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The economy of India is expected to be the List of countries by future GDP estimates (PPP) in the world as estimated by purchasing power parity (2007). When measured in United States dollar exchange rate terms, it is the List of countries by GDP (nominal) in the world, with a GDP of US $1.0 trillion (2007). Economic Times India India is the second fastest economic growth major economy in the world, with a GDP growth rate of 9.4% for the fiscal year 2006–2007. However, India's huge population of India results in a per capita income of $3,800 at PPP and $820 at nominal (2006 estimate).{{cite web | title =CIA - The World Factbook - India | publisher =https://www.cia.gov/ CIA | date =2007-09-20 | url =https://www.cia.gov/library/publications/the-world-factbook/geos/in.html#Econ | accessdate =2007-10-02 --> The World Bank classifies India as a low-income economy.[http://www.business-standard.com/common/storypage_c.php?leftnm=10&autono=291773 India climbs up the income ladderhttp://web.worldbank.org/WBSITE/EXTERNAL/DATASTATISTICS/0,,contentMDK:20421402~pagePK:64133150~piPK:64133175~theSitePK:239419,00.html#Low_income World Bank Country Classification Groups, (July 2006 data)

India's economy is diverse and encompasses agriculture, handicrafts, textile, manufacturing, and a multitude of services. Although two-thirds of the Indian workforce still earn their livelihood directly or indirectly through agriculture, services are a growing sector and are playing an increasingly important role of India's economy. The advent of the digital age, and the large number of young and educated populace fluent in English, is gradually transforming India as an important 'back office' destination for global companies for the outsourcing of their customer services and technical support. India is a major exporter of highly-skilled workers in software and financial services, and software engineering. Other sectors like manufacturing, pharmaceuticals, biotechnology, nanotechnology, telecommunication, shipbuilding, aviation and tourism are showing strong potentials with higher growth rates.

India followed a socialist-inspired approach for most of its independent history, with strict government control over private sector participation, foreign trade, and foreign direct investment. However, since the early 1990s, India has gradually opened up its markets through liberalization by reducing government controls on foreign trade and investment. The privatisation of publicly owned industries and the opening up of certain sectors to private and foreign interests has proceeded slowly amid political debate.

India faces a burgeoning population and the challenge of reducing economic and social Economic inequality. Poverty remains a serious problem, although it has declined significantly since independence. Official surveys estimated that in the year 2004-2005, 27% of Indians were poor.

History India's 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 started the colonial period in the 17th century, which ended with the Indian independence movement in 1947. The third period stretches from independence in 1947 until the present.

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 a form of municipal government.

king Kumara Gupta I (414–55 AD)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 food requirements of the village and provided raw materials for hand-based industries, such as textiles, food processing and crafts. Although many kingdoms and rulers issued coins, barter was prevalent. Villages paid a portion of their agricultural produce as revenue to the rulers, while its craftsmen received a part of the crops at harvest time for their services.

Religion, especially Hinduism, and the caste and the joint family systems, played an influential role in shaping economic activities. The caste system functioned much like medieval European guilds, ensuring the division of labour, providing for the training of apprentices and, in some cases, allowing manufacturers to achieve narrow specialization. For instance, in certain regions, producing each variety of cloth was the speciality of a particular sub-caste.

Since foreign travel and the ensuing ritual pollution resulted in loss of caste to Hindus a large part of India's foreign trade was conducted by foreigners and Muslims. Textiles such as muslin, Calico (textile), shawls, and agricultural products such as black pepper, cinnamon, opium and indigo were exported to Europe, the Middle East and South East Asia in return for gold and silver.

Assessment of India's pre-colonial economy is mostly qualitative, owing to the lack of quantitative information. One estimate puts the revenue of Akbar's Mughal Empire in 1600 at pounds sterling17.5 million, in contrast with the total revenue of Great Britain in 1800, which totalled £16 million. India, by the time of the arrival of the British, was a largely traditional agrarian economy with a dominant subsistence sector dependent on primitive technology. It existed alongside a competitively developed network of commerce, manufacturing and credit. After the fall of the Mughal Empire and the rise of Maratha Empire, the Indian economy was plunged into a state of political instability due to internecine wars and conflicts.

Colonial Colonial India brought a major change in the taxation environment from revenue taxes to property taxes resulting in mass impoverishment and destitution of the great majority of farmers. It also created an institutional environment that, on paper, guaranteed property rights among the colonizers, encouraged free trade, and created a single currency with fixed exchange rates, standardized weights and measures, capital markets, a well developed system of Rail transport in India and telegraphs, a civil service that aimed to be free from political interference, and a common-law, adversarial legal system. India's colonisation by 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, with industrial development stalled, agriculture unable to feed a rapidly growing population, one of the world's lowest life expectancy, and low rates of illiterate.

An estimate by Cambridge University historian Angus Maddison reveals that India's share of the world income fell from 22.6% in 1700, comparable to Europe's share of 23.3%, to a low of 3.8% in 1952. While Indian leaders during the Independence struggle, and left-nationalist economic history have blamed colonial rule for the dismal state of India's economy in its aftermath, a broader macroeconomic view of India during this period reveals that there were sectors of growth and decline, resulting from changes brought about by colonialism and a world that was moving towards industrialisation and economic integration.

Independence to 1991 Indian economic policy after Indian independence movement was influenced by the colonial experience (which was seen by Indian leaders as exploitative in nature) and by those leaders' exposure to Fabian socialism. Policy tended towards protectionist, with a strong emphasis on import substitution, industrialisation, state intervention in labour and financial markets, a large public sector, business regulation, and central planning. Jawaharlal Nehru, the first prime minister of India, along with the statistician Prasanta Chandra Mahalanobis, carried on by Indira Gandhi formulated and oversaw economic policy. They expected favourable outcomes from this strategy, because it involved both public and private sectors and was based on direct and indirect state intervention, rather than the more extreme Economy of the Soviet Union central command system. The policy of concentrating simultaneously on capital- and technology-intensive heavy industry and subsidising manual, low-skill cottage industries was criticized by economist Milton Friedman, who thought it would waste capital and labour, and retard the development of small manufacturers.

economies versus those of South Korea, as a percentage of the USData for Bangladesh is not available for 1950.India's low average growth rate from 1947–80 was derisively referred to as the Hindu rate of growth, because of the unfavourable comparison with growth rates in other Asian countries, especially the East Asian Tigers. After 1991 In the late 80s, the government led by Rajiv Gandhi eased restrictions on capacity expansion for incumbents, removed price controls and reduced corporate taxes. While this increased the rate of growth, it also led to high fiscal deficits and a worsening current account. The collapse of the Soviet Union, which was India's major trading partner, and the 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. {{cite paper | last = Ghosh | first = Arunabha | title = India's pathway trough economic crisis | publisher = Global Economic Governance Programme GEG Working Paper 2004/06 | date =2004-06-01 | url =http://www.globaleconomicgovernance.org/docs/Ghosh%20-%20India.pdf | accessdate = 2007-10-02--> In response, Prime Minister Narasimha Rao along with his finance minister [Manmohan Singh initiated the [Economic reforms in India. The reforms did away with the [Licence Raj (investment, industrial and import licensing) and ended many public monopolies, allowing automatic approval of [foreign direct investment in many sectors.{{cite paper and farmers, or contentious issues such as reforming labour laws and reducing agricultural subsidies.{{cite news | title=That old Gandhi magic | date= [November 27 [ | publisher=The Economist | url=http://www.economist.com/world/asia/displaystory.cfm?story_id=107076-->

Since 1990 India has emerged as one of the wealthiest economies in the developing world; 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 and food security.

