45 Years of Indian Economic Evolution: A Journey from 1980 to 2024 and Future Projections up to 2029

The Indian economy has undergone significant transformations since independence, evolving from an agricultural-focused economy to a mixed economy driven by agriculture, services, and manufacturing sectors. Initially, post-independence, the focus was on self-sufficiency in food production and industrial diversification. The economy’s growth was propelled by the green revolution and industrial expansion. However, challenges like corruption, illiteracy, and economic disparities persist. Initiatives like liberalization in 1991 have further shaped India’s economic landscape, fostering growth in sectors like services and manufacturing. The government’s efforts, coupled with factors like increased foreign direct investment, expanding start-ups, and a growing industrial sector, have positioned India as one of the fastest-growing economies globally. With ongoing initiatives like Make in India and Digital India, India aims to enhance productivity, reduce dependence on labour, and ensure a steady supply of goods and services, ultimately fostering economic development and stability.

In this article, we conducted a comprehensive analysis spanning 45 years of India’s economic evolution, tracing the trajectory from 1980 to 2024 and projecting future trends up to 2029. Our examination encompassed various critical indicators across multiple domains, notably focusing on Gross Domestic Product (GDP), inflation rates, current account dynamics, and government finance. By synthesizing data from diverse sources and employing rigorous analytical methodologies, our study endeavoured to provide policymakers, economists, and stakeholders with valuable insights into India’s economic evolution and future prospects, thereby facilitating informed decision-making and strategic planning.

GDP (in USD)

The Gross Domestic Product (GDP) is a fundamental measure used to gauge the economic performance and overall health of a nation’s economy. It encompasses the total monetary value of all goods and services produced within a country’s borders over a specified period, typically annually or quarterly. GDP serves as a comprehensive indicator of economic activity within a country, reflecting the aggregate output of goods and services generated by businesses, households, and the government. It provides valuable insights into the size, growth rate, and structure of the economy, allowing policymakers, investors, and analysts to assess its overall health and trajectory. Moreover, GDP serves as a key benchmark for comparing the economic performance of different countries and regions. By standardizing the measurement of economic output, GDP enables cross-country comparisons and facilitates the evaluation of relative economic strengths and weaknesses. Beyond its role as a statistical measure, GDP plays a crucial role in informing policy decisions and guiding economic planning. Governments use GDP data to formulate fiscal and monetary policies aimed at promoting economic growth, stability, and development. It helps policymakers identify areas of strength and weakness within the economy, enabling targeted interventions to address specific challenges and capitalize on growth opportunities. Furthermore, GDP serves as a vital tool for monitoring changes in living standards and societal well-being. While GDP alone may not capture all aspects of human welfare, such as income distribution, environmental sustainability, or quality of life, it provides a broad measure of economic prosperity and serves as a starting point for assessing overall societal progress.

Real GDP growth rate

The Real Gross Domestic Product (GDP) Growth rate in India has demonstrated a consistent pattern over the past five decades, maintaining an average of around 6% from 1980 to 2029, with notable exceptions during significant economic events such as the reforms of 1991, the Global Economic Crisis of 2008, and the unprecedented impact of the COVID-19 pandemic in 2020. Among these, the most substantial downturn was witnessed during the COVID-19 crisis, with a notable contraction of -5.8%. Despite these fluctuations, the expected Real GDP Growth in 2024 is 6.8%, showcasing resilience and recovery within the economy. Looking ahead, projections indicate a sustained growth trajectory, with the Real GDP Growth expected to stabilize at 6.5% up to 2029. Examining historical trends, the annual average Real GDP Growth rate varied across different decades. Between 1980 and 1989, it averaged 5.7%, followed by a marginal increase to 5.8% in the subsequent decade (1990-1999). The early 2000s saw a more significant rise, with the average Real GDP Growth reaching 6.3% from 2000 to 2009. The following decade, spanning from 2010 to 2019, recorded a further uptick to 6.6%. Projections suggest that the estimated Real GDP Growth rate between 2020 and 2029 will stabilize at 5.8%. Over the past 45 years(1980-2024), the average annual Real GDP Growth rate has stood at 6%, reflecting the overall resilience and dynamism of the Indian economy amidst various domestic and global challenges. While India has experienced fluctuations in Real GDP Growth rates over the decades, the overall trajectory demonstrates a robust and resilient economy capable of weathering challenges and sustaining long-term growth

