CHAPTER 1
The Indian Economy
And Its History

1

2

The Indian Economy

The Indian economy is the f i f t h - l a r g e s t
economy in the entire world (2020). Specifically,
the economy can be categorized as a developing
market economy, which means that it still has a
large room for development. This quality is one
of reasons the Indian economy is developing at a
very rapid pace compared to other economies
around the world. Currently, because of its
speedy growth in recent years, India is
on the list of the fastest-growing
f i f t h
economies around the globe as of 2020.

3

History of the Indian
economy
Since ancient times, India has always been
among the most dominant economies in the
world. Through ancient literature that provides
evidence for this dominance, it has been found
that India enjoyed prosperity in almost all the
stages of its history from during the
Indus Valley Civilization to the
M u g h a l a g e s . India was
also an active participant in
international trade throughout its
economic development. For example, evidence
has been found for India having trade links with
several countries, including China, Ceylon, and
many other western nations. Eventually, though,
the growth of the Indian economy was
stunted when the country was COLONIZED by
EUROPEANS .

During Britain's control of India, economic
growth was near zero, and the resources of the
country were heavily exploited by the colonial
powers, leaving India with little to no economic
benefit. When India finally became an
independent country in 1947, the new
government decided to undertake a policy of

4

ISOLATION FROM THE GLOBAL ECONOMY

Interactions with the outer world
remained limited to promote the
domestic industries and companies growing in
India at the time. This isolation served the
dome DOMESTIC enterprises very well,
which began to become well-established
and started to develop swiftly. As a
result of this process, in the early years
of the post-independence era, India
was laying down the foundation to take a center
stage as a dominant economic power.
Domestic: existing or occurring inside a particular
country; not foreign or international.

5

The year 1991

In the year 1991, India finally decided to open its
borders to international trade and business,
letting go of its previous policy of isolation.
Restrictions imposed on international enterprises
were removed in the revolutionary process of
, which is considered as
India's first step towards
.
Liberalization is the precondition for
privatization and globalization.
Liberalization is a broad term that usually
refers to fewer government regulations and
restrictions, mainly on economic activities.
Thus, liberalization is basically a change in
the economic philosophy of a state.

GLOBALIZATION

LIBERALIZATION

Globalization refers to the widespread
international movement of goods, capital,
services, technology and information. It is the
increasing economic integration and
interdependence of national, regional, and local
economies across the world through an
intensification of cross-border movement of
goods, services, technologies and capital.

In the post-liberalization period, India saw active
-national
participation of
(MNCs) in its economy. The introduction of
multi-national companies created employment
opportunities for thousands of people and
generated income for the country in the form of
taxes (generally, MNCs are taxed at higher rates
than domestic companies). Although they
provided a variety of benefits to the Indian
economy, MNCs still created complications for
many domestic companies. The MNCs captured
the product markets of the domestic companies
while also attracting highly educated laborers,
with their high salaries, out-competing the
domestic companies. An example of an MNC
that still exists in India today is the Microsoft
Corporation or Microsoft for short.

6

In addition to the introduction of MNC's to
India, the liberalization process reduced import
barriers and taxes imposed on overseas
enterprises. This led to an exponential increase
in India's foreign investments. Foreign
investments increased from $276 million USD in
1991-1992 to $3.5 billion USD in 1996-1997.
Furthermore, the annual growth of foreign
investment in India accelerated from 1.25% to
7.5%. The benefits of liberalization were not
distributed uniformly among all states of India,
however, as foreign investors preferred
employer-friendly locations.

7

8

The year 1991 was also the year when
Privatization
was introduced. The ownership
of several public enterprises (government-held
enterprises) was shifted either partially or
completely to private ownership (held by
individuals). This privatization occurred for two
reasons. First, the government was no longer
able to financially support all of its public
enterprises. Second, the privatization of public
enterprises would enable enterprises to gain
better incentives as compared to if they stayed
public.

Privatization is the shift in
ownership of enterprises from the
state to private owners. The
transfer is not always complete,
the state may hold a certain share
in the enterprise.

9

Privatization led to massive benefits for the
Indian economy. Specifically, privatization
allowed enterprises to become much more
efficient. As a result, India saw rapid economic
growth as these, now more efficient, enterprises
were able to create more products and services
for people across the world. Overall, this process
of privatization caused the foundation for the
large private sector , a sector of enterprises
owned solely by corporations and individuals
rather than the government, that would arise in
India in the later eras. Both the Liberalization
and Privatization of India in 1991 were major
steps that lead to its increased Globalization in
the world and its booming economy in presentday

10

The introduction of Liberalization, Privatization,
and Globalization in the year 1991 is called the
LPG reforms . These reforms revolutionized the
Indian economy by setting up a platform for
accelerated development in the following
decades.

Manmohan Singh, who eventually became the
13th Prime Minister of India and someone still
alive today, helped to enforce the LPG reforms
despite experiencing heavy backlash during his
time as the Finance Minister of India.