While the credit rating of India was hit by its nuclear tests in 1998, it has been raised to investment level in 2007 by S&P and Moody's. In 2003, Goldman Sachs predicted that India's GDP in current prices will overtake France and Italy by 2020, Germany, UK and Russia by 2025 and Japan by 2035. By 2035, it was projected to be the third largest economy of the world, behind US and People's Republic of China.



Government intervention State planning and the mixed economy After independence, India opted for a centrally planned economy to try to achieve an effective and equitable allocation of national resources and balanced economic development. The process of formulation and direction of the Five-Year Plans of India is carried out by the Planning Commission, headed by the Prime Minister of India as its List of deputy chairpersons of the planning commission of India.

India's mixed economy combines features of both capitalist market economy and the socialist command economy, but has shifted more towards the former over the past decade. The public sector generally covers areas which are deemed too important or not profitable enough to leave to the market, including such services as the railways and postal system.

Since independence, there have been phases of nationalizing such areas as banking and, more recently, of privatization.

Public expenditure India's public expenditure is classified as development expenditure, comprising central plan expenditure and central assistance and non-development expenditures; these categories can each be divided into Capital (economics) expenditure and revenue expenditure. Central plan expenditure is allocated to development schemes outlined in the plans of the central government and public sector undertakings; central assistance refers to financial assistance and developmental loans given for plans of the state governments and union territories. Non-development capital expenditure comprises capital Military of India expenditure, loans to public enterprises, states and union territories and foreign governments, while non-development revenue expenditure comprises revenue defence expenditure, administrative expenditure, subsidies, debt relief to farmers, mail deficit, pensions, social and economic services (education, health, agriculture, science and technology), grants to states and union territories and foreign governments.Public expenditure was classified as plan and non-plan expenditure in the 1987–1988 union budget. It is now referred to as development and non-development expenditure, but the definition remains the same. Development expenditure is a capital expenditure.

, the Reserve Bank of India, in Mumbai.India's non-development revenue expenditure has increased nearly fivefold in 2003–04 since 1990–91 and more than tenfold since 1985–1986. Interest payments are the single largest item of expenditure and accounted for more than 40% of the total non development expenditure in the 2003–04 budget. Defence expenditure increased fourfold during the same period and has been increasing due to growing tensions in the region, the expensive dispute with Pakistan over Jammu and Kashmir and an effort to modernise the military. 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 are not only continuously rising, especially because of rising crude oil and food prices, but are also harder to rein in, because of political compulsions.

Public receipts India has a three-tier tax structure, wherein the Constitution of India empowers the Government of India to levy Income tax, tax on capital transactions (wealth tax, inheritance tax), sales tax, service tax, customs and excise duties and the States and territories of India to levy sales tax on intra-state sale of goods, tax on entertainment tax and professions, excise duties on manufacture of alcoholic beverage, stamp duty on transfer of property and collect land revenue (levy on land owned). The local governments are empowered by the state government to levy property tax, Octroi and charge users for public utilities like water supply, sewage etc.Service tax and expenditure tax are not levied in Jammu and Kashmir; Intra-state sale happens when goods or the Title (property) of goods move from one state to another. More than half of the revenues of the union and state governments come from taxes, of which half come from Indirect taxes. More than a quarter of the union government's tax revenues is shared with the state governments.Tax revenue was 88% of total union government revenue in 1950–51 and has come down to 73% in 2003–04, as a result of increase in non-tax revenue. Tax revenues were 70% of total state government revenues in 2002 to 2003. Indirect taxes were 84% of the union governments total tax revenue and have come down to 62% in 2003–04, mostly due to cuts in import duties and rationalisation. The states share in union government's tax revenue is 28.0% for the period 2000 to 2005 as per the recommendations of the eleventh finance commission. In addition, states that do not levy sales tax on sugar, textiles and tobacco, are entitled to 1.5% of the proceeds.

The tax reforms, initiated in 1991, have sought to rationalise the tax structure and increase compliance by taking steps in the following directions:

The non-tax revenues of the central government come from fiscal services, interest receipts, public sector dividends, etc., while the non-tax revenues of the States are grants from 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 Finance Commission to the President.

General budget The Finance minister of India presents the annual Union budget of India in the Parliament of India on the last working day of February. The budget has to be passed by the Lok Sabha before it can come into effect on April 1, the start of India's fiscal year. The Union budget is preceded by an Economic survey of India which outlines the broad direction of the budget and the economic performance of the country for the outgoing financial year. This economic survey involves all the various NGOs, women organizations, business people, old people associations etc.

India's union budget for Union budget of India (2005-06), had an estimated outlay of Rs.5,14,344 crores ($118 billion). Earnings from taxes amount to Rs. 2,73,466 crore ($63b). India's fiscal deficit amounts to 4.5% or 1,39,231 crore ($32b). The fiscal deficit is expected to be 3.8% of GDP, by March 2007.

Currency system Rupee depicting M. K. Gandhi, The 1000 rupee note is the highest denomination printed.The Rupee is the only legal tender accepted in India. The exchange rate as of October 13 2007 is about 39.18 to a US dollar, Historical Rupees-USD rates. 55.56 to a Euro, and 79.82 to a UK pound. The Indian rupee is accepted as legal tender in the neighboring Nepal and Bhutan, both of which peg their currency to that of the Indian rupee. The rupee is divided into 100 paisa. The highest-denomination banknote is the 1,000 rupee note; the lowest-denomination coin in circulation is the 25 paise coin. RBI

Exchange rates Under the fixed exchange rate system, the value of the rupee was linked to the British pound sterling until 1946, and after independence, 30% of India's foreign trade was determined in pound sterling. In 1975, as per the floating exchange rate system, the value of the rupee was pegged to a basket of currencies and was tightly controlled by the Reserve Bank of India. Since 2005, its value has been appreciating against the US dollar, Euro and British Pound Sterling. Since liberalisation reforms in early 1990s, the rupee is fully Convertibility on trade and current account.

Labour The large population puts further pressure on infrastructure and social services. A positive factor has been the large working-age population, which forms 45.33%Labor force=496.4 million(2005) according to CIA World factbook of the population and is expected to increase substantially, because of the decreasing dependency ratio. The national labour market has been tightly regulated by successive governments ever since the Workmen's Compensation Act was passed in 1923.

Natural resources India's total cultivable area is 1,269,219 square kilometre (56.78% of total land area), which is decreasing due to constant pressure from an ever growing population and increased urbanisation.

India has a total water surface area of 314,400 km² and receives an average annual rainfall of 1,100 millimetre. Irrigation accounts for 92% of the water utilisation, and comprised 380 km² in 1974, and is expected to rise to 1,050 km² by 2025, with the balance accounted for by industrial and domestic consumers. India's inland water resources comprising rivers, canals, ponds and lakes and marine resources comprising the east and west coasts of the Indian ocean and other Headlands and bays and bays provide employment to nearly 6 million people in the fisheries sector. India is the sixth largest producer of fish in the world and second largest in inland fish production.

India's major mineral resources include Coal (fourth-largest reserves in the world), Iron ore, Manganese, Mica, Bauxite, Titanium ore, Chromite, Natural gas, Diamonds, Petroleum, Limestone and Thorium (world's largest along Kerala's shores). India's oil reserves, found in Bombay High off the coast of Maharashtra, Gujarat, and in eastern Assam meet 25% of the country's demand.

Rising energy demand concomitant with economic growth has created a perpetual state of energy crunch in India. India is poor in oil resources and is currently heavily dependent on dirty coal and foreign oil imports for its energy needs. Though India is rich in Thorium, but not in Uranium, which it might get access to if a nuclear deal with US comes to fruitition. India is rich in certain energy resources which promise significant future potential - clean / renewable energy resources like Solar power in India, Wind power in India, biofuels (jatropha, sugarcane).