GDP per capita, Current Prices

GDP per capita represents the GDP divided by the total population of a country, reflecting the economic output or income per person within that nation. It serves as a gauge of average productivity and living standards. GDP per capita can be expressed in nominal terms, adjusted for inflation (real GDP per capita), or in terms of purchasing power parity (PPP). Fundamentally, per capita GDP illustrates the economic value produced per individual in a given population, thereby offering an indication of national wealth and prosperity. This metric is often examined alongside traditional GDP measures, providing economists with insights into domestic productivity as well as international comparisons. Analysts consider both a country’s GDP and its population when assessing per capita GDP, enabling a deeper understanding of the contributing factors and their impact on overall growth. For instance, if per capita GDP is increasing while population levels remain stable, it may indicate technological advancements driving higher productivity levels. Additionally, some nations with a small population and high per capita GDP may signify a self-sufficient economy built on abundant special resources.

The Gross Domestic Product (GDP) Per Capita in India has demonstrated a consistent upward trajectory over the years, except the COVID-19 years, notably in 2020. In 1980, the GDP Per Capita stood at a modest $267, which projected to surge to $2731 in 2024, reflecting a remarkable increase of nearly 10.2 times. However, the impact of the COVID-19 pandemic is evident, with a decline of 6.6% in GDP Per Capita observed between 2019 and 2020. Despite this setback, projections indicate a promising outlook, with the GDP Per Capita anticipated to rise to $4281 by 2029. From 2024 to 2029, a substantial increase of 31.2% is estimated in the GDP Per Capita.

Similarly, when considering GDP Per Capita in terms of Purchasing Power Parity (PPP) in international dollars, the trend underscores India’s economic advancement. In 1980, the GDP Per Capita stood at $1323, which projected to escalate to $8084 in 2024, representing a significant increase of approximately 6.1 times. Despite the challenges posed by the COVID-19 pandemic, where the GDP Per Capita experienced a decline of 6.7% between 2019 and 2020, India’s economic trajectory remains upward. Projections indicate a further ascent, with the GDP Per Capita expected to reach $10,609 by 2029. From 2024 to 2029, a robust increase of 56.8% is forecasted in the GDP Per Capita. While the COVID-19 pandemic has temporarily disrupted the growth of GDP Per Capita in India, the overall trend remains positive, reflecting the resilience and potential for economic advancement within the nation.

GDP deflator index

The GDP deflator is a price index that measures inflation or deflation in the prices of goods and services produced in an economy. The GDP deflator is a more comprehensive measure of inflation than the wholesale or consumer price indices because it covers the entire range of goods and services produced in the economy. The GDP deflator index serves as a vital measure of inflationary pressures within the economy, capturing changes in the overall price level of domestically produced goods and services. As the index continues to climb, it highlights the persistent inflationary dynamics shaping India’s economic landscape. The sustained increase in the GDP deflator index underscores ongoing inflationary pressures within the economy. Monitoring this index provides valuable insights for policymakers and analysts to understand and respond to evolving economic conditions.

The Gross Domestic Product (GDP) deflator index in India has shown a consistent upward trajectory over the years, indicating inflationary trends within the economy. From a modest 10 in 1980, the GDP deflator index expected to surge up to 177 by 2024, representing a significant increase of nearly 17.7 times. Projections suggest a continuation of this trend, with the GDP deflator index expected to further rise to 215 by 2029. Over the period spanning 2024 to 2029, a notable increase of 21.9% is anticipated in the GDP deflator index.

GDP based on Purchasing Power Parity (PPP) as a % of the world

GDP based on Purchasing Power Parity (PPP) as a percentage of the world refers to the share of the global Gross Domestic Product (GDP) that is attributed to a specific country or region when adjusted for differences in price levels between countries. Purchasing Power Parity (PPP) takes into account the relative cost of living and inflation rates in different countries, allowing for a more accurate comparison of economic output and standards of living across borders. When expressed as a percentage of the world GDP, GDP based on PPP provides insights into the economic significance and contribution of a particular country or region on a global scale. It reflects the relative size and influence of the economy in the international context, highlighting its position in the global economic landscape.