11

CHAPTER 2
Sectors Of An
Economy

12

Classification Based on
the Nature of Activities

Generally, an economy is divided into three main
Sectors of work :
1) Primary sector
2) Secondary sector
3) Tertiary sector
These classifications are based on the nature of
the activities involved in an economy. All three
sectors of the economy are
,
meaning they depend upon one another.

interdependent

13

The Primary Sector

The primary sector is also called the
.
is mainly concerned with
the extraction and production of raw materials.
Some of the common activities of the primary
sector include agriculture, mining, and fishing.
This sector, generally, tends to employ a large
proportion of the workforce in developing
countries. Because India is also a developing
country, it has one of the largest primary sectors
in the world with more than 40 percent of the
total workforce of the country engaged in
primary sector activities -- this is well over
millions of people.

Even when a large section of the workforce is
engaged in the primary sector, the output of the
primary sector is relatively very low. The
primary sector contributes to only around 16% of
the total
of India. This low contribution
indicates the ineffective utilization of the
workforce and inadequate
of the primary sector, which is a widespread
problem in most developing countries.

What is GDP?

GDP is the total
value of goods and
services produced by
an economy over a
specified period of
time.

14

India has shown huge amounts of output through
agriculture, but the country lags behind others in
terms of YIELD the amount of a specific crop
that can be produced on a unit of land. If India
had the same yield as China, India could easily
surpass China in agricultural production.
In India, the number of people engaged in the
primary sector is gradually decreasing. This
process is due to people preferring to work in the
secondary and tertiary sectors.

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16

The Secondary Sector

The secondary sector is called the i n d u s t r i a l
sector . It consists of industries that convert raw
materials into finished and usable products. The
major industries that make up the secondary
sector of India include iron industries, steel
industries, textile industries, cement industries,
paper industries, petrochemical industries, and
automobile industries. Because of its large
number of industries in the secondary sector,
India is globally ranked 3 r d in the list of
countries with the highest industrial output as of
2019. There are only two countries with a higher
industrial output than India, which are China and
the United States at the 1st and 2nd position
respectively.

The secondary sector takes inputs from the
primary sector and processes them to create
finished goods that are ready to be sold in the
market. In this process of manufacturing goods
and products, the secondary sector gives a
significant value addition to the raw materials.
The secondary sector contributes to around 25%
percent of the total GDP of India. This puts it at
second, in terms of sectors, in its contribution to
India's GDP. Also, about 26% of the total
workforce is engaged in the industrial sector.

WHEAT
(Rs 23/kg)

WHEAT FLOUR
(Rs 57/kg)

1 kilogram of raw wheat costs 23 rupees. This wheat
is processed to get wheat flour. The cost of 1
kilogram of wheat flour is 57 Rupees. The industrial
processing of the wheat to get wheat flour increased
its value.
Value addition is the process by which the net value
of raw materials is increased by industrial processing.

17

The industrial sector contributes to a major part
of the exports of India. The exports of India
generate significant revenue for the country,
which places India at 13th place in the list of
countries having the highest export value as of
2020.
The industrial sector is also a vital part of the
Indian economy. In its post-independence period,
India took rigorous industrailization measures
to create such a wide industrial sector. The
effects of India's industrialization methods
during the LPG reforms can be seen evidently in
the progress of its industrial sector in modern
day.
Industrialization is the process
of transitioning a society from
agriculture-based to industrybased. The process generally
includes heavy mechanization
and often results in extensive
pollution.

18

19

The Tertiary Sector

The tertiary sector is also known as the s e r v i c e
s e c t o r and is the final sector of the Indian
economy. Specifically, the tertiary sector
specializes in the production of services rather
than goods. Some of the most common tertiary
sector activities include banking, transportation,
and marketing. India, still growing its tertiary
sector exponentially, is ranked 10th globally for
the highest output in regards to it as of 2020. In
recent years, India's tertiary sector has become
the fastest-growing sector in the Indian economy
because it typically offers the most opportunities.

20

While the tertiary sector does not produce any
products itself, it aids production from the
primary and secondary sectors. This feature of
the tertiary sector often turns out to be really
useful. For example, transportation services in
India help farmers get their products to market
before they spoil. Another example is delivery or
carrier services helping deliver industrial
products to the doorstep of customers, thereby
making it easy for a consumer to access a
product. In these and in many other cases, the
tertiary sector proves to be a vital part of the
economy and the other two respective sectors.

21

The tertiary sector occupies the most GDP
contribution among all the three sectors by
contributing to more than 50% of the total GDP
of India. The tertiary sector also gives
employment to around one-third of the total
workforce of the country.
The tertiary sector is attracting more and more
people in recent years, which is causing a
significant portion of the workforce to shift from
the primary and industrial sectors to the tertiary
sector. This attraction to the tertiary sector gives
a boost to the process of urbanization .
Urbanization is the
movement of people from
rural to urban areas

22

Quinary and
Quaternary sectors
The quinary and quaternary sectors are not
considered to be traditional sectors of the
economy. Modern economists suggest that the
traditional tertiary sector can be further divided
into the quinary sector and the quaternary sector.
The quinary sector deals with human resources
and services. Activities such as government,
charity, and consultancy are included in the
quinary sector.

23

The quaternary sector, on the other hand, is
comprised of research and knowledge-based
activities. Specific components of the economy
that deal with the quaternary sector are research
and development, information, technology, and
education. The development of this sector is
rapid in recent times and has seen an exponential
increase in investment and output.

