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The economy of India

Geography, People, Culture, and Economic Profile

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The economy of India

India boasts one of the most expansive and diverse economies globally, yet due to its substantial population, it ranks as one of the less affluent nations in terms of per capita income and Gross National Product (GNP). Since achieving independence, the nation has fostered a mixed economic system, with the government playing a pivotal role as delineated by its constitutional definition of “socialist.” This role encompasses functions as a central planner, regulator, investor, manager, and producer.

Commencing in 1951, India’s economic strategy was shaped by a succession of five-year plans, drawing inspiration from the Soviet archetype. The initial goal was to augment the domestic savings rate, which successfully more than doubled in the fifty years succeeding the inaugural Five-Year Plan (1951–55). The subsequent Five-Year Plan (1956–61) marked a shift in focus towards import-substituting industrialization, prioritizing capital goods, which led to the establishment of a broad and diversified industrial foundation.

However, the disintegration of the Soviet system in the early 1990s prompted India to implement a series of market-oriented reforms. These reforms ignited the expansion of the middle class and capitalized on India’s highly skilled and educated workforce, positioning the country as a key player in the global high-technology surge of the late 20th century, thereby generating significant annual growth rates.

The agricultural sector, despite being the primary source of employment for roughly half of the workforce, no longer represents the largest share of the Gross Domestic Product (GDP), contributing about one-fifth. Manufacturing continues to be a substantial element of the GDP. Yet, the most significant growth has occurred in trade, finance, and other services, which now constitute the predominant portion of the GDP.

The government’s economic decisions are frequently influenced by political considerations, particularly in its efforts to distribute investments fairly across the various states. Despite the government’s extensive economic influence, large corporate entities dominate many sectors of the economy. In contrast, a vast number of small agricultural operations and modest commercial, service, and craft enterprises provide the majority of employment opportunities. The technological spectrum within India spans from the most rudimentary to the cutting-edge.

India has the capability to produce a wide array of goods; however, many of its manufactured products would struggle to compete economically without the protective measures provided by tariffs on imports, which have remained elevated notwithstanding the liberalization efforts. Traditionally, foreign trade has been a minimal portion of the GDP, both in absolute terms and relative to the GDP, yet it saw considerable expansion starting in the 1990s, despite ongoing government regulation.

Only a small segment, approximately one-fifth, of India’s vast labor force is employed in the “organized” sector, which includes industries such as mining, plantation agriculture, factory production, utilities, and modern transportation, as well as commercial and service enterprises. This sector, though minor in workforce representation, generates a disproportionate share of the GDP, sustains the majority of the middle- and upper-class populations, and is responsible for most economic growth. It is within this organized sector that government regulations predominantly apply, and where trade unions, chambers of commerce, professional associations, and other capitalist economy institutions play a significant role. Beyond the general labor force, the organized sector employs the majority of India’s professionals and virtually all of its extensive cadre of scientists and technicians.

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