India’s share of the Gross Domestic Product (GDP) based on Purchasing Power Parity (PPP) as a percentage of the world has displayed a consistent upward trajectory over the years. Beginning at a modest 3% in 1980, this share is estimated to surge to 7.9% by 2024, marking a substantial increase of 4.9%. Projections indicate a continuation of this upward trend, with India’s GDP based on PPP as a share of the world expected to further rise to 9.2% by 2029. Over the period from 2024 to 2029, a notable increase of 1.3% is anticipated in India’s share of the global GDP based on PPP.

Implied Purchasing Power Parity (PPP) conversion rate

The Implied Purchasing Power Parity (PPP) conversion rate, also known as the PPP exchange rate, refers to the hypothetical exchange rate that equates the purchasing power of two currencies by comparing the prices of identical goods and services in different countries. Specifically, the Implied PPP conversion rate is expressed as the national currency per international dollar. It represents the value of the domestic currency required to purchase the same basket of goods and services that one unit of the international currency (typically the US dollar) can buy.

This trend underscores India’s growing economic prominence on the global stage, reflecting its sustained growth and development over the years. As India continues on this trajectory, it is poised to play an increasingly significant role in the global economy. India’s Implied Purchasing Power Parity (PPP) conversion rate has demonstrated a consistent upward trajectory over the years, indicating a strengthening of its currency over other currencies. Starting at a modest 3.6 in 1980, this rate is expected to surge to 22.4 by 2024, marking a substantial increase of 6.2 times. Projections suggest that this upward trend will persist, with India’s Implied PPP conversion rate expected to further increase to 24.9 by 2029. Over the period from 2024 to 2029, a notable increase of 11.2% is anticipated in India’s Implied PPP conversion rate. This trend underscores India’s growing economic stature and currency strength on the global stage. As the Implied PPP conversion rate continues to rise, it reflects India’s increasing purchasing power and competitiveness in international trade and investment.

Investment and Gross National Savings

Total investment (as a percentage of GDP) reflects a nation’s commitment to economic growth and development. This vital metric, encompassing the total value of gross fixed capital formation, inventory changes, and acquisitions minus disposals of valuables across various sectors, calls on policymakers to ensure the right conditions for investment and growth. Gross national savings (as % of GDP) is the ratio between gross national savings in current local currency and GDP in current local currency. This signifies the portion of income that a country saves after accounting for consumption expenditures adjusted for factors like pension funds. This metric is pivotal as it demonstrates a nation’s financial ability to finance its investments domestically. These metrics provide valuable insights into a country’s economic health and capacity for sustained growth and stability. Policymakers, economists, and investors often utilize them to assess and compare the performance of different economies on the global stage.

Between 1980 and 2007, both total investment (% of GDP) and gross national savings (% of GDP) in India experienced robust growth, marking a period of significant economic expansion. This upward trajectory culminated in 2007 when both indicators reached their peak levels. However, following this peak, a discernible downward trend emerged, signalling a shift in the economic landscape. As per projection, India is expected to witnesse a notable increase (20.7% to 33.3%) in total investment, rising by 12.6% as a proportion of GDP between 1980 to 2024.

However, a contrasting pattern emerges when examining the subsequent period from 2024 to 2029, where total investment is expected to experience a decline of 1.3% (33.3% to 32.1%). Similarly, the analysis of gross national savings, also as a percentage of GDP, unveils significant dynamics. From 1980 to 2024, India observed a substantial increase of 14.5% (17.4% to 31.9%) in gross national savings, indicative of a growing propensity among individuals and entities to save a larger portion of their income. However, between 2024 and 2029, a downturn is evident, with gross national savings declining by 2.2% (31.9% to 29.8%).

Inflation

Inflation, as measured by the average consumer prices, reflects the yearly averages rather than end-of-period data. This metric, derived from the consumer price index (CPI), is a globally recognized tool that tracks changes in the prices of goods and services consumed by households. The CPI captures the average movement of prices, impacting consumers’ real purchasing power and overall welfare. Typically, a price index is normalized to a value of 100 in a reference period, with subsequent values indicating the percentage change in prices relative to this base period. Moreover, price indices facilitate comparisons of price levels across different cities, regions, or countries simultaneously, making this metric applicable and relevant worldwide. For eurozone countries, consumer prices are computed using harmonized pricing methodologies, further enhancing the global applicability of this metric. Conversely, inflation measured by end-of-period consumer prices focuses on prices after each reporting period, rather than the annual averages. Similarly based on the CPI, this metric provides insights into the changes in prices of goods and services consumed by households. Like average consumer prices, end-of-period consumer prices reflect fluctuations in purchasing power and welfare. Additionally, price indices derived from end-of-period data enable comparisons of price levels across different locations or over time, aiding in assessing variations in price levels across regions or countries.