24

Classification Based on
Ownership
An economy can be classified into two different
sectors of ownership :
1) Public sector
2) Private sector
This classification is based on the ownership of
the enterprises. These two differ in a number of
key aspects and have their own respective
strengths and weaknesses in an economy.

The largest public sector company in India is
Indian Oil Corporation LTD, which had revenue
of $77.6 billion dollars in 2018. On the other hand,
the largest private sector company is Quess Corp,
a company that is dedicated to providing
technological and business-related services, which
made $12.19 billion dollars in 2019.

25

The Public Sector

The public sector is also known as the s t a t e
s e c t o r . It comprises the sections of the
economy associated with enterprises and services
that are controlled by the state. This also includes
the services provided by the government such as
health care, public transport, education, military,
and law enforcement. The public sector is funded
through taxation, and the decision-making
authority of the sector is held by the state. It is
organized at three levels: national, regional, and
local, managed by the central, state, and local
governments respectively.

26

A state-owned enterprise in India is called a
public sector enterprise or a
. In 1951, a newly independent
Indian economy had only 5 public sector
enterprises. The number has now increased to
.
The public sector undertakings are generally
more stable than their private counterparts since
they are funded by the government; as a result,
the public sector undertakings provide a stable
form of employment. Many employees find this
job security appealing and are attracted to the
public sector because of it. The not-for-profit
nature of the public sector undertakings also
provides a less stressful environment for
employees, eliminating the pressure of missing
targets.

27

The Private Sector

The private sector, also known as the
, is comprised of enterprises owned by
private groups rather than the government. Being
owned by private groups, private sector
enterprises often receive better incentives than the
public sector companies and, as a result, are more
efficent. In India, this efficiency has allowed the
private sector to contribute to 2.2% of the total
nominal GDP amount in 2018.
Some examples of privately-owned companies in
India are Satyam Computer Services Ltd. and
Tata Consultancy Services (TCS).

28

CHAPTER 3
India At The
International Stage

29

Import and Export

are goods and services purchased
from another country while
are
goods and services provided to another country.
Imports and exports form
an important part of the global
economy because they allow for
the exchange of both capital and
ideas, which can lead to economic
growth in many countries. For
example, Country A might possess
a product (e.g Chinese Bamboo) that Country B
can not produce but needs in high demand.
Country A could trade with Country B, making a
handsome profit while Country B gets a high-indemand product to use or sell. This process helps
both economies grow.

India is one of the biggest exporters in the world,
exporting goods and services worth around $569
billion USD in 2019. Eventually, India's massive
exportation throughout the years has given it the
13th place slot as of 2019 in the list of countries
having the highest overall export value. In India,
specifically, exports contribute to around 19% of
the total GDP of the country. To accomplish this
large contribution towards the GDP, India
mainly exports to wealthy countries and nations
like The United States, United Arab Emirates,
China, Hong Kong, and Singapore. India's
exports include a wide range of products such as
jewelry, refined petroleum, agricultural products,
and coal.

30

31

In particular, India's imports come from five
major countries: China, The United States, Saudi
Arabia, United Arab Emirates, and Iraq. These
imports primarily consist of mineral fuels,
precious and semi-precious stones, machinery,
and other equipment. Because of its heavy
reliance on imports, India stands at the l0th
position in the list of countries having the highest
import value as of 2019.

Balance of Trade is the difference between the
values of exports and imports of a country over a
specified period of time. A positive trade balance
is termed as a Trade surplus and a negative
trade balance is termed as a Trade deficit.

32

International Relations

India has a healthy relationship with several
countries in the developing world, something
very important for countries as it can foster
valuable trade relations and, as such, economic
growth and development. Specifically, India is
an active member of a number of global
groupings such as The United Nations, BRICS,
and SAARC . India has also signed bilateral and
multilateral trade alliances and strategic
partnerships with several other countries like
Japan, Afghanistan, and Chile.

33

India is also an active participant in international
trade, becoming an avid member of the World
Trade Organization (WTO) since its formation
on January 1st, 1995. During its time in the
WTO, India has begun to become an even
greater exporter and importer of goods, leading
the WTO to rank it fifth in the list of countries
having the highest commercial exports and fifth
for the highest commercial imports as of 2017
(The European Union is counted as one entity)
The major trading partners of India
include the United States, China,
UAE, Saudi Arabia, and Switzerland.
Countries having India as their major trading
partner include Bhutan, Nepal, and Afghanistan.
These countries have Indian involvement in the
majority of their imports and exports.

34

WORLD TRADE ORGANIZATION (WTO)
What is it?
The World Trade Organization, founded in
January 1st, 1995, is a global institution whose
main responsibility is regulating international
trade.

Who is apart of it?
The WTO has over 160 member countries. Some
big players in the WTO include China, India, the
United States, and the United Arab Emirates.

Why is it important for India?
The WTO has the power to affect Indian
commercial policies and India's economy. Also,
by joining the WTO, India took a big step
towards its globalization.

