India & The New World

 

India That Meets The New World

Deepak Razdan

27 April, 2025

India has a population of over 1,454 million people. Sixteen per cent of India’s GDP comes from agriculture, which supports 46.1 per cent of the total population. Compared to China’s 28.8 per cent, India’s share in global manufacturing is 2.8 per cent.

India ranks seventh globally in services exports, accounting for 4.3 per cent of the total exports. The Indian economy must generate 7.8 million non-farm jobs annually until 2030 to productively engage its growing working population.

This is India’s latest profile with which it has to engage with the New World, the world born out of US President Donald Trump’s trade tariffs war. As they prepare to enter into trade deals with the US, all economies in the world are having a re-look at their strengths and weaknesses.

It will not be surprising that coming trade agreements in the world will reflect respective strengths of the partners in the agreements.

India too looks at itself as it seeks to enter into new trade agreements. World Bank has given a positive assessment on India in its Poverty & Equity Brief on 26 April, 2025.

Releasing the Brief from its 2025 Spring Meeting at Washington DC, the World Bank said “Over the past decade, India has significantly reduced poverty.”

The Bank said “Extreme poverty (living on less than $2.15 per day) fell from 16.2 per cent in 2011-12 to 2.3 per cent in 2022-23, lifting 171 million people above this line.

Rural extreme poverty has dropped from 18.4 per cent to 2.8 per cent, and urban from 10.7 per cent to 1.1 per cent.

India also transitioned into the lower-middle-income category (LMIC). Using the $3.65 per day LMIC poverty line, World Bank said poverty fell from 61.8 per cent to 28.1 per cent, lifting 378 million people out of poverty.

India’s five most populous states — Uttar Pradesh, Maharashtra, Bihar, West Bengal, and Madhya Pradesh — accounted for 65 per cent of the country’s extreme poor in 2011-12 and contributed to two-thirds of the overall decline in extreme poverty by 2022-23.

Nevertheless, these states still accounted for 54 per cent of India’s extremely poor (2022-23) and 51 per cent of the multi-dimensionally poor (2019-21).

India’s consumption-based Gini index improved from 28.8 in 2011-12 to 25.5 in 2022-23, though inequality may be underestimated due to data limitations, the World Bank Brief said.

In contrast, the World Inequality Database shows income inequality rising from a Gini of 52 in 2004 to 62 in 2023. Wage disparity remains high, with the median earnings of the top 10 per cent being 13 times higher than the bottom 10 per cent in 2023-24.

Employment growth in India has outpaced the working-age population since 2021-22. Employment rates, especially among women, are rising, and urban unemployment fell to 6.6 per cent in Quarter1 of FY24/25, the lowest since 2017-18.

Recent data indicates a shift of male workers from rural to urban areas for the first time since 2018-19, while rural female employment in agriculture has grown.

Youth unemployment is 13.3 per cent, increasing to 29 per cent among tertiary education graduates. Only 23 per cent of non-farm paid jobs (sought mainly by educated youth) are formal, and most agricultural employment remains informal.

Self-employment is rising, especially among rural workers and women. Despite a female employment rate of 31 per cent, gender disparities remain, with 234 million more men in paid work. This was according to the World Bank Brief on India.

An overview of the Indian economy shows that agriculture has been its backbone for a long time, and played a vital role in national income and employment.

The Indian Government’s latest Economic Survey 2024-25 tells us that agriculture’s performance not only impacts the country’s food security directly, but also influences other sectors, sustaining livelihoods and supporting economic growth.

In recent years, agriculture in India has shown robust growth, averaging five per cent annually from FY17 (financial year 2016-17) to FY23, demonstrating resilience despite challenges. In the second quarter of the FY25 year, the sector recorded a growth rate of 3.5 per cent.

These growth rates in the sector have been the result of assured remunerative prices, improved access to institutional credit, crop diversification, a support for sustainable practices, and enhancement in productivity.

The Indian farmers get assured remunerative prices for their crops due to a system of Minimum Support Prices (MSP) at which the government buys the farmers’ produce to save them from being exploited by purchase cartels.

