India: Country profile

Country Report | 16 Sep 2019

India will see healthy growth in 2019. Strong government consumption will support the
economy, together with healthy private consumption. Oil price volatility and rising global
trade protectionism are risks. Growth should be solid in the medium term with continued
implementation of structural reforms that raise productivity and spur private investment.
Real GDP will be about 7.1% per year in 2020 and gradually ease to around 6.4% per year by
2026.

KEY POINTS
ΠBy some measures, India can claim to be the world's fastest-growing major economy. Real
GDP will increase by 7.0% in 2019 - after gains of 6.8% in 2018.
ΠThe real value of private final consumption grew by 8.1% in 2018 and an increase of 7.5%
is expected in 2019. A rapidly expanding middle class and public pay hikes provide support.
ΠDespite its impressive performance, India's economy is not growing quickly enough to
provide enough new jobs for its rapidly expanding population. Every year 12 million new
workers enter the workforce. Unemployment was 4.9% in 2018 and it will increase to 5.0%
in 2019.
ΠGrowth should be solid in the medium term with continued implementation of structural
reforms that raise productivity and spur private investment. Real GDP will be about 7.1% per
year in 2020 and gradually ease to around 6.4% per year by 2026.

Chart 1 Real GDP Growth and Per Capita GDP: 2013-2019

Source: Euromonitor International from national statistics/Eurostat/OECD/UN/IMF

Note: Data for 2019 is forecast. GDP per capita are in constant 2018 prices

FACTS

Area
2,973,200 square kilometres

Currency
Indian rupee (Rs = 100 paise)

Location
India occupies the central northern coast of the Indian Ocean, where it is bounded in the
west by Pakistan, in the north by Tibet (a region of China), Bhutan and Nepal, and in the

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east by Myanmar and Bangladesh. Spanning the equator, its climate is tropical and
occasionally prone to violent storms.

Capital
New Delhi

GOVERNMENT

Head of State
Ram Nath Kovind (2017)

Head of Government
Narendra Modi (2014)

Ruling Party
The Bharatiya Janata Party leads a coalition government.

Political Structure
India is a federation of 28 states and seven union territories, encompassing a large number
of ethnic groups. The President holds all executive power, and appoints the Prime Minister
and his cabinet on the basis of election results to the Parliament. The Parliament has two
houses, the Lok Sabha (House of the People) and the Rajya Sabha (Council of States). The
Rajya Sabha can consist of no more than 250 members - 238 members representing the
States and Union Territories, and 12 members nominated by the President with the maximum
strength of the Lok Sabha as 545 members.

Last Elections
Ram Nath Kovind was elected president in July 2017. He defeated Meira Kumar of the Indian
National Congress party. Parliamentary elections were held in April 2019. The Bharatiya
Janata Party took 303 seats while the Indian National Congress Party received 52 seats, the
All India Trinamool Congress took 22 seats and Shiv Sena won 18 seats. Other parties
winning a significant number of seats included Biju Janata Dal (12), and Telangana Rashtra
Samithi (9). The remaining seats were divided among minor parties. Modi, leader of the
Bharatiya Janata Party, was returned as prime minister.

Political Stability and Risks

In the eastern part of the country, there is a Maoist insurgency while more than a dozen
rebel groups have been fighting to wrest Kashmir from India. Kashmiri militants have
repeatedly targeted India's cities.

Approximately 2.5 million Indians are infected with HIV. This estimate is somewhat lower
than previous ones but in some states more than 1% of the population is infected.

International Issues
New Delhi's relations with Pakistan have been difficult for many years - in part owing to the
latter's claims to Kashmir. Relations with Pakistan have intensified over Kashmir, following a
separatist suicide bombing incident in early 2019 which killed 40 Indian security personnel;
and the subsequent retaliatory airstrikes, carried out on both Indian and Pakistani targets in
each other's territory. India removed the autonomous status of Jammu and Kashmir in
August and Pakistan has suspended trade with India. Relations with Nepal, Bhutan and China
are marred by China's territorial claims in Arunachal Pradesh and in the far north. China,
however, is trying to strengthen relations with India.

Government Finance
India's fiscal deficit was 7.0% of GDP in 2017 and it fell to 6.7% in 2018. New Delhi predicts

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it will be 6.9% of GDP in 2019. Officials hope further consolidation will narrow the deficit to
about 3% of GDP in the medium term but this is a very ambitious goal.

Public debt (in real terms) totalled Rs133,108 billion in 2018, equivalent to 70.0% of GDP.
Spending on general public services amounted to 57.0% of government expenditure in 2018
followed by spending on economic services (19.2%).

