Status of Indian Economy: Pre-Independence Period (1850-1947)

 Ancient and Medieval Period (1st to 17th Century AD)

o India is believed to have had the largest economy of the ancient and medieval world.
o It was prosperous and self-reliant.
o Believed to have controlled between one third and one fourth of the world's wealth.
o Economy consisted of self-sufficient villages and cities (centres of commerce, pilgrimage,
administration). Cities offered more diverse economic opportunities than villages.
o Agriculture was the dominant occupation.
o The country had highly skilled artisans and craftsmen who produced superior quality manufactures,
handicrafts, and textiles for the worldwide market.
 Ancient Economic Philosophy
o The earliest known treatise is ‘Arthashastra’.
o Attributed to Kautilya (Chanakya), dated to 321–296 BCE.
o Recognized as one of the most important works on statecraft.
o Believed to be a handbook for King Chandragupta Maurya, founder of the Mauryan empire.
o Artha encompasses all aspects of material well-being, primarily 'wealth' and secondarily 'land'.
Arthashastra is the science of 'artha' or material prosperity.
o Major focus on maintaining and using land fruitfully. Kautilya emphasized robust agricultural
initiatives for abundant harvest to fill the state's treasury.
o Taxes should be fair, equal for private and state-owned businesses, and easily understood.
o True kingship is defined by subordinating desires to the good of the people. Policies should reflect
concern for the greatest good of the greatest number.
o The preservation and advancement of this good comprised seven vital elements: King, Ministers,
Farmlands, Fortresses, Treasury, Military and Allies.
 British Rule (1757-1947)
o The advent of Europeans and the British marked a shift in economic history.
o Period divided into two sub-periods: East India Company rule from 1757 to 1858 and British
government rule from 1858 to 1947.
o Historical legacy of British colonialism is an important starting point for illustrating India's
development path.
o Onset of Industrial Revolution in Britain (latter half of the 18th century) increased manufacturing
capabilities, requiring more raw materials and markets for finished goods.
o This led to a virtual reversal of the nature of India’s foreign trade, from an exporter of
manufactures to an exporter of raw materials.
 Impact of British Policies (Destruction of Indian Manufactures)
o Indian exports of finished goods were subjected to heavy tariffs.
o Imports were charged lower tariffs under the policy of discriminatory tariffs.
o This made Indian finished goods exports costlier and imports cheaper, leading Indian goods to lose
competitiveness.
o External and domestic demand for indigenous products fell sharply.
o Culminated in the destruction of Indian handicrafts and manufactures.
o Mainly due to hostile imperial policies serving British interests and competition from machine-made
goods.
o Aggravated by a shift in domestic demand towards foreign goods, as many Indians sought to affiliate
with Western culture.
o Damage to the long-established production structure had far-reaching economic and social
consequences. It destroyed the internal balance of the traditional village economy, characterized by
blending agriculture and handicrafts.
o Manifestations of this destruction:
 Large scale unemployment and absence of alternate employment, forcing dependence on
agriculture.
 Increased pressure on land caused subdivision and fragmentation, subsistence farming, reduced
agricultural productivity, and poverty.
 Imports of cheap machine-made goods from Britain and a shift in tastes made survival of
domestic industries more difficult.
  Impact on Agriculture
o Systems of land tenure, especially the zamindari system, created a class whose interests perpetuated
British rule.
o Excessive pressure on land increased demand for tenancy land, allowing zamindars to extract
excessive rents.
o Absentee landlordism, high indebtedness of agriculturists, growth of exploitative money lenders, and
low attention to productivity measures led to a virtual collapse of Indian agriculture.
 Stagnated Industrialisation under Colonial Rule
o Factory-based production did not exist in India before 1850.
o 'Modern' industrial enterprises began growing in the mid-19th century.
o Cotton milling business: Grew steadily in the second half of the 19th century, achieved high
international competitiveness. India had 9 million spindles in the 1930s, ranking fifth globally.
o Jute mills: Expanded rapidly around Calcutta due to mounting global demand. India occupied a large
share of the international market by the late 19th century. The Indian jute mill industry was the
largest globally by the end of the 19th century in raw jute consumption.
o Other industries that developed: Brewing, paper-milling, leather-making, matches, rice-milling.
o Heavy industries: Iron industry established as early as 1814 by British capital. India’s iron industry
ranked eighth globally in output in 1930.
o Some modern industrial enterprises reached global standards by the beginning of the 20th century.
o Just before the Great Depression, India was ranked as the twelfth largest industrialised country by
value of manufactured products.
o Producer goods industries did not show high expansion.
o A significant factor was pressure from English producers in policy formulation to discourage
development of industries competing with British ones.
o Industrial growth was insufficient to bring a general transformation.
o The manufacturing sector's share in NDP (excluding small scale and cottage) barely reached 7% even
in 1946.
o Factory employment share was small: 0.4% of total population in 1900 and 1.4% in 1941.