During 1980-2024, inflation, measured by the average consumer prices index, estimated to surge by approximately 95%, ascending from 8.9 to 192.5. Similarly, inflation, gauged by the end-of-period consumer prices index, mirrored this trajectory, increasing by approximately 95% from 9.2 to 194.0.  Looking ahead, projections suggest a continuation of inflationary pressures, albeit at a somewhat moderated pace. Between 2024 and 2029, it is anticipated that both the average consumer prices index and end-of-period consumer prices index will witness an approximate 22% increase. This projection underscores the persistence of inflationary trends, albeit at a slower pace compared to the historical period under review. Notably, while inflation, as measured by the percentage change in the average consumer prices index and end-of-period consumer prices index, exhibited fluctuations between 1980 and 2024, there is a forecasted stabilization in the coming years. From 2024 to 2029, it is estimated that the percentage change in the average consumer prices index will remain relatively steady, hovering around 4%.

Imports and Exports

The volume of imports of goods and services signifies the total quantity of imports, excluding any variations in their characteristics or prices. This metric measures the aggregate change in the quantities of total imports while keeping the goods and services and their prices constant. Therefore, any fluctuations observed in this metric are solely attributed to changes in quantities, reflecting shifts in demand or supply dynamics without considering price fluctuations. This provides a clear understanding of the changes in the physical volume of imports over time, allowing for a more accurate assessment of trade dynamics and economic trends. The volume of exports of goods and services represents the total quantity of exports, unaffected by changes in the characteristics or prices of the goods and services being traded. This metric provides insights into changes in the quantities of exports over a specified period, excluding any variations attributed to alterations in prices or the nature of the goods and services themselves. This methodology ensures that fluctuations in the volume of exports are solely attributable to changes in the quantity of goods and services traded, offering a clear indication of shifts in export activity irrespective of price movements.

During the period spanning from 1980 to 2024, the per cent change in the volume of exports and imports of goods and services in India exhibited fluctuations over the years, indicative of dynamic economic conditions. Notably, there were two significant instances where the per cent change in volume of exports and imports recorded notably low levels. Firstly, during the economic crisis of 1991, these metrics plummeted to approximately -18% to -20%, reflecting the severe impact of the crisis on India’s trade activities. Secondly, amidst the global COVID-19 pandemic in 2020, these metrics ranged from around -8% to 14%, showcasing the disruptive effects of the pandemic on international trade flows.

Revenue and Expenditure

Government revenue encompasses taxes, social contributions, grants receivable, and miscellaneous sources of income. It plays a crucial role in augmenting the government’s net worth, which is determined by the disparity between its assets and liabilities. It’s essential to note that transactions merely altering the composition of the balance sheet, such as proceeds from asset sales or incurring liabilities, do not influence the net worth position. General government expenditure includes expenses and the net acquisition of nonfinancial assets. Unlike the definition of the GFSM 1986, total spending is on an accrual basis and also considers disposals of nonfinancial assets. In assessing the fiscal health of a nation, a fundamental metric is net lending (+)/borrowing (-). This figure is derived by subtracting total expenditure from revenue and serves as a pivotal indicator of the government’s financial interactions with other sectors within the economy and with nonresident entities. Positive net lending signifies the government’s provision of financial resources to other sectors and nonresidents, while negative net borrowing indicates the government’s utilization of external financial resources. Essentially, this balance encapsulates the financial ramifications of governmental activities on the broader economy and nonresident entities.

General government revenue and expenditure in India have experienced rapid growth, albeit with a temporary downturn during the COVID-19 crisis. Notably, the disparity between income and spending has also widened over time. There has been a consistent trend of government expenditure as a percentage of GDP remaining higher compared to government revenue as a percentage of GDP. However, during the COVID-19 pandemic, this gap widened significantly, with expenditure reaching almost 12.9% of GDP. This trend is expected to continue from 2024 to 2029.

Gross debt

Gross debt refers to all liabilities that require future payments of interest and/or principal by the debtor to the creditor. It includes various forms of debt instruments and obligations. Gross debt serves as a measure of the total debt burden faced by a government, reflecting its obligations to creditors without considering any offsetting financial assets.