35

Foreign Investment

Foreign Investment is at the heart of India's
economy. A major part of foreign investment is
.
FDI is an investment made by a firm or
individual in one country into business interests
located in another country. To simplify, an
example of FDI would be a person in America
buying a company or asset in India in hopes of
future profits. Foreign Direct Investment
accounts for a total of 1.76% of India's GDP as
of 2019.

36

Compared to other nations, India receives a huge
amount of Foreign Direct Investment each year
with continuous growth. Mainly, this is due to
India being a large emerging market that many
investors see potential in. As such, India is
ranked
in the top 20 host economies for
FDI investment as of 2019. In 2017, India had an
FDI of $39.96 billion dollars. The FDI, in just
two years, increased to $50.61 billion dollars,
showing India's tremendous investment growth.
Most of India's FDI goes to its service industry,
which is excepted to boom in the coming years.
Another part of foreign investment, similar to
FDI, is FPI or Foreign Portfolio Investment .

FPI or Foreign Portfolio
Investment is securities and
other financial assets like
stocks and bonds held by
investors from one country in
another country.

37

Exchange Rates

The Indian rupee has an EXCHANGE RATE
with all the other currencies in the world such as
the dollar, yen, peso, and euro. An exchange rate
is a rate by which one quantity of a currency can
convert into another quantity of a currency. In
India's case, the exchange rate for the rupee is
how much one quantity of another currency can
turn into a specific amount of rupees. For
example, the exchange rate of USD to rupees is
$1 = ₹72.98 as of 2021. The US dollar, because
of its internationally recognized status, is also
considered a world currency , meaning that it
can be transacted internationally.

₹72.98
$1

38

A currency in one country is worth more than
another because of its supply and demand. This
is why the Indian rupee (₹), for example, is
worth less than the US dollar ($). Under a
floating exchange rate , which is used by
most developed countries in the world, a
currency's value is defined strictly by its supply
and demand in the foreign exchange market.
Because there is a high supply of the rupee and
not a high demand for it, the rupee has a low
exchange rate compared with other currencies.
On the other hand, the US dollar is higher in
demand due to the capital behind it and does not
have an excessive supply, leading it to have a
higher exchange rate in the foreign exchange
market. As such, when rupees are exchanged
with USD more rupees are required per USD for
the transaction to be considered equivalent (as
seen in the 2020 foreign exchange market).
₹

39

A f i x e d e x c h a n g e r a t e is an exchange
rate where the value of one currency in respect to
another stays the same. For example, as of 2021,
the Danish Kroner has a fixed value with that of
the European Euro at a rate of 1€ = 7.44 Kr. The
value of the Danish Kroner to the European Euro
can move slightly, but it will always remain
stable at the exchange rate, which is why the
Danish Kroner's exchange rate with the European
Euro can be considered as fixed. Fixed exchange
rates such as the Danish Kroner to the European
Euro are extremely important because they
provide certainty to investors and international
traders looking to make a profit. Specifically,
India's exchange rate with most countries is
floating and not fixed.

1€ = 7.44 Kr

40

Constant Money Supply

On the international and domestic stage for any
country, there is always a need for a c o n s t a n t
money supply , including India. This is because
overtime demand is always increasing. As time
progresses, more people begin to perform
transactions on the international and domestic
stage, meaning that there is a constant need for
new money to be printed in order to compensate
for this demand. For example, if India was using
20 million rupees to buy exports in 2020, then in
2021, it might need 25 million rupees because
there is an increase in the buying of exports,
which occurs because of a greater number of
people and thus demand in the country.

CHAPTER 4
Demographics

41

42

Population

India has the second-largest population in the
world with more than 1.36 billion people living
in the country as of 2019. By 2027, this
population in India is expected to surpass that of
China. The
of India looks
promising for economic development in the
upcoming decades. This is because India has the
largest youth population in the world.

Demography is the statistical study of the
different aspects of human population such as size,
composition, birth rate, death rate, population
change, and population distrubution. A person who
studies human population is called a
Demographer.
Did you know? India's population
exceeded that of the entire continent of
Africa by 200 million people in 2010.

43

India has over 50 percent of its population under
the age of 25 as of 2018. This population will
turn out to be the working population in the next
few years, which, in the next few decades, could
accelerate the economic growth of India
drastically through this workforce expansion.

QUICK FACTS
1) IN 2020, MORE THAN 65% OF THE
PEOPLE IN INDIA LIVE IN RURAL AREAS.
2) THE MEDIAN AGE IN INDIA IS 28.7
YEARS OLD AS OF 2020.
3) THE POPULATION GROWTH RATE OF
INDIA IS 1.0% IN 2019.
4) THE LITERACY RATE OF INDIA IS 77.7%
IN 2017.
5) INDIA IS EXPECTED TO OVERTAKE
CHINA AS THE MOST POPULOUS COUNTRY
BY 2027.

44

Indian Workforce

The legal working age in India is 15 years. The
of India is defined as
individuals aged between 15 - 64 years old. The
part of the population that does not fall under this
age range is called the
.
There are more than 470 million workers in India
as of 2020, which constitutes the second largest
workforce after China. The age dependency
r a t i o in India is 49.25% (2019). This means
around half the population is considered the
working-age and the other half are dependents.