Indian Economy: Post-Independence (1947-1991)

 State at Independence (1947)

o India was overwhelmingly rural, inhabited by mostly illiterate and poor people.
o Deeply stratified society with extreme heterogeneity.
o Literacy rate just above 18 percent and life expectancy barely 32 years in 1951.
o Poverty was not just in income but also human capital. The country was deficient in physical,
financial, and human capital.
 Early Economic Policy (Nehruvian Model)
o For historical reasons, the Nehruvian model came to dominate post-Independence policy.
o Supported social and economic redistribution and state-directed industrialization.
o Centralized economic planning and direction was core to the strategy.
o Policies aimed to accomplish rapid economic growth accompanied by equity and distributive justice.
o The Planning Commission of India was established to meticulously plan for national economic
development in line with the socialistic strategy.
o This was carried out through five-year plans developed, implemented, and monitored by the Planning
Commission.
o Rapid industrialization was the cornerstone of Nehru’s development strategy.
o 'Planned modernization' meant systematic planning to support industrialization. Bureaucrats and
technocrats envisioned a significant role for the state.
 Industrial Policies
o Industrial Policy Resolution (1948): Envisaged an expanded role for the public sector and licensing
for the private sector. Granted state monopoly for strategic areas (atomic energy, arms/ammunition,
railways). Rights to new investments in basic industries exclusively given to the state.
o Policies in the 1950s were guided by two philosophies: Nehru’s visualization of a socialistic society
with emphasis on heavy industry, and the Gandhian philosophy of small scale and cottage industry
and village republics.
 o Industrial Policy Resolution of 1956: Provided a framework but was lopsided with undue priority for
the public sector.
o Undue priority for the public sector dampened private initiative and enterprise. Private investments
were discouraged, with negative long-lasting consequences for industrial growth.
 Trade Policy (Early Period)
o India followed an open foreign investment policy and relatively open trade policy until the late 1950s.
o A balance of payments crisis emerged in 1958.
o Led to gradual tightening of trade and reduction in investment-licensing for new investments requiring
imports of capital goods.
o Comprehensive import controls were maintained until 1966.
 GDP Growth (1950-1980)
o Average annual growth rate of GDP was a modest 3.5 percent.
o Often referred to as the ‘Hindu growth rate’.
o Thrust was on capital goods and capital-intensive projects (dams, power plants, heavy
industrialization) rather than consumer goods.
 Shift in Agricultural Strategy (mid-1960s)
o First major shift in economic strategy was in the mid-1960s.
o Agriculture was not given adequate priority during the second plan, outlays were reduced.
o Agricultural strategy until then relied on institutional model (land reforms, farm cooperatives) rather
than technocratic areas (R&D, irrigation). These reforms were only modestly successful.
o Continuous monsoon failures led to two severe, consecutive droughts in 1966 and 1967.
o Agricultural sector recorded negative growth, India faced a serious food problem.
o India had to depend on the United States for food aid under PL 480.
o Increasing productivity in agriculture was given highest priority, kick-starting a strategic change in
agricultural policies.
o The new wave relied less on institutional change, more on enhancing productivity, especially of wheat.
 Green Revolution
o A thorough restructuring of agricultural policy, referred to as the ‘green revolution’, was initiated.
o Materialised by innovative farm technologies: high yielding seed varieties and intensive use of water,
fertilizer, and pesticides.
o Successful in increasing agricultural productivity through technical progress.
o Significantly increased food grain production, enabling India to overcome the food problem.
 Increased Controls and Nationalisation
o While agricultural policies changed, the government introduced extra stringent administrative controls
on both trade and industrial licensing.
o Launched a wave of nationalisation.
o 14 banks Nationalised in 1969.
o Another 6 banks Nationalised in 1980.
o The wide sweep of interventionist policies had irreparable consequences in the next decade.
 Economic Performance (1965-1981)
o Worst in independent India’s history.
o Decline in growth attributed mainly to productivity decline.
o Contributing factors: The license-raj, autarchic policies (1960s and 1970s), external shocks (three
wars in 1962, 1965, and 1971; major droughts in 1966 and 1967; oil shocks of 1973 and 1979).
o Being practically a closed economy, India missed opportunities from a rapidly growing world
economy.
 Policies Affecting Wealth Creation
o Many government policies aimed at equitable distribution of income and wealth effectively killed the
incentive for creating wealth. Equity-driven policies were also largely anti-growth.
o The Monopolies and Restrictive Trade Practices (MRTP) Act, 1969, aimed at regulating large
firms with market power.
o Several restrictions were placed on large firms (licensing, capacity addition, mergers, acquisitions).
This kept them away from nearly all but a few highly capital-intensive sectors.
o Policy of reservation of many products for exclusive manufacture by the small scale sector
initiated in 1967. Objective was promotion of small scale industries, encouraging labour-intensive
growth, and redistributing income.
 o However, this policy excluded big firms from labour-intensive industries and hindered India's ability
to compete in the world market for these products.
o Stringent labour laws also discouraged labour-intensive industries in the organized sector.
 Growing Realisation for Change
o Growing realisation among policymakers and industrialists that the prevailing strict regime was
counterproductive.
o Controls and regulations had not delivered due to absence of adequate incentives and openness.