Physical infrastructure is seen as a necessity for India's crowded and polluted metros. Pictured here, is the New Delhi Metro, operational since 2002 and seen as a model for other metros.Since independence, India has allocated nearly half of the total outlay of the five-year plans for infrastructure development. Development of infrastructure was completely in the hands of the public sector and was plagued by corruption, bureaucratic inefficiencies, urban-bias and an inability to scale investment.

India's low spending on power, construction, transportation, telecommunications and real estate, at $31 billion or 6% of GDP in 2002 had prevented India from sustaining higher growth rates. This had prompted the government to partially open up infrastructure to the private sector allowing foreign investment which has helped in a sustained growth rate of close to 9% for the past six quarters. India's Economic Growth Unexpectedly Quickens to 9.2% India holds second position in the world in roadways' construction, more than twice that of China.

As of 15 January 2007, there were 2.10 million broadband lines in India. Low tele-density is the major hurdle for slow pickup in broadband services. Over 76% of the broadband lines were via DSL and the rest via cable modems.

Financial institutions s and software parks that offer tax benefits and better infrastructure to set up business. Pictured here is the Tidel Park in Chennai, one of the largest software parks in India.India inherited several institutions, such as the Indian Civil Service, central bank, railways, etc., from her British raj rulers. Mumbai serves as the nation's commercial capital, with the Reserve Bank of India (RBI), Bombay Stock Exchange (BSE) and the National Stock Exchange of India (NSE) located here. The headquarters of many financial institutions are also located within the city.

The RBI, the country's central bank was established on 1 April 1935. It serves as the nation's monetary authority, regulator and supervisor of the financial system, manager of exchange 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 BSE Sensex or the BSE Sensitive Index is a value-weighted index composed of 30 companies with April 1979 as the base year (100). These companies have the largest and most actively traded stocks and are representative of various sectors, on the Exchange. They account for around one-fifth of the market capitalisation of the BSE. The Sensex is generally 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 most advanced stock markets in India. The NSE is the world's third largest stock exchange in terms of transactions. There are a total of 23 stock exchanges in India, but the BSE and NSE comprise 83% of the volumes. The Securities and Exchange Board of India (SEBI), established in 1992, regulates the stock markets and other securities markets of the country.

Sectors Agriculture India List of countries by GDP sector composition worldwide in farm output. Agriculture and allied sectors like forestry, logging and fishing accounted for 18.6% of the GDP in 2005, employed 60% of the total workforce and despite a steady decline of its share in the GDP, is still the largest economic sector and plays a significant role in the overall socio-economic development of India. Yields per unit area of all crops have grown since 1950, due to the special emphasis placed on agriculture in the five-year plans and steady improvements in irrigation, technology, application of modern agricultural practices and provision of agricultural credit and subsidies since the green revolution. However, international comparisons reveal that the average yield in India is generally 30% to 50% of the highest average yield in the world.

The low productivity in India is a result of the following factors:

Industry India List of countries by GDP sector composition in the world in factory output. They together account for 27.6% of the GDP and employ 17% of the total workforce. Economic reforms brought foreign competition, led to privatisation of certain public sector industries, opened up sectors hitherto reserved for the public sector and led to an expansion in the production of fast-moving Final goods.

Post-liberalisation, the Indian private sector, which was usually run by oligopolies of old family firms and required political connections to prosper was faced with foreign competition, including the threat of cheaper Chinese imports. It has since handled the change by squeezing costs, revamping management, focusing on designing new products and relying on low labour costs and technology.

34 Indian companies have been listed in the Forbes Global 2000 ranking for 2007. The 10 leading companies are:{] || align="left" | || align="left" | Oil & Gas Operations || 15.64 || 3.46 || 26.98 || 38.19|-align="right"|258 || align="left" | Reliance Industries ] || align="left" | || align="left" | Banking || 13.66 || 1.24 || 156.37 || 12.35|-align="right"|399 || align="left" | Indian Oil Corporation ] || align="left" | || align="left" | Utilities || 6.06 || 1.31 || 17.25 || 26.06|-align="right"|536 || align="left" | ICICI Bank ] || 5.79 || 0.54 || 62.13 || 16.72|-align="right"|800 || align="left" | Steel Authority of India Limited ] || 6.30 || 0.91 || 7.06 || 10.16|-align="right"|1047 || align="left" | Tata Consultancy Svcs ] || align="left" | || align="left" | Materials ] || align="left" | || align="left" | Software & Services || 2.14 || 0.55 || 2.09 || 26.19|}

Services India List of countries by GDP sector composition in services output. It provides employment to 23% of work force, and it is growing fast, growth rate 7.5% in 1991–2000 up from 4.5% in 1951–80. It has the largest share in the GDP, accounting for 53.8% in 2005 up from 15% in 1950. Business services (information technology, information technology enabled services, business process outsourcing) are among the fastest growing sectors contributing to one third of the total output of services in 2000. The growth in the IT sector is attributed to increased specialisation, availability of a large pool of low cost, but highly skilled, educated and fluent English-speaking workers (a legacy of British Colonialism) on the Supply and demand and on the demand side, increased demand from foreign consumers interested in India's service exports or those looking to Outsourcing their operations. Indian IT industry, despite contributing significantly to its balance of payments, accounted for only about 1% of the total GDP or 1/50th of the total services.

Banking and finance The Indian money market is classified into: the organised sector (comprising private, public and foreign owned commercial banks and cooperative banks, together known as scheduled banks); and the unorganised sector (comprising individual or family owned indigenous bankers or Moneylending and non-banking financial company (NBFCs)). The unorganised sector and microcredit are still preferred over traditional banks in rural and sub-urban areas, especially for non-productive purposes, like ceremonies and short duration loans.

Prime Minister Indira Gandhi nationalisation 14 banks in 1969, followed by six others in 1980, and made it mandatory for banks to provide 40% (since reduced to 10%) of their net credit to priority sectors like agriculture, small-scale industry, retail trade, small businesses, etc. to ensure that the banks fulfill their social and developmental goals. Since then, the number of bank branches has increased from 10,120 in 1969 to 98,910 in 2003 and the population covered by a branch decreased from 63,800 to 15,000 during the same period. The total Bank deposit increased 32.6 times between 1971 to 1991 compared to 7 times between 1951 to 1971. Despite an increase of rural branches, from 1,860 or 22% of the total number of branches in 1969 to 32,270 or 48%, only 32,270 out of 5 lakh (500,000) villages are covered by a scheduled bank.

Since liberalisation, the government has approved significant banking reforms. While some of these relate to nationalised banks (like encouraging mergers, reducing government interference and increasing profitability and competitiveness), other reforms have opened up the banking and insurance sectors to private and foreign players.

Socio-economic characteristics Poverty Despite the economic gains, vast numbers of India's people live in abject poverty. Wealth distribution in India is fairly uneven, with the top 10% of income groups earning 33% of the income. "In Pictures – Middle Class, or Upper Class? ". India Together. Civil Society Information Exchange. August 2003 While poverty in India has reduced significantly, official figures estimate that 27.5% This figure is extremely sensitive to the surveying methodology used. The Uniform Recall Period (URP) gives 27.5%. The Mixed Recall Period (MRP) gives a figure of 21.8% of Indians still lived below the national poverty line in 2004-2005.Planning commision of India. Poverty estimates for 2004-2005 A 2007 report by the state-run National Commission for Enterprises in the Unorganised Sector (NCEUS) found that 77% of Indians, or 836 million people, lived on less than 20 rupees per dayThis figure has been variously reported as either "2 dollars per day" or "0.5 dollars per day". The former figure comes from the the Purchasing Power Parity conversion rate, while the latter comes from the official exchange rate. Also note that this figure does not contradict the NSS dervied figure, which uses calorie consumption as the basis for its poverty line. It just uses a more inclusive poverty line with most working in "informal labour sector with no job or social security, living in abject poverty."

