Economic and Political Overview

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In this page: Economic Outline | Political Outline | COVID-19 Country Response

 

Economic Outline

Economic Overview

For the latest updates on the key economic responses from governments to address the economic impact of the COVID-19 pandemic, please consult the IMF's policy tracking platform Policy Responses to COVID-19.

According to the IMF, the Indian economy grew by an estimated 9.5% in 2021, mainly driven by strong exports and domestic private investment. The measures put in place by the government to contain the virus have aggravated pre-existing issues throughout the country. Private consumption is likely to recover slowly due to a weak outlook, as an increase in unemployment brought by the pandemic sent millions of migrant workers back to rural areas, as jobs in cities were lost. Still, according to the IMF, the economy is expected to continue a steady growth in the coming years, registering an estimated GDP growth of 8.5% in 2022 and 6.6% in 2023.

India’s broad range of fiscal stimuli and health responses to the pandemic have proven their effectiveness in 2021, as they supported the country's continuing recovery and helped to mitigate the long lasting impacts of the COVID-19 crisis. The country’s general government deficit stood at -9.4% by the end of 2021, and should decrease slightly in 2022 and 2023, reaching -9.2% and -8.6%, respectively. According to the IMF, the inflation decreased to 5.6% in 2021, and is expected to decrease to 4.9% in 2022 and 4.3% in 2023. The level of public debt remains high - it was estimated at 90.6% in 2021 - but is expected to decrease in the next two years, to 88.8% in 2022 and 88.1% in 2023. The government is focused on reducing inequality, as it seeks to implement growth oriented reforms to get the economy back on track, such as MSME incentives, infrastructure sector boost, agriculture infrastructure, micro food enterprises, increased public employment outlay, and special liquidity window. According to the government, the MSME sector is crucial for the inclusive growth of the economy and, as such, it's become a major priority, with various programmes for the development and promotion of MSMEs being put in place across the country.

India is expected to overtake China as the world’s most populous country by 2024. It has the world’s largest youth population, nevertheless, according to the OECD, over 30% of India's youth are NEETs (not in employment, education or training). India continues to suffer from a low GDP per capita (USD 2,098), and almost 25% of the population still lives below the poverty line (about one-third of the world’s population living on under USD 1.90/day lives in India) and the country's inequalities are very strong: the richest 1% of the population own 53% of the country’s wealth. Additionally, the informal sector, where the vast majority of India’s labour force is employed, has been particularly affected by the COVID-19 pandemic, increasing their risk of slipping back into poverty. According to the CMIE, India's unemployment rate stood at 7.7% of total labour force in 2021.

 
Main Indicators 201920202021 (e)2022 (e)2023 (e)
GDP (billions USD) 2,870.502,660.242,946.063,250.083,515.19
GDP (Constant Prices, Annual % Change) 4.0-7.39.09.07.1
GDP per Capita (USD) 2,099e1,930e2,1162,3132,479
General Government Balance (in % of GDP) -7.4-8.9e-9.4-9.2-8.6
General Government Gross Debt (in % of GDP) 74.189.6e90.688.888.1
Inflation Rate (%) 4.86.25.64.94.3
Current Account (billions USD) -24.5524.01-30.37-44.64-52.04
Current Account (in % of GDP) -0.90.9-1.0-1.4-1.5

Source: IMF – World Economic Outlook Database, October 2021

Note: (e) Estimated Data

 

Main Sectors of Industry

India is the world's fourth agricultural power. As a central pillar of the Indian economy, agriculture contributes 18.3% of the GDP and employs 42.6% of the active population. The country's main agricultural products are wheat, millet, rice, corn, sugar cane, tea, potatoes, cotton, bananas, guava, mango, lemon, papaya and chickpea. India is also the fifth largest producer of cattle and sheep, as well as the second largest in fishing production in the world. The spices sector is also very pronounced, particularly the production of ginger, pepper and chili. In 2021, agriculture was a key sector in India’s economic recovery from the COVID-19 crisis as the industry registered a sustained and robust growth. That's because the pandemic led many who lived in India's cities to move back to their ancestral lands, which resulted in a boost of agricultural activity.

The industry sector employs 25.1% of the workforce and accounts for 23.5% of GDP. Coal is the country's main energy source, with India being the world's third largest producer of coal. In the manufacturing industry, textile plays a predominant role, and, in terms of size, the chemical industry is the second largest industrial sector. After a sharp decline in industrial production experienced in the early days of the pandemic, 2021 saw a significant increase in industrial output. Although a rebound in manufacturing was seen throughout the entire secondary sector, the greatest recovery was registered in the cement and steel industries.

The services sector is the most dynamic part of the Indian economy. It contributes to almost half of its GDP (48.8%), but it only employs 32.2% of its workforce. The rapidly growing software sector has been boosting the export of services and modernising the Indian economy: the country has capitalised on its large educated English-speaking population to become a major exporter of IT services, business outsourcing services and software workers. Although the services sector was hit the hardest during the early days of the pandemic, it showed a steady recovery in 2021 as vaccination rates rose and people's mobility increased. The sector's recovery was mainly driven by customer-facing services and air cargo services.