The Era of Reforms (Post-1980s)

 Early Liberalisation (1980s)

o Seeds of early liberalisation and reforms were sown during the 1980s, especially after 1985.
o Efforts initiated from 1981 to 1989 to restore price stability through tight monetary policy, fiscal
moderation, and structural reforms.
o These initiatives are referred to as ‘early liberalization’ or ‘reforms by stealth’ (ad hoc, not widely
publicized).
o Specifically aimed at changing the prevailing thrust on ‘inward-oriented’ trade and investment
practices.
o Despite not being a comprehensive package, they resulted in a higher growth rate during the 1980s
compared to the previous three decades.
o Average annual GDP growth rate: 5.7 percent during the sixth plan period (1980–1985) and 5.8
percent during the seventh plan period (1985–1990).
o Early reforms broadly covered three areas: industry, trade and taxation.
o Government also embarked on skilful exchange rate management.
 Prominent Industrial Policy Initiatives (1980s)
o Delicensing of 25 broad categories of industries done in 1985, later extended.
o Facility of ‘broad-banding’ accorded to allow flexibility in product mix without new licensing.
o MRTP asset limit raised from 20 crore to 100 crore in 1985–86 to relax controls on larger firms.
o Multipoint excise duties converted into a modified value-added tax (MODVAT).
 Trade and Other Initiatives (1980s)
o Establishment of the Securities and Exchange Board of India (SEBI) as a non-statutory body on
April 12, 1988.
o The Open General Licence (OGL) list was steadily expanded, reaching 1,329 capital goods items in
April 1990.
o Several export incentives were introduced and expanded.
o Exchange rate set at a realistic level, helping expand exports and reduce pressure on foreign exchange.
o Price and distribution controls on cement and aluminum were entirely abolished.
o Rupee depreciated by about 30.0 per cent from 1985–86 to 1989–90 based on the real effective
exchange rate (REER). This reflected a considerable change in attitude towards depreciation.
o The budget for 1986 introduced policies of cutting taxes, liberalising imports, and reducing tariffs.
 Constraints Remaining Post-Early Reforms
o Growth performance thwarted by structural inadequacies and distortions.
o Private sector investments inhibited by convoluted licensing policies, public sector reservations,
excessive government controls.
o Reservation of goods for the small scale sector and excessive price/distribution controls discouraged
private investment.
o The public sector was plagued by inefficiency, government controls, and bureaucratic procedures,
yielding low returns.
o The MRTP act had restrictive conditions creating entry, diversification, and expansion barriers for
large industrial houses.
o Import controls (tariffs, quotas, quantitative restrictions) insulated the economy from foreign
competition. Foreign investment and competition were restricted to protect domestic industries.
o Rules and regulations became major hindrances to growth.
 Impact of 1980s Reforms
o Limited in scope and without a clear road map compared to the New Economic Policy in 1990.
o Instrumental in building confidence that policy changes could produce sustained economic growth.
 o Fostered the belief that well-regulated competitive markets can ensure economic growth and increase
total welfare.
o The idea that markets should be given priority over government in many activities gained acceptance.
o The liberalisation in the 1980s served as the necessary foundation for the more universal and
organized reforms of the 1990s.

