties on transfer of property and collect land revenue(levy on land owned). The local governments are empowered by the state government tolevy property tax and charge users for public utilities like water supply, sewage etc.More than half of the revenues of the union and state governments come from taxes, ofwhich half come from Indirect taxes. More than a quarter of the union governments taxrevenues is shared with the state governments.The tax reforms, initiated in 1991, have sought to rationalise the tax structure andincrease compliance by taking steps in the following directions: • Reducing the rates of individual and corporate income taxes, excises, customs and making it more progressive • Reducing exemptions and concessions • Simplification of laws and procedures • Introduction of permanent account number (PAN) to track monetary transactions • 21 of the 29 states introduced value added tax (VAT) on April 1, 2005 to replace the complex and multiple sales tax systemThe non-tax revenues of the central government come from fiscal services, interestreceipts, public sector dividends, etc., while the non-tax revenues of the States are grantsfrom the central government, interest receipts, dividends and income from general,economic and social services.
Inter-State share in the federal tax pool is decided by the recommendations of the FinanceCommission to the President.Total tax receipts of Centre & State amount to approximately 18% of national GDP. Thiscompares to a figure of 37-45% in the OECD and explains why the country remainsunder-developed as evident inter-alia from the poor state of its infrastructure and socialservices compared to OECD countries. The limited resources of Government affect itsability to pay fair wages to public servants. This may well be the cause of endemiccorruption at all levels of government. General budgetThe Finance minister of India presents the annual union budget in the Parliament on thelast working day of February. The budget has to be passed by the Lok Sabha before it cancome into effect on April 1, the start of Indias fiscal year. The Union budget is precededby an economic survey which outlines the broad direction of the budget and the economicperformance of the country for the outgoing financial year. This economic surveyinvolves all the various NGOs, women organizations, business people, old peopleassociations etc.Indias union budget for 2005–06, had an estimated outlay of Rs.5,14,344 crores ($118billion). Earnings from taxes amount to Rs. 2,73,466 crore ($63b). Indias fiscal deficitamounts to 4.5% or 1,39,231 crore ($32b). The fiscal deficit is expected to be 3.8% ofGDP, by March 2007. Currency systemMain article: Indian rupeeThe rupee is the only legal tender accepted in India. The exchange rate as of November18, 2008 is about 49.27 to a US dollar,  64.01 to a Euro, and 80.45 to a UK pound. TheIndian rupee is accepted as legal tender in the neighboring Nepal and Bhutan, both ofwhich peg their currency to that of the Indian rupee. The rupee is divided into 100 paise.The highest-denomination banknote is the 1,000 rupee note; the lowest-denominationcoin in circulation is the 1 rupee coin (it earlier had 25 & 50 paise coins which have beendiscontinued by the Reserve Bank of India). There has been a recent fall in the value ofthe Rupee as a result of the global financial crisis of 2008, as foreign institutionalinvestors sell large amounts of Indian stocks and invest in US treasury bonds. Natural resourcesSee also: Energy policy of India
India has the worlds fourth largest wind power industry, with an annual power capacityof 8,896 MW. Shown here is a wind farm in Kayathar, Tamil Nadu.Indias total cultivable area is 1,269,219 km² (56.78% of total land area), which isdecreasing due to constant pressure from an ever growing population and increasedurbanisation.India has a total water surface area of 314,400 km² and receives an average annualrainfall of 1,100 mm. Irrigation accounts for 92% of the water utilisation, and comprised380 km² in 1974, and is expected to rise to 1,050 km² by 2025, with the balanceaccounted for by industrial and domestic consumers.India has the worlds 3rd largest coal reserves. Shown here is a coal mine in Jharkhand.Indias inland water resources comprising rivers, canals, ponds and lakes and marineresources comprising the east and west coasts of the Indian ocean and other gulfs andbays provide employment to nearly 6 million people in the fisheries sector. In 2008, Indiahad the worlds third largest fishing industry.Indias major mineral resources include Coal (fourth-largest reserves in the world), Ironore, Manganese, Mica, Bauxite, Titanium ore, Chromite, Natural gas, Diamonds,Petroleum, Limestone and Thorium (worlds largest along Keralas shores). Indias oilreserves, found in Bombay High off the coast of Maharashtra, Gujarat, and in easternAssam meet 25% of the countrys demand.Rising energy demand concomitant with economic growth has created a perpetual state ofenergy crunch in India. India is poor in oil resources and is currently heavily dependenton coal and foreign oil imports for its energy needs. Though India is rich in Thorium, butnot in Uranium, which it might get access to in light of the nuclear deal with US. India isrich in certain energy resources which promise significant future potential - clean /renewable energy resources like solar, wind, biofuels (jatropha, sugarcane).