Age Dependency ratio is the ratio of dependent population
(15 or younger and 64 or older) to the working age
population. It is used to measure the pressure on the
workforce.

45

Based on the nature of employment, enterprises
can be categorized into two sectors: the organized
sector and the unorganized sector.

The Organized Sector:
The organized sector or the formal sector refers to licensed
organizations, that is, those who are registered and pay GST. These
include publicly traded companies, incorporated or formally
registered entities, corporations, factories, shopping malls,
hotels, and large businesses.

The Unorganized Sector:
The unorganized sector or the informal sector refers to all the
unlicensed, self-employed, and unregistered organizations. These
include general stores, the handicraft industry, and small farms.

46

More than 93% of the Indian workforce is part of
the unorganized sector (2019). The unorganized
sector has low productivity and offers low wages
for its workers. Even though it consists of 93%
of the workforce, the unorganized sector
accounted for only 57% domestic production in
2006.
The organized sector, on the other hand, has high
productivity. It consists of developed enterprises.
Employees of the organized sector are financially
stable compared to their counterparts in the
unorganized sector.
Every year about 13 million people enter the
labor pool in India; however, due to the limited
availability of jobs in the organized sector, many
people are forced to take up work in the
unorganized sector.

47

Unemployment

is when individuals
in the workforce are not in a form of paid
employment or self-employment and are looking
for a job. A shipping clerk who does not have a
job and is looking for employment is an instance
of unemployment. Unemployment can lead to a
lot of problems for nations, including large
countries like India, the United States, and
China. Problems of unemployment include an
increase in poverty levels, an increase in suicide
rates, and a general increase in emotional
instability in a country—all of which can cause
further negative effects for a country.

48

Migration Rates

There are two main types of migration:
. Emigration
is defined as people leaving a country
to settle somewhere else while
immigration is defined as people
entering a country to settle. India
has a very high immigration rate that has been
steadily declining in recent years. Mainly, India
gains a large number of its immigrants from
countries nearby such as Bangladesh, Nepal, and
Pakistan. India also has a very high emigration
rate. Specifically, most Indians emigrate to more
developed nations like the US, Canada, Britain,
and Australia. Too much Indian emigration can
cause problems for India such as loss of talent,
labor, and skill. On the other hand, too much
immigration to India can also cause problems
like starvation and the scarcity of resources.

49

Workforce Engagement

India has a workforce of about 470 million
people and growing (2020) India's labor
workforce engagement can be broke down into 3
main industries:
1) Agricultural activities
2) Manufacturing
3) Wholesale, retail trade, and
hotels and restaurants
These industries or sectors are the backbones of
the Indian economy and India's
. Even slight impairments in
any of these three industries can sustainably
damage the Indian economy as a whole.

50

Roughly, 244 million people are employed in the
agricultural activities industry of India,
positioning it at first place in terms of worker
engagement for the country as of 2001.
Manufacturing has the second most worker
engagement with about 50 million people (2001).
And, lastly, the wholesale, retail trade, and hotels
and restaurant industry is 3rd, employing
approximately 29 million people as of 2001. The
rest of India's workforce serves in other
industries like construction and mining.

Typically, well-educated Indians, shown through recent
migration trends, are attracted towards higher pay and
standards of living present in countries other than India. As
a result, many well-educated Indians migrate to countries
like the U.S, Canada, or Australia. This concept has come
to be referred to as

.

51

CHAPTER 5
Growth and Development

52

Inflation and Deflation
is the general increase in prices of a
particular country over a period of time. Inflation
leads to a decrease in purchasing power—which
means money can not buy as much as it could
previously. In 2013, India had an inflation rate of
10.90%, which means that a piece of bread that
was ₹10 when India's inflation rate was 0%
would now cost ₹11.22. Since the price of bread
has increased, someone having only ten rupees
would no longer be able to buy a piece of bread,
which is why the purchasing power has
decreased. This example just shows a small
effect of inflation, but inflation can also
compound over time, causing huge problems for
a country long-term.
Inflation

Before

₹10.00

After

₹11.09

is the general decrease in prices of
a particular country over a period of time and is
the opposite of inflation. Deflation leads to an
increase in purchasing power—which means
money can buy more than it could previously.
After India's inflation rate rose to 10.90%,
deflation began to occur steadily, lowering the
inflation rate to eventually 7.66% in 2019. This
means a bread that was ₹11.09 at the 10.90%
inflation rate would now only cost ₹10.03 at an
inflation rate of 7.66% because of the deflation
that occurred. As such, a person with ₹10.03
after the deflation will now be able to buy the
bread that he was not able to before deflation,
which is why the purchasing power has
increased. Overall, both inflation and deflation
work systematically to help increase or decrease
the price of goods as well as purchasing power.
Deflation

Before

₹11.09

After

₹10.03

53

Causes of Inflation and
Deflation

Inflation and deflation both run on the concept of
. This concept is important
because a government can use the supply and
demand of money to cause both inflation and
deflation within a country. For example, the
Indian government can cause inflation by
printing out more money and increasing the
money supply, which will lead to more consumer
spending and higher prices on goods. The Indian
government can also cause deflation by doing the
reverse of this process, which would decrease
consumer spending and lead to lower prices on
goods, meaning money is able to buy more than
it could previously.

