Since gaining independence in 1947, India has struggled to modernize and diversify an economy that was left relatively undeveloped by economic policies under British colonial rule. In the 19th century India’s cottage industries and thriving trade were virtually destroyed due to imports of European (primarily British) manufactured goods, which the colonial government paid for with exports of agricultural products such as cotton, opium, and tea. Agricultural development was therefore encouraged, while the industrial sector was neglected. Beginning in the late 19th century there was some investment in the industrial sector and infrastructure (mainly railways and irrigation works). Nevertheless, India’s economy stagnated during the last three decades of British rule.
At independence India was desperately poor, with an aging textile industry as its only major industrial sector. Since then the country has been gradually transforming its economic base from agricultural to industrial and commercial. To fund development, however, India rapidly accumulated high levels of foreign debt. Policies of economic liberalization introduced in the late 1970s stimulated the industrial sector, leading to an acceleration of economic growth in the 1980s. In the mid-1990s the service sector emerged as the primary economic stimulus, reflecting a growing business economy in urban areas as well as a large government bureaucracy. Although the economic structure of the country began to change, with services providing a larger portion of the GDP than any other sector, agriculture remained the most important sector in terms of employment. Economic development was regionally uneven, with the prosperity of more developed states standing in sharp contrast to the extreme poverty of relatively undeveloped states.
In 2003 India’s annual gross domestic product (GDP) was $601 billion. Agriculture, forestry, and fishing made up 22 percent of the GDP, compared with 27 percent for industry (including manufacturing, mining, and construction) and 51 percent for services.
Economic policy after independence emphasized central planning, with the government setting goals for and closely regulating private industry. Self-sufficiency was promoted in order to foster domestic industry and reduce dependence on foreign trade. These efforts produced steady economic growth in the 1950s, but less positive results in the two succeeding decades.
In the late 1970s the government began to reduce state control of the economy but made slow progress toward this goal. By 1991 the government still regulated or ran many industries, including mining and quarrying, banking and insurance, transportation and communications, and manufacturing and construction. Economic growth improved during this period, at least partially as a result of development projects funded by foreign loans.
A financial crisis in 1991 compelled India to institute major economic reforms. After a rise in oil prices precipitated by the Persian Gulf War of 1990 to 1991, India faced a serious balance-of-payments problem. Because petroleum was a major import, India’s expenditures on imports far exceeded its income from exports. To obtain emergency loans from international economic organizations, India agreed to adopt reforms aimed at liberalizing its economy. These reforms removed many government regulations on investment, including foreign investment, and eliminated a quota and tariff system that had kept trade at a low level. The reforms also began a gradual process of deregulating industries and privatizing public enterprises. In 1999 the government made privatization of the public sector the centerpiece of its agenda, permitting private investment in all infrastructure industries, including power, telecommunications, and civil aviation, as well as in the financial sector. Some industries remain reserved for the public sector, including defense equipment, railways, and nuclear energy.
With the reforms, India made a dramatic shift from an economy relatively closed to the global economy to one that is relatively open. Growth of exports has helped India to increase its share of world trade, while the inflow of foreign capital has helped India reduce its external debt. Economic growth has brought an expansion of the middle class, leading to growing demand for consumer goods from shoes to luxury cars. Despite the emergence of a consumer-oriented middle class, however, income inequalities and widespread poverty remain significant issues.
The Indian economy employs 473 million people. The majority of this workforce—67 percent—labors in the agricultural sector. Of the remainder, 20 percent work in services and 13 percent in industry. Women make up 33 percent of the total labor force.
Significant numbers of children are employed in India. They not only perform agricultural tasks such as herding and helping at harvest time, but they also work in cottage industries such as carpet weaving and match manufacturing, help in small businesses such as tea stalls, and act as servants in private homes. Estimates of the number of working children vary widely, due in part to a lack of formal government data on child labor. Child labor is illegal in India, and efforts have been made to abolish it, particularly in the most hazardous industries.