 Physical infrastructureA map of the network of National Highways in IndiaDevelopment of infrastructure was completely in the hands of the public sector and wasplagued by corruption, bureaucratic inefficiencies, urban-bias and an inability to scaleinvestment. Indias low spending on power, construction, transportation,telecommunications and real estate, at $31 billion or 6% of GDP in 2002 had preventedIndia from sustaining higher growth rates. This had prompted the government to partiallyopen up infrastructure to the private sector allowing foreign investment which hashelped in a sustained growth rate of close to 9% for the past six quarters. India holdssecond position in the world in roadways construction, more than twice that of China.As of 2005 the electricity production was at 661.6 billion kWh with oil productionstanding at 785,000 bbl/day. Indias prime import partners are: China 8.7%, US 6%,Germany 4.6%, Singapore 4.6%, Australia 4% as of 2006 CIA FactBook As of January15, 2007, there were 2.10 million broadband lines in India. Low tele-density is themajor hurdle for slow pickup in broadband services. Over 76% of the broadband lineswere via DSL and the rest via cable modems.See also: States of India by installed power capacitySee also: Water supply and sanitation in India Financial institutionsCuffe Parade, Mumbai is an important business district in India, home to the World TradeCenter as well as other important financial institutions.India inherited several institutions, such as the civil services, Reserve Bank of India,railways, etc., from its British rulers. Mumbai serves as the nations commercial capital,with the Reserve Bank of India (RBI), Bombay Stock Exchange (BSE) and the NationalStock Exchange (NSE) located here. The headquarters of many financial institutions arealso located in the city.The RBI, the countrys central bank was established on April 1, 1935. It serves as thenations monetary authority, regulator and supervisor of the financial system, manager ofexchange control and as an issuer of currency. The RBI is governed by a central board,
headed by a governor who is appointed by the Central government of India. The BSESensex or the BSE Sensitive Index is a value-weighted index composed of 30 companieswith April 1979 as the base year (100). These companies have the largest and mostactively traded stocks and are representative of various sectors, on the Exchange. Theyaccount for around one-fifth of the market capitalisation of the BSE. The Sensex isgenerally regarded as the most popular and precise barometer of the Indian stock markets.Incorporated in 1992, the National Stock Exchange is one of the largest and mostadvanced stock markets in India. The NSE is the worlds third largest stock exchange interms of transactions. There are a total of 23 stock exchanges in India, but the BSE andNSE comprise 83% of the volumes. The Securities and Exchange Board of India(SEBI), established in 1992, regulates the stock markets and other securities markets ofthe country. Sectors AgricultureTea plantation in Assam, eastern India. India is the largest producer and consumer ofblack tea in the world.Main article: Agriculture in India
Farmers work inside a rice field in Andhra Pradesh. India is the second largest producerof rice in the world and Andhra Pradesh is the 3rd largest rice producing state in India.Composition of Indias total production (million tonnes) of foodgrains and commercialcrops, in 2003–04.India ranks second worldwide in farm output. Agriculture and allied sectors like forestry,logging and fishing accounted for 16.6% of the GDP in 2007, employed 60% of the totalworkforce and despite a steady decline of its share in the GDP, is still the largesteconomic sector and plays a significant role in the overall socio-economic developmentof India. Yields per unit area of all crops have grown since 1950, due to the specialemphasis placed on agriculture in the five-year plans and steady improvements inirrigation, technology, application of modern agricultural practices and provision ofagricultural credit and subsidies since Green revolution in India. However, internationalcomparisons reveal that the average yield in India is generally 30% to 50% of the highestaverage yield in the world.The low productivity in India is a result of the following factors: • Illiteracy, general socio-economic backwardness, slow progress in implementing land reforms and inadequate or inefficient finance and marketing services for farm produce. • The average size of land holdings is very small (less than 20,000 m²) and is subject to fragmentation, due to land ceiling acts and in some cases, family disputes. Such small