The Economic Reforms of 1991

 India embarked on a bold set of economic reforms in 1991 under the Narsimha Rao government.
 The year 1991 marked a paradigm shift. India had previously embraced the ‘socialist model’ with an
overriding state role.
 Causes for the 1991 Reforms:
o Government revenue expenditure consistently exceeded revenue receipts in the 1980s. Financed by
huge domestic and external debt.
o High current expenditure proved unsustainable, leading to extremely large fiscal deficits and adverse
balance of payments.
o Persistent huge deficits led to swelling public debt, with a large proportion of revenues earmarked for
interest payments.
o Surge in oil prices triggered by the Gulf War in 1990 caused severe strain on the balance of
payments.
o Foreign exchange reserves touched the lowest point, only $1.2 billion, barely sufficient for two weeks
of imports. This was a major trigger.
o Tightening import restrictions to muster forex led to reduction in industrial output.
o India had to depend on external borrowing from the International Monetary Fund (IMF), which put
forth stringent conditions.
o Fragile political situation combined with economic crisis created a ‘crisis of confidence’.
o Lessons from the collapse of the Soviet Union and the success of China based on outward-oriented
policies.
 Aims of 1991 Reforms
o Aim to move the economy toward greater market orientation and external openness.
o Popularly known as liberalization, privatization, and globalisation.
o Spelt a major shift in economic philosophy and fundamental change in approach.
o Two major objectives:
1. Reorientation from a centrally directed and highly controlled economy to a ‘market friendly’
or market oriented economy.
2. Macroeconomic stabilization by substantial reduction in fiscal deficit.
 Policy Classification
o Package structured as mutually supportive reforms to address balance of payments crisis and structural
rigidities.
o Focus on shifting from central direction to market orientation.
o Broadly classified as:
1. Stabilisation measures: Short term, address inflation and adverse balance of payment.
2. Structural reform measures: Long term, continuing, aim for productivity and
competitiveness by removing rigidities.
 Fiscal Reforms
o Escalating deficit levels complicated stabilisation.
o Bringing in fiscal discipline by reducing the fiscal deficit was vital.
o Attempted by augmenting revenues and curtailing government expenditure.
o Measures included:
 Introduction of a stable and transparent tax structure.
 Ensuring better tax compliance.
 Thrust on curbing government expenditure.
 Reduction in subsidies and abolition of unnecessary subsidies.
 Disinvestment of part of government’s equity holdings in select public sector undertakings.
 Encouraging private sector participation.
 o Historic agreement with the Reserve Bank (RBI) in September 1994 to bring down the fiscal deficit
to nil by 1997–98.
 Monetary and Financial Sector Reforms
o Drastic reforms introduced to make the financial system efficient and transparent.
o Focus on reducing burden of nonperforming assets on government banks, introducing competition,
and deregulating interest rates.
o Measures included:
 Interest rate liberalization and reduction in RBI controls on banks regarding interest rates.
 Opening of new private sector banks and facilitating greater competition.
 Reduction in reserve requirements (SLR and CRR) in line with the Narasimham Committee
Report, 1991.
 Liberalisation of bank branch licensing policy, granting freedom to banks.
 Prudential norms of accounting introduced (asset classification, income disclosure, bad debt
provisions) per Narasimham Committee recommendations.
 Capital Markets Reforms
o The Securities and Exchange Board of India (SEBI), set up in 1988, was given statutory
recognition in 1992.
o Mandated as an independent regulator to create a transparent environment for resource mobilization
and allocation.
 The ‘New Industrial Policy’ (announced July 24, 1991)
o Sought to substantially deregulate industry to promote efficiency and competitiveness.
o Series of reforms introduced for competitive stimulus.
o Put an end to the ‘License Raj’ by removing licensing for all industries except 18 (security, strategic,
social, safety, environment). 80 percent of industry taken out of licensing. Subsequently reduced to 5
key sectors (arms/ammunition, atomic substances, narcotic drugs/hazardous chemicals, alcoholic
drinks, cigarettes/cigars).
o Public sector limited to eight sectors (security/strategic grounds). Subsequently reduced to only two
items (railway transport, atomic energy core activities). Policy ended public sector monopoly in many
sectors.
o The Monopolies and Restrictive Trade Practices (MRTP) Act was restructured. Provisions relating
to merger, amalgamation, and takeover were repealed. Eliminated pre-entry scrutiny and prior
approval for large companies.
o Many goods produced by small-scale industries were de-reserved, enabling entry of large scale
industries.
o Foreign investment was liberalised. The concept of automatic approval was introduced for FDI up to
