Over the past several years, the Indian economy has emerged as one of the fastest-growing economies globally. India is expected to overtake the UK, Germany, and Japan and become the third-largest economy in the world in the next 10 to 15 years due to the steady flow of investments into the country. 

As per National Statistics Office’s (NSO) GDP estimates, India’s economy is forecast to grow by 9.2% in the current fiscal year ending March 31, 2022.


India GDP Annual Growth Rate (in %)

For 2022, the International Monetary Fund (IMF) expects India’s economy to grow by 9%, which would be the fastest pace among all countries included in the IMF’s economic outlook. For next year, the fund estimates a growth of 7.1%.

Aside from its emergence as one of the world’s top economies, India is also the third largest unicorn base (start-ups valued with at least one billion USD), after the US and China. India added three unicorns every month in 2021, as per the Hurun Global Unicorn List, that counts a total of 51 unicorns with a total value of $168 bn. A Nasscom-Zinnov report forecasts the Indian economy to have around 100 unicorns by 2025, which will create about 11 million direct jobs. 

To boost productivity and economic growth, the McKinsey Global Institute says the country needs to raise its rate of employment growth and create 90 million non-farm jobs between 2023 and 2030 to achieve a GDP growth of between 8% to 8.5% during the period. 

India is also the second most populated nation globally after China with over 1.4 billion based on January 2022 estimates. It is expected to take the top spot by 2024 and reach 1.5 billion by 2030. As per a 2017 study published in the Lancet journal, India’s population will peak at 1.6 billion in 2048, after which it will steadily decline to 1.09 billion in 2100.

Currency and Central bank  

The country’s official currency is the Indian rupee, which is subdivided into 100 paise. But as of 2019, the 1-rupee coin is the lowest value coin that remains in use. The Reserve Bank of India (RBI) serves as the central bank and the currency regulatory body under the Ministry of Finance.  

The central monetary authority aims to achieve price stability, control the expansion of bank credit, promote fixed investments, restrict inventories and stocks, increase the efficiency in the country’s financial system, introduce flexibility and provide significant autonomy in financial operations.  


India Inflation (in %)

RBI has decided to maintain record low-interest rates despite concerns about inflation over the past two years. The central bank has kept its monetary policy stance unchanged at record lows for the ninth consecutive policy meet in December 2021, to help boost growth and help India’s economic recovery from the effects of the Covid-19 pandemic. It also cut its repo rate in May 2020, after a 75 bps cut in March 2020.

Analysts expect the central bank to take more steps towards policy normalisation to fight inflation and address excess liquidity in the market.

Industry and Trade  

The Indian economy may be subdivided into the three sectors of agriculture, industry, and services. India was historically an agricultural country, with over 50% of its GDP coming from the sector in the 1950s.

Over the years, the service sector has emerged as the top sector, contributing over 50% to country’s GDP, according to India’s Economic Survey in January 2022. Where India’s services sector has been the worst affected by the Covid-19 pandemic, the agriculture sector was least affected by lockdowns.

The agriculture sector is the primary source of livelihood for about 58% of India’s population. It experienced buoyant growth over the past two years, contributing around 14% of the country’s GDP. The top five agricultural products based on total value are rice, buffalo milk, cow milk, wheat, and cotton.

The manufacturing and industry sectors account roughly about 16-18% of India’s GDP. The Indian government aims to increase this to 25% by 2022. As per the latest Budget, India’s Agriculture and allied sectors is expected to grow by 3.9%, industry by 11.8% and services sector by 8.2% in FY22.

The pharma industry in India has expanded dramatically in the past few years and currently holds 20% of the global generic drug supply in terms of volume and supplies about 60% of the global vaccination demand. Globally, India ranks 3rd in terms of pharmaceutical production by volume and 14th by value.

The country is also a major producer of textiles and apparel, as well as pulp and paper. Other sectors such as trade, hotels and transportation, etc. account for around 12% of India’s GDP .

India currently ranks 15th globally in total exports. Its top export products are refined petroleum, diamonds, packaged medicaments, jewellery, and automobiles. The US, United Arab Emirates, China, Hong Kong, and Singapore are its top export partners. 


India Balance of Trade

The country ranks 11th in the world in total imports, with crude petroleum, gold, coal briquettes, diamonds, and petroleum gas as its main import products. India’s top import partners are China, the US, United Arab Emirates, Saudi Arabia, and Iraq. 

Survey and Rankings 

In the Heritage Foundation’s 2021 Index of Economic Freedom, India improved from 129th place to 121st globally and from 31st to 26th among Asia-Pacific countries. However, the country remains in the mostly unfree category.  

Meanwhile, the Indian economy maintained its position in the World Bank’s Ease of Doing Business at 63rd among 190 countries with a score of 71.0. 

Stock Exchanges and Capital Markets 

India has two major stock exchanges where most trading occurs, namely the Bombay Stock Exchange (BSE) and the National Stock Exchange of India Limited (NSE). The BSE was established in 1875 and is considered Asia’s oldest stock exchange, while the NSE was established in 1992. Still, both exchanges follow the same trading mechanism, trading hours, and settlement process.  

The major indices used to measure the Indian stock market’s performance are the S&P Bombay Stock Exchange Sensitive Index or BSE SENSEX, a free-float market-weighted index of 30 companies on the BSE, and the NIFTY 50, which examines the weighted average of 50 of the largest Indian companies on the NSE.  

Bond Market 

Government Bonds in India are primarily issued for periods ranging from 5 to 40 years. There are multiple variants, including Treasury Bills, Special Gol securities and State Development Loans (SOLs). 

On the other hand, corporate bonds may come in the form of Convertible Bonds, Non-Convertible Debentures (NCDs), Perpetual, Zero Coupon Bonds, Masala bonds, External Commercial Borrowings (ECBs), and Foreign Currency Denominated Bonds (FCBs).  

Factors like RBI’s move towards policy normalisation, higher than expected government borrowing program, Fed’s rate hike stance, signs of quicker inflation as well as expectations of India’s inclusion in the global bond index have led Indian government bond yields to rise in the recent months.

Real Estate Market 

While the sector was impacted due to Covid-19 in early 2020, the realty market showed signs of recovery in 2021 and emerged as the most desired investment choice in 2021. With 237,000 units sold in 2021, home sales rose 71% year-on-year, thus reaching 90% of pre-Covid levels.

In 2021, the real estate sector contributed around 7% to the Indian economy.

The Department for Promotion of Industry and Internal Trade Policy (DPIIT) released data indicating that construction has been the third-largest sector in terms of foreign direct investments (FDI) inflow. From April 2020 to March 2021, the total FDI in the sector was at $50.8 bn. As per the report, the realty sector is also the second largest employment generator, only after agriculture and third largest sector to induce economic growth.

The central government plans to construct 20 million units of affordable housing in urban areas by 2022, boosting the residential sector significantly. The government has also allowed foreign direct investments (FDIs) with up to 100% ownership for settlements development projects and townships.  

Last year, through the National Urban Digital Mission, the government also took steps to connect nearly 2,535 cities across India to improve connectivity.

India’s real estate sector is forecast to amount to $650 bn by 2025, representing 13% of its GDP and to reach a market size of $1 tn by 2030.  


India Housing Index (in %)

 

Source of charts: tradingeconomics.com