Since the early 1950s, successive governments have implemented various schemes, under Planned economy, to alleviate poverty, that have met with partial success. All these programmes have relied upon the strategies of the Food for work programme and National Rural Employment Programme of the 1980s, which attempted to use the unemployed to generate productive assets and build rural infrastructure. In August 2005, the Parliament of India passed the Rural Employment Guarantee Bill, the largest programme of this type in terms of cost and coverage, which promises 100 days of minimum wage employment to every rural household in 200 of Districts of India. The question of whether economic reforms have reduced poverty or not has fuelled debates without generating any clear cut answers and has also put political pressure on further economic reforms, especially those involving the downsizing of labour and cutting agricultural subsidies.

Corruption in a 2005 study by Transparency International India. (Darker regions are more corrupt)Political corruption has been one of the pervasive problems affecting India. It takes the form of bribes, evasion of Tax evasion and Foreign exchange controls, embezzlement, etc. The economic reforms of 1991 reduced the red tape, bureaucracy and the Licence Raj that had strangled private enterprise and was blamed for the corruption and inefficiencies. Yet, a 2005 study by Transparency International (TI) India found that more than half of those surveyed had firsthand experience of paying bribe or peddling influence to get a job done in a public office.

The chief economic consequences of corruption are the loss to the exchequer, an unhealthy climate for investment and an increase in the cost of government-subsidised services. The TI India study estimates the monetary value of petty corruption in 11 basic services provided by the government, like education, healthcare, judiciary, police, etc., to be around Rs.21,068 crores. India still ranks in the bottom quartile of developing nations in terms of the ease of doing business, and compared to China, the average time taken to secure the clearances for a startup or to invoke bankruptcy is much greater.

The Right to Information Act (2005) and equivalent acts in the states, that require government officials to furnish information requested by citizens or face punitive action, computerisation of services and various central and state government acts that established vigilance commissions have considerably reduced corruption or at least have opened up avenues to redress grievances. Example of a central government department's implementation of the Right to Information Act. The 2006 report by Transparency International puts India at 70th place and states that significant improvements were made by India in reducing corruption. Transparency International Press release Transparency International Press release

Occupations and unemployment 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 overall unemployment rate was 7.32%, with rural areas doing marginally better (7.21%) than urban areas (7.65%).

Unemployment in India is characterised by chronic underemployment or Unemployment types#Hidden unemployment. Government schemes that target eradication of both poverty and unemployment, (Which in recent decades has sent millions of poor and unskilled people into urban areas in search of livelihoods.) attempt to solve the problem, by providing financial assistance for setting up businesses, skill honing, setting up public sector enterprises, reservations in governments, etc. The decreased role of the public sector after liberalisation has further underlined the need for focusing on better education and has also put political pressure on further reforms.

Regional imbalance One of the critical problems facing India's economy is the sharp and growing regional variations among India's 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 encouraging industrial development in the interior regions, but industries still tend to concentrate around urban areas and port cities After liberalization, the more advanced states are better placed to benefit from them, with infrastructure like well developed ports, urbanisation and an educated and skilled workforce which attract manufacturing and service sectors. The union and state governments of backward regions are trying to reduce the disparities by offering tax holidays, cheap land, etc., and focusing more on sectors like tourism, which although being geographically and historically determined, can become a source of growth and is faster to develop than other sectors.

External trade and investment Global trade relations {| style="margin:1em; background: #f9f9f9; border: 1px #aaa solid; border-collapse: collapse; font-size: 90%;" align="right"|+Share of top five investing countries in FDI inflows. (1991–2004)|- bgcolor="lightblue"! Rank !! Country !! Inflows
(Million USD) !! Inflows (%)|-|1 || || 8,898 || 34.49%Much of India's FDI is routed through Mauritius, because both countries have an agreement to avoid double taxation. |-|2 || || 4,389 || 17.08%|-|3 || || 1,891 || 7.33%|-|4 || || 1,847 || 7.16%|-|5 || || 1,692 || 6.56%|}Until the liberalisation of 1991, India was largely and intentionally isolated from the world markets, to protect its fledging economy and to achieve self-reliance. Foreign trade was subject to import tariffs, export taxes and quantitative restrictions, while foreign direct investment was restricted by upper-limit equity participation, restrictions on technology transfer, export obligations and government approvals; these approvals were needed for nearly 60% of new FDI in the industrial sector. The restrictions ensured that FDI averaged only around $200M annually between 1985 and 1991; a large percentage of the capital flows consisted of foreign aid, commercial borrowing and deposits of NRI.

India's exports were stagnant for the first 15 years after independence, due to the predominance of tea, jute and cotton manufactures, demand for which was generally Elasticity (economics). Imports in the same period consisted predominantly of machinery, equipment and raw materials, due to nascent industrialisation. Since liberalisation, the value of India's international trade has become more broad-based and has risen to Rs. 63,080,109 crores in 2003–04 from Rs.1,250 crores in 1950–51. India's major trading partners are China, the US, the UAE, the UK, Japan and the EU. The exports during August 2006 were $10.3 billion up by 41.14% and import were $13.87 billion with an increase of 32.16% over the previous year .

India is a founding-member of General Agreement on Tariffs and Trade (GATT) since 1947 and its successor, the World Trade Organization. While participating actively in its general council meetings, India has been crucial in voicing the concerns of the Developing country. For instance, India has continued its opposition to the inclusion of such matters as labour and environment issues and other Non-tariff barriers to trade into the WTO policies.

Balance of payments Since independence, India's balance of payments on its current account has been negative. Since liberalisation in the 1990s (precipitated by a balance of payment crisis), India's 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, its overall balance of payments (i.e., including the capital account balance), has been positive, largely on account of increased foreign direct investment and deposits from NRI; until this time, the overall balance was only occasionally positive on account of external assistance and commercial borrowings. As a result, India's foreign currency reserves stood at $141bn in 2005–06. Now however the reserves have been sitting at $200 billion which could be used in infrastructural development of the country if used effectively.

India's reliance on external assistance and commercial borrowings has decreased since 1991–92, and since 2002–03, it has gradually been repaying these debts. Declining interest rates and reduced borrowings decreased India's debt service ratio to 14.1% in 2001–02, from 35.3% in 1990–91.

Foreign direct investment in India As the third-largest economy in the world, India is undoubtedly one of the most preferred destinations for foreign direct investments (FDI); India has strength in information technology and other significant areas such as auto components, chemicals, apparels, pharmaceuticals and jewellery. India has always held promise for global investors, but its rigid FDI policies were a significant hindrance in this regard. However, as a result of a series of ambitious and positive economic reforms aimed at deregulating the economy and stimulating foreign investment, India has positioned 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 the middle-class population at 300 million exceeds the population of both the US and the EU, and represents a powerful consumer market. Middle class in India has arrived

India's recently liberalised 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 and foreign direct investment FDI. The upward moving growth curve of the real-estate sector owes 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. The Hinduonline This automatic route has been permitted in townships, housing, built-up infrastructure and construction development projects including housing, commercial premises, hotels, resorts, hospitals, educational institutions, recreational facilities, and city- and regional-level infrastructure.