Unemployment rates in India are difficult to estimate because many people work in temporary or part-time jobs. Few workers are permanently unemployed, but seasonally or marginally employed people such as agricultural laborers are often underemployed. State and national governments have established fairly successful rural employment plans that hire labor to build roads and other public works.
Labor unions are relatively small in India and operate primarily in public-sector enterprises. India’s labor laws allow multiple union representation not only within an industry but even within a factory. Laws also tend to favor workers’ rights over employer prerogatives. As a result there is an increasing trend in business to hire workers on daily contracts. Older unions are linked to national trade union federations controlled by political parties. Since the 1980s, however, there has been an increase in independent unions unrelated to political parties. Some successful small-industry entrepreneurs have organized cooperatives. A notable one is the Self-Employed Women’s Association (SEWA), which has expanded from its base in Ahmadābād to other Indian cities, as well as other countries.
Agriculture employs (with forestry and fishing) about two-thirds of India’s workforce. Most land is farmed in small holdings, averaging about 1.5 hectares (about 3.7 acres) in the late 1990s. About half the land in India is cultivated by farmers owning more than 4 hectares (10 acres), but few farms are larger than 20 hectares (50 acres) due to land reforms that imposed ceilings (maximum limits) on holdings. Most Indian farmers, particularly those who own smaller farms, cultivate their land by hand or by using oxen.
India’s most important crops include sugarcane, rice, wheat, tea, cotton, and jute. Other important cash crops include cashews, coffee, oilseeds, and spices. Another central feature of India’s agricultural economy is the raising of livestock, particularly horned cattle, buffalo, and goats. In 2004 the country had 186 million cattle, substantially more than any other country. The cattle are used mainly as draft animals and for leather. As farmers increasingly use machinery, the number of livestock they raise will probably decrease. Buffalo is the main animal used for producing milk and dairy products. Milk production and distribution increased dramatically in the 1990s because of a nationwide, government-supported cooperative dairy program. Sheep are raised for wool, and goats are the main meat animal. Many Indians, particularly Hindus, refuse to eat beef for religious reasons, although they eat other meat, eggs, and fish.
Agricultural production faces occasional declines as a result of irregular monsoon seasons, resulting in widespread flooding or drought. Food imports help offset yearly fluctuations in output. India faces many future challenges in producing enough food to feed its growing population. Production of food grain has barely kept pace with the rate of population increase. The government-implemented Green Revolution, which took hold in the 1970s, encouraged the use of high-yielding crop varieties, fertilizers, and carefully managed irrigation. It resulted in a steady growth in production of food grain, allowing India to achieve self-sufficiency by 1984. However, success has been limited to areas of assured irrigation, such as northwestern India and the deltaic regions. Output has not significantly improved in dry and semiarid areas, where poverty and malnourishment remain prevalent.
Although relatively undeveloped on a national scale, large-scale commercial fishing is vital to the economy in certain regions, such as the Ganges Delta in West Bengal and along the southwestern coast. Small-scale fishing is widespread, taking place in oceans, lagoons, rivers, ponds, wells, and even flooded paddy fields; these fish are typically sold in street markets. In recent years the government has encouraged deep-sea fishing by building processing plants and giving aid to oceangoing fleets and vessels. Local, more traditional fishers protest this encouragement because they see it as a threat to their livelihood. In 2001 the government recorded an annual fish catch of 6 million metric tons, about half of which was marine species.
Forests cover 22 percent of India’s total land area. The area of land planted in trees has increased steadily since 1990 due to government and commercial plantation schemes. However, the harvesting of mature trees for lumber production has tended to outpace the growth rate of replanted areas. Loss of topsoil in harvested areas as well as forestland lost to development and agriculture have also contributed to India’s difficulty in achieving sustainable timber harvests. Industrial timber species include teak, deodar (a type of cedar), and sal. Products such as charcoal, fruits and nuts, fibers, oils, gums, and resins are among the most valuable commodities from India’s forests.
India ranks among the world leaders in the production of iron ore, coal, and bauxite, and it produces significant amounts of manganese, mica, dolomite, copper, petroleum, natural gas, chromium, lead, limestone, phosphate rock, zinc, gold, and silver.