Chart 2 Public Debt: 2013-2018

Source: Euromonitor International

ECONOMY

Economic Structure and Major Industries

Agriculture employs 46.7% of the workforce. Less than one-third of all crop land is irrigated
and most farming is at the subsistence level. According to FAO, as much as 40% of India's
fruit and vegetables perish before reaching the consumer while tonnes of grain rot. Signs of
severe water stress abound, with serious effects for agriculture but also many major cities.
Manufacturing accounts for 16.7% of GDP and employs 10.3% of the workforce. The textile
industry provides work for up to 35 million but it is extremely fragmented and inefficient.
Among other manufacturers, carmakers appear to have one of the brightest futures.
Hyundai, Ford, Nissan and Renault have each poured billions of dollars into new plants. The
Indian car market is already the world's fifth largest by sales and could overtake Japan and
Germany by 2020. New Delhi plans to raise the share of manufacturing to 25% of GDP
through its "Made in India" programme but the programme is off to a shaky start because
many firms must rely on parts and components made in China. Real growth of manufacturing
was 7.5% in 2018.

Services contribute 54.3% of India's GDP. The real value of inbound receipts rose by 7.1% in
2017 and gains of 6.9% are expected in 2018. The banking system, which was already
dealing with a large amount of bad loans, suffered a further setback in 2018 when regulators
discovered a US$1.8 billion fraud at one state-owned bank. The slow growth of credit is
especially concerting. In 2017, credit growth was the slowest in more than 60 years. Around
70% of banking in India is done through public sector banks, but this group of banks
accounts for more than 90% of all bad debts.

Overview of the Economy

India has been the fastest growing of the world's large economies in recent years. Support
came from steady gains in consumption, a surge in FDI inflows and the fall in oil prices. The
economy has also become more broadly based with both agriculture and industry performing
well. The pace of growth slowed only slightly in 2017 owing to the chaotic implementation of
a demonetisation policy and the introduction of the Goods and Services Tax. In 2018, real
GDP growth was 6.8%. Strong gains in private consumption and robust exports were the
main drivers. Measured in terms of purchasing power parity, India has become the third-

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largest economy in the world after China and the US.
One of the few disappointing features has been the slow growth of both domestic and
foreign investment. Investors are mainly concerned about India's infrastructure deficit which
continued to rise in recent years. Urban planning is also problematic with constraints
tightening in transport, sanitation, hotel accommodation, and other facilities typically sought
by investors. In response, New Delhi announced plans to invest US$137 billion in its ageing
railway network in 2015-2020.

Foreign Trade
India's large domestic market means that it is less dependent on trade than most Asian
countries. In 2018, exports represented just 11.7% of GDP. Exports rose by 8.7% in dollar
terms in 2018. An increase of 6.1% is expected in 2019.
Trade barriers have been reduced but import tariffs are high. To boost exports, the
government is building seven new ports at a cost of US$7.6 billion.

Asia took 31.6% of total exports in 2018. The EU and the USA are two other important
trading partners, accounting for 18.0% and 16.0% of exports respectively. In 2018, exports
of textiles and chemicals made up 26.0% of the total.
India has a free-trade agreement with Malaysia. Other agreements have been recently
signed with Singapore and Japan. The recently concluded free trade agreement with ASEAN
on services and investment will also help India's service providers. To protect Indian
manufacturers, customs duties were raised on a host of other imported consumer items in
2018.
The current account deficit was 2.4% of GDP in 2018 and it will narrow to 1.7% in 2019.
Low commodity prices and shrinking gold imports help to contain the deficit.

Chart 3 Total Foreign Trade: 2013-2019

Source: Euromonitor International from national statistics/OECD/IMF

Note: Data for 2019 is forecast.

Economic Prospects
By some measures, India can claim to be the world's fastest-growing major economy. Real
GDP will increase by 7.0% in 2019 - after gains of 6.8% in 2018. Strong government
consumption will support the economy, together with healthy private consumption. Oil price
volatility and rising global trade protectionism are risks.

Inflation was 4.0% in 2018 and prices will rise by 3.4% in 2019. The Goods and Services Tax
(GST) should eventually lower the prices of capital goods. In the meantime, monetary policy
will be tightened and interest rates have been raised, reflecting inflation expectations.
The real value of private final consumption grew by 8.1% in 2018 and an increase of 7.5% is
expected in 2019. A rapidly expanding middle class and public pay hikes provide support.

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FDI has retreated from its recent high but New Delhi hopes to reverse the downward trend
with new reforms. The most significant move is the abolition of the Foreign Investment
Promotion Board, which reviewed foreign investment programmes. A recent cut in the
corporate income tax rate should also encourage investment.

