India - Overview of economy

India's economy encompasses a wide range of activities, anywhere from traditional village farming to the production of modern military hardware such as tanks. A full two-thirds (67 percent) of India's labor force of more than 450 million people is employed in agriculture, which accounts for about 23 percent of the country's gross domestic product (GDP). Another 26 percent of the GDP is accounted for by industry and 47 percent by services. The CIA World Factbook estimated the division of the GDP to be slightly different, indicating agriculture at 25 percent, industry at 24 percent, and services at 51 percent in 2000. Although India's human development indicators are among the worst in the world, the country has also a large number of highly qualified professionals, as well as several internationally established industrial groups. Reforms since 1991 in production, trade, and investment have provided new jobs and opportunities for Indian businesspersons. An estimated 300 million consumers are considered to be middle class. In past decades, India attempted to develop its industry as part of an effort to attain self-sufficiency, and as a result, the economy had remained closed to foreign investors. Recent liberal reforms, however, have opened some sectors to interested foreign investors. Currently, cars, motor scooters, electronic goods, and computers are manufactured by foreign firms and joint ventures .

During the 6-year period from 1996 to 2001, services have had the highest growth rate among the various sectors of the economy with an average of 8 percent growth rate per year, while the overall economy during the same period grew by an average rate of 6 percent per year. Despite the impressive economic performance of the past few years, however, several factors have hindered an even more impressive performance. The repercussion of the 1997 Asian financial crisis, the falling of world commodity prices, and the effects of sanctions after India conducted its first nuclear weapons tests in the late 1990s have all dampened further increases in the GDP. Other factors negatively affecting the GDP are the still slow process of market liberalization , limited access to investment capital, and reduced demand for manufactured goods. Infrastructure weaknesses such as poor transportation networks and erratic and insufficient power supplies have also limited increased growth and investment. Furthermore, for the past 2 decades, India's economy has been facing continuous problems of national budget deficits , much of it as a result of subsidies to inefficient state-owned industries. The majority of these state sector enterprises are debt-ridden and overstaffed.

There has, nevertheless, been a slow but steady trend in favor of market liberalization. As a result of the government's efforts and its membership obligations in the World Trade Organization (WTO), sectors of the economy such as power, steel, oil refining and exploration, road construction, air transport, telecommunications, ports, mining, pharmaceuticals, and banking have to a variety of degrees been liberalized. Since 1991, the exchange-rate regime has also been liberalized. This initially led to a 22 percent devaluation of the Indian rupee against the U.S. dollar. Furthermore, the leading political party, the Bharatiya Janata Party (BJP), has promoted the restructuring of state industry in favor of foreign and domestic competition. Despite these reforms, however, India's economy is still mostly closed. Foreign firms, due to historically disappointing experiences with India's bureaucracy and high taxes and tariffs , have been relatively reluctant to invest in the country. On the whole, there remains strong resistance to further market liberalization and globalization (increasing integration of the national economy and culture with the rest of the world, especially Western Europe and the United States) on the part of much of the population, such as the followers of the Hindu nationalist movement. Yet the fundamentals of the economy, including the savings rate (household savings is estimated at 19 percent of income), national reserves (about US$24 billion in 1997), inflation rate , and foreign debt (about US$94 billion in 2001) are considered to be healthy and improving.