Nature of Indian Economy

 Nature of Indian Economy

Learn about the history of the Indian economy, the nature of Indian economy, and its salient features.

The Indian economy is the sixth-largest economy in the world. Globalisation, integration into the global economy, investment rates, a young population, and a low dependence ratio are all contributing factors. As per the records of the International Monetary Fund, India is ranked 128th by GDP in purchasing power parity and is ranked 144 by GDP in nominal on a per capita income basis. At the end of the year 2018, the Indian economy was the fastest developing major economy and had even suppressed China at the time. Although the Indian economy currently looks to be rising in the right direction, it was continuously slowed down from 2017 to 2020 due to demonetisation in 2016, the introduction of GDP in 2017, and due to the COVID-19 in the years 2020 and 2021.

History of the Indian Economy

In the past as well, the Indian economy was one of the most stabilised and was the largest economy around the world. For almost 2 millennia (from the 1st century to the 17th century) the Indian economy contributed 35%-40% of the world’s economy. 

By 1750, the Mughal Empire had a strong industrial manufacturing sector, with India contributing around 25% of the world’s industrial output, making it the most significant manufacturing hub in international commerce. Until the end of the 18th century, Mughal India accounted for almost 95% of the goods and textiles exported to Europe from Asia, while the import was as low as negligible and was still sufficient for the country.

During the British period, the Indian economy was hit majorly, and it came down to 4.2% of the world economy in 1950 from 24.4% in 1700.

Nature of the Indian Economy

The Indian economy is a mixed economy, which means that a part of the economy is owned by private businessmen, industrialists, and entrepreneurs. The other part is managed by the government. The Indian economy is highly dependent on the service sector because of its contribution to the GDP of India which is equal to 60% of the total. It is followed by agriculture. 

Sector Contributing to the Indian Economy

Since the Independence of India, the agriculture sector has been constantly decreasing, while the service sector has increased gradually. Also, the industrial sector had improved as well.

Agriculture: The agriculture sector contributes 14% of the total GDP of India. Crops, horticulture, milk and animal husbandry, fishing, aquaculture,  apiculture, sericulture, forestry, and other associated activities are all included.

Industry: The industrial sector contributes 27% of the total GDP of India. It comprises a variety of manufacturing and other sub-sectors.

Service: The service sector contributes 59% of the total GDP of India. It encompasses construction, retail, software, information technology, communications, hospitality, infrastructure operations, education, healthcare, banking, and insurance, as well as many other economic activities.

Salient Features of the Indian Economy

The Indian economy is still on the list of developing economies of the world, owing to extremely high levels of illiteracy, unemployment, poverty, and so on. Despite so many problems around the nation to be solved and encountered on a daily basis, the Indian economy has a low GDP, compounded by the following issues:

Poor Infrastructural Development

As per a recent report, India needs almost $100 million in infrastructure, to ensure the entire population benefits from electricity, gets safe drinking water, and proper sanitation services.

Imperfect Market

The Indian markets have a lot of easily exploitable loopholes. With an improper supply chain, the prices in the market vary significantly at different locations.

Low per Capita Income

The revenue of a country is highly dependent on the purchasing power of the population; the more they spend or purchase products, the more is the increment in the revenues of the nation. However, to spend, the population must earn more and must be able to fulfil their basic needs. Only then can they manage to purchase other facilities and comfort. Therefore, per capita income is one of the key factors.

High rate of Population Growth

With a vast population comes the requirement of resources. India is the world’s second-largest country in terms of population. This population needs education, food, transportation, water resources, employment, and other basic necessities to contribute to the development of the nation. As these resources are not available in sufficient quantities in India, it is highly challenging for the nation to develop. And if this continues, the nation will be in a perpetual developing stage.


It has been said, “A nation will be poor if it’s poor”, and this is an endless loop. Such loops of poverty always hinder the progress of a country and are a major issue for a country to be reckoned as a developed nation.

Unadvanced Technology

Most of the work done in India is labour-intensive work. Thus, there is a huge gap between the technology required in the industries and what is in use in the country.

Income Disparity

The concentration of wealth in the country is highly focused and is possessed by 1% of the population of the nation. This 1% of the population owns 53% of the wealth within the country. Therefore, poverty is one of the important points that the government needs to highly focus on.

Agro-based Economy

The Indian economy is highly dependent on the agriculture sector. This sector adds up to almost 14% of the total GDP of the country, and more than half of the population of the country is dependent on this sector.

Capital Formation

The average income of a person in India is very low and the GDP of the country is dependent on this. Therefore, there is a significant need for improvement in the rate of capital development.

Social issues

Indian society is referred to as a backward society. This is due to communalism, a highly male-dominated social structure, a regressive caste system, and other such malice.

Indian Economy in 2021

Intending to be a $5 trillion economy by 2025, India is boosting its economy. At the end of the financial year 2021, the nominal GDP of the country was $3.29 trillion. If the GDP of the country is increased by a rate of 8% per annum for the upcoming years, then it is certain to achieve its aim by 2025. A few of the developments are:

  • In January 2022, the gross GST (Goods and Services Tax) income collection reached Rs. 1.38 trillion (US$ 18.42 billion). This was a 15% increase over the previous year.
  • According to the Department for Promotion of Industry and Internal Trade (DPIIT), FDI equity inflows into India totalled US$ 547.2 billion from April 2000 to June 2021.
  • The Index of Industrial Production (IIP) in India for November 2021 was 128.5, compared to 126.7 in November 2020.
  • Consumer Food Price Index (CFPI) – Combined inflation was 2.9% in 2021-22 (April-December), down from 9.1% the previous year.
  • Consumer Price Index (CPI) – Combined inflation was 5.20% in 2021-2022 (April-December), compared to 6.6% in 2020-2021.
  • In the fiscal year 2021, foreign portfolio investors (FPIs) funded Rs.50,009 crore (US$ 6.68 billion).


The Indian economy is a developing economy, aiming to become a $5 trillion economy by the end of the financial year 2025. Although it wants to be a developed nation, there are enormous factors which are hindering India’s progress. Also, the Indian economy is an agro-based economy.