Basic characteristics of the Indian economy in present times

India’s economy, valued at Rs. 135.13 lakh crore (US$ 1.82 trillion) in FY21, showcases its substantial growth. Notably, the country boasts the fourth-largest unicorn base globally, with 21 unicorns valued at US$ 73.2 billion, a testament to its thriving startup ecosystem. Predictions suggest that India is on track to have around 100 unicorns by 2025, generating approximately 1.1 million direct jobs.
Recognizing the need for employment growth, McKinsey Global Institute emphasizes the creation of 90 million non-farm jobs in India between 2023 and 2030. To achieve robust economic growth of 8-8.5% GDP, a 1.5% annual increase in the net employment rate is essential from 2023 to 2030.
In terms of foreign exchange reserves, the Reserve Bank of India reported a substantial increase of US$ 6.842 billion in the week ending June 04, 2021, bringing the total reserves to an impressive US$ 605 billion, showcasing the country’s financial stability.

Recent Developments

The Private Equity – Venture Capital (PE-VC) sector witnessed a remarkable surge, reaching investments worth US$ 20 billion in the first five months of 2021. This marked a substantial 2x growth compared to the same period in 2020, reflecting a positive economic trend.
Merchandise exports from April to May 2021 amounted to US$ 62.89 billion, while imports reached US$ 84.27 billion. This indicates a significant trade activity, showcasing both inbound and outbound transactions in the global market.
India attracted Cumulative FDI equity inflows totaling US$ 763.58 billion from April 2000 to March 2021. In April 2021 alone, FDI inflows surged to US$ 6.24 billion, reflecting a notable 38% year-on-year increase.
India’s Index of Industrial Production (IIP) for April 2021 stood at 126.6, signaling a robust industrial sector despite a slight dip from the previous month’s figure of 143.4 in March 2021.Inflation Metrics: Consumer Food Price Index (CFPI) combined inflation was 5.01 in May 2021, up from 1.96 in April 2021. Additionally, Consumer Price Index (CPI) combined inflation rose to 6.30 in May 2021, compared to 4.23 in April 2021, reflecting changes in consumer prices.
In June 2021, foreign portfolio investors (FPIs) displayed confidence in the Indian markets by turning net buyers and investing Rs. 12,714 crore (US$ 1.71 billion). Data for the period from June 1, 2021, to June 25, 2021, revealed FPIs invested Rs. 15,282 crore (US$ 2.06 billion) in equities.
The trade balance between April 2021 and May 2021 indicated exports at US$ 35.39 billion and imports at US$ 19.86 billion, underscoring a positive trade surplus.
In May 2021, the Manufacturing Purchasing Managers’ Index (PMI) in India stood at 50.8, pointing towards a balanced and steady growth in the manufacturing sector.
Gross GST collections amounted to Rs. 141,384 crore (US$ 19.41 billion) in April 2021, showcasing robust tax revenue during this period.

Government Initiatives

The Finance Minister, Ms. Nirmala Sitharaman, presented the first Union Budget of the third decade of the 21st century on February 1, 2020. The goal was to give a boost to the Indian economy through a mix of short-term, medium-term, and long-term measures.
In the Union Budget for 2021-22, there was a significant increase in capital expenditure, up by 34.5% to Rs. 5.5 lakh crore (US$ 75.81 billion) compared to the previous year. The aim was to stimulate the economy, and it was hoped that increased government spending would attract private investments.
The government introduced the Production Linked Incentive (PLI) scheme to encourage manufacturing. For example, in May 2021, they approved a scheme for advanced chemistry cell (ACC) batteries, expecting investments worth Rs. 45,000 crore (US$ 6.07 billion).
The Union Cabinet also approved PLI schemes for white goods like air conditioners and LED lights, and a ‘National Programme on High Efficiency Solar PV Modules’. These initiatives were backed by budgetary allocations of Rs. 6,238 crore (US$ 848.96 million) and Rs. 4,500 crore (US$ 612.43 million), respectively.
In April 2021, the Reserve Bank of India (RBI) introduced new norms for the appointment of auditors in commercial banks and other financial institutions. This move aimed to enhance audit quality, transparency, and provide added value to businesses.
In June 2021, the RBI maintained the investment limits for foreign portfolio investors in State Development Loans and government securities. Additionally, the government had earlier announced a substantial stimulus package of Rs. 2.65 lakh crore (US$ 36 billion) in November 2020 to support various sectors and create job opportunities.
The government allocated Rs. 2,250 crore (US$ 306.80 million) for the development of the horticulture sector in the fiscal year 2021-22, indicating a commitment to boost agriculture-related activities.
Under the Make in India initiative, the government aimed to increase the manufacturing sector’s contribution to the GDP from 17% to 25%. Simultaneously, the Digital India initiative focused on creating digital infrastructure, delivering services digitally, and enhancing digital literacy to spur overall development.