India’s total gross debt has exhibited rapid growth over the years, with projections indicating it will surpass 4 trillion rupees by 2029. From 1990 to 2024, the gross debt as a percentage of GDP fluctuated between 67% and 88%. The onset of the COVID-19 pandemic saw gross debt as a percentage of GDP peaking at 88%, marking the highest level in the past decade. However, subsequent trends suggest a decline, with expectations indicating a continued decrease in the coming years.

Current account balance

The current account within the balance of payments encapsulates a nation’s vital economic engagements, encompassing activities such as capital market transactions and service provisions. In theory, the current account balance should ideally equate to zero, though achieving this balance is impractical. Therefore, the actual balance indicates whether a country operates at a surplus or deficit. A surplus signifies an economy functioning as a net creditor globally, while a deficit denotes an economy and its government functioning as net debtors. The four primary constituents of the current account comprise goods, services, income, and current transfers, collectively offering a comprehensive insight into a nation’s economic interactions on the international stage.

From 1980 to 2024, the total current account balance as a percentage of GDP displayed notable fluctuations. Notably, it reached its peak in 2003 and hit its lowest point in 2012. The year 2020, marked by the onset of the COVID-19 pandemic, witnessed a sudden increase in the current account balance as a percentage of GDP. Looking ahead, projections indicate a rapid decrease in the current account balance as a percentage of GDP in the upcoming years.

The trajectory of the Indian economy appears promising, with projections indicating substantial growth potential. Analysts anticipate India’s ascent to become the world’s third-largest economy by 2027, surpassing economic powerhouses like Japan and Germany. Forecasts suggest that India’s GDP could hit $5 trillion within the next four years, with aspirations to reach nearly $10 trillion by 2030, driven by an expected annual GDP growth rate of 6% over the next half-decade. This growth is underpinned by three overarching megatrends: global offshoring, digitalization, and energy transition, which collectively lay the groundwork for unprecedented economic expansion in the nation of over 1 billion people.

However, amidst this optimism, researchers have identified several potential risks that could impede India’s economic trajectory. Global geopolitical tensions, particularly conflicts such as the Israel war, pose significant challenges to India’s economic stability. Climate-related factors, including the El Nino weather phenomenon, threaten to disrupt agricultural output, potentially affecting economic growth. Persistent issues related to poverty and healthcare continue to hinder India’s economic development, underscoring the importance of ongoing efforts to address these societal challenges. Additionally, external factors such as high inflation, elevated crude oil prices, and fluctuating commodity prices could influence India’s economic landscape, impacting policy decisions and overall stability. The outcome of the impending general elections in May 2024 also introduces uncertainty, as unexpected political outcomes could affect business confidence and investment decisions, thereby influencing India’s growth trajectory.

The challenges confronting the Indian economy are multifaceted and encompass various issues that hinder its growth and development. Despite economic expansion, unemployment remains a significant concern, particularly among youth in both rural and urban areas. India also grapples with high levels of illiteracy, particularly among women and in rural regions, limiting economic progress and the availability of a skilled workforce. Inadequate infrastructure, including deficient transportation networks and essential services such as power and water supply, inhibits economic development and competitiveness. Furthermore, India’s persistent current account deficit, driven by faster import growth than exports, necessitates attracting capital flows to finance the deficit and prevent currency devaluation. Economic growth disparities between regions further exacerbate challenges, leading to urban congestion while rural areas, notably in the northeast, continue to face poverty. Additionally, India’s status as a net oil importer renders it vulnerable to fluctuations in oil prices, which can exacerbate the current account deficit and inflationary pressures. The Russia-Ukraine conflict has also impacted India, particularly in terms of trade and imports, as international sanctions disrupt payment mechanisms and military equipment supply chains. These challenges underscore the complexity of the Indian economy and highlight the necessity for strategic reforms and policies to effectively address them, ensuring sustained economic growth and development.

References

About Author:

Pankaj Chowdhury is a former Research Assistant at the International Economic Association. He holds a Master’s degree in Demography & Biostatistics from the International Institute for Population Sciences and a Bachelor’s degree in Statistics from Visva-Bharati University. His primary research interests focus on exploring new dimensions of in computational social science and digital demography.

Disclaimer: The views expressed in this article are those of the author and do not necessarily reflect the views of 360 Analytika.

Acknowledgement: The author extends his gratitude to the IMF for providing data support.

This article is posted by Sahil Shekh, Editor-in-Chief at 360 Analytika.