51 percent, later extended. FDI is prohibited only in four sectors (retail trade, atomic energy, lottery
business, betting/gambling).
 Trade Policy Reforms (Post-1991)
o Aimed at:
 Dismantling of quantitative restrictions on imports and exports.
 Focusing on a more outward oriented regime with phased reduction and simplification of
tariffs.
 Removal of licensing procedures for imports.
o External trade further liberalised by substituting the ‘positive list’ with the ‘negative list’ approach.
o Did away with import licensing on all but a handful of intermediate and capital goods. Consumer
goods licensing removed 10 years later. Today most goods can be imported except for specific
reasons.
o Tariff reduction: Highest tariff rate was 355% in 1990-91. Reduced to 85% in 1993-94, 50% in
1995-96, and 10% by 2007-08 (with exceptions).
o Exchange Rate: Fixed exchange rate system until 1991. Rupee devalued by 18-19 percent in July
1991. Dual exchange rate regime established in March 1992. Unified exchange rate and rupee
allowed to float in March 1993. India has followed a managed floating exchange rate system from
1993 onwards.
o From 1994 onwards, all current account transactions permitted at market exchange rate; rupee became
officially convertible on current account.
o Number of export incentives continued/new ones initiated. Export duties removed.
 o Remission of Duties and Taxes on Export Products (RoDTEP) 2021 replaced the existing MEIS.
 Investment and Business Facilitation Reforms (Post-1991)
o Disinvestment of government holdings of equity share capital of public sector enterprises was a bold
step. Budgetary support progressively reduced.
o Goods and Services Tax (GST) introduced on July 1, 2017, as a single domestic indirect tax.
o Reduction of corporate tax for domestic companies (option to pay 22%).
o ‘Make in India’ initiative launched in 2014. Focuses on 27 sectors.
o ‘Ease of Doing Business’: India ranks 63rd in the World Bank’s Doing Business Report, 2020, up
from 77th in 2019.
o The National Single Window System is a one-stop shop for investor approvals/services.
o PM Gati Shakti National Master Plan for integrated infrastructure planning.
o National Logistics Policy (NLP) launched in September 2022.
o Production Linked Incentive (PLI) Scheme initiated in March 2020 for 14 key sectors.
o Industrial Corridor Development Programme.
o FAME-India Scheme (Faster Adoption and Manufacturing of Hybrid and Electric Vehicles).
o ‘Udyami Bharat’ for MSME empowerment.
o PM Mega Integrated Textile Region and Apparel (PM MITRA).
o Radical FDI reforms across sectors (defence, pension, e-commerce). 100% FDI under automatic route
permitted in coal sale/mining, insurance intermediaries.
o Foreign Investment Promotion Board (FIPB) was abolished in May 2017. Replaced by Foreign
Investment Facilitation Portal (FIF). FDI approval process simplified. 853 FDI proposals disposed
off in the last 5 years. FDI jumped 39% since FIF.
o Initiatives towards fostering innovation include Start-up India Programme. India’s rank in the Global
Innovation Index (GII) improved from 81st in 2015 to 40th in 2022.
o Public Procurement (Preference to Make in India) Order, 2017.
o The Emergency Credit Line Guarantee Scheme (ECLGS).
o The National Manufacturing Policy aims to increase manufacturing share in GDP to 25 percent by
2025.
 Outcomes of Reforms
o India witnessed vast changes over the last 31 years of economic reforms.
o Increased integration with the global economy.
o Progressive shift towards a market oriented economy, with sizeable reduction in government’s market
intervention and controls.
o Unprecedented growth of private sector investment and initiatives.
o Sectors like auto components, telecommunications, software, pharmaceuticals, biotechnology,
professional services achieved high international competitiveness.
o Easing of trade controls enabled easier access to foreign technology, inputs, know-how, and finance.
o Stable foreign direct investment inflows and substantial foreign portfolio investments.
o Solid cushion of foreign exchange reserves (close to eight months of import cover), India has one of
the largest holdings globally.
o Robust demand for information technology and financial services kept services trade surplus high
(~3.7 percent of GDP).
o Lower pressure on Indian rupee compared to other emerging market economies (EMEs).
o Increased incomes, large domestic market, high aggregate demand sustain the economy. India is better
placed than most EMEs to deal with global headwinds.
o Poverty reduced substantially.
o Reforms led to increased competition in banking, insurance, and financial services, leading to greater
customer choice, efficiency, investment, and growth of private players.
o Infrastructure sectors achieved phenomenal growth.
o India’s financial sector has deepened considerably.
 Constraints Post-Reforms
o Country is constrained by high levels of fiscal deficit, inflation, and a high level of debt.
o Debt as a share of GDP was 86 percent in FY21/22. India’s debt is higher than the EMDE average of
64.5% for 2022 (IMF).
o Growing inequalities.
GDP Growth Rates Post 1991 Reforms

