India is the third-largest economy in terms of Gross Domestic Product (GDP) based on Purchasing Power Parity (PPP). India has been one of the fastest-growing economies over the last decade.
The service sector has been driving economic growth in India, accounting for 53.89% of Gross Value Added (GVA) growth (at constant prices), followed by the industry sector with a 29.34% share, and agriculture accounting for 16.38%.7 However, agriculture still has the largest share in employment (approximately 44.3% of the total workforce).8
Many new initiatives have been taken up by the government to facilitate investment and ease of doing business in the country. Some of the noteworthy initiatives are Atmanirbhar Bharat, Make-in-India, Invest India, Startup India, and Digital India, among others. Furthermore, to combat the economic catastrophe of COVID-19, the Government of India announced a stimulus package amounting to INR 21 trillion ( ~10% of India's GDP) to boost economic growth. With a focus to improve the local manufacturing ecosystem, the government also announced Production linked incentives scheme worth USD 26.3 billion across 13 key sectors under Atmanirbhar Bharat.
In recent years, India has implemented a slew of reforms and initiatives aimed at improving the country’s attractiveness to foreign investors. This continues to be the trend as the current business-friendly government's policies9 are expected to accelerate foreign investments in order to:
The growth of India's economy in the latter half of 2019 was held back by sector-specific weaknesses in the automobile, real estate, and banking sectors due to the general weakening of the supply side, as well as slow fixed capital formation. Industrial productivity was further arrested since the beginning of 2020 due to the COVID-19 pandemic, which led to a nationwide lockdown and disruption in supply chains around the world. Recovery post the pandemic was quick, despite the continued social distancing norms. The V-shaped recovery was accompanied by recoveries in the purchasing managers index and manufacturing indices which reached levels of over 50, signaling a quick turnaround post the second wave, whereas in the same period in 2020, the indices were below 50 and as low as 10-20. The new initiatives, policies, and regulations are expected to augment current capabilities with the Indian economy displaying better signs of growth.
Foreign trade: India's services sector registered a growth of 39.9% in exports from USD 208.42 billion in FY 2020-21 to USD 248.28 billion in FY 2021-22.10 India's goods sector also registered a growth of 43.8% in exports from USD 291.81 billion in 2020-21 to USD 419.65 billion in FY 2021-22.11
India's services sector registered a growth of 20.5% in imports from USD 123.37 billion in FY 2020-21 to USD 143.88 billion in FY 2021-22. India's goods sector also registered a growth in imports of 55.1% from USD 394.44 billion in FY 2020-21 to USD 611.89 billion in FY 2021-22. Moreover, GDP is expected to grow at 8% for FY 2022-23. Which will majorly be driven by trade. Moreover, GDP is expected to grow at approximately 8% for FY 2022-23 which will majorly be driven by trade12.
India's top export commodities13 include engineering goods, pharmaceuticals, electronics, petroleum, textiles and apparel, nuclear reactors, boilers, machinery, and mechanical appliances, chemicals, vehicles and parts and accessories, iron and steel, electrical machinery; and cereals. These account for more than 60% of India's exports.
Foreign Direct Investment (FDI): According to UNCTAD's World Investment Report 2021, India is the fifth-most preferred destination for FDI, with growth in FDI inflow over 10% from USD 74.3 billion in 2020 to USD 81.7 billion in 2021.14
From April 2000–December 2021, cumulative FDI inflows into India stood at USD 824.67 billion. FY 2020-21 witnessed FDI equity inflows of USD 59.64 billion, registering a rise of 19% over FY 2019-20 which witnessed USD 49.98 billion in equity inflows.15
From April 2000 to December 2021, cumulative FDI equity inflows from Mauritius stood at USD 154.91 billion, making it the largest source of FDI into India. During FY 2020-21, Singapore was the top investor with USD 15.71 billion16, followed by USA, Mauritius, Netherlands, UAE, Cayman Islands, Japan, France, UK, and Germany.17 It is pertinent to note that some of the key countries mentioned here are favorable jurisdictions to make investments into India.
Considering sector-wise inflows, the computer software and hardware sector attracted the highest amount of FDI in India and accounted for 44% of the total inflows from April 2000–March 2021. In FY 2021-22, the computer hardware and software sector received the highest amount of FDI equity inflows followed by the automobile industry, services, trading, construction (infrastructure) activities, drugs and pharmaceuticals, hotels & tourism, chemicals, telecommunications, and construction development in that order.
2000–March 2020. In FY 2019–20, the services sector continued to receive the highest amount of FDI equity inflows followed by computer hardware and software, trading, telecommunications, hotel & tourism, automobile industry, construction (infrastructure) activities, chemicals, construction development, and the drugs & pharmaceuticals sectors in that order.18
As of April 2022, India's foreign exchange reserves stood at USD 607.3 billion.19