India’s economy is among the largest in the world, ranking third in terms of GDP (PPP) in 2014 (IMF, April 2015), after China and the United States. India’s economic policy has traditionally focused on poverty reduction. From the 1950s to the 1980s, there was a drive towards large-scale industrialisation through government investment in public-sector enterprises, notably in heavy industry, aimed at providing employment and increasing self-reliance, with an emphasis on import substitution. The outcome was that India is now one of the world’s largest industrial economies, with deliberately labour-intensive systems. It also has large reserves of oil and gas; proven reserves of oil were estimated in January 2014 to be 5.7 billion barrels, and of gas, 1.4 trillion cubic metres.
However, few improvements reached the rural areas where more than 70 per cent of people live and depend on agriculture. A balance of payments crisis in 1991 led to policy reform with the emphasis on liberalisation, decentralisation and private-sector investment, increasing opportunities for small- and medium-scale enterprises to strengthen markets and create employment at the grass-roots level.
During the 1990s the government made some progress with deregulation of trade and industry and privatisation of both infrastructure (including power generation, ports, roads and airlines) and the many inefficient state enterprises, and generally maintained macroeconomic discipline of containing inflation and current-account deficits. At the same time new industries, especially software development, grew rapidly.
However, the government proceeded more slowly with liberalising the financial sector and reforming labour law. In the 2000s progress was stalled due to lack of support for the economic reforms in the governing National Democratic Alliance, especially for labour market reform and further privatisation. In May 2004, the new Indian National Congress-led government announced that there would be no more privatisations of profitable state enterprises and others would be decided case by case.
After the first period of adjustment in the early 1990s, the economy began to enjoy strong export-led growth. India was relatively little affected by the Asian financial crisis of the late 1990s. The economy has expanded rapidly during the 2000s; during 2009–13 growth averaged 7.0 per cent p.a. The country was relatively unaffected by the global economic downturn of 2008–09; growth dipped in 2008 to 3.9 per cent, but grew strongly again in 2009 (8.5 per cent) and 2010 (10.3 per cent). From 2011 (6.6 per cent) it moderated but continued at more than five per cent p.a. in 2012–15.