Economy of India
The economy of India is a developing mixed economy with a notable public sector in strategic sectors. It is the world's fourth-largest economy by nominal GDP and the third-largest by purchasing power parity ; on a per capita income basis, India ranked 136th by nominal GDP and 119th by PPP-adjusted GDP. From independence in 1947 until 1991, successive governments followed the Soviet model and promoted protectionist economic policies, with extensive Sovietization, state intervention, demand-side economics, natural resources, bureaucrat-driven enterprises and economic regulation. This was a form of the Licence Raj. The end of the Cold War and an acute balance of payments crisis in 1991 led to the adoption of a broad economic liberalisation in India and indicative planning. India has about 1,900 public sector companies, with the Indian state having complete control and ownership of railways. While the Indian government retains ownership through the National Highways Authority of India, a large share of new national highway projects are now built and maintained under Public–private partnership models rather than being fully government‑funded. The government plays a major role in sectors like supercomputing, space and shipping but private participation is growing, especially in space, telecom, and satellite communications.
Nearly 70% of India's GDP is driven by domestic consumption; the country remains the world's third-largest consumer market. Aside from private consumption, India's GDP is also fueled by government spending, investments, and exports. As of 2025, India is the world's 7th-largest importer and the 10th-largest exporter. India is often described as the “pharmacy of the world,” supplying around one-fifth of global demand for generic medicines and exporting pharmaceuticals to over 200 countries in 2023–24, with approximately 70% of exports destined for highly regulated markets such as North America and Europe. In the United States, Indian pharmaceutical companies supply nearly half of all generic prescriptions by volume. India is also the largest vaccine manufacturer globally by volume, accounting for over 60% of the world’s vaccine production. India has been a member of the World Trade Organization since 1 January 1995. It ranks 41st on the Global Competitiveness Index and 39th in Global Innovation Index. As of 2025, India ranks third in the world in total number of billionaires. According to the World Bank, India's Gini index fell to 25.5 in 2022‑23, making it the fourth-most equal country globally, suggesting significant progress in income equality. Economists and social scientists often consider India a welfare state. India's overall social welfare spending stood at 8.6% of GDP in 2021-22.
With 607 million workers, India has the world's second-largest labour force, which is growing rapidly, with 46.6 million added in 2023–24 alone. India’s fertility rate continues to fall sharply, from about 3.3 in 2000 to around 1.9 in 2025, below the replacement level of 2.1. Labour productivity remains lower than in advanced economies but is similar to levels observed in emerging Asian countries such as China. India’s outsourcing industry has shifted from traditional call centre BPO work, now largely handled by the Philippines and other Southeast Asian countries, to high-value software development, consultancy, engineering, and research oriented services. India hosts more than half of the world’s Global Capability Centres, which perform product engineering and R&D functions. It is home to about 20% of global semiconductor chip design engineers and, as of early 2025, has an estimated 4.3 million software engineers, accounting for roughly 14.7% of the global software engineering workforce.
In 2021–22, the foreign direct investment in India was $82 billion. The leading sectors for FDI inflows were the Finance, Banking, Insurance and R&D. India has established free trade agreements and economic‑partnership with several countries and regional blocs, including the European Union, ASEAN, SAFTA, Japan, South Korea, Australia, New Zealand, Oman and the United Arab Emirates, while also concluding agreements with EFTA and the United Kingdom. India maintains Comprehensive Economic Cooperation Agreements with Singapore, Malaysia, Mauritius, and Japan, and continues to negotiate or review trade agreements with partners such as Chile, Canada, Israel and the Eurasian Economic Union. Additionally, India has bilateral investment and tax treaties with countries including Bangladesh, Uzbekistan, Kyrgyzstan, Belarus, and Trinidad & Tobago.
As of 2025, the service sector accounts for around 55% of GDP. India has two of the world's ten largest stock exchanges. According to United Nations Industrial Development Organization India is the world's fifth-largest manufacturer, representing 3.2% of global manufacturing output. India’s digital economy was estimated at US$402 billion in 2022–23, equal to about 11.74% of GDP, and is projected to rise to around 13.4% by 2024–25 and nearly 20% of GDP by 2029–30, with its total value expected to surpass US$1 trillion by 2029. Nearly 63% of India's population is rural, and contributes about 46% of India's GDP. India's unemployment rate remained at 3.2% in 2023–24. The labour force participation rate reached 60.1% overall, with a worker–population ratio of 58.2%. India's gross domestic savings rate stood at 29.3% of GDP in 2022.
