Until 1991, all Indian governments followed protectionist policies that were influenced by socialist economics. Widespread state intervention and regulation caused the Indian economy to be largely closed to the outside world. After an acute balance of payments crisis in 1991, the nation liberalised its economy and has since continued to move towards a free-market system, emphasizing both foreign trade and investment.Consequently, India's economic model is now being described overall as capitalist.
With 467 million workers, India has the world's second largest labour force. The service sector makes up 54% of the GDP, the agricultural sector 28%, and the industrial sector 18%. Major agricultural products include rice, wheat, oilseed, cotton, jute, tea, sugarcane, and potatoes. Major industries include textiles, telecommunications, chemicals, food processing, steel, transport equipment, cement, mining, petroleum, machinery and software. By 2006, India's external trade had reached a relatively moderate proportion of GDP at 24%, up from 6% in 1985. In 2008, India's share of world trade was 1.68%; India was the world's fifteenth largest importer in 2009 and the eighteenth largest exporter. Major exports include petroleum products, textile goods, jewelry, software, engineering goods, chemicals, and leather manufactures. Major imports include crude oil, machinery, gems, fertiliser, chemicals.
Averaging an economic growth rate of 7.5% during the last few years, India has more than doubled its hourly wage rates during the last decade. Moreover, since 1985, India has moved 431 million of its citizens out of poverty, and by 2030, India's middle class numbers will grow to more than 580 million. Although ranking 51st in global competitiveness, India ranks 17th in financial market sophistication, 24th in the banking sector, 44th in business sophistication and 39th in innovation, ahead of several advanced economies. With 7 of the world's top 15 technology outsourcing companies based in India, the country is viewed as the second most favourable outsourcing destination after the United States. India's consumer market, currently the world's thirteenth largest, is expected to become fifth largest by 2030. Its telecommunication industry, the world's fastest growing, added 227 million subscribers during 2010–11. Its automobile industry, the world's second-fastest growing, increased domestic sales by 26% during 2009–10, and exports by 36% during 2008–09.
Despite impressive economic growth during recent decades, India continues to face socio-economic challenges. India contains the largest concentration of people living below the World Bank's international poverty line of $1.25/day, the proportion having decreased from 60% in 1981 to 42% in 2005. Half of the children in India are underweight, and 46% of children under the age of three suffer from malnutrition. Since 1991, economic inequality between India's states has consistently grown: the per capita net state domestic product of the richest states in 2007 was 3.2 times that of the poorest. Corruption in India is perceived to have increased significantly, with one report estimating the illegal capital flows since independence to be US$462 billion. Driven by growth, India's nominal GDP per capita has steadily increased from U$329 in 1991, when economic liberalization began, to US$1,265 in 2010, and is estimated to increase to US$2,110 by 2016; however, it has always remained lower than those of other Asian developing countries such as Indonesia, Iran, Malaysia, Philippines, Sri Lanka, and Thailand, and is expected to remain so in the near future.
According to a 2011 PwC report, India's GDP at purchasing power parity will overtake Japan's during 2011 and the United States by 2045. Moreover, during the next four decades, India's economy is expected to grow at an average of 8%, making the nation potentially the world's fastest growing major economy until 2050. The report also highlights some of the key factors behind high economic growth – a young and rapidly growing working age population; the growth of the manufacturing sector due to rising levels of education and engineering skills; and sustained growth of the consumer market because of a rapidly growing middle class. However, the World Bank cautions that for India to achieve its economic potential, it must continue to focus on public sector reform, transport infrastructure, agricultural and rural development, removal of labour regulations, education, energy security, and public health and nutrition.
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