See also

Notes References Books

Papers

Government publications
The economy of India is expected to be the List of countries by future GDP estimates (PPP) in the world as estimated by purchasing power parity (2007). When measured in United States dollar exchange rate terms, it is the List of countries by GDP (nominal) in the world, with a GDP of US $1.0 trillion (2007). Economic Times India India is the second fastest economic growth major economy in the world, with a GDP growth rate of 9.4% for the fiscal year 2006–2007. However, India's huge population of India results in a per capita income of $3,800 at PPP and $820 at nominal (2006 estimate).{{cite web | title =CIA - The World Factbook - India | publisher =https://www.cia.gov/ CIA | date =2007-09-20 | url =https://www.cia.gov/library/publications/the-world-factbook/geos/in.html#Econ | accessdate =2007-10-02 --> The World Bank classifies India as a low-income economy.[http://www.business-standard.com/common/storypage_c.php?leftnm=10&autono=291773 India climbs up the income ladderhttp://web.worldbank.org/WBSITE/EXTERNAL/DATASTATISTICS/0,,contentMDK:20421402~pagePK:64133150~piPK:64133175~theSitePK:239419,00.html#Low_income World Bank Country Classification Groups, (July 2006 data)

India's economy is diverse and encompasses agriculture, handicrafts, textile, manufacturing, and a multitude of services. Although two-thirds of the Indian workforce still earn their livelihood directly or indirectly through agriculture, services are a growing sector and are playing an increasingly important role of India's economy. The advent of the digital age, and the large number of young and educated populace fluent in English, is gradually transforming India as an important 'back office' destination for global companies for the outsourcing of their customer services and technical support. India is a major exporter of highly-skilled workers in software and financial services, and software engineering. Other sectors like manufacturing, pharmaceuticals, biotechnology, nanotechnology, telecommunication, shipbuilding, aviation and tourism are showing strong potentials with higher growth rates.

India followed a socialist-inspired approach for most of its independent history, with strict government control over private sector participation, foreign trade, and foreign direct investment. However, since the early 1990s, India has gradually opened up its markets through liberalization by reducing government controls on foreign trade and investment. The privatisation of publicly owned industries and the opening up of certain sectors to private and foreign interests has proceeded slowly amid political debate.

India faces a burgeoning population and the challenge of reducing economic and social Economic inequality. Poverty remains a serious problem, although it has declined significantly since independence. Official surveys estimated that in the year 2004-2005, 27% of Indians were poor.

History India's 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 started the colonial period in the 17th century, which ended with the Indian independence movement in 1947. The third period stretches from independence in 1947 until the present.

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 a form of municipal government.

king Kumara Gupta I (414–55 AD)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 food requirements of the village and provided raw materials for hand-based industries, such as textiles, food processing and crafts. Although many kingdoms and rulers issued coins, barter was prevalent. Villages paid a portion of their agricultural produce as revenue to the rulers, while its craftsmen received a part of the crops at harvest time for their services.

Religion, especially Hinduism, and the caste and the joint family systems, played an influential role in shaping economic activities. The caste system functioned much like medieval European guilds, ensuring the division of labour, providing for the training of apprentices and, in some cases, allowing manufacturers to achieve narrow specialization. For instance, in certain regions, producing each variety of cloth was the speciality of a particular sub-caste.

Since foreign travel and the ensuing ritual pollution resulted in loss of caste to Hindus a large part of India's foreign trade was conducted by foreigners and Muslims. Textiles such as muslin, Calico (textile), shawls, and agricultural products such as black pepper, cinnamon, opium and indigo were exported to Europe, the Middle East and South East Asia in return for gold and silver.

Assessment of India's pre-colonial economy is mostly qualitative, owing to the lack of quantitative information. One estimate puts the revenue of Akbar's Mughal Empire in 1600 at pounds sterling17.5 million, in contrast with the total revenue of Great Britain in 1800, which totalled £16 million. India, by the time of the arrival of the British, was a largely traditional agrarian economy with a dominant subsistence sector dependent on primitive technology. It existed alongside a competitively developed network of commerce, manufacturing and credit. After the fall of the Mughal Empire and the rise of Maratha Empire, the Indian economy was plunged into a state of political instability due to internecine wars and conflicts.

Colonial Colonial India brought a major change in the taxation environment from revenue taxes to property taxes resulting in mass impoverishment and destitution of the great majority of farmers. It also created an institutional environment that, on paper, guaranteed property rights among the colonizers, encouraged free trade, and created a single currency with fixed exchange rates, standardized weights and measures, capital markets, a well developed system of Rail transport in India and telegraphs, a civil service that aimed to be free from political interference, and a common-law, adversarial legal system. India's colonisation by 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, with industrial development stalled, agriculture unable to feed a rapidly growing population, one of the world's lowest life expectancy, and low rates of illiterate.

An estimate by Cambridge University historian Angus Maddison reveals that India's share of the world income fell from 22.6% in 1700, comparable to Europe's share of 23.3%, to a low of 3.8% in 1952. While Indian leaders during the Independence struggle, and left-nationalist economic history have blamed colonial rule for the dismal state of India's economy in its aftermath, a broader macroeconomic view of India during this period reveals that there were sectors of growth and decline, resulting from changes brought about by colonialism and a world that was moving towards industrialisation and economic integration.

Independence to 1991 Indian economic policy after Indian independence movement was influenced by the colonial experience (which was seen by Indian leaders as exploitative in nature) and by those leaders' exposure to Fabian socialism. Policy tended towards protectionist, with a strong emphasis on import substitution, industrialisation, state intervention in labour and financial markets, a large public sector, business regulation, and central planning. Jawaharlal Nehru, the first prime minister of India, along with the statistician Prasanta Chandra Mahalanobis, carried on by Indira Gandhi formulated and oversaw economic policy. They expected favourable outcomes from this strategy, because it involved both public and private sectors and was based on direct and indirect state intervention, rather than the more extreme Economy of the Soviet Union central command system. The policy of concentrating simultaneously on capital- and technology-intensive heavy industry and subsidising manual, low-skill cottage industries was criticized by economist Milton Friedman, who thought it would waste capital and labour, and retard the development of small manufacturers.

economies versus those of South Korea, as a percentage of the USData for Bangladesh is not available for 1950.India's low average growth rate from 1947–80 was derisively referred to as the Hindu rate of growth, because of the unfavourable comparison with growth rates in other Asian countries, especially the East Asian Tigers. After 1991 In the late 80s, the government led by Rajiv Gandhi eased restrictions on capacity expansion for incumbents, removed price controls and reduced corporate taxes. While this increased the rate of growth, it also led to high fiscal deficits and a worsening current account. The collapse of the Soviet Union, which was India's major trading partner, and the 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. {{cite paper | last = Ghosh | first = Arunabha | title = India's pathway trough economic crisis | publisher = Global Economic Governance Programme GEG Working Paper 2004/06 | date =2004-06-01 | url =http://www.globaleconomicgovernance.org/docs/Ghosh%20-%20India.pdf | accessdate = 2007-10-02--> In response, Prime Minister Narasimha Rao along with his finance minister [Manmohan Singh initiated the [Economic reforms in India. The reforms did away with the [Licence Raj (investment, industrial and import licensing) and ended many public monopolies, allowing automatic approval of [foreign direct investment in many sectors.{{cite paper and farmers, or contentious issues such as reforming labour laws and reducing agricultural subsidies.{{cite news | title=That old Gandhi magic | date= [November 27 [ | publisher=The Economist | url=http://www.economist.com/world/asia/displaystory.cfm?story_id=107076-->

Since 1990 India has emerged as one of the wealthiest economies in the developing world; 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 and food security.

