India - Economy

Overview: India’s economic policy has traditionally focused on poverty reduction. From the 1950s to the 1980s, there was a drive towards large-scale industrialisation through government investment in public-sector enterprises, notably in heavy industry, aimed at providing employment and increasing self-reliance, with an emphasis on import substitution. The outcome was that India is now one of the world’s largest industrial economies, with deliberately labour-intensive systems.

However, few improvements reached the rural areas where more than 70% of the population lives and depends on agriculture. A balance of payments crisis in 1991 led to policy reform with the emphasis on liberalisation, decentralisation and private-sector investment, increasing opportunities for small- and medium-scale enterprises to strengthen markets and create employment at the grassroots.

During the 1990s the government made some progress with deregulation of trade and industry and privatisation of both infrastructure (including power generation, ports, roads and airlines) and the many inefficient state enterprises, and generally maintained macroeconomic discipline of containing inflation and current-account deficits. At the same time new industries, and especially software, grew rapidly.

However, the government proceeded more slowly with liberalising the financial sector and reforming labour law. In the 2000s progress was stalled due to lack of support for the economic reforms in the governing National Democratic Alliance, especially for labour market reform and further privatisation. In May 2004, the new Indian National Congress-led government announced that there would be no more privatisations of profitable state enterprises and others would be decided case by case.

After the first period of adjustment in the early 1990s, the economy began to enjoy strong export-led growth with low inflation. India was relatively little affected by the Asian financial crisis of the late 1990s.

The economy has expanded rapidly during the 2000s; during 2005–07 growth averaged over 9% and inflation under 5%.

Trade: With a large domestic market and a historical policy of self-sufficiency, foreign trade still comprises a comparatively small proportion of economic activity (exports of goods and services accounted for 19% of GDP in 2004).

Manufactured exports account for 73% of total merchandise exports (2004). Principal exports are engineering goods, clothing and textiles, gems and jewellery, and crude petroleum. Principal imports are petroleum and fuels, uncut gems and capital goods (mainly machinery and transport equipment); petroleum and minerals are imported despite domestic production. Chief export partners are the USA (19%), China and UAE, and chief import partners China and the USA.