holdings are often over-manned, resulting in disguised unemployment and low productivity of labour. • Adoption of modern agricultural practices and use of technology is inadequate, hampered by ignorance of such practices, high costs and impracticality in the case of small land holdings. • Irrigation facilities are inadequate, as revealed by the fact that only 52.6% of the land was irrigated in 2003–04, which result in farmers still being dependent on rainfall, specifically the Monsoon season. A good monsoon results in a robust growth for the economy as a whole, while a poor monsoon leads to a sluggish growth. Farm credit is regulated by NABARD, which is the statutory apex agent for rural development in the subcontinent.India does have multiple farm insurance companies that insure wheat, fruit, rice andrubber farmers in the event of natural disasters or catastrophic crop failure. One notiblecompany that provides all of these insurance policies is agriculture insurance company ofindia and it alone insures almost 20 million farmers. India has more than 500 farminsurance companies of various size that operate under the supervision of the Ministry ofAgriculture. Industry
India has one of the worlds fastest growing automobile industries and is hope to beglobal leader of auto industry. Shown here is Tata Motors Nano, worlds leastexpensive car in production.By 2028, India is expected to have the fifth-largest consumer economy in the world dueto sustained growth among all sectors of Indian economy. Shown here is a mall inMalad, Maharashtra.India is fourteenth in the world in factory output. They together account for 27.6% of theGDP and employ 17% of the total workforce. However, about one-third of theindustrial labour force is engaged in simple household manufacturing only.Economic reforms brought foreign competition, led to privatisation of certain publicsector industries, opened up sectors hitherto reserved for the public sector and led to anexpansion in the production of fast-moving consumer goods.Post-liberalisation, the Indian private sector, which was usually run by oligopolies of oldfamily firms and required political connections to prosper was faced with foreigncompetition, including the threat of cheaper Chinese imports. It has since handled thechange by squeezing costs, revamping management, focusing on designing new productsand relying on low labour costs and technology.34 Indian companies have been listed in the Forbes Global 2000 ranking for 2008. The10 leading companies are:
Market Revenue Profits Assets World Value Company Logo Industry (billion (billion (billionRank (billion $) $) $) $) Reliance Oil & Gas 193 26.07 2.79 30.67 89.29 Industries Operations Oil and Natural align="left" | Oil & 198 align="left" 18.90 4.11 33.79 54.11 Gas Corporation Gas Operations State Bank of 219 Banking 15.77 1.47 188.56 33.29 India Indian Oil Oil & Gas 303 42.68 1.82 25.39 16.36 Corporation Operations 374 ICICI Bank Banking 9.84 0.64 91.07 29.85 align="left" | 411 NTPC align="left" 7.84 1.60 20.34 41.57 Utilities Steel Authority 647 Materials 7.88 1.45 8.05 26.37 of India Limited 738 Tata Steel Materials 5.83 0.97 11.48 14.63 Telecommunications 826 Bharti Airtel 4.26 0.94 6.61 39.16 Services Reliance Telecommunications 846 File:Relcomm.gif 3.13 0.65 13.08 29.63 Communications Services ServicesInfosys headquarters in Bangalore, one of the largest software companies in India.India is fifteenth in services output. It provides employment to 23% of work force, and itis growing fast, growth rate 7.5% in 1991–2000 up from 4.5% in 1951–80. It has thelargest share in the GDP, accounting for 55% in 2007 up from 15% in 1950. Businessservices (information technology, information technology enabled services, businessprocess outsourcing) are among the fastest growing sectors contributing to one third ofthe total output of services in 2000. The growth in the IT sector is attributed to increasedspecialization, and an availability of a large pool of low cost, but highly skilled, educatedand fluent English-speaking workers, on the supply side, matched on the demand side by
