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Over recent years, India has cemented its position as one of the world’s fastest-growing economies, with a forecast to overtake Germany and Japan to become the third-largest economy globally by the early 2030s, largely due to steady foreign and domestic investments.
However, the Indian economy faced significant challenges from the Covid-19 pandemic and global uncertainties, such as the Russia-Ukraine conflict. In 2020, India’s GDP contracted by 5.8%, but it rebounded with 9.7% growth in 2021, followed by 7.0% in 2022 and 8.2% in 2023, according to the latest data from the International Monetary Fund (IMF). The IMF forecasts a growth rate of 7% for India in 2024 and 6.5% in 2025.
India GDP Annual Growth Rate (in %)
To drive productivity and sustain economic growth, the McKinsey Global Institute notes that India must increase employment rates and create 90 million non-farm jobs by 2030. Achieving this could support a targeted annual GDP growth of 8% to 8.5% over the decade.
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 2023, India retains third place with 68 unicorns. The biggest names are online educator BYJU’S worth $22 bn, on-demand delivery start-up Swiggy ($8 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. According to the United Nations’ World Population Prospects 2022, India’s population would surpass 2 billion by 2068, but will decline beginning in 2047 and drop to 1 billion people by 2100.
Currency and Central Bank
The country’s official currency is the Indian rupee (INR). It has experienced some volatility due to both domestic factors and global events. The Reserve Bank of India (RBI), India’s central bank, plays a key role in managing inflation and supporting economic stability, especially amid fluctuating global conditions. Over recent years, the RBI has actively intervened in currency markets and adjusted policy rates to stabilize the rupee.
The RBI continues its mandate to control inflation, targeting a range of 4% (+/-2%), and has responded to persistent inflationary pressures. In response to rising global inflation and recent geopolitical tensions, the RBI adjusted its policy rate multiple times in 2023, reaching a current rate of 6.5%, aiming to manage domestic inflation and support currency stability.
India’s foreign exchange reserves, which buffer the rupee against external shocks, stand at approximately $600 billion as of late 2024, bolstering confidence in the country’s economic resilience. The RBI is committed to maintaining reserves at a level sufficient to cover roughly 9-10 months of imports, strengthening its defense against global currency fluctuations.
Indian economy: Inflation (in %)
According to the IMF’s October 2024 report, inflation in India is expected to average around 4.4% for the year, slightly above the RBI’s target range due to continued pressures from global energy prices, supply chain disruptions, and volatile food prices. The IMF projects inflation to moderate gradually to 4.1% in 2025 as these pressures ease, and as the RBI’s recent monetary tightening measures take effect.
Industry and Trade
India’s industrial sector remains a cornerstone of its economic growth, with manufacturing, services, and agriculture each contributing significantly to the Gross Domestic Product (GDP). The manufacturing sector, bolstered by the government’s “Make in India” initiative, has witnessed steady expansion, particularly in electronics, automotive, and pharmaceuticals. India was historically an agricultural country, with over 50% of its GDP coming from the sector in the 1950s.
Trade constitutes a vital component of India’s economy, with exports of goods and services accounting for a substantial portion of GDP.
The trade deficit has widened in 2024, influenced by factors such as increased gold imports and weakened exports. In August 2024, the merchandise trade deficit expanded to a ten-month high of $29.65 bn, primarily due to a significant rise in gold imports and a decline in exports.
Major export categories of the Indian economy include refined petroleum, pharmaceuticals, electronics, and textiles, with the United States and the European Union serving as key trading partners.
India’s major imports encompass crude oil, electronics, and machinery, reflecting the country’s reliance on imports to meet its energy and technological needs.
To enhance its trade relations, India has been actively engaging in various trade agreements and partnerships. Notably, the country has entered into agreements with the United Arab Emirates and Australia, aiming to improve market access and boost export competitiveness. These strategic partnerships are integral to India’s goal of becoming a $5 tn economy in the coming years.
India Balance of Trade
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
India’s bond market has experienced significant growth and transformation in recent years, emerging as a pivotal component of the nation’s financial system. As of March 2024, the total market size, encompassing government and corporate debt, has expanded to approximately ₹217 tn ($2.56 tn). This growth is driven by both structural reforms and favorable economic conditions.
The Reserve Bank of India has played a crucial role in developing the bond market by implementing measures to enhance liquidity and market access.
A notable development is the inclusion of Indian government bonds in major global indices. In June 2024, JPMorgan added Indian sovereign debt to its Government Bond Index-Emerging Markets (GBI-EM), marking a significant milestone in India’s integration into the global financial system. This inclusion is expected to attract substantial foreign investment, with estimates suggesting inflows of up to $30 bn over the next 10 months.
Following JPMorgan’s lead, other index providers have announced plans to incorporate Indian bonds. Bloomberg is set to include Indian government bonds in its Emerging Market Local Currency Index, with a phased inclusion process completing by January 2025.
Additionally, FTSE Russell plans to add Indian bonds to its Emerging Markets Government Bond Index (EMGBI) from September 2025, further enhancing India’s presence in global bond markets.
Real Estate Market
India’s real estate sector has demonstrated remarkable resilience and growth in recent years. It is regarded a backbone to the Indian economy. In 2024, the market is projected to reach a value of approximately $45.32 tn, with the residential segment accounting for the majority share.
The residential real estate market has experienced robust demand, particularly in the premium and luxury segments. Commercial real estate has also witnessed significant activity, driven by the expansion of global capability centers and domestic occupiers. Office space absorption is expected to remain strong, with projections indicating approximately 70 million square feet of absorption in the fiscal year 2024-25.
The government’s focus on infrastructure development, including initiatives like the “Make in India” campaign and the development of smart cities, has further bolstered the real estate sector. These efforts aim to enhance connectivity, promote urbanization, and attract both domestic and foreign investments into the real estate market.
India Housing Index (in %)
Editorial Note:
This article was written with the assistance of AI. A human editor reviewed and refined the text for accuracy and quality before publication.
Source of charts: tradingeconomics.com
