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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.
India GDP Annual Growth Rate (in %)
The Covid-19 pandemic and the Russia-Ukraine war have hurt the Indian economy. In 2020, the economy contracted 5.8%, but recovered quickly the following year, recording 9.1% GDP-growth in 2021 and 6.8% in 2022.
The International Monetary Fund (IMF) forecasts the Indian economy to grow by 5.9% in 2023 and 6.3% in 2024. China and India alone are expected to contribute around half of global growth in 2023.
To boost productivity and economic growth, the McKinsey Global Institute says India 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 same period.
Aside from its emergence as one of the world’s top economies, the Indian economy is also a hatchery for unicorns (start-ups valued with at least one billion USD). As per the Hurun Global Unicorn Index 2022 Half-Year Report, India retains 3. place with 68 unicorns. The biggest names are online educator BYJU’S worth $22 bn, on-demand delivery start-up Swiggy ($11 bn) and fantasy sports platform Dream11 ($8 bn).
In 2023, India surpassed China as the world’s most populated nation with a population of 1.43 billion. It is expected to 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 of the country’s financial system, introduce flexibility and provide significant autonomy in financial operations.
Indian economy: Inflation (in %)
After an inflation rate of 6.7% in 2022, market experts think both headline and core inflation rates will move down in the coming quarters. IMF projects the inflation rate, average consumer prices, to come in at 4.9% in 2023.
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 pasr couple of years, contributing around 19% 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 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 17th globally in total exports. Its top export products are refined petroleum, diamonds, packaged medicaments, jewellery, and automobiles.
India Balance of Trade
The country’s main imports are crude petroleum, gold, coal briquettes, diamonds, and petroleum gas. India’s top three trading partners are the US, China and the United Arab Emirates.
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).
India is expected to be included in global local currency emerging markets indices which could be a game-changer for its debt market. According to a Morgan Stanley report, India would be the world’s last major emerging market to join global bond indices, following China. “India’s inclusion would trigger significant index-related inflows, followed by an allocation from active global bond investors,” said Min Dai, Head of Asia Macro Strategy at Morgan Stanley.
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. The trend continued in 2022.
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 real estate sector is regarded a backbone to the Indian economy and the second largest employer after agriculture, and the third largest sector to induce economic growth. The Indian real estate sector was worth $ 200 bn in 2021, and it is expected to grow to $650 bn by 2025 and to $ 1 tn by 2030.
India Housing Index (in %)
Source of charts: tradingeconomics.com