54

55

Nominal and Real GDP

G D P , also known as Gross Domestic Product, is

the market value of all final goods and services
created by a specific nation or region during a
particular period of time. For example, if a
country had three people living in it and each
person manufactured a pair of shoes worth ₹10
in a year. The GDP of the country would be ₹30
—the total market value of the three pairs of
shoes—for that year.

₹30 Total

Country

Total GDP

56

In economics, there are two types of GDP:
Nominal and Real. The
is the
GDP that includes inflation within its value. As
of 2019, India has the 5th highest Nominal GDP
in the world. On the other hand, the
does not include inflation in its value. As
such, if a country has inflation, then the Nominal
GDP will be greater than the Real GDP. For
example, if a country with a 3% inflation rate,
compared its Nominal GDP to its Real GDP,
then the Nominal GDP would be 3% greater.
Because it adjusts for inflation, the Real GDP
shows the actual expansion or contraction of
goods and services in a country. The more the
Real GDP is growing year-to-year, the better the
living standards, job opportunities, and the
number of products produced for the people of
that country.

Real GDP Growth

Economic Growth

57

PCI and HDI

PCI

is the per capita (per person) income of a
specific region or country at a specific point in
time. It is one of the three factors that are taken
into account in the Human Development Index
(HDI). India ranks 142nd in terms of per capita
income globally with a PCI value of ~$2,120 as
of 2020. The PCI of the world in 2020 is
~$11,566, approximately 5.5 times higher than
India's PCI. Even though India is projected to be
the fifth-largest economy in the world, due to its
huge population, it has a considerably low PCI.

PCI =

Total income in a region
Total population in a region

58

HDI , the Human Development Index, is a scale

that takes into account the life expectancy,
education, and per capita income (income per
person) of a region to rank it into one of four
tiers: low, medium, high, very high. The HDI is
useful because it is a great indicator of the wellbeing of a country and its people. Particularly,
India is in the m e d i u m tier, in terms of HDI,
with an HDI value of 0.645 as of 2019. Because
of its HDI value, India ranks 1 3 1 s t in the world
for the highest HDI. In 1999, India's HDI value
was 0.429, showing that it has begun to progress
as a developing country in increasing its average
life expectancy, education level, and per capita
income throughout the years.
HDI of India
~ Value of 0.645
~ Medium Tier
~ Ranked 131st

59

Boom and Bust Cycles
.
are
economic cycles of growth and recession that all
countries go through. In a boom and bust cycle,
first, an economy will experience rapid growth
(
). This could be due to a variety of
factors like increasing profits from stocks, which
in turn increase people spending. After an
economy grows, which is called expansion, it
may suffer from overinvesting and fear, causing
it to
and decrease in economic growth for
the next couple of years. This process will then
repeat, depending on the situation. Typically,
these boom and bust cycles are watched through
the consistent rise or fall of GDP in a certain
country. PCI = Total income in a region
Total population in a region

Boom
Bust

60

India has gone through various boom and bust
cycles over its time as both a country and an
economy. A prime example of one of India's
recent boom and bust cycles started in 2003.
From 2003 to 2008, India grew rapidly
experiencing a growth rate of 9% each year. This
was mainly due to a growing technology sector
in India, which exported more and more goods.
At this stage, India was prospering and its
economy was doing as good as ever (boom).
After 2008, however, India's economy started to
decline due to external factors, marking the start
of its bust. India's bust ended in 2013, and now,
India has entered the start of another cycle.

61

Growth & Development

is a positive numerical
change in the output of an economy over a
specified period of time. Because of this,
economic growth is measured as a percentage of
change in a country's Real GDP, which directly
shows the output and production of a country.
For economic growth to occur, the government
of a country does not necessarily have to
intervene. Economic growth is rather a natural
process done by a country's citizens over time.

In 2019, the country with the highest economic
growth rate was a South-East Asian country
called Timor-Leste and the lowest economic
growth rate was the Northern Mariana Islands, a
series of islands in the Pacific Ocean. India
ranked in the 65th spot for the highest economic
growth rate in 2019.

62

, on the other hand, is
considerably different from economic growth.
Economic development is a qualitative, nonnumerical change that results in well-being for
the people living in a country as a result of
economic growth. Economic development
cannot be quantified by just any measure, but it
can be seen through increases in per capita
income (PCI), living standard, and the overall
well-being of citizens in a country—or, in other
words, an increase in HDI. Government
intervention is crucial for economic development
because it involves increasing these qualitative
factors of society. Without a government using
the money they gain for the betterment of society
(making buildings or adding jobs) economic
development does not occur.
Economic Growth
1) Quantitative
2) Natural Process
(The people)

Economic Development
1) Qualitative
2) Structured Process
(The government)

63

Infrastructure Development

Due to its boom in economic activity as shown by
a consistent increase in Real GDP (8% increase in
2015 alone), India has begun investing in its
infrastructure.
is the facilities
and structures that are needed for the operation of
a society. Specifically, India has invested $15.437
billion in
. (2018-2019), $1.4
trillion dollars in
. (2019-2020), and is
going to invest $1.83 trillion in
by
2026. This infrastructure has helped spark greater
economic activity in India by allowing for faster
transportation, mass delivery, and an increased
number of jobs.