Some of the recent initiatives and developments undertaken by the Government are listed below:

In June 2021, Mr. Shaktikanta Das, the RBI Governor, decided to keep the policy repo rate steady at 4%. Alongside this, he introduced several measures to support contact-intensive sectors like tourism and hospitality, providing Rs. 15,000 crore (US$ 2.05 billion) in liquidity.
G-7 Finance Ministers, including those from the US, the UK, Japan, Italy, Germany, France, and Canada, achieved a groundbreaking agreement in June 2021 to tax multinational firms with a minimum global tax rate of at least 15%. This move is anticipated to boost foreign direct investments in India.
The Indian government secured a US$ 32 million loan from the World Bank in June 2021 to enhance healthcare services in Mizoram.
In May 2021, the Government of India and the European Investment Bank (EIB) signed a finance contract for the second tranche of EUR 150 million (US$ 182.30 million) for the Pune Metro Rail project.
As of June 2021, 29 companies, including global electronics manufacturing giants like Foxconn, Sanmina SCI, Flex, and Jabil Circuit, have registered under the Rs. 12,195 crore (US$ 1.64 billion) production linked incentive scheme for the telecom sector.
In May 2021, the Union Cabinet approved the signing of a memorandum of understanding (MoU) on migration and mobility partnership between the Government of India and the United Kingdom.
In April 2021, Mr. Piyush Goyal, the Minister for Railways and Commerce & Industry and Consumer Affairs, Food & Public Distribution, launched the ‘DGFT Trade Facilitation’ app to provide exporters/importers with instant access anywhere and anytime.
Dr. Ahmed Abdul Rahman AlBanna, the Ambassador of the UAE to India and Founding Patron of IFIICC, predicted in April 2021 that trilateral trade between India, the UAE, and Israel would reach US$ 110 billion by 2030.India is anticipated to attract around US$ 100 billion in investment for developing oil and gas infrastructure between 2019-23.
The Government of India has plans to increase public health spending to 2.5% of the GDP by 2025. Additionally, an outlay of Rs. 2.068 billion (US$ 29.59 million) was approved in 2019 for the implementation of the Agriculture Export Policy, aiming to double farmers’ income by 2022.

Road Ahead

India made a strong comeback in the second half of FY21, with a 1.1% growth, thanks to the phased reopening of industries, increased investments, and higher government spending.
The Reserve Bank of India predicts a robust 9.5% real GDP growth for FY22. This includes an impressive 18.5% surge in the first quarter, followed by 7.9%, 7.2%, and 6.6% growth in the subsequent quarters.
India is aiming big on renewable energy, planning to hit 40% from non-fossil sources by 2030, up from the current 30%. They’re also eyeing a substantial increase in renewable energy capacity to 175 gigawatts by 2022. In collaboration with the UK, they’ve launched a ‘Roadmap 2030’ to tackle climate change.
According to a Boston Consulting Group report, India is set to become the third-largest consumer economy, reaching $4 trillion by 2025. This surge is attributed to changing consumer behaviors and spending patterns. Furthermore, India is expected to surpass the USA in purchasing power parity and become the second-largest economy by 2040, as per PricewaterhouseCoopers.