 GDP growth rate is the most reliable indicator of economic growth.

 Table 10.1 provides GDP Growth (Annual %) data for India from 1991 to 2021.
o Examples: 1.056831% (1991), 8.845756% (1999), 8.497585% (2010), 8.256306% (2016), -
6.59608% (2020), 8.681229% (2021).
 GDP growth rate, on average, has been commendable throughout the post-reform period except for the
pandemic ridden year 2020 when it registered negative growth.

NITI Aayog: A Bold Step for Transforming India

 The Planning Commission of India was a powerful institution for nearly sixty-four years, advocating public
investment-led development.
 New ideologies of the neoliberal era and collapse of the planning system called for change in governance
institutions.
 On January 1, 2015, the Planning Commission was replaced by the National Institution for Transforming
India (NITI) Aayog.
 Major objective: ‘spur innovative thinking by objective ‘experts’ and promote ‘co-operative federalism’ by
enhancing the voice and influence of the states’.
 Expected to serve as a ‘Think Tank’ and a ‘directional and policy dynamo’ for the government.
 Objectives (cited from NITI Aayog website): Evolve shared vision with states, foster cooperative federalism,
develop mechanisms for village-level plans, incorporate national security, special attention to at-risk sections,
design/monitor strategic policy frameworks, provide advice/encourage partnerships, create
knowledge/innovation/entrepreneurial support system, offer platform for inter-sectoral/departmental issue
resolution, maintain resource centre/repository, actively monitor/evaluate programmes, focus on technology
upgradation/capacity building, undertake other necessary activities.
 Key Initiatives: ‘Life’, National Data and Analytics Platform (NDAP), Shoonya campaign, E-Amrit,
India Policy Insights (IPI), ‘Methanol Economy’ programme, ‘Transforming India’s Gold Market’.
 Weaknesses (experts' arguments): Limited role. Does not produce national plans, control expenditures, or
review state plans. Major shortcoming is its exclusion from the budgeting process. Lacks autonomy and
balance of power within central government policymaking. Termination of Planning Commission
strengthened Ministry of Finance. Lacks independence/power to act as a ‘counterweight’ or "voice of
development" for inequities.

The Current State of the Indian Economy (Brief Overview)