AVIATION

64

Prospective Growth for India

The prospective economic growth for India after
the year of 2020 is very positive. India is
expected, per the International Monetary Fund
(IMF), to become the
largest economy by
2034. India is also expected to have a rebound
growth of
real GDP in 2021, after
coming back from the COVID-19 pandemic's
economic turmoil and another
real GDP
growth in 2022. Industries in technology,
automotive, financial services, and infrastructure
are also planned to boom in India in the coming
years, increasing the number of job opportunities
for Indians and the economic growth of the
country as a whole.

65

India's economy is planned to surge for a variety
of reasons. Because ONE-FIFTH of the workingage population in the world will be Indian by
2025, India will have a huge labor workforce,
which will help to increase the overall output of
the country as a whole. India's FDI, Foreign
Direct Investment, per economists, is also
expected to increase to $70 BILLION as of the
year 2022. This increase in foreign investment
will help in the development of even more new
businesses, which will further increase job
opportunities for many Indians. In turn, this
process will lead to an increase in production
(more products produced), meaning an even
larger increase in economic growth for India.
FDI

Population

India

CHAPTER 6
COVID-19 and its impacts
on the Indian Economy

66

67

Unemployment Rates

India's unemployment plummeted drastically in
2020 due to COVID-19 . As the pandemic hit India
around March of 2020, many businesses were
forced to close down as governmental
restrictions, meant to limit the spread of the
virus, were enforced. This process led many
Indian workers to lose their jobs for two main
reasons: first, businesses were not able to make
the switch to remote working, and, second, a
decrease in consumer demand, caused by the
pandemic, led to decreased company revenues
and therefore layoffs. These layoffs and lost jobs
drastically increased the unemployment rate of
India and, in the process, crippled its economy
throughout 2020.

68

Statistically, unemployment in India skyrocketed
in 2020. Before the pandemic, India's
unemployment rate varied around 7.7% . At the
height of the pandemic, however, India's
unemployment
rate
jumped
to
a
staggering 22.5% . This unemployment rate
was shown through an increase in starvation,
depression, and suicide along with a decrease in
economic growth rate (as many products stopped
production) for India as a whole. Although this
situation was very dire for India, the country
began to see a reduction in its unemployment
rate, as of 2021, which are signs of its resilient
economy.
Even though the United States has over 2.4 times
the amount of COVID-19 cases than India, the
expected GDP of the United States was set to
decrease only 32.9% compared to India's 40% as
Meghalaya has the lowest unemployment rate among
a result of the pandemic. This is just one sign of
Indian states while Haryana has the highest
the United States advanced and developed
unemployment rate. New Delhi, India's capital, finds a
economy.
place closer to Meghalaya on the list with an
unemployment rate of 6.6% as of November 2020.

69

Indian GDP Crisis

The COVID-19 pandemic did not only just affect
India's unemployment rates in 2020, but also led
to a drastic decline in its GDP, the total market
value of all the final goods and services produced
in India in a given year. As a result of the high
unemployment rate, production in the primary,
secondary, and tertiary sectors all plummeted
drastically. Lower production in turn resulted in
less products, which lead India's GDP to
decrease by 10% due to COVID-19.

70

Not only did the lower production rate in India
cause a sharp decline in the GDP, but also the
decreasing consumer demand had an impact as
well. Consumer demand largely determines GDP
because if there are no consumers willing to buy
a product, the product is not going to be
produced. It has been calculated that consumer
demand accounts for
of India's GDP
(2018), meaning that it affects the GDP severely.
Because of COVID-19, consumer demand .
in India decreased exponentially due to
lockdowns and fear. As such, consumers buying
less, made suppliers produce less and resulted in
the lower GDP India had in 2020.

Even though the United States has over 2.4 times the
amount of COVID-19 cases than India, the expected
GDP of the United States was set to decrease only
32.9% compared to India's 40% as a result of the
pandemic. This is just one sign of the United States
advanced and developed economy.

71

FDI Changes
COVID-19 also affected the amount of Foreign
Direct Investment (FDI) India received in 2020.
As the country dealt with the pandemic, many
investors became concerned about India's future.
The uncertainty about the generations to come in
India's economy resulted in a lower FDI increase
than previously expected. Compared to India's
pre-pandemic projected FDI at the time, the FDI
became forecasted to increase by only
because of the pandemic. For India, this
occurrence was bad news and would hurt the
economy in the long-term. Particularly, India's
manufacturing and service industries, which
typically get most of their funding from FDI,
were the hardest hit

72

Changes in Economic Plans
In order to combat the drastic effects of COVID19 of 2020, India responded by launching a
2 0 - t r i l l i o n rupee stimulus package. This
package hoped to mitigate the effects of the virus
by helping low-income households deal with
unemployment issues during the lockdown and
to stabilize the crippling market economy. India
also made ₹374,000 crores available from
the Reserve Bank of India, the regulatory body
of all other banks of India, to be used for the
country's financial system, ensuring economic
stability throughout 2020 and the years that
followed. Lastly, India has begun to invest in
highly risky and unrisky assets in order to ensure
that the Indian economy is safe from recessions.
How did India
handle COVID-19?