While the credit rating of India was hit by its nuclear tests in 1998, it has been raised to investment level in 2007 by S&P and Moody's. In 2003, Goldman Sachs predicted that India's GDP in current prices will overtake France and Italy by 2020, Germany, UK and Russia by 2025 and Japan by 2035. By 2035, it was projected to be the third largest economy of the world, behind US and People's Republic of China.



Government intervention State planning and the mixed economy After independence, India opted for a centrally planned economy to try to achieve an effective and equitable allocation of national resources and balanced economic development. The process of formulation and direction of the Five-Year Plans of India is carried out by the Planning Commission, headed by the Prime Minister of India as its List of deputy chairpersons of the planning commission of India.

India's mixed economy combines features of both capitalist market economy and the socialist command economy, but has shifted more towards the former over the past decade. The public sector generally covers areas which are deemed too important or not profitable enough to leave to the market, including such services as the railways and postal system.

Since independence, there have been phases of nationalizing such areas as banking and, more recently, of privatization.

Public expenditure India's public expenditure is classified as development expenditure, comprising central plan expenditure and central assistance and non-development expenditures; these categories can each be divided into Capital (economics) expenditure and revenue expenditure. Central plan expenditure is allocated to development schemes outlined in the plans of the central government and public sector undertakings; central assistance refers to financial assistance and developmental loans given for plans of the state governments and union territories. Non-development capital expenditure comprises capital Military of India expenditure, loans to public enterprises, states and union territories and foreign governments, while non-development revenue expenditure comprises revenue defence expenditure, administrative expenditure, subsidies, debt relief to farmers, mail deficit, pensions, social and economic services (education, health, agriculture, science and technology), grants to states and union territories and foreign governments.Public expenditure was classified as plan and non-plan expenditure in the 1987–1988 union budget. It is now referred to as development and non-development expenditure, but the definition remains the same. Development expenditure is a capital expenditure.

, the Reserve Bank of India, in Mumbai.India's non-development revenue expenditure has increased nearly fivefold in 2003–04 since 1990–91 and more than tenfold since 1985–1986. Interest payments are the single largest item of expenditure and accounted for more than 40% of the total non development expenditure in the 2003–04 budget. Defence expenditure increased fourfold during the same period and has been increasing due to growing tensions in the region, the expensive dispute with Pakistan over Jammu and Kashmir and an effort to modernise the military. 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 are not only continuously rising, especially because of rising crude oil and food prices, but are also harder to rein in, because of political compulsions.

Public receipts India has a three-tier tax structure, wherein the Constitution of India empowers the Government of India to levy Income tax, tax on capital transactions (wealth tax, inheritance tax), sales tax, service tax, customs and excise duties and the States and territories of India to levy sales tax on intra-state sale of goods, tax on entertainment tax and professions, excise duties on manufacture of alcoholic beverage, stamp duty on transfer of property and collect land revenue (levy on land owned). The local governments are empowered by the state government to levy property tax, Octroi and charge users for public utilities like water supply, sewage etc.Service tax and expenditure tax are not levied in Jammu and Kashmir; Intra-state sale happens when goods or the Title (property) of goods move from one state to another. More than half of the revenues of the union and state governments come from taxes, of which half come from Indirect taxes. More than a quarter of the union government's tax revenues is shared with the state governments.Tax revenue was 88% of total union government revenue in 1950–51 and has come down to 73% in 2003–04, as a result of increase in non-tax revenue. Tax revenues were 70% of total state government revenues in 2002 to 2003. Indirect taxes were 84% of the union governments total tax revenue and have come down to 62% in 2003–04, mostly due to cuts in import duties and rationalisation. The states share in union government's tax revenue is 28.0% for the period 2000 to 2005 as per the recommendations of the eleventh finance commission. In addition, states that do not levy sales tax on sugar, textiles and tobacco, are entitled to 1.5% of the proceeds.

The tax reforms, initiated in 1991, have sought to rationalise the tax structure and increase compliance by taking steps in the following directions:

The non-tax revenues of the central government come from fiscal services, interest receipts, public sector dividends, etc., while the non-tax revenues of the States are grants from 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 Finance Commission to the President.

General budget The Finance minister of India presents the annual Union budget of India in the Parliament of India on the last working day of February. The budget has to be passed by the Lok Sabha before it can come into effect on April 1, the start of India's fiscal year. The Union budget is preceded by an Economic survey of India which outlines the broad direction of the budget and the economic performance of the country for the outgoing financial year. This economic survey involves all the various NGOs, women organizations, business people, old people associations etc.

India's union budget for Union budget of India (2005-06), had an estimated outlay of Rs.5,14,344 crores ($118 billion). Earnings from taxes amount to Rs. 2,73,466 crore ($63b). India's fiscal deficit amounts to 4.5% or 1,39,231 crore ($32b). The fiscal deficit is expected to be 3.8% of GDP, by March 2007.

Currency system Rupee depicting M. K. Gandhi, The 1000 rupee note is the highest denomination printed.The Rupee is the only legal tender accepted in India. The exchange rate as of October 13 2007 is about 39.18 to a US dollar, Historical Rupees-USD rates. 55.56 to a Euro, and 79.82 to a UK pound. The Indian rupee is accepted as legal tender in the neighboring Nepal and Bhutan, both of which peg their currency to that of the Indian rupee. The rupee is divided into 100 paisa. The highest-denomination banknote is the 1,000 rupee note; the lowest-denomination coin in circulation is the 25 paise coin. RBI

Exchange rates Under the fixed exchange rate system, the value of the rupee was linked to the British pound sterling until 1946, and after independence, 30% of India's foreign trade was determined in pound sterling. In 1975, as per the floating exchange rate system, the value of the rupee was pegged to a basket of currencies and was tightly controlled by the Reserve Bank of India. Since 2005, its value has been appreciating against the US dollar, Euro and British Pound Sterling. Since liberalisation reforms in early 1990s, the rupee is fully Convertibility on trade and current account.

Labour The large population puts further pressure on infrastructure and social services. A positive factor has been the large working-age population, which forms 45.33%Labor force=496.4 million(2005) according to CIA World factbook of the population and is expected to increase substantially, because of the decreasing dependency ratio. The national labour market has been tightly regulated by successive governments ever since the Workmen's Compensation Act was passed in 1923.

Natural resources India's total cultivable area is 1,269,219 square kilometre (56.78% of total land area), which is decreasing due to constant pressure from an ever growing population and increased urbanisation.

India has a total water surface area of 314,400 km² and receives an average annual rainfall of 1,100 millimetre. Irrigation accounts for 92% of the water utilisation, and comprised 380 km² in 1974, and is expected to rise to 1,050 km² by 2025, with the balance accounted for by industrial and domestic consumers. India's inland water resources comprising rivers, canals, ponds and lakes and marine resources comprising the east and west coasts of the Indian ocean and other Headlands and bays and bays provide employment to nearly 6 million people in the fisheries sector. India is the sixth largest producer of fish in the world and second largest in inland fish production.

India's major mineral resources include Coal (fourth-largest reserves in the world), Iron ore, Manganese, Mica, Bauxite, Titanium ore, Chromite, Natural gas, Diamonds, Petroleum, Limestone and Thorium (world's largest along Kerala's shores). India's oil reserves, found in Bombay High off the coast of Maharashtra, Gujarat, and in eastern Assam meet 25% of the country's demand.

Rising energy demand concomitant with economic growth has created a perpetual state of energy crunch in India. India is poor in oil resources and is currently heavily dependent on dirty coal and foreign oil imports for its energy needs. Though India is rich in Thorium, but not in Uranium, which it might get access to if a nuclear deal with US comes to fruitition. India is rich in certain energy resources which promise significant future potential - clean / renewable energy resources like Solar power in India, Wind power in India, biofuels (jatropha, sugarcane).

