Economy

India is the third-largest economy in terms of Gross Domestic Product (GDP) based on Purchasing Power Parity (PPP). India has been one of the fastest-growing economies over the last decade.

The service sector has been driving economic growth in India, accounting for 52.5% of Gross Value Added (GVA) growth (at current prices), followed by the industry sector with a 26.5% share, and agriculture accounting for 21.0%⁹. However, agriculture still has the largest share in employment (approximately 44.3% of the total workforce)¹⁰.

The Indian economy staged a full recovery from the pandemic in 2022 ahead of many other countries and is now positioned to resume pre-pandemic growth in 2023. Significant initiatives have been taken up by the government to enhance the overall manufacturing capabilities of the economy, facilitate investment and improve ease of doing business in the country. Some of the noteworthy initiatives are Atmanirbhar Bharat, Make-in-India, Startup India, Digital India, UMANG, SAMARTH Udyog Bharat 4.0, and PM Gati Shakti among others.

With a focus on improving the local manufacturing ecosystem, and incentivizing domestic and foreign investments, the government also announced Production Linked Incentives (PLI) schemes across 14 key sectors worth USD 24.6 billion under Atmanirbhar Bharat. As of Sep 2022, more than 650 applications have been approved under this scheme and PLI scheme.¹¹

In recent years, India has implemented a slew of reforms and initiatives aimed at improving the country’s attractiveness to foreign investors. This is clearly envisioned in the Global Innovation Index (GII) report 2022, where India entered the top 40 innovative countries in terms of political environment, education, infrastructure, and knowledge creation of economy.¹² This trend will continue as the current business-friendly government policies are expected to accelerate foreign investments in order to:

In recent years, India has implemented a slew of reforms and initiatives aimed at improving the country’s attractiveness to foreign investors. This continues to be the trend as the current business-friendly government's policies are expected to accelerate foreign investments in order to:

• Revive growth by fueling investments in infrastructure and manufacturing
• Promote Foreign Direct Investment (FDI) in key sectors
• Promote the Public-Private Partnership (PPP) model in critical sectors such as healthcare, defense, and others
• Open up all sectors (strategic and non-strategic) to the private sector with public/state-owned facilities only in strategic sectors
• Introduce administrative and policy reforms to expedite project implementation
• Have a stable, predictable, and investor-friendly taxation regime
• Increase transparency and establish systems to eliminate corruption
• Strengthen and expand India's trade network with regional, bilateral, and multilateral trade agreements
• Develop human resources within the country to match the industry's fast-changing needs

Despite severe global economic headwinds, industrial production in India expanded during 2023, backed by sustainable demand. Structural reforms such as the introduction of the Goods and Services Tax (GST), Insolvency and Bankruptcy Code (IBC), Real Estate Regulation and Development Act (RERA), Single Window Clearance system, etc. has boosted the efficiency and transparency of the economy, ensuring financial discipline and improved compliance.

The DPIIT’s Business Reform Action Plan (BRAP) 2020, released in 2022, states that 7,496 reforms were implemented across all States and Union Territories, and more than 39,000 compliances have been reduced to enhance transparency and improve Ease of Doing Business across the country.¹³ The new initiatives, policies, and regulations are expected to augment current capabilities with the Indian economy displaying better signs of growth. As a whole, the convergence of physical and digital infrastructure will be one of the defining characteristics of India's future growth story.

Real GDP Growth in India: 2012–2025

Foreign trade: India's services sector registered a growth of 26.8% in exports from USD 254.53 billion in FY 2021-22 to USD 322.72 billion in FY 2022-23. India's goods sector also registered a growth of 6.0% in exports from USD 422.00 billion in 2021-22 to USD 447.46 billion in FY 2022-23.¹⁴

India's services sector registered a growth of 21.0% in imports from USD 147.01 billion in FY 2021-22 to USD 177.94 billion in FY 2022-23 whereas India's goods sector registered a growth in imports of 16.5% from USD 613.05 billion in FY 2021-22 to USD 714.24 billion in FY 2022-23. Moreover, GDP is expected to grow at approximately 5.9% for FY 2023-24 which will majorly be driven by trade¹⁵.