 
Breakdown of Economic Activity By Sector Agriculture Industry Services
Employment By Sector (in % of Total Employment) 42.6 25.1 32.3
Value Added (in % of GDP) 18.3 23.2 49.3
Value Added (Annual % Change) 3.0 -8.2 -8.1

Source: World Bank, Latest available data.

 

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Learn more about Market Analyses about India on Globaltrade.net, the Directory for International Trade Service Providers.

Indicator of Economic Freedom

Definition:

The Economic freedom index measure ten components of economic freedom, grouped into four broad categories or pillars of economic freedom: Rule of Law (property rights, freedom from corruption); Limited Government (fiscal freedom, government spending); Regulatory Efficiency (business freedom, labour freedom, monetary freedom); and Open Markets (trade freedom, investment freedom, financial freedom). Each of the freedoms within these four broad categories is individually scored on a scale of 0 to 100. A country’s overall economic freedom score is a simple average of its scores on the 10 individual freedoms.

Score:
56,5/100
World Rank:
121
Regional Rank:
26

Economic freedom in the world (interactive map)
Source: Index of Economic Freedom, Heritage Foundation

 

Business environment ranking

Definition:

The business rankings model measures the quality or attractiveness of the business environment in the 82 countries covered by The Economist Intelligence Unit’s Country Forecast reports. It examines ten separate criteria or categories, covering the political environment, the macroeconomic environment, market opportunities, policy towards free enterprise and competition, policy towards foreign investment, foreign trade and exchange controls, taxes, financing, the labour market and infrastructure.

Score:
5.74/10
World Rank:
58/82

Source: The Economist Intelligence Unit - Business Environment Rankings 2020-2024

 

Country Risk

See the country risk analysis provided by Coface.

 

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Political Outline

Current Political Leaders
President: Ram Nath Kovind (since 25 July 2017) - BJP
Vice President: M. Venkaiah Naidu (since 11 August 2017) - BJP
Prime Minister: Narendra Modi (since 26 May 2014) – BJP
Next Election Dates
Presidential: July 2022
Legislative: April-May 2024
Current Political Context
In May 2019, Indian Prime Minister Narendra Modi was re-elected with a broad mandate for a second five-year term, and the ruling coalition is expected to stay in power until the end of its term, in 2024. Modi’s second mandate focuses on job creation, the liberalisation of the economy, and infrastructure investment, while also tackling corruption and promoting Hindu nationalism. Modi's nationalist agenda, however, has dampened foreign investors, who are keen on secular policies. In 2021, India began its two-year tenure as a non-permanent member of the UNSC, marking the eighth time the country has set on the council. Furthermore, 2021 saw a year of mass protests by Indian farmers against controversial agricultural reforms. The government was supposed to introduce three laws that loosened rules around the sale, pricing and storage of farm produce - rules which have protected farmers from the free market for decades. However, as a result of the protests, Modi repealed the agricultural reform. Furthermore, India is still opposed to joining the RCEP, mostly in order to protect local farmers and industrial interests, which could lead the country to lose market shares in the world’s largest trading bloc. Still, India has been seeking to resume trade agreement negotiations with the EU and the U.S. (10.7%), which have been interrupted since 2013.
Main Political Parties
- Bharatiya Janata Party (BJP): right-wing, pro-Hindu, nationalist ideology; heads the National Democratic Alliance (NDA) coalition and has been the ruling political party of India for the past eight years;
- Indian National Congress (INC): centre to centre-left, big tent party, social democratic, secular; a major party involved in the independence movement; heads the United Progressive Alliance (UPA) opposition coalition;
- Bahujan Samaj Party (BSP): centre-left, social equality. India's third major political party, whose electorate is mainly composed of Dalits and low castes.

Other notable parties:
- All India Trinamool Congress (AITC): centre to centre-right, Bengali nationalist, populist
- Dravida Munnetra Kazhagam (DMK): centre-left, social democratic, regionalist
- Biju Janata Dal (BJD): centre to centre-left, social democratic, liberal, populist
- Shiv Sena (SS): far-right, Hindu nationalism, conservative, populist
- Telugu Desam Party (TDP): centre-right, neoliberal, populist, regionalist
- Telegana Rashtra Samithi (TRS): centre-right, regionalist, conservative
- Communist Party of India (CPI): far-left, Communist, Marxist-Leninist
- Nationalist Congress Party (NCP): centre to centre-left, nationalist
- National People's Party (NPP): centre to centre-left, regionalist, ethnocentrist

Type of State
India is a federal republic state based on parliamentary democracy.
Executive Power
The President is the Chief of State and the Commander-in-Chief of the Armed Forces. He/she is indirectly elected for a five-year term by an electoral college, which consists of elected members of both houses of Parliament as well as the legislative assemblies of each of India's states and territories.
The Prime Minister is the Head of Government and is chosen by Lok Sabha members (House of the People, lower chamber) of the majority party, following legislative elections, to serve a term of five years. The President, on the recommendation of the Prime Minister, appoints the Cabinet.
Legislative Power
The Indian legislature is bicameral. The Parliament consists of the Council of States (Rajya Sabha) and the House of the People (Lok Sabha). The Council of States has 245 members serving a six-year term, while the House of the People has 543 members serving a five-year term.
 