 Attempt to present the broad nature based on primary, secondary, and tertiary sectors. Note: Enormity of
economic phenomena and dynamic nature make comprehensive documentation difficult.
 The Primary Sector (Agriculture & Allied Activities)
o Indisputably the largest source of livelihood in India.
o Until the end of the 1960s, India was a food deficient nation dependent on imports.
o Has emerged as the world’s largest producer of milk, pulses, jute, and spices.
o Has the largest area planted under wheat, rice, and cotton.
o Second-largest producer of fruits, vegetables, tea, farmed fish, cotton, sugarcane, wheat, rice, cotton,
and sugar.
o Indian food and grocery market is the world’s sixth largest.
o Has the world’s largest cattle herd (buffaloes). Livestock sector grew at 6.6 percent during the last
decade (2010-19).
o Share of agriculture in overall GVA is declining but growing in absolute terms.
o 47 percent of India’s population is directly dependent on agriculture.
o Contributes significantly to GDP. GVA by agriculture/allied sector was 18.8% in 2021-22 (until 31
January, 2022).
o Index numbers of agricultural production show sustained increase. Food grains production reached
315.7 million tonnes in 2021-22.
o Private investment in agriculture increased to 9.3% in 2020-21.
o As per the economic survey, 2022-23, agriculture remained robust, recording a growth of 3.5 percent.
 o India is among the top ten exporters of agricultural products in the world.
o Export of agricultural and allied products peaked at Rs 374611 crore during the last one year. Exports
rose by 25 percent within six months of the current financial year 2022-23 (April-September) vs same
period 2021-22.
o Agricultural and Processed Food Export Development Authority (APEDA) is responsible for
export promotion.
o Government allowed 100% FDI in marketing of food products and in food product E-commerce
under the automatic route.
o Recent government interventions include: PM KISAN (income support), MSP fixing (1.5x cost),
institutional credit, National Mission for Edible Oils, Pradhan Mantri Fasal Bima Yojana (PMFBY),
Mission for Integrated Development of Horticulture (MIDH), Soil Health Cards, Paramparagat Krishi
Vikas Yojana (PKVY), Agri Infrastructure Fund, Promotion of Farmer Producer Organisations
(FPOs), Per Drop More Crop (PDMC), Micro Irrigation Fund, agricultural mechanisation, E-NAM
(pan-India electronic trading portal networking APMC mandis), Kisan Rail, Start-up Eco system.
o Challenges: Small/fragmented landholdings, low productivity, low marketable surplus/income,
resource intensive/cereal centric/regionally biased, stress on water/soil, inadequate agro-processing
infra, sluggish diversification, inadequate tech adoption, lopsided marketing/ineffective credit, climate
change complexities, high food price volatility, heavy monsoon dependence, marketing/warehousing
issues, inability to tap export potential, inadequate post-harvest infra/management,
poverty/malnutrition.
 The Secondary Sector (Industry)
o Holds a significant position, contributing about 30 percent of total GVA.
o Employs over 12.1 crore people.
o Manufacturing is the most important sector, accounting for 78 percent of total production.
o Manufacturing GVA at current prices estimated at US$ 77.47 billion in Q3 FY21-22. Contributed
around 16.3% to nominal GVA over the past ten years.
o The combined index of eight core industries stood at 142.8 in 2022-23 (until September 2022).