Despite its impressive performance, India's economy is not growing quickly enough to
provide enough new jobs for its rapidly expanding population. Every year 12 million new
workers enter the workforce. Unemployment was 4.9% in 2018 and it will increase to 5.0%
in 2019. The pace of job creation is far slower than needed to bring new job entrants into
the market. In addition, the vast majority of workers are still employed in low-productivity
jobs in the informal sector.

Chart 4 Real GDP Growth: 2013-2019

Source: Euromonitor International from national statistics/Eurostat/OECD/UN/IMF

Note: Data for 2019 is forecast

Evaluation of Market Potential

Growth should be solid in the medium term with continued implementation of structural
reforms that raise productivity and spur private investment. The Goods and Services Tax
(GST) should provide added benefits by creating a single market. Global trade protectionism
is a possible threat to the outlook. Real GDP will be about 7.1% per year in 2020 and
gradually ease to around 6.4% per year by 2026.
To alleviate infrastructure constraints, the government plans to invest US$1 trillion in ports,
roads and power plants. New Delhi also intends to modernise the rail system and build 50 to
100 new airports over the next 20 years at a cost of about US$60 billion.

New Delhi's plan to promote a "made in India" programme could ultimately make the
manufacturing sector a leading source of growth. Presently, the sector is less than half the
size of China's. It also lags behind the service sector, with limited contribution to exports
and job creation. India's goal is to raise manufacturing's share of GDP to 25% from 15%
today.

India's demographic trends are promising. By 2030, India will overtake China as the world's
most populous country. At that time, India will have more than one billion people of working
age. Moreover, India's working age population (as a share of total population) is expected to
keep rising.

BUSINESS ENVIRONMENT
The government introduced a nationwide sales tax (GST) in 2017. The GST is thought to
have boosted India's GDP by around 2 percentage points by simplifying the tax system and
lowering the effective tax rate. The move, which replaced different national, state and local
taxes with a unified value added tax, created a genuine single market. The GST ultimately
proved to be confusing to a majority of retailers but the effects of theses disruptions will
wane.

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Excise duties on petrol and diesel were cut in 2017 and reduced further in 2018. In 2018,
small businesses saw their corporate tax rate reduced from 30% to 25%. A new 10% long-
term capital gains tax was also introduced in 2018. Recent measures to digitise the economy
and improve tax compliance should boost tax revenue in the medium term.

To spur investment in high-tech companies, officials have created "Startup India", which
offers tax exemptions and up to US$1.5 billion of state funding. Policy makers, however,
remain very hesitant to encourage privatisation. Air India is one of the few large companies
up for sale but there is only one bidder and the company holds debt of more than US$7.8
billion.

ENERGY
India had 4.2 billion barrels of proven oil reserves and produced 42.3 million tonnes of oil
equivalent in 2018. Recovery rates average only around 30% in currently producing fields,
well below the world's average. Authorities are hoping that foreign investment will improve
the yield.
India's proven reserves of natural gas are estimated to be 1.3 trillion cubic metres.
Production of natural gas totalled 26.7 million tonnes of oil equivalent in 2018. India could
soon overtake Japan as the world's third-biggest oil consumer (behind the US and China).
India is also trying to develop additional oilfields. It presently meets less than a quarter of
demand.
Energy efficiency (defined as GDP per tonne of energy supplied) is about 60% of the regional
average. The indicator grew at an average rate of 4.1% per year in 2013-2018. This is
similar to the regional average for Asia.

Chart 5 Primary Energy Supply (% of total): 2018

Source: Euromonitor International from International Energy Association (IEA)

SOCIETY

Population
India's current population is nearly 1.3 billion, up from 1.0 billion in 2000. Population growth
is slowing but the country's youthful age structure promises continued gains for some time.
The median age is rising over time but, too, is still relatively low - just 27.6 years in 2018. In
1980, the country had 267 million people between the ages of 0 and 14 years. By 2018, the
number was 362 million and however it is declining and should reach 347 million by 2030.
India will overtake China as the world's most populous country in less than 20 years. The
country should benefit significantly from its "demographic dividend" in part because it occurs
at a time when other large emerging markets (including China) are seeing their population
age.

India's fertility rate is dropping but it is still relatively high at 2.4 births per female. Fertility
will decline to the replacement rate (2.1 births per female) by 2025.

The Indian government projects that there will be 400-500 million people in the workforce
before 2025 but if female empowerment takes off that figure might increase to 600-700

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million.

