India is the second most populous country in the world and 7th largest in terms of geographical area. It is also the world largest democracy with culture that dates back to the prehistoric ages. Naturally it is very exciting to understand the journey of India from being a historic country to a modern one and to predict what the future holds for it.
The History of India’s Economy
Before India got Independent in the year 1947 it had spent ~200 years under the British rule. The Britishers had plundered the country and taken away most of its wealth leaving a crippling effect on the economy of India.
Post its independence in 1947 till the early 1990s India had followed a socialist economic model which focused on the development of the country and giving it a stable economy. However, at that time the economy was heavily regulated due to which it remained largely stagnant.
With the post liberalisation reforms that the Government of India undertook in 1991, the economy has grown steadily and sustainably with an average annual growth rate of around 7%. Today we can proudly say that India is the fastest growing major economies in the world, being the 5th largest economy by size. The nominal GDP size of India as of 2022 is $3.8 trillion.
Today, India is one of the fastest-growing major economies in the world and is projected to become the world’s third-largest economy by 2030.
Let us explore the factors that have contributed to India’s economic growth, the industries that are driving this growth, the challenges that the country still faces, and the future outlook for it.
India’s economic growth
The development of the economic can be broadly divided into 2 phases as follows:
- The Pre-Liberalisation Era (1947 to 1991)
As mentioned earlier during this time the country followed a socialist economic model. The focus during this time was to make the country self-reliant and strong. The key focus areas during these years were the development of agriculture, industry, infrastructure, education, healthcare and poverty alleviation.
However the excessive control that the government held on public as well as private industries during this time stunted the growth of the economy to a large extent. Therefore, the economy grew at a slow pace.
- Post liberalisation (1991 onwards)
In 1991 the Government of India undertook series of economic liberalization and reforms which put India in the growth path. These reforms were in that reducing bureaucratic interferences, turn of tariffs, deregulation of key industries, development of private enterprises and encouraging foreign investments in the country.
These reforms opened up India’s economy and the world started looking at it as a destination for investments and industrialization. The country got integrated within the global economy which gave it impressive mileage in the world arena. The average economic growth got increased to an average of 7% over the years which resulted in the country becoming the 5th largest economy in the world.
GDP growth over the years
| Year | GDP Growth (%) | Annual Change |
| 1961 | 3.7227 | |
| 1962 | 2.9311 | -0.79 |
| 1963 | 5.9944 | 3.06 |
| 1964 | 7.453 | 1.46 |
| 1965 | -2.6358 | -10.09 |
| 1966 | -0.0553 | 2.58 |
| 1967 | 7.826 | 7.88 |
| 1968 | 3.3879 | -4.44 |
| 1969 | 6.5397 | 3.15 |
| 1970 | 5.1572 | -1.38 |
| 1971 | 1.6429 | -3.51 |
| 1972 | -0.5533 | -2.2 |
| 1973 | 3.2955 | 3.85 |
| 1974 | 1.1853 | -2.11 |
| 1975 | 9.1499 | 7.96 |
| 1976 | 1.6631 | -7.49 |
| 1977 | 7.2548 | 5.59 |
| 1978 | 5.7125 | -1.54 |
| 1979 | -5.2382 | -10.95 |
| 1980 | 6.7358 | 11.97 |
| 1981 | 6.0062 | -0.73 |
| 1982 | 3.4757 | -2.53 |
| 1983 | 7.2889 | 3.81 |
| 1984 | 3.8207 | -3.47 |
| 1985 | 5.2543 | 1.43 |
| 1986 | 4.7766 | -0.48 |
| 1987 | 3.9654 | -0.81 |
| 1988 | 9.6278 | 5.66 |
| 1989 | 5.9473 | -3.68 |
| 1990 | 5.5335 | -0.41 |
| 1991 | 1.0568 | -4.48 |
| 1992 | 5.4824 | 4.43 |
| 1993 | 4.7508 | -0.73 |
| 1994 | 6.6589 | 1.91 |
| 1995 | 7.5745 | 0.92 |
| 1996 | 7.5495 | -0.02 |
| 1997 | 4.0498 | -3.5 |
| 1998 | 6.1844 | 2.13 |
| 1999 | 8.8458 | 2.66 |
| 2000 | 3.841 | -5 |
| 2001 | 4.824 | 0.98 |
| 2002 | 3.804 | -1.02 |
| 2003 | 7.8604 | 4.06 |
| 2004 | 7.9229 | 0.06 |
| 2005 | 7.9234 | 0 |
| 2006 | 8.0607 | 0.14 |
| 2007 | 7.6608 | -0.4 |
| 2008 | 3.0867 | -4.57 |
| 2009 | 7.8619 | 4.78 |
| 2010 | 8.4976 | 0.64 |
| 2011 | 5.2413 | -3.26 |
| 2012 | 5.4564 | 0.22 |
| 2013 | 6.3861 | 0.93 |
| 2014 | 7.4102 | 1.02 |
| 2015 | 7.9963 | 0.59 |
| 2016 | 8.2563 | 0.26 |
| 2017 | 6.7954 | -1.46 |
| 2018 | 6.4539 | -0.34 |
| 2019 | 3.7379 | -2.72 |
| 2020 | -6.5961 | -10.33 |
| 2021 | 8.6812 | 15.28 |
Post-1991 economic growth
The economic reforms of 1991 ushered in a new era of economic growth in India, with an average annual growth rate of around 7% since then. The country’s GDP has increased from around $270 billion in 1991 to over $3 trillion in 2021, making India the world’s fifth-largest economy.
India’s economic growth has been driven by a diverse range of industries, including IT and technology, manufacturing, agriculture, and pharmaceuticals. In addition, the country has made significant progress in developing its infrastructure, including transportation, energy, and telecommunications.
Overall, the economic liberalization and reforms of 1991 have transformed India’s economy, leading to sustained economic growth and greater global integration. However, the country still faces some challenges, which we will discuss in the next sections.
Industries Driving India’s Growth
Over the years India has become a superpower among the countries of the world. This growth has been driven by several industries, especially information technology, manufacturing, pharmaceuticals, and agriculture. The Government of India has provided significant incentives to grow various in industries so that the country can achieve self-reliance and attract significant investment from other countries. The country has undergone rapid digitization in the recent years which has modernised its systems and processes and made decision making faster at all levels.
India has also become a country that other countries look up to. During the recent coronavirus crisis India supplied COVID vaccines to many countries, thereby saving their population from severe distress. Its IT industry is counted as among the best in the world. It is also now trying to become a major hub for hardware manufacturing with the development of industries that will manufacture silicon chips in India.
The Future Outlook
Despite its impressive growth in the recent years the Indian economy is still faces significant challenges to boost its growth further. The infrastructure of the country has to be made even better. It also faces a challenge of brain drain with many young talents leaving India every year and settling down abroad in search for better opportunities.
Rapid changes in climate are another challenge that may hamper the growth of the economy. The government also needs to give more tax benefits to industries and make doing business in India even simpler in order to fuel growth.
The good news is that the current government is working strategically and trying relentlessly to solve all these challenges. It is expected that the GDP of India will grow at 6-7% rate sustainably and India will become a 7 trillion dollar economy by 2030.
Final thoughts
The growth of the Indian economy has been largely driven by the economic liberalisation that it underwent in 1991. The present government has also made significant efforts over the years to make India a global superpower. With the availability of supremely talented workforce the outlook for India remains very positive and we are confident that it will remain or destination for global investments for many more years to come.
This article is for education purpose only. Kindly consult with your financial advisor before doing any kind of investment.