Over the past several years, the Indian economy has emerged as one of the fastest-growing economies globally. India ranked fifth in 2019, based on the nominal gross domestic product (GDP) as per the World Bank with $2.86 trillion. Still, it went down to sixth based on 2020 estimates from the International Monetary Fund (IMF) with $2.59 trillion amid the impact of the coronavirus pandemic.
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.
Indian Economy Overview
For the second quarter of FY2020-21, India’s GDP was approximately $452.74 billion, at a slight decline from $489.62 billion during the same period the previous year. The Reserve Bank of India Governor Shaktikanta Das expects that the government’s recently announced capital expenditure will boost economic activity and investment.
Additionally, the IMF’s latest World Economic Outlook indicates that the Indian economy is to grow by 11.5% this year, making it the only major economy to record a double-digit growth amid the resurgence of the Covid-19 cases. India’s Economic Survey for 2020-21 also expects it to expand by 11% in the financial year, due to the rollout of vaccines and consumer demand recovery.
Aside from its emergence as one of the world’s top economies, India is also the fourth largest unicorn base (start-ups valued with at least one billion USD). The Hurun Global Unicorn List counts more than 21 unicorns with a total value of $73.2 billion. 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 1.38 billion based on November 2020 estimates. It is expected to take the top spot by 2024 and reach 1.5 billion by 2030.
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.
As India’s central monetary authority, the RBI 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 flexibilities and provide significant autonomy in financial operations.
The central bank has recently changed the way it forecasts inflation. This adjustment came just days after the Government of India approved the RBI to maintain its inflation target of 2-6 per cent for the next five years.
Industry and Trade
India’s 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 agriculture in the 1950s. However, it has fallen over the decades, and services have emerged as the top sector.
In 2018, agriculture in India contributed around 17% to 18% of the country’s GDP while employing more than 50% of its total workforce. The top five agricultural products based on total value are rice, buffalo milk, cow milk, wheat, and cotton.
Meanwhile, the manufacturing and industry sectors account for 26% of India’s GDP and provide work to 22% of the workforce. 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. The country is also a major producer of textiles and apparel, as well as pulp and paper.
From April 2020 to November 2020, India’s overall exports were approximately $304.25 billion, decreasing by 14.03% year-on-year, while overall imports for the same period went down by 29.96% to $290.66 billion.
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. The World Economic Forum’s Global Competitiveness Index (GCI) rankings have been paused for 2020, but in 2019, the country went down by ten places to 68th.
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.
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).
For the first time in history, a negative yield was quoted on the country’s sovereign bond trading platform in March 2021. A negative yield of about 1.5% was offered by the Clearing Corporation of India’s Negotiated Dealing System for the 6.17% bond maturing in 2021. This was the first time it happened for India, where the benchmark 10-year note trades at over 6%.
Real Estate Market
In JLL’s 2020 Global Real Estate Transparency Index, India was ranked 34th out of 99 countries with an overall score of 2.69. More than $6.06 billion in investments were placed into the country’s real estate market in 2019, and approximately $3.3 billion was invested in commercial real estate.
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.
India’s real estate sector is forecasted to amount to $650 billion by 2025, representing 13% of its GDP.