Chart 6 Age Pyramid in 2018 and 2030

Source: Euromonitor International from national statistics/UN

Note: Data for 2030 is forecast

Income and Expenditure

India's savings exceed the regional average. In 2018, savings amounted to 19.6% of
disposable income and the ratio will rise to 19.8% in 2019.

Consumer expenditure per capita was Rs85,920 (US$1.256) in 2018. In real terms, the
measure will rise by 6.1% in 2019. Health goods and medical services will see the largest rise
in expenditure in 2019-2030. Spending on miscellaneous goods and services will also grow
rapidly.

In the period 2019-2030, total consumer expenditure will grow at an average annual rate of
6.4%. It will increase by a cumulative value of 98.8% during that period. Total consumer
expenditure will represent 59.2% of GDP in 2019.
Disposable income per capita amounted to Rs106,330 (US$1,555) in 2018. In 2019, the
measure will rise by 6.4% in real terms.

During the period 2019-2030, total disposable income will increase by a cumulative value of
95.0% in real terms - growing at an average annual rate of 6.3%.

Income inequality is on the rise. As the middle class prospers, it becomes more urgent that
authorities find ways to help the poor. According to the World Bank, 76% of India's 1.2
billion people live on less than US$2 per day.

Chart 7 Per Capita Annual Disposable Income, Spending and Savings Ratio: 2013-
2019

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Source: Euromonitor International from national statistics/trade sources/OECD
Note: Data for 2019 is forecast. Per capita income and spending are in constant 2018 prices

Statistical Summary
2012 2013 2014 2015 2016 2017 2018
Inflation 9.4 10.1 6.5 4.9 5.0 3.3 4.0
(%
change)
Exchange 53.41 58.59 61.03 64.14 67.24 65.12 68.40
rate (per
US$)
Lending 10.6 10.3 10.3 10.0 9.7 9.5 9.4
rate
GDP (% 5.5 6.4 7.4 8.0 8.2 7.2 6.8
real
growth)
GDP 99,440,131.0 112,335,216.1 124,679,591.2 137,718,738.8 153,623,890.1 170,950,048.2 190,101,641.9
(national
currency
millions)
GDP (US$ 1,861,818.3 1,917,253.3 2,042,859.2 2,147,195.0 2,284,705.8 2,625,097.9 2,779,127.8
millions)
Birth rate 20.4 19.9 19.6 19.3 19.0 18.8 18.6
(per '000)
Death rate 7.4 7.3 7.3 7.3 7.3 7.3 7.4
(per '000)
No. of 252,260.0 257,721.7 263,054.9 268,223.0 273,288.6 278,231.7 283,043.3
households
('000)
Total 296,828.1 314,815.2 322,480.5 267,791.0 264,423.6 299,152.0 325,046.5
exports
(US$
millions)
Total 489,693.9 465,401.8 462,920.3 393,830.3 361,495.1 449,795.4 513,147.7
imports
(US$
millions)
Urban 389,906.0 399,296.7 408,884.8 418,707.1 428,778.9 439,095.8 449,650.9
population
('000)
Urban 31.6 32.0 32.4 32.8 33.2 33.6 34.0
population
(%)
Population 30.0 29.6 29.1 28.7 28.2 27.8 27.4
aged 0-14
(%)
Population 64.7 65.0 65.4 65.7 66.0 66.2 66.5

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 aged 15-64
(%)
Population 5.3 5.4 5.5 5.6 5.8 6.0 6.2
aged 65
(%)
Male 51.9 51.9 51.8 51.8 51.8 51.8 51.8
population
(%)
Female 48.1 48.1 48.2 48.2 48.2 48.2 48.2
population
(%)
Life 66.5 66.8 67.2 67.5 67.7 68.0 68.2
expectancy
male
(years)
Life 68.7 69.1 69.5 69.8 70.1 70.4 70.7
expectancy
female
(years)
Infant 42.0 40.0 39.0 37.0 34.0 32.9 31.8
mortality
(deaths per
'000 live
births)
Adult 70.3 71.0 71.6 72.2 72.7 73.1 73.4
literacy
(%)

Imports and Exports

2018 Share 2018 Share
Major export destinations (%) Major import sources (%)
Exports (fob) to Asia Pacific 32.0 Imports (cif) from Asia Pacific 36.5
Exports (fob) to Africa and the 24.0 Imports (cif) from Africa and 31.5
Middle East the Middle East
Exports (fob) to Europe 21.0 Imports (cif) from Europe 16.3
Exports (fob) to North America 16.8 Imports (cif) from North 7.2
America
Exports (fob) to Latin America 4.1 Imports (cif) from Latin 5.1
America
Exports (fob) to Australasia 1.3 Imports (cif) from Australasia 2.9

© Euromonitor International 2019

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