The economy of India followed a socialist-inspired policies for most of its independent history. These included state-ownership of many sectors, extensive regulation, and isolation from the world economy. India's per capita income increased at just around 1% annualized rate in the three decades after the independence. Since the mid-1980s, India has slowly opened up its markets through economic reforms. After more fundamental reforms since 1991 and their renewal in the 2000s, India has progressed towards a market-based system.
In the late 2000s, India's growth has reached 7.5%, which will double the average income in a decade. Analysts say that if India pushed more fundamental market reforms, it could sustain the rate and even reach the government's 2011 target of 10%. States have large responsibilities in setting their policies. The annualized 1999-2008 growth rates for Gujarat (8.8%), Haryana (8.7%), or Delhi (7.4%) were significantly higher than for Bihar (5.1%), Uttar Pradesh (4.4%), or Madhya Pradesh (3.5%). India is the twelfth-largest economy in the world and the fourth largest by purchasing power parity adjusted exchange rates (PPP). On per capita basis, it ranks 128th in the world or 118th by PPP.
Although living standards are rising fast, 75.6% of the population still lives on less than $2 a day (PPP, around $0.5 in nominal terms), compared to 73.0% in Sub-Saharan Africa. Half of children are underweight, nearly double that of Sub-Saharan Africa. In terms of occupation, two-thirds of the Indian workforce earn their livelihood directly or indirectly through agriculture in rural villages. As a proportion of GDP, towns and cities make over two thirds of the Indian economy. Service markets which now enjoy much lighter burden of regulation and other obstacles have been most successful, for instance, communications and world-famous business process services. Textiles are the largest sector after agriculture in terms of jobs.
India's trade has risen from 6% of GDP in 1985 to 24% in 2006, which is still moderate. India's share of world trade is around 1%. Textiles, jewellery, engineering goods and software are major export commodities while crude oil, machineries, fertilizers, and chemicals are major imports.
India's economic liberalization is watched with great interest. If India progresses aggressively, it could eradicate poverty and become a middle-income country in a few decades. The Ease of Doing Business Index of 2008 placed India on the 120th place, worse than any neighboring country. The World Bank suggests that the most important priorities are public sector reform, infrastructure, agricultural and rural development, removal of labor regulations, reforms in lagging states, and HIV/AIDS.
International trade as a proportion of GDP reached 24% by 2006, up from 6% in 1985 and still relatively moderate.
India currently accounts for 1.2% of World trade as of 2006 according to the WTO. Until the liberalisation of 1991, India was largely and intentionally isolated from the world markets, to protect its fledging economy and to achieve self-reliance. Foreign trade was subject to import tariffs, export taxes and quantitative restrictions, while foreign direct investment was restricted by upper-limit equity participation, restrictions on technology transfer, export obligations and government approvals; these approvals were needed for nearly 60% of new FDI in the industrial sector. The restrictions ensured that FDI averaged only around $200M annually between 1985 and 1991; a large percentage of the capital flows consisted of foreign aid, commercial borrowing and deposits of non-resident Indians.
India's exports were stagnant for the first 15 years after independence, due to the predominance of tea, jute and cotton manufactures, demand for which was generally inelastic. Imports in the same period consisted predominantly of machinery, equipment and raw materials, due to nascent industrialisation. Since liberalisation, the value of India's international trade has become more broad-based and has risen to Rs. 63,080,109 crores in 2003–04 from Rs.1,250 crores in 1950–51. India's major trading partners are China, the US, the UAE, the UK, Japan and the EU. The exports during April 2007 were $12.31 billion up by 16% and import were $17.68 billion with an increase of 18.06% over the previous year.
India is a founding-member of General Agreement on Tariffs and Trade (GATT) since 1947 and its successor, the World Trade Organization. While participating actively in its general council meetings, India has been crucial in voicing the concerns of the developing world. For instance, India has continued its opposition to the inclusion of such matters as labour and environment issues and other non-tariff barriers into the WTO policies.
Although individual leaders have proposed new policies, India is still hostile to international trade. India was proud of the Doha Development Round failure.