an increased demand from foreign consumers interested in Indias service exports, orthose looking to outsource their operations. Indias IT industry, despite contributingsignificantly to its balance of payments, accounted for only about 1% of the total GDP or1/50th of the total services in 2001 However the contribution of IT to GDP increased to4.8 % in 2005-06 and is projected to increase to 7% of GDP in 2008 Banking and financeMain article: Banking in IndiaStructure of the organised banking sector in India. Number of banks are in brackets.The Indian money market is classified into: the organised sector (comprising private,public and foreign owned commercial banks and cooperative banks, together known asscheduled banks); and the unorganised sector (comprising individual or family ownedindigenous bankers or money lenders and non-banking financial companies (NBFCs)).The unorganised sector and microcredit are still preferred over traditional banks in ruraland sub-urban areas, especially for non-productive purposes, like ceremonies and shortduration loans.Prime Minister Indira Gandhi nationalised 14 banks in 1969, followed by six others in1980, and made it mandatory for banks to provide 40% of their net credit to prioritysectors like agriculture, small-scale industry, retail trade, small businesses, etc. to ensurethat the banks fulfill their social and developmental goals. Since then, the number of bankbranches has increased from 10,120 in 1969 to 98,910 in 2003 and the populationcovered by a branch decreased from 63,800 to 15,000 during the same period. The totaldeposits increased 32.6 times between 1971 to 1991 compared to 7 times between 1951to 1971. Despite an increase of rural branches, from 1,860 or 22% of the total number ofbranches in 1969 to 32,270 or 48%, only 32,270 out of 5 lakh (500,000) villages arecovered by a scheduled bank.Since liberalisation, the government has approved significant banking reforms. Whilesome of these relate to nationalised banks (like encouraging mergers, reducinggovernment interference and increasing profitability and competitiveness), other reformshave opened up the banking and insurance sectors to private and foreign players. Socio-economic characteristicsMain article: Socio-economic issues in India PovertyPercentage of population living under the poverty line
Main article: Poverty in IndiaLarge numbers of Indias people live in abject poverty. 14.3% of the population earnedless than $1 a day in 2005 down from 33.3% in 1990. According to the new WorldBanks estimates on poverty based on 2005 data, India has 256 million people, 21.6% ofits population, down from 60% in 1981 living below the new international poverty line of$1.25 (PPP) per day. The World Bank further estimates that 13% of the global poor nowreside in India. Moreover, India also has 228 million people, or 20.6% of the populationliving below $2 a day, compared to 72.2% for Sub-Saharan Africa.Wealth distribution in India is improving since the liberalization and with the end of thesocialist rule termed as the license raj. While poverty in India has reducedsignificantly, official figures estimate that 27.5% of Indians still lived below thenational poverty line in 2004-2005. A 2007 report by the state-run NationalCommission for Enterprises in the Unorganised Sector (NCEUS) found that 65% ofIndians, or 750 million people, lived on less than 20 rupees per day with most workingin "informal labour sector with no job or social security, living in abject poverty."Since the early 1950s, successive governments have implemented various schemes, underplanning, to alleviate poverty, that have met with partial success. All these programmeshave relied upon the strategies of the Food for work programme and National RuralEmployment Programme of the 1980s, which attempted to use the unemployed togenerate productive assets and build rural infrastructure. In August 2005, the Indianparliament passed the Rural Employment Guarantee Bill, the largest programme of thistype in terms of cost and coverage, which promises 100 days of minimum wageemployment to every rural household in 200 of Indias 600 districts. The question ofwhether economic reforms have reduced poverty or not has fuelled debates withoutgenerating any clear cut answers and has also put political pressure on further economicreforms, especially those involving the downsizing of labour and cutting agriculturalsubsidies. CorruptionMain article: Corruption in IndiaCorruption has been one of the pervasive problems affecting India. The economicreforms of 1991 reduced the red tape, bureaucracy and the Licence Raj that had strangledprivate enterprise and was blamed for the corruption and inefficiencies. Yet, a 2005 studyby Transparency International (TI) India found that more than half of those surveyed hadfirsthand experience of paying bribe or peddling influence to get a job done in a publicoffice.The Right to Information Act (2005) and equivalent acts in the states, that requiregovernment officials to furnish information requested by citizens or face punitive action,computerisation of services and various central and state government acts that establishedvigilance commissions have considerably reduced corruption or at least have opened up