Comprise 40.27 percent of the weight in the Index of Industrial Production (IIP).
o Manufacturing Purchasing Managers’ Index (PMI) stood at 55.4 on Jan 31, 2023.
o India’s rank in the Global Innovation Index (GII) improved to 40th in 2022 from 81st in 2015.
o Department for Promotion of Industry and Internal Trade (DPIIT) has a role in industrial policy
formulation/implementation. Many schemes undertaken since independence.
o Policies and Initiatives (Some listed earlier under Post-1991 Reforms): GST (2017), corporate tax
reduction, Make in India (2014), Ease of Doing Business (Rank 63rd in 2020), National Single
Window System, PM Gati Shakti, National Logistics Policy (Sep 2022), PLI Scheme (Mar 2020),
Industrial Corridor Programme, FAME-India Scheme, Udyami Bharat, PM MITRA, FDI
liberalisation, 100% FDI in coal/insurance intermediaries, FIPB abolished (May 2017) replaced by
FIF, RoDTEP (2021), Start-up India, GII Rank, Public Procurement (2017), ECLGS.
o Challenges: Shortage of efficient infra/manpower, reliance on imports, unsustainable cost structures,
heavy losses/inefficiencies in public sector, strained labour-management relations, lower export
competitiveness, global supply chain disruptions, inflation/macro developments, global slowdown,
tightening monetary policy/increased credit cost, high fuel prices, mounting informal sector presence.
 The Tertiary Sector (Services)
o Remarkable feature of the post-reform Indian economy.
o Overarching role in generating growth of income and employment.
o Unique experience of bypassing the secondary sector in the growth trajectory, shifting from
agriculture directly to services.
o Covers a wide variety of activities (listed in Box 2).
o Largest sector of India, accounts for 53.89% of total India's GVA. GVA at current prices estimated
at ` 96.54 lakh crore in 2020-21.
o Fastest growing sector. Highest labour productivity.
o Growth influenced by domestic and global factors.
o Rapid expansion of knowledge-based services (professional, technical) responsible for faster growth.
Increased info-intensive service activities due to IT application.
o Among the top 10 World Trade Organization (WTO) members in service exports and imports.
 o Services exports at US$ 27.0 billion in November 2022 recorded robust growth. Remained resilient
during the Covid-19 pandemic.
o Largest recipient of FDI inflows. Accounted for more than 60 percent of total FDI equity inflows into
India.
o The World Investment Report 2022 of UNCTAD places India as the seventh largest recipient of
FDI in the top 20 host countries in 2021.
o Received highest-ever FDI inflows of US$ 84.8 billion in 2021-22 (including US$ 7.1 billion equity
in services).
o Government permitted 100 percent foreign participation in telecommunication services through
the Automatic Route.
o FDI ceiling in insurance companies raised from 49 to 74 percent.

Conclusion

 India Development Update (IDU) of the World Bank published in November 2022: India faced a
challenging external environment (Russia-Ukraine war, high prices, disruptions, financial conditions,
inflation).
 Despite this, real GDP grew by 6.3 percent in July-September of 2022-23.
 Driven by strong private consumption and investment.
 India’s economy is relatively more insulated from global spillovers due to reliance on its large domestic
market.
 India is more resilient than other emerging economies to withstand global adversities.