The government’s push for industrialization beginning in the late 1950s gave India a diversified and substantial manufacturing sector. Industrial production steadily increased, reducing India’s reliance on imports, and by the 1980s India ranked among the “newly industrialized countries.” Important industrial products include textiles, iron and steel, processed food, electrical machinery, transportation equipment, and nonferrous metals. India also is a significant producer of fertilizer, refined petroleum products, chemicals, and computer software.
India manufactures a large proportion of its own requirements for aluminum; copper; machine tools and heavy electrical equipment; artificial fibers and plastics; vehicles of all kinds from bicycles to trucks and railway engines; pharmaceuticals; chemical products; home appliances; and televisions. Annual production of passenger cars increased from 47,000 vehicles in 1970-1971 to 701,550 vehicles in 1999-2000. Bicycle production increased from 2 million to 13 million in the same period. High-technology items such as computers are manufactured in collaboration with foreign companies. In the 1990s India’s computer software industry expanded enormously.
Energy is the keystone of India’s agricultural and industrial development. To meet its energy needs, India is heavily dependent on coal. The next most important energy source is petroleum, followed by hydroelectricity and natural gas. Thermal plants, principally burning coal, produce 84 percent of India’s electricity; hydroelectric plants generate 12 percent; and nuclear and and geothermal power supply most of the remainder. Although India remains self-sufficient in coal, the country must import oil to meet growing domestic demand. In 1990 imported oil provided 40 percent of total petroleum consumption, in 2000 it provided 60 percent, and by 2010 it is projected to provide 75 percent.
Service industries in India include transportation, trade, banking and insurance, real estate, and public administration and defense. Retail and wholesale trade are among the most important services. Major cities, such as Mumbai and Kolkata, are centers of such trade. Government service is also very important. India’s government provides many social services to its population, particularly in the fields of education, health, and public administration.
Tourism is another significant part of India’s service economy. In 2003, 2.7 million tourists visited the country. Foreign exchange earnings from tourism were more than $3.5 billion that year. The bulk of India’s tourists come from Bangladesh and Pakistan. Other major countries of origin include the United Kingdom, the United States, Sri Lanka, Germany, France, and Japan. Among India’s attractions are the more than 20 locations designated by the United Nations Educational, Scientific and Cultural Organization (UNESCO) as World Heritage sites. Most foreign tourists visit a few tourist sites, such as the Taj Mahal and other monuments in Āgra; the “pink city” of Jaipur, known for its pink-hued architecture; and Delhi, with its magnificent Red Fort and many museums. Other tourist destinations include the rock-cut caves of Ajanta and Ellora, the temples at Khajurāho, and the beaches in Kerala, as well as cities such as Mumbai, Kolkata, Chennai, New Delhi, Vārānasi, and Udaipur.
India has a network of railroad lines that covers the entire country. The network is the largest in Asia and one of the largest in the world. The length of operated track is 63,140 km (39,233 mi). The network is badly in need of modernization. All railroad lines are publicly controlled, but some private-sector participation is being encouraged to help raise revenue. The system carries more than 11 million passengers daily, but passenger traffic is heavily subsidized. Freight traffic, which is the only significant source of revenue, was 473 million metric tons in 2000-2001; coal accounted for the bulk of the freight.
By 1999 there were 2.5 million km (1.6 million mi) of roads in India, of which 57 percent were paved. National highways make up about 2 percent of the total road length and carry about 45 percent of road traffic. Each state operates a publicly owned bus company. The major Indian ports, including Kolkata, Mumbai, Chennai, Cochin, and Vishākhapatnam, are served by cargo carriers and passenger liners operating to all parts of the world. The port system is operating beyond its intended capacity, although efforts are under way to modernize and expand port facilities. India has a large merchant shipping fleet. The shipping industry is dominated by the Shipping Corporation of India, which is partially government owned. A comprehensive network of air routes connects the major cities and towns of the country. In the 1990s India opened up domestic air service to private airlines for competition with publicly owned Indian airlines, and air service greatly improved as a result.