avenues to redress grievances. The 2007 report by Transparency International ranksIndia at 72nd place and states that significant improvements were made by India inreducing corruption. Occupations and unemploymentIndustrial plant in a rural area near Jodhpur, Rajasthan. Industrial growth in India hasprovided increase employment opportunities across India.Agricultural and allied sectors accounted for about 57% of the total workforce in 1999–2000, down from 60% in 1993–94. While agriculture has faced stagnation in growth,services have seen a steady growth. Of the total workforce, 8% is in the organised sector,two-thirds of which are in the public sector. The NSSO survey estimated that in 1999–2000, 106 million, nearly 10% of the population were unemployed and the overallunemployment rate was 7.32%, with rural areas doing marginally better (7.21%) thanurban areas (7.65%).Unemployment in India is characterized by chronic underemployment or disguisedunemployment. Government schemes that target eradication of both poverty andunemployment (which in recent decades has sent millions of poor and unskilled peopleinto urban areas in search of livelihoods) attempt to solve the problem, by providingfinancial assistance for setting up businesses, skill honing, setting up public sectorenterprises, reservations in governments, etc. The decreased role of the public sector afterliberalization has further underlined the need for focusing on better education and hasalso put political pressure on further reforms.Slums next to high-rise commercial buildings in Kaloor, Kochi. Hundreds of people,mostly comprising migrant labourers who come to the city seeking job prospects, residein such shabby areas.
 Regional imbalanceMain article: List of regions of IndiaOne of the critical problems facing Indias economy is the sharp and growing regionalvariations among Indias different states and territories in terms of per capita income,poverty, availability of infrastructure and socio-economic development.The five-year plans have attempted to reduce regional disparities by encouragingindustrial development in the interior regions, but industries still tend to concentratearound urban areas and port cities After liberalization, the more advanced states arebetter placed to benefit from them, with infrastructure like well developed ports,urbanisation and an educated and skilled workforce which attract manufacturing andservice sectors. The union and state governments of backward regions are trying toreduce the disparities by offering tax holidays, cheap land, etc., and focusing more onsectors like tourism, which although being geographically and historically determined,can become a source of growth and is faster to develop than other sectors.See also: States of India by size of economySee also: Standard of living in India#Regional imbalance External trade and investment Global trade relations Share of top five investing countries in FDI inflows. (2000–2007) Inflows Rank Country Inflows (%) (Million USD) 1 Mauritius 85,178 44.24% 2 United States 18,040 9.37% 3 United Kingdom 15,363 7.98% 4 Netherlands 11,177 5.81% 5 Singapore 9,742 5.06%
Increasing foreign trade has resulted in rapid expansion of Indias shipping industry.Shown here is the newly constructed Mundra Port in Gujarat.India currently accounts for 1.2% of World trade as of 2006 according to the WTO.Until the liberalisation of 1991, India was largely and intentionally isolated from theworld markets, to protect its fledging economy and to achieve self-reliance. Foreign tradewas subject to import tariffs, export taxes and quantitative restrictions, while foreigndirect investment was restricted by upper-limit equity participation, restrictions ontechnology transfer, export obligations and government approvals; these approvals wereneeded for nearly 60% of new FDI in the industrial sector. The restrictions ensured thatFDI averaged only around $200M annually between 1985 and 1991; a large percentageof the capital flows consisted of foreign aid, commercial borrowing and deposits of non-resident Indians.Indian exports in 2006Indias exports were stagnant for the first 15 years after independence, due to thepredominance of tea, jute and cotton manufactures, demand for which was generallyinelastic. Imports in the same period consisted predominantly of machinery, equipmentand raw materials, due to nascent industrialisation. Since liberalisation, the value ofIndias international trade has become more broad-based and has risen to Rs. 63,080,109crores in 2003–04 from Rs.1,250 crores in 1950–51. Indias major tradingpartners are China, the US, the UAE, the UK, Japan and the EU. The exports duringApril 2007 