Indicator of Freedom of the Press

Definition:

The world rankings, published annually, measures violations of press freedom worldwide. It reflects the degree of freedom enjoyed by journalists, the media and digital citizens of each country and the means used by states to respect and uphold this freedom. Finally, a note and a position are assigned to each country. To compile this index, Reporters Without Borders (RWB) prepared a questionnaire incorporating the main criteria (44 in total) to assess the situation of press freedom in a given country. This questionnaire was sent to partner organisations,150 RWB correspondents, journalists, researchers, jurists and human rights activists. It includes every kind of direct attacks against journalists and digital citizens (murders, imprisonment, assault, threats, etc.) or against the media (censorship, confiscation, searches and harassment etc.).

World Rank:
142/180

Source: World Press Freedom Index, Reporters Without Borders

 

Indicator of Political Freedom

Definition:

The Indicator of Political Freedom provides an annual evaluation of the state of freedom in a country as experienced by individuals. The survey measures freedom according to two broad categories: political rights and civil liberties. The ratings process is based on a checklist of 10 political rights questions (on Electoral Process, Political Pluralism and Participation, Functioning of Government) and 15 civil liberties questions (on Freedom of Expression, Belief, Associational and Organizational Rights, Rule of Law, Personal Autonomy and Individual Rights). Scores are awarded to each of these questions on a scale of 0 to 4, where a score of 0 represents the smallest degree and 4 the greatest degree of rights or liberties present. The total score awarded to the political rights and civil liberties checklist determines the political rights and civil liberties rating. Each rating of 1 through 7, with 1 representing the highest and 7 the lowest level of freedom, corresponds to a range of total scores.

Ranking:
Free
Political Freedom:
2/7
Civil Liberties:
4/7

Political freedom in the world (interactive map)
Source: Freedom in the World Report, Freedom House

 

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COVID-19 Country Response

COVID-19 epidemic evolution
To find out about the latest status of the COVID-19 pandemic evolution and the most up-to-date statistics on the COVID-19 disease in India, please consult the official data on the governmental platform #IndiaFightsCorona, which provides a breakdown by state at the section COVID19 Statewise Status.
For the international outlook you can consult the latest situation reports published by the World Health Organisation as well as the global daily statistics on the coronavirus pandemic evolution including data on confirmed cases and deaths by country.
Sanitary measures
To find out about the latest public health situation in India and the current sanitary measures in vigour, please consult the dedicated pages on the official governmental portal mygov.in/covid-19, including the up-to-date information on the containment measures put in place and public health recommendations. Further details and updates can be found on the inter-ministerial website covid19.india.gov.in and on the website of the Ministry of Health and Family Welfare.
Travel restrictions
The COVID-19 situation, including the spread of new variants, evolves rapidly and differs from country to country. All travelers need to pay close attention to the conditions at their destination before traveling. Regularly updated information for all countries with regards to Covid-19 related travel restrictions in place including entry regulations, flight bans, test requirements and quarantine is available on TravelDoc Infopage.
It is also highly recommended to consult COVID-19 Travel Regulations Map provided and updated on the daily basis by IATA.
The US government website of Centers of Disease Control and Prevention provides COVID-19 Travel Recommendations by Destination.
The UK Foreign travel advice also provides travelling abroad advice for all countries, including the latest information on coronavirus, safety and security, entry requirements and travel warnings.
Import & export restrictions
For the up-to-date information on all the measures applicable to movement of goods during the period of sanitary emergency due to the COVID-19 outbreak (including eventual restrictions on imports and exports, if applicable), please consult the website of the Central Board of Indirect Taxes and Customs.
For a general overview of trade restrictions due to COVID-19 pandemic, please consult the section dedicated to India on the International Trade Centre's COVID-19 Temporary Trade Measures webpage.
Economic recovery plan
For information on the economic recovery scheme put in place by the Indian government to address the impact of the COVID-19 pandemic, refer to the official portal covid19.india.gov.in.
For a general overview of the key economic policy responses to the COVID-19 outbreak (fiscal, monetary and macroeconomic) taken by the Indian government to limit the socio-economic impact of the COVID-19 pandemic, please consult the section dedicated to India in the IMF’s Policy Tracker platform.
Support plan for businesses
For information on the local business support scheme established by the Indian government to help small and medium-sized companies to deal with the economic impacts of the COVID-19 epidemic on their activity, please consult the Invest India’s website Business Immunity Platform.
For a general overview of international SME support policy responses to the COVID-19 outbreak refer to the OECD's SME Covid-19 Policy Responses document.
You can also consult the World Bank's Map of SME-Support Measures in Response to COVID-19.
Support plan for exporters
For the up-to-date information on possible support plans for exporters in India, if applicable, please consult the website of the Ministry of Commerce and Industry. Furthermore, the Business Immunity Platform outlines programs that may help many export businesses.
 

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Latest Update: May 2022