Indian Economy Overview

1. The economy of India is the fourth largest in the world, with a GDP of $3.63 trillion at PPP,
and is the tenth largest in the world with a $691.9 billion at 2004 USD exchange rates and has a
real GDP growth rate of 6.2% at PPP.

2. Growth in the Indian economy has steadily increased since 1979, averaging 5.7% per year in
the 23-year growth record.

3. Indian economy has posted an excellent average GDP growth of 6.8% since 1994 India, the
fastest growing free-market democracy in the world, registered a growth rate of 8.2 percent in
FY 2004.

4. India has emerged the global leader in software and business process outsourcing services,
raking in revenues of US$12.5 billion in the year that ended March 2004.

5. Agriculture has fall to a drop because of a bad monsoon in 2005. There is a paramount need to
bring more area under irrigation.

6. Export revenues from the sector are expected to grow from $8 billion in 2003 to $46 billion in
2007.

7. India’s foreign exchange reserves are over US$ 102 billion and exceed the forex reserves of
USA, France, Russia and Germany. This has strengthened the Rupee and boosted investor
confidence greatly.

8. A strong BOP position in recent years has resulted in a steady accumulation of foreign
exchange reserves. The level of foreign exchange reserves crossed the US $100 billion mark on
Dec 19, 2003 and was $142.13 billion on March 18, 2005.

9. Reserve money growth had doubled to 18.3% in 2003-04 from 9.2 in 2002-03, driven entirely
by the increase in the net foreign exchange assets of the RBI.

10. Reserve money growth declined to 6.4% in the current year to January 28, 2005.

11. During the current financial year 2004-05, broad money stock (M3) (up to December 10,
2004) increased by 7.4 per cent (exclusive of conversion of non-banking entity into banking
entity, 7.3 per cent) .

12. Economics experts and various studies conducted across the globe envisage India and China
to rule the world in the 21st century.

Issues and Priorities for India

As India prepares herself for becoming an economic superpower, it must expedite socio-
economic reforms and take steps for overcoming institutional and infrastructure bottlenecks in
the system. Steps are to be taken for improving pace and development. There are certain
challenges that Indian Economy is facing today.
• One of the challenges in fiscal reform will be reconciling the need for fiscal consolidation
with appropriate tax reform. Indirect taxes not only affect efficiency of resource
allocation but also the investment climate.
• There is a paramount need to move Indian agriculture beyond its centuries’ old
dependency on the monsoon by bringing more area under irrigation and by better water
management. This has rightly been identified in the NCMP as one of the areas with the
highest investment priority.
• Simplifying procedures and relaxing entry barriers for business activities. The ease with
which firms are able to enter into and exit from business activities is an important
determinant of the investment climate.
• The incipient investment boom in infrastructure, industry (including housing), and
services will yield best results only if the enormous resource flows are successfully
intermediated at a low cost.
• Farmers and enterprises should have access to finance at competitive rates and for all
maturities for their credit-worthy projects.
• Infrastructural inadequacy constrains economic growth, particularly in the backward
States and in the agriculture sector.
• Initiatives taken in a number of sectors like telecoms, roads, ports and civil aviation have
started yielding results.
• There is a need for higher foreign investment, in the form of foreign direct investment
(FDI) and FII. Such investment triggers technology spillovers, assists human capital
formation, contributes to international trade integration and particularly exports, helps
create a more competitive business environment, enhances enterprise development,
increases total factor productivity and, more generally, improves the efficiency of
resource use.
• Control of population is also a major reform that has to take place.
• Spreading of education is equally important in elevating the standards of Indian
Economy.
• The eradication of poverty and unemployment is the abiding goal of India's development
policies and programmes.
Sectors of Indian Economy
There are three major sectors of Indian Economy

Agriculture
Agriculture and allied sectors like forestry, logging and fishing accounts for 25% of the GDP. It
employs almost 58% of the total work force. It is the largest economic sector and plays a
significant role in the overall socio-economic development of India. Due to steady improvement
in irrigation, technology, modern agricultural practices the yield per unit area of all crops has
increased tremendously.

Industry
Index of industrial production which measures the overall industrial growth rate was 10.1% in
October 2004 as compared to 6.2% in October 2003. The largest sector here holds the textile
industry. Automobile sector has also demonstrated the inherent strength of Indian labor and
capital. The three main sub sectors of industry viz Mining & quarrying, manufacturing, and
electricity, gas & water supply recorded growths of 5%, 8.8% and 7.1% respectively.

Services
The service sector is the fastest growing sector. It has the largest share in the GDP accounting for
about 48% in 2000. Business services, communication services, financial services, community
services,hotels and restaurants and trade services are among the fastest growing sectors.