Economic Development of India

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The economic development of India was dominated by socialist-influenced policies, state-owned sectors, and red tape & extensive regulations, collectively known as "License Raj". It led the country and its economy isolated from the world economy. However the scenario started changing from the mid-1980s, when India began opening up its market slowly through economic liberalization. The policy played a huge impact on the economic development of India. The Indian economic development got a boost through its economic reform in 1991 and again through its renewal in the 2000s. Since then, the face of economic development of India has changed completely.

The economic reform of 1991 played a pivotal role in the economic development of India. Reaping its benefit, the growth of the country reached around 7.5% in the late 2000s. It is also expected to double the average income within a decade. According to the analysts, if India can push more fundamental market reforms, it will be able to sustain the rate and can even achieve the government's target of 10% by 2011.

India's Economic Development: Role of States

India is world's 12th largest economy and also the 4th largest in terms of purchasing power parity adjusted exchange rates (PPP). It is the 128th largest in the world on per capita basis and 118th by PPP. However, states have a major role to play in the economic development of India. There are few states which have higher annualized 1999-2008 growth rates comparing to others. The growth rates for the states like Gujarat (8.8%), Haryana (8.7%) and Delhi (7.4%) are considerably higher than other states like Bihar (5.1%), Uttar Pradesh (4.4%) and Madhya Pradesh (3.5%).

Economic Development – the Decisive Factors

The economic development of India largely depends upon a few factors, which prove to be decisive. According to the World Bank, for a better economic development, India needs to give due priorities in various issues like infrastructure, public sector reform, agricultural and rural development, reforms in lagging states, removal of labor regulations and HIV/AIDS.


Agriculture, along with other allied sectors like fishing, forestry, and logging play a major role in the economic development in India. In 2005, these sectors accounted for almost 18.6% of the GDP. India holds the second position worldwide in terms of farm output. It also generated works for 60% of the total workforce. Though, currently seeing a steady decline of its share in the GDP, it is still the largest economic sector of the country.

In India, a steady growth has been observed in the yields per unit area of all the crops since 1950. And the reason behind this is the fact that, special emphasis was given on agriculture in the five-year plans. In 1965, the country saw green revolution. Improvements came in the various areas like irrigation, technology, provision of agricultural credit, application of modern agricultural practices and subsidies.

India has done considerably well in agriculture and allied sectors. The country is the world’s largest producer of tea, coconut, cashew nuts, black pepper, turmeric, ginger and milk. India also has the largest cattle population in the world. It is world’s second largest producer of sugar, rice, wheat and inland fish. It is in the third position in the list of tobacco producers in the world. India also produces 10% of the overall fruit production in the world, holding the first position in banana and sapota production.

Industrial Output

India occupies 14th position in the world in industrial output. The manufacturing sector along with gas, electricity, quarrying and mining account for 27.5% of the country’s GDP. It also employs 17% of total workers. The economic reforms of 1991 brought a number of foreign companies to the Indian market. As a result, it saw the privatization of several pubic sector industries. Expansion in the production of FMCG (Fast-moving Consumer Goods) started taking place. Indian companies started facing foreign competitions, including the cheap Chinese imports. However, they managed to handle it by cutting down costs, refurbishing management, banking on technology and low labor costs and concentrating on new products designing.


In services output, India occupies 15th spot in the world. Around 23% of the total workforce in India works in service industry. This is also the sector which provides quick growth with a growth rate of 7.5% during 1991-2000 from 4.5% in 1951-80. With a substantial growth in IT sector, a number of foreign consumers showing interests in India’s service exports as India has got low cost, educated, highly skilled workers in abundance. Besides this, ITES-BPO sector has also become a big source of employment for a number of youths.

Banking and Finance

Since liberalization, India has seen substantial banking reforms. On one hand, one could see the mergers of banks, competitiveness and reducing government interference, on the other hand one can also see the presence of several private and foreign players in the banking and insurance sectors. Currently the banking sector in India has got maturity in terms of supply, reach-even and product range. The Indian banks are also said to have clean, transparent and strong balance sheets comparing to their Asian counterparts.