were $12.31 billion up by 16% and import were $17.68 billion with anincrease of 18.06% over the previous year.India is a founding-member of General Agreement on Tariffs and Trade (GATT) since1947 and its successor, the World Trade Organization. While participating actively in itsgeneral council meetings, India has been crucial in voicing the concerns of thedeveloping world. For instance, India has continued its opposition to the inclusion ofsuch matters as labour and environment issues and other non-tariff barriers into the WTOpolicies. Balance of paymentsSince independence, Indias balance of payments on its current account has beennegative. Since liberalisation in the 1990s (precipitated by a balance of payment crisis),
Indias exports have been consistently rising, covering 80.3% of its imports in 2002–03,up from 66.2% in 1990–91. Although India is still a net importer, since 1996–97, itsoverall balance of payments (i.e., including the capital account balance), has beenpositive, largely on account of increased foreign direct investment and deposits from non-resident Indians; until this time, the overall balance was only occasionally positive onaccount of external assistance and commercial borrowings. As a result, Indias foreigncurrency reserves stood at $285 billion in 2008, which could be used in infrastructuraldevelopment of the country if used effectively.India is a net importer: Per the CIA factbook in 2007, imports were $224bn and exports$140bn. Shown here is the cargo of a container ship being unloaded at the JawaharlalNehru Port, Navi MumbaiIndias reliance on external assistance and commercial borrowings has decreased since1991–92, and since 2002–03, it has gradually been repaying these debts. Declininginterest rates and reduced borrowings decreased Indias debt service ratio to 4.5% in2007. In India, External Commercial Borrowings (ECBs) are being permitted by theGovernment for providing an additional source of funds to Indian corporates. TheMinistry of Finance monitors and regulates these borrowings (ECBs) through ECB policyguidelines. Foreign direct investment in IndiaAs the fourth-largest economy in the world in PPP terms, India is a preferred destinationfor foreign direct investments (FDI); India has strengths in information technologyand other significant areas such as auto components, chemicals, apparels,pharmaceuticals, and jewellery. Despite a surge in foreign investments, rigid FDI policiesresulted in a significant hindrance. However, due to some positive economic reformsaimed at deregulating the economy and stimulating foreign investment, India haspositioned itself as one of the front-runners of the rapidly growing Asia Pacific Region. India has a large pool of skilled managerial and technical expertise. The size of themiddle-class population stands at 50 million and represents a growing consumer market.Indias recently liberalized FDI policy (2005) allows up to a 100% FDI stake in ventures.Industrial policy reforms have substantially reduced industrial licensing requirements,removed restrictions on expansion and facilitated easy access to foreign technology andforeign direct investment FDI. The upward moving growth curve of the real-estate sectorowes some credit to a booming economy and liberalized FDI regime. In March 2005, the
government amended the rules to allow 100 per cent FDI in the construction business.This automatic route has been permitted in townships, housing, built-up infrastructureand construction development projects including housing, commercial premises, hotels,resorts, hospitals, educational institutions, recreational facilities, and city- and regional-level infrastructure.A number of changes were approved on the FDI policy to remove the caps in mostsectors. Fields which require relaxation in FDI restrictions include civil aviation,construction development, industrial parks, petroleum and natural gas, commodityexchanges, credit-information services and mining. But this still leaves an unfinishedagenda of permitting greater foreign investment in politically sensitive areas such asinsurance and retailing. FDI inflows into India reached a record US$19.5bn in fiscal year2006/07 (April-March), according to the governments Secretariat for IndustrialAssistance. This was more than double the total of US$7.8bn in the previous fiscal year.The FDI inflow for 2007-08 has been reported as $24bn and for 2008-09, it isexpected to be above $35 billion. A critical factor in determining Indias continuedeconomic growth and realizing the potential to be an economic superpower is going todepend on how the government can create incentives for FDI flow across a large numberof sectors in India.