The government-controlled postal services remain the backbone of India’s communication industry, handling billions of letters and parcels each year. The post office also transmits money orders in large amounts, mainly serving workers sending home part of their pay, and has a large number of savings certificate programs that serve the same population.
India’s telecommunications system has been expanding rapidly, especially since the government began liberalizing the sector in 1994. The country’s first privately owned telephone network was founded in 1998, and a state-held monopoly on international telecommunications services ended in 2002. The country had 14 main telephone lines per 1,000 persons in 1994, when the reforms began. By 2003 the number had increased to 46 per 1,000 and was increasing at a rapid rate, although still well below the world average of 172 per 1,000. Cellular telephone subscriptions are also on the rise, but exclusively among more affluent Indians. The majority of people in India only have access to public telephones, especially in rural areas. In the 1990s the government launched a major program to increase public access to telephone service in all areas of the country. One goal of the program was to install a public telephone in each of India’s approximately 600,000 villages; by 2002 this initiative had reached about 470,000 villages. Another goal was to set up public call offices (PCOs) in both rural and urban areas. More than 1 million PCOs had been established by 2002, and a number of these were being upgraded to provide Internet access.
About 44,000 newspapers are published in India, 12 percent of them dailies, including a number of English publications. Most principal dailies publish from multiple cities, including the Times of India, the Indian Express, the Hindustan Times, the Hindu, the Navbharat Times, and the Statesman. Newspapers are privately owned in India.
The Ministry of Information and Broadcasting controls the country’s major broadcasting networks, All India Radio (AIR) and Doordarshan India (Television India). AIR reaches nearly 100 percent of the population with a network of more than 200 stations. The Indian government limits television broadcasting by private companies. Satellite television was introduced in India in 1991. Since the early 1990s there has been an exponential growth in television viewing, spurred in part by the spread of private cable systems and television broadcasts via satellite that bring news, sports, and entertainment from around the world.
The economic reforms introduced in 1991 radically altered India’s trade policies in order to encourage foreign trade. Although India’s share of world trade steadily declined from 1.8 percent in 1950 to a low of 0.4 percent in the mid-1980s, it rebounded to nearly 1 percent by the end of the 1990s. In 1990-1991, before the reforms were implemented, India recorded $27.9 billion in imports and $18.5 billion in exports. In 2002 India had $61.1 billion in imports and $52.5 billion in exports. Principal trading partners for India’s exports include the United States (by far India’s largest trading partner), the United Kingdom, China (primarily Hong Kong), the United Arab Emirates, Germany, and Japan. India receives the bulk of its imports from the United States, Belgium, the United Kingdom, Saudi Arabia, the United Arab Emirates, and Japan.
India’s principal exports are gems and jewelry, garments and textiles, engineering products, chemicals, and marine and agricultural products. Other important exports include ores and minerals, leather goods, carpets, electronic goods, and computer software. In the 1990s India emerged as a major supplier of computer software, as well as computer services such as software programming and data processing. The export of software services and electronics is growing rapidly, contributing 15 percent of the country’s total export earnings in 1999-2000. India’s major imports include petroleum and petroleum products, nonelectrical machinery, precious and semiprecious stones, electronic goods, chemicals, cooking oil, iron and steel, fertilizers, and plastics.
The rupee, India’s basic monetary unit, is divided into 100 paise (46.58 rupees equal U.S.$1; 2003 average). The Reserve Bank of India, founded in 1935 and nationalized in 1949, operates as India’s central banking institution. It is the sole authority for issuing bank notes and the supervisory body for all banking operations in India. It supervises and administers exchange-control and banking regulations, the government’s monetary policy, and licenses for private and foreign-owned banks. The central government’s Ministry of Finance and statutory bodies such as the Security and Exchange Board of India also help control the financial sector. Although government-owned banks dominate India’s banking industry, numerous private and foreign banks have been licensed to operate in the country since the 1991 economic reforms.
There are 24 stock exchanges in India. The largest is the Bombay Stock Exchange in Mumbai. Founded in 1875, the Bombay Stock Exchange is the oldest in Asia. Another major stock exchange is the National Stock Exchange, founded in 1994 in New Delhi.