The MSPs are offered for crops such as wheat, rice, pulses, oilseeds, and nutri-cereals. This mechanism also serves as a guiding system for farmers in planning their future crop compositions.

India’s financial budget for 2018-19 announced the government’s decision in favour of fixing MSP at a level of at least 1.5 times the weighted average cost of production for the crops.

India’s agriculture remains highly vulnerable to weather variability, with only about 55 per cent of the net sown area receiving irrigation. A substantial portion of the agricultural land relies on rain-fed systems, making it especially susceptible to fluctuations in precipitation.

Moreover, more than two thirds of India's agricultural land faces the threat of drought, with national estimates indicating a 35 per cent probability of drought occurrences.

The implications of erratic monsoon patterns are particularly pronounced for marginal and small-scale farmers, representing approximately 85 per cent of India's agricultural holdings. These farmers typically cultivate on plots less than two hectares in size, making them highly vulnerable to the impacts of climate variability.

Water scarcity is a challenge for Indian agriculture, and promoting micro-irrigation is extremely important in reducing the water footprint.

Micro-irrigation holds significant potential for India’s 140 million hectares of arable land. Even though there is an increase in area under micro-irrigation in India (8 per cent of irrigated area), the pace is still slow as compared to the USA (68.6 per cent) and China (13.7 per cent).

India’s industry sector shows the country has just 2.8 per cent of the global share in manufacturing, compared to China’s 28.8 per cent. There is a large opportunity for India to climb up the ladder in industries.

Industry contributes about 30 per cent to India’s GDP. India has a substantial scope to improve the sector’s contribution in the GDP in relation to its comparator countries.

The International Monetary Fund (IMF) has observed that manufacturing production is increasingly shifting towards emerging market economies, particularly China and India.

Currently, India is the second largest cement producer in the world after China. In steel, there has been increase in both production and consumption. In 2024, India produced 140 million tonnes and the consumption was little lesser. India has been a net importer of steel from April to November FY25. The decline in India's export of finished steel during FY25 was mainly driven by gaps between international and domestic prices.

The Indian automobile industry is a significant driver of economic growth, offering a diverse range of domestically produced vehicles. In FY24, the industry recorded automobile domestic sales growth of 12.5 per cent.

India’s electronics sector has seen dynamic growth in domestic production, exports and imports in the last decade. The domestic production of electronic goods has increased substantially, growing at a CAGR of 17.5 per cent.

The country has also drastically reduced its dependence on smartphone imports, with 99 per cent now manufactured domestically. In FY24, the country produced approximately 330 million mobile phone units, with over 75 per cent of the models being 5G enabled. The key drivers of growth have been the large domestic market, the availability of skilled talent, and low-cost labour.

The textile industry is a major employment generator and it accounts for about 11 per cent of India’s manufacturing GVA. The Indian pharmaceutical industry is the world’s third-largest by volume.

The industry boasts of a diverse product portfolio encompassing generic drugs, bulk drugs, over-the-counter medications, vaccines, bio-similars, and biologics, establishing a strong global presence.

In the Services sector, India’s share in global exports has been steadily rising for the last two decades. This has helped compensate losses due to lower merchandise exports.

In 2023, the United States led the global services exports with a dominant 13 per cent share, followed by the United Kingdom with 7.4 per cent, Germany with 5.5 per cent and Ireland, China, and France, each accounting for approximately five per cent. India ranks seventh globally, representing a 4.3 per cent share in the global services export.

India’s services sector has been the steadiest contributor to the gross value added (GVA) in the economy. Its contribution to the total GVA at current prices has increased from 50.6 per cent in FY14 to about 55 per cent in FY25. It also provides employment to approximately 30 per cent of the workforce.

In 2014, India was ranked as the tenth-largest economy in the world. In under a decade, India surpassed the UK to reach the fourth position. She is poised to be the third largest economy by 2030, after the USA and China.

By 2030, India will have a growing working-age population and healthy manufacturing sector. The country’s demographic trend highlights the growing potential for a demographic dividend. The currently young population, with a median age of around 28 years, compared to the ageing population of developed countries, is the key driver of the growth potential.