Physical infrastructure is seen as a necessity for India's crowded and polluted metros. Pictured here, is the New Delhi Metro, operational since 2002 and seen as a model for other metros.Since independence, India has allocated nearly half of the total outlay of the five-year plans for infrastructure development. Development of infrastructure was completely in the hands of the public sector and was plagued by corruption, bureaucratic inefficiencies, urban-bias and an inability to scale investment.

India's low spending on power, construction, transportation, telecommunications and real estate, at $31 billion or 6% of GDP in 2002 had prevented India from sustaining higher growth rates. This had prompted the government to partially open up infrastructure to the private sector allowing foreign investment which has helped in a sustained growth rate of close to 9% for the past six quarters. India's Economic Growth Unexpectedly Quickens to 9.2% India holds second position in the world in roadways' construction, more than twice that of China.

As of 15 January 2007, there were 2.10 million broadband lines in India. Low tele-density is the major hurdle for slow pickup in broadband services. Over 76% of the broadband lines were via DSL and the rest via cable modems.

Financial institutions s and software parks that offer tax benefits and better infrastructure to set up business. Pictured here is the Tidel Park in Chennai, one of the largest software parks in India.India inherited several institutions, such as the Indian Civil Service, central bank, railways, etc., from her British raj rulers. Mumbai serves as the nation's commercial capital, with the Reserve Bank of India (RBI), Bombay Stock Exchange (BSE) and the National Stock Exchange of India (NSE) located here. The headquarters of many financial institutions are also located within the city.

The RBI, the country's central bank was established on 1 April 1935. It serves as the nation's monetary authority, regulator and supervisor of the financial system, manager of exchange 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 BSE Sensex or the BSE Sensitive Index is a value-weighted index composed of 30 companies with April 1979 as the base year (100). These companies have the largest and most actively traded stocks and are representative of various sectors, on the Exchange. They account for around one-fifth of the market capitalisation of the BSE. The Sensex is generally 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 most advanced stock markets in India. The NSE is the world's third largest stock exchange in terms of transactions. There are a total of 23 stock exchanges in India, but the BSE and NSE comprise 83% of the volumes. The Securities and Exchange Board of India (SEBI), established in 1992, regulates the stock markets and other securities markets of the country.

Sectors Agriculture India List of countries by GDP sector composition worldwide in farm output. Agriculture and allied sectors like forestry, logging and fishing accounted for 18.6% of the GDP in 2005, employed 60% of the total workforce and despite a steady decline of its share in the GDP, is still the largest economic sector and plays a significant role in the overall socio-economic development of India. Yields per unit area of all crops have grown since 1950, due to the special emphasis placed on agriculture in the five-year plans and steady improvements in irrigation, technology, application of modern agricultural practices and provision of agricultural credit and subsidies since the green revolution. However, international comparisons reveal that the average yield in India is generally 30% to 50% of the highest average yield in the world.

The low productivity in India is a result of the following factors:

Industry India List of countries by GDP sector composition in the world in factory output. They together account for 27.6% of the GDP and employ 17% of the total workforce. Economic reforms brought foreign competition, led to privatisation of certain public sector industries, opened up sectors hitherto reserved for the public sector and led to an expansion in the production of fast-moving Final goods.

Post-liberalisation, the Indian private sector, which was usually run by oligopolies of old family firms and required political connections to prosper was faced with foreign competition, including the threat of cheaper Chinese imports. It has since handled the change by squeezing costs, revamping management, focusing on designing new products and relying on low labour costs and technology.

34 Indian companies have been listed in the Forbes Global 2000 ranking for 2007. The 10 leading companies are:{] || align="left" | || align="left" | Oil & Gas Operations || 15.64 || 3.46 || 26.98 || 38.19|-align="right"|258 || align="left" | Reliance Industries ] || align="left" | || align="left" | Banking || 13.66 || 1.24 || 156.37 || 12.35|-align="right"|399 || align="left" | Indian Oil Corporation ] || align="left" | || align="left" | Utilities || 6.06 || 1.31 || 17.25 || 26.06|-align="right"|536 || align="left" | ICICI Bank ] || 5.79 || 0.54 || 62.13 || 16.72|-align="right"|800 || align="left" | Steel Authority of India Limited ] || 6.30 || 0.91 || 7.06 || 10.16|-align="right"|1047 || align="left" | Tata Consultancy Svcs ] || align="left" | || align="left" | Materials ] || align="left" | || align="left" | Software & Services || 2.14 || 0.55 || 2.09 || 26.19|}

Services India List of countries by GDP sector composition in services output. It provides employment to 23% of work force, and it is growing fast, growth rate 7.5% in 1991–2000 up from 4.5% in 1951–80. It has the largest share in the GDP, accounting for 53.8% in 2005 up from 15% in 1950. Business services (information technology, information technology enabled services, business process outsourcing) are among the fastest growing sectors contributing to one third of the total output of services in 2000. The growth in the IT sector is attributed to increased specialisation, availability of a large pool of low cost, but highly skilled, educated and fluent English-speaking workers (a legacy of British Colonialism) on the Supply and demand and on the demand side, increased demand from foreign consumers interested in India's service exports or those looking to Outsourcing their operations. Indian IT industry, despite contributing significantly to its balance of payments, accounted for only about 1% of the total GDP or 1/50th of the total services.

Banking and finance The Indian money market is classified into: the organised sector (comprising private, public and foreign owned commercial banks and cooperative banks, together known as scheduled banks); and the unorganised sector (comprising individual or family owned indigenous bankers or Moneylending and non-banking financial company (NBFCs)). The unorganised sector and microcredit are still preferred over traditional banks in rural and sub-urban areas, especially for non-productive purposes, like ceremonies and short duration loans.

Prime Minister Indira Gandhi nationalisation 14 banks in 1969, followed by six others in 1980, and made it mandatory for banks to provide 40% (since reduced to 10%) of their net credit to priority sectors like agriculture, small-scale industry, retail trade, small businesses, etc. to ensure that the banks fulfill their social and developmental goals. Since then, the number of bank branches has increased from 10,120 in 1969 to 98,910 in 2003 and the population covered by a branch decreased from 63,800 to 15,000 during the same period. The total Bank deposit increased 32.6 times between 1971 to 1991 compared to 7 times between 1951 to 1971. Despite an increase of rural branches, from 1,860 or 22% of the total number of branches in 1969 to 32,270 or 48%, only 32,270 out of 5 lakh (500,000) villages are covered by a scheduled bank.

Since liberalisation, the government has approved significant banking reforms. While some of these relate to nationalised banks (like encouraging mergers, reducing government interference and increasing profitability and competitiveness), other reforms have opened up the banking and insurance sectors to private and foreign players.

Socio-economic characteristics Poverty Despite the economic gains, vast numbers of India's people live in abject poverty. Wealth distribution in India is fairly uneven, with the top 10% of income groups earning 33% of the income. "In Pictures – Middle Class, or Upper Class? ". India Together. Civil Society Information Exchange. August 2003 While poverty in India has reduced significantly, official figures estimate that 27.5% This figure is extremely sensitive to the surveying methodology used. The Uniform Recall Period (URP) gives 27.5%. The Mixed Recall Period (MRP) gives a figure of 21.8% of Indians still lived below the national poverty line in 2004-2005.Planning commision of India. Poverty estimates for 2004-2005 A 2007 report by the state-run National Commission for Enterprises in the Unorganised Sector (NCEUS) found that 77% of Indians, or 836 million people, lived on less than 20 rupees per dayThis figure has been variously reported as either "2 dollars per day" or "0.5 dollars per day". The former figure comes from the the Purchasing Power Parity conversion rate, while the latter comes from the official exchange rate. Also note that this figure does not contradict the NSS dervied figure, which uses calorie consumption as the basis for its poverty line. It just uses a more inclusive poverty line with most working in "informal labour sector with no job or social security, living in abject poverty."