India's top export commodities¹⁶ include mineral fuels, natural or cultured pearls, electrical machinery, nuclear reactors, chemicals, vehicles and parts and accessories, pharmaceuticals, cereals, iron and steel, textiles and apparels, aluminum and articles thereof. These account for more than 72% of India's exports.

Foreign Direct Investment (FDI)¹⁷: According to UNCTAD's World Investment Report 2022, India is the seventh-most preferred destination for FDI.

FDI Inflow: From April 2000–March 2023, cumulative FDI inflows into India stood at USD 919.63 billion. FY 2021-22 witnessed FDI inflows of USD 84.84 billion, registering a rise of 3% over FY 2020-21 which amounted to USD 81.97 billion.

Annual FDI Equity Inflows into India: Financial Years 2008-09 to 2022-23

Country-Wise FDI Equity Inflows: 2022-23

From April 2000 to March 2023, cumulative FDI equity inflows from Mauritius stood at USD 163.87 billion, making it the largest source of FDI into India. Mauritius, Singapore and USA contributed to more than 50% of cumulative India’s FDI equity inflows during both time periods (FY 2022-23 and April 2000- March 2023).

During FY 2022-23, Singapore was the top investor with USD 17.20 billion, followed by Mauritius, USA, UAE, Netherlands, Japan, UK, Cyprus, Cayman Islands, and Germany. It is pertinent to note that some of the key countries mentioned here are favorable jurisdictions to make investments into India.

Country-wise FDI equity inflows (April 2000 - March 2023*)

Sector-wise FDI Equity Inflows: 2022-23

From April 2000 to March 2023, the Service Sector and Computer Hardware and Software attracted the highest FDI equity inflow accounting for 16% and 15% respectively of all inflows followed by Telecommunications (6%).

In FY 2022-23, the Computer Hardware and Software sector received the highest amount of FDI equity inflows (USD 9.39 billion) followed by the Service Sector, Trading, Drugs and Pharmaceuticals, Automobile Industry, Chemicals, Construction (Infrastructure) Activities, Telecommunications, Metallurgical Industries and Construction Development in that order.

Sector-wise FDI equity inflows (April 2000 - March 2023*)

Foreign Exchange Reserves

As of April 2023, India's foreign exchange reserves stood at USD 588.8 billion.¹⁸

• 9. Sector-wise GVA Data, MOSPI, https://mospi.gov.in, as accessed on 15 May 2023
• 10. Country Profiles – India, Data, International Labour Organization, https://ilostat.ilo.org/data/country-profiles/, as accessed on 15 May 2023
• 11. Invest India, https://www.investindia.gov.in/production-linked-incentives-schemes-india, as accessed on 15 May 2023
• 12. BRAP 2020, https://eodb.dpiit.gov.in/, accessed on 15 May 2023
• 13. Monthly Press releases on India’s international Trade in Goods and Services, RBI https://www.pib.gov.in/PressReleasePage.aspx?PRID=1916220, as accessed on 15 May 2023
• 14. Real GDP Growth (Annual percent change) IMF DataMapper, April 2023, International Monetary Fund, https://www.imf.org/en/Countries/IND#whatsnew, as accessed on 15 May 2023
• 15. Export Import Data Bank, Ministry of Commerce & Industry, https://tradestat.commerce.gov.in/meidb/com.asp?ie=e, as accessed on 15 May 2023
• 16. India FDI inflow data, Press Information Bureau, https://dpiit.gov.in/sites/default/files/FDI_Factsheet_December_2022.pdf, as accessed on 15 May 2023
• 17. India FDI inflow data, Press Information Bureau, https://dpiit.gov.in/sites/default/files/FDI_Factsheet_March_23.pdf, as accessed on 15 May 2023
• 18. RBI Forex reserve data, https://m.rbi.org.in/scripts/WSSViewDetail.aspx?TYPE=Section&PARAM1=2, as accessed on 15 May 2023