A-1

Definitions of Key Terms

A-1

Key Terms

*Bolded terms assumed as prior-knowledge not included

A
Age Dependency Ratio - the ratio of the dependent
population (15 or younger and 64 or older) to the
working-age population
Agricultural Sector - a sector of work mainly
concerned with the extraction and production of raw
materials
Aviation - relating to mechanical flight and the
aircraft industry

B
BRICS - an acronym for the five major emerging
economies in the world: Brazil, Russia, India, China,
and South Africa
Boom and Bust Cycles - economic cycles of growth
and recession that all countries go through
Brain Drain - the emigration of highly trained or
intelligent people from a particular country

C
COVID-19 - a respiratory virus that occurred in
2020 C.E - 2021 C.E

A-2

Citizen Sector - a sector comprised of enterprises
owned by private groups rather than the government.
Consumer Demand - the amount of demand for
goods by consumers in a specific country

D
Deflation - the general decrease in prices of a
particular country over a period of time and is the
opposite of inflation.
Demographer - a person who studies human
populations
Demography - the statistical study of the different
aspects of the human population such as size,
composition, birth rate, death rate, population
change, and population distribution
Dependent Population - individuals not aged
between 15 - 64 years old

E
Economic Development - a qualitative change that
results in well-being and better quality of life for the
people living in a country

A-3

Economic Growth - a positive quantitative change
in the output of an economy over a specified period
of time
Emigration - the process of leaving one's country to
permanently go live in another
Exchange Rate - a rate by which one quantity of a
currency can convert into another quantity of a
currency
Exports - exports are goods and services provided
to another country

F
Fixed Exchange Rate - an exchange rate where
Floating Exchange Rate - an exchange rate that is
constantly changing based upon foreign exchange
markets
Foreign Direct Investment (FDI) - an investment
made by a firm or individual in one country into
business interests located in another country
Foreign Portfolio Investment (FPI) - securities and
other financial assets like stocks and bonds held by
investors from one country in another country.

A-4

G
GDP - the total value of goods and services
produced by an economy over a specified period of
time
Globalization - refers to the widespread
international movement of goods, capital, services,
technology, and information

H
HDI (Human Development Index) - a scale that
takes into account the life expectancy, education,
and per capita income of a region to rank it into one
of four tiers: low, medium, high, very high

I
Immigration - the action of coming to live
permanently in a foreign country
Imports - goods and services purchased from
another country
Indus Valley Civilization - a civilization created
during the start of humanity in India (c. 3300 – c.
1300 BCE)

A-5

Industrial Sector - a sector of the economy with
industries that convert raw materials into finished
and usable products
Industrialization - the growth of industries,
companies, and businesses, mainly related to
mechanization and technology, in a country or
region on a wide scale.
Inflation - the general increase in prices of a
particular country over a period of time
Infrastructure - the facilities and structures that are
needed for the operation of a society.

L
Liberalization - refers to fewer government
regulations and restrictions, mainly on economic
activities

M
Mechanization - the process of adding machines
and industrial usage to make something more
efficient
Mughal Ages - a time period during which the
Mughal empire, known for intolerance and trading,
controlled India

A-6

Multi-National Companies (MNCs) - companies
that work in more than one nation

N
Nominal GDP - a measurement of GDP that does
not adjust for inflation within its value but rather
includes it

P
PCI (Per Capita Income) - the per-person income
of a specific region or country at a specific point in
time
Privatization - the shift in ownership of enterprises
from the state to private owners
Public Sector Undertaking - a state-owned
enterprise in India

R
Real GDP - a measurement of GDP that adjusts for
inflation within its value

S
SAARC - the regional intergovernmental
organization and geopolitical union of states in
South Asia

A-7

Sectors of Ownership - a classification based on the
ownership of an enterprise
Service Sector - specializes in the production of services
rather than goods
State Sector - the sections of the economy associated
with enterprises and services that are controlled by the
state
Supply and Demand - an economic concept where the
price of any good is determined by the number of people
willing to sell and buy at specific prices.

T
The United Nations - an intergovernmental organization
that aims to maintain international peace and security as
well as develop friendly relations among nations.

U
Unemployment - when individuals in the workforce are
not in a form of paid employment or self-employment
and are looking for a job
Urbanization - the movement of people from rural to
urban areas

A-8

V
Value Addition - the increase of value to a specific
good or material after it is processed to the second
phase of its production or manufactured

W
Workforce Engagement - the fields of work that
workers are engaged in
Working-Age Population - the individuals aged
between 15 - 64 years old
World Currency - a currency that can be transacted
internationally.
World Trade Organization (WTO) - a global
institution whose main responsibility is regulating
international trade.

Y
Yield - the amount of a specific crop that can be
produced on a unit of land the value of one currency
in respect to another relatively stays the same

B-1

Citations and Sources Used

References

B-2

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"An economist is an expert who will know tomorrow why the things he
predicted yesterday didn't happen today"
LAWRENCE J PETER