Since the early 1950s, successive governments have implemented various schemes, under Planned economy, to alleviate poverty, that have met with partial success. All these programmes have relied upon the strategies of the Food for work programme and National Rural Employment Programme of the 1980s, which attempted to use the unemployed to generate productive assets and build rural infrastructure. In August 2005, the Parliament of India passed the Rural Employment Guarantee Bill, the largest programme of this type in terms of cost and coverage, which promises 100 days of minimum wage employment to every rural household in 200 of Districts of India. The question of whether economic reforms have reduced poverty or not has fuelled debates without generating any clear cut answers and has also put political pressure on further economic reforms, especially those involving the downsizing of labour and cutting agricultural subsidies.

Corruption in a 2005 study by Transparency International India. (Darker regions are more corrupt)Political corruption has been one of the pervasive problems affecting India. It takes the form of bribes, evasion of Tax evasion and Foreign exchange controls, embezzlement, etc. The economic reforms of 1991 reduced the red tape, bureaucracy and the Licence Raj that had strangled private enterprise and was blamed for the corruption and inefficiencies. Yet, a 2005 study by Transparency International (TI) India found that more than half of those surveyed had firsthand experience of paying bribe or peddling influence to get a job done in a public office.

The chief economic consequences of corruption are the loss to the exchequer, an unhealthy climate for investment and an increase in the cost of government-subsidised services. The TI India study estimates the monetary value of petty corruption in 11 basic services provided by the government, like education, healthcare, judiciary, police, etc., to be around Rs.21,068 crores. India still ranks in the bottom quartile of developing nations in terms of the ease of doing business, and compared to China, the average time taken to secure the clearances for a startup or to invoke bankruptcy is much greater.

The Right to Information Act (2005) and equivalent acts in the states, that require government officials to furnish information requested by citizens or face punitive action, computerisation of services and various central and state government acts that established vigilance commissions have considerably reduced corruption or at least have opened up avenues to redress grievances. Example of a central government department's implementation of the Right to Information Act. The 2006 report by Transparency International puts India at 70th place and states that significant improvements were made by India in reducing corruption. Transparency International Press release Transparency International Press release

Occupations and unemployment 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 overall unemployment rate was 7.32%, with rural areas doing marginally better (7.21%) than urban areas (7.65%).

Unemployment in India is characterised by chronic underemployment or Unemployment types#Hidden unemployment. Government schemes that target eradication of both poverty and unemployment, (Which in recent decades has sent millions of poor and unskilled people into urban areas in search of livelihoods.) attempt to solve the problem, by providing financial assistance for setting up businesses, skill honing, setting up public sector enterprises, reservations in governments, etc. The decreased role of the public sector after liberalisation has further underlined the need for focusing on better education and has also put political pressure on further reforms.

Regional imbalance One of the critical problems facing India's economy is the sharp and growing regional variations among India's 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 encouraging industrial development in the interior regions, but industries still tend to concentrate around urban areas and port cities After liberalization, the more advanced states are better placed to benefit from them, with infrastructure like well developed ports, urbanisation and an educated and skilled workforce which attract manufacturing and service sectors. The union and state governments of backward regions are trying to reduce the disparities by offering tax holidays, cheap land, etc., and focusing more on sectors like tourism, which although being geographically and historically determined, can become a source of growth and is faster to develop than other sectors.

External trade and investment Global trade relations {| style="margin:1em; background: #f9f9f9; border: 1px #aaa solid; border-collapse: collapse; font-size: 90%;" align="right"|+Share of top five investing countries in FDI inflows. (1991–2004)|- bgcolor="lightblue"! Rank !! Country !! Inflows
(Million USD) !! Inflows (%)|-|1 || || 8,898 || 34.49%Much of India's FDI is routed through Mauritius, because both countries have an agreement to avoid double taxation. |-|2 || || 4,389 || 17.08%|-|3 || || 1,891 || 7.33%|-|4 || || 1,847 || 7.16%|-|5 || || 1,692 || 6.56%|}Until the liberalisation of 1991, India was largely and intentionally isolated from the world markets, to protect its fledging economy and to achieve self-reliance. Foreign trade was subject to import tariffs, export taxes and quantitative restrictions, while foreign direct investment was restricted by upper-limit equity participation, restrictions on technology transfer, export obligations and government approvals; these approvals were needed for nearly 60% of new FDI in the industrial sector. The restrictions ensured that FDI averaged only around $200M annually between 1985 and 1991; a large percentage of the capital flows consisted of foreign aid, commercial borrowing and deposits of NRI.

India's exports were stagnant for the first 15 years after independence, due to the predominance of tea, jute and cotton manufactures, demand for which was generally Elasticity (economics). Imports in the same period consisted predominantly of machinery, equipment and raw materials, due to nascent industrialisation. Since liberalisation, the value of India's international trade has become more broad-based and has risen to Rs. 63,080,109 crores in 2003–04 from Rs.1,250 crores in 1950–51. India's major trading partners are China, the US, the UAE, the UK, Japan and the EU. The exports during August 2006 were $10.3 billion up by 41.14% and import were $13.87 billion with an increase of 32.16% over the previous year .

India is a founding-member of General Agreement on Tariffs and Trade (GATT) since 1947 and its successor, the World Trade Organization. While participating actively in its general council meetings, India has been crucial in voicing the concerns of the Developing country. For instance, India has continued its opposition to the inclusion of such matters as labour and environment issues and other Non-tariff barriers to trade into the WTO policies.

Balance of payments Since independence, India's balance of payments on its current account has been negative. Since liberalisation in the 1990s (precipitated by a balance of payment crisis), India's 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, its overall balance of payments (i.e., including the capital account balance), has been positive, largely on account of increased foreign direct investment and deposits from NRI; until this time, the overall balance was only occasionally positive on account of external assistance and commercial borrowings. As a result, India's foreign currency reserves stood at $141bn in 2005–06. Now however the reserves have been sitting at $200 billion which could be used in infrastructural development of the country if used effectively.

India's reliance on external assistance and commercial borrowings has decreased since 1991–92, and since 2002–03, it has gradually been repaying these debts. Declining interest rates and reduced borrowings decreased India's debt service ratio to 14.1% in 2001–02, from 35.3% in 1990–91.

Foreign direct investment in India As the third-largest economy in the world, India is undoubtedly one of the most preferred destinations for foreign direct investments (FDI); India has strength in information technology and other significant areas such as auto components, chemicals, apparels, pharmaceuticals and jewellery. India has always held promise for global investors, but its rigid FDI policies were a significant hindrance in this regard. However, as a result of a series of ambitious and positive economic reforms aimed at deregulating the economy and stimulating foreign investment, India has positioned 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 the middle-class population at 300 million exceeds the population of both the US and the EU, and represents a powerful consumer market. Middle class in India has arrived

India's recently liberalised 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 and foreign direct investment FDI. The upward moving growth curve of the real-estate sector owes 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. The Hinduonline This automatic route has been permitted in townships, housing, built-up infrastructure and construction development projects including housing, commercial premises, hotels, resorts, hospitals, educational institutions, recreational facilities, and city- and regional-level infrastructure.

See also

Notes References Books

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Government publications


 

Economy Of India



 
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