History
For a continuous duration of nearly 1700 years from the year 1 CE, India was the world's largest economy, constituting 35 to 40% of the world GDP. The combination of protectionist, import-substitution, Fabian socialism, and social democratic-inspired policies governed India for sometime after the end of British rule. The economy was then characterised as Dirigism, It had extensive regulation, protectionism, public ownership of large monopolies, pervasive corruption and slow growth. Since 1991, continuing economic liberalisation has moved the country towards a market-based economy. By 2008, India had established itself as one of the world's faster-growing economies.Ancient and medieval eras
Indus Valley Civilisation
The citizens of the Indus Valley civilisation, a permanent settlement that flourished between 2800 BCE and 1800 BCE, 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 first-known urban sanitation systems and the existence of a form of municipal government.West Coast
Maritime trade was carried out extensively between southern regions of India and Southeast Asia and West Asia from early times until around the fourteenth century CE. Both the Malabar and Coromandel Coasts were the sites of important trading centres from as early as the first century BCE, used for import and export as well as transit points between the Mediterranean region and southeast Asia. Over time, traders organised themselves into associations which received state patronage. This state patronage for overseas trade came to an end by the thirteenth century CE, when it was largely taken over by the local Parsi, Jewish, Syrian Christian, and Muslim communities, initially on the Malabar and subsequently on the Coromandel coast.Silk Route
Other scholars suggest trading from India to West Asia and Eastern Europe was active between the 14th and 18th centuries. During this period, Indian traders settled in Surakhani, a suburb of greater Baku, Azerbaijan. These traders built a Hindu temple, which suggests commerce was active and prosperous for Indians by the 17th century.Further north, the Saurashtra and Bengal coasts played an important role in maritime trade, and the Gangetic plains and the Indus valley housed several centres of river-borne commerce. Most overland trade was carried out via the Khyber Pass connecting the Punjab region with Afghanistan and onward to the Middle East and Central Asia. Although many kingdoms and rulers issued coins, barter was prevalent. Villages paid a portion of their agricultural produce as revenue to the rulers, while their craftsmen received a part of the crops at harvest time for their services.
Mughal, Rajput, and Maratha eras (1526–1820)
The Indian economy was the largest and most prosperous throughout world history and would continue to be under the Mughal Empire, up until the 18th century. Sean Harkin estimates that China and India may have accounted for 60 to 70 percent of world GDP in the 17th century. The Mughal economy functioned on an elaborate system of coined currency, land revenue and trade. Gold, silver and copper coins were issued by the royal mints which functioned on the basis of free coinage. The political stability and uniform revenue policy resulting from a centralized administration under the Mughals, coupled with a well-developed internal trade network, ensured that India–before the arrival of the British–was to a large extent economically unified, despite having a traditional agrarian economy characterised by a predominance of subsistence agriculture. Agricultural production increased under Mughal agrarian reforms, with Indian agriculture being advanced compared to Europe at the time, such as the widespread use of the seed drill among Indian peasants before its adoption in European agriculture, and possibly higher per-capita agricultural output and standards of consumption than 17th century Europe.The Mughal Empire had a thriving industrial manufacturing economy, with India producing about 25% of the world's industrial output up until 1750, making it the most important manufacturing centre in international trade. Manufactured goods and cash crops from the Mughal Empire were sold throughout the world. Key industries included textiles, shipbuilding, and steel, and processed exports included cotton textiles, yarns, thread, silk, jute products, metalware, and foods such as sugar, oils and butter. Cities and towns boomed under the Mughal Empire, which had a relatively high degree of urbanization for its time, with 15% of its population living in urban centres, higher than the percentage of the urban population in contemporary Europe at the time and higher than that of British India in the 19th century.
In early modern Europe, there was significant demand for products from Mughal India, particularly cotton textiles, as well as goods such as spices, peppers, indigo, silks, and saltpeter. European fashion, for example, became increasingly dependent on Mughal Indian textiles and silks. From the late 17th century to the early 18th century, Mughal India accounted for 95% of British imports from Asia, and the Bengal Subah province alone accounted for 40% of Dutch imports from Asia. In contrast, there was very little demand for European goods in Mughal India, which was largely self-sufficient. Indian goods, especially those from Bengal, were also exported in large quantities to other Asian markets, such as Indonesia and Japan. At the time, Mughal Bengal was the most important centre of cotton textile production.
In the early 18th century the Mughal Empire declined, as it lost western, central and parts of south and north India to the Maratha Empire, which integrated and continued to administer those regions. The decline of the Mughal Empire led to decreased agricultural productivity, which in turn negatively affected the textile industry. The subcontinent's dominant economic power in the post-Mughal era was the Bengal Subah in the east., which continued to maintain thriving textile industries and relatively high real wages. However, the former was devastated by the Maratha invasions of Bengal and then British colonization in the mid-18th century. After the loss at the Third Battle of Panipat, the Maratha Empire disintegrated into several confederate states, and the resulting political instability and armed conflict severely affected economic life in several parts of the country – although this was mitigated by localised prosperity in the new provincial kingdoms. By the late eighteenth century, the British East India Company had entered the Indian political theatre and established its dominance over other European powers. This marked a determinative shift in India's trade, and a less-powerful effect on the rest of the economy.