Explore the evolution of the Indian economy from independence to modern reforms, analysing GDP growth, inflation, global shocks, oil crisis, exports, and future economic challenges
Suresh Chandra Sarangi
Rating agency Moody’s has slashed India’s 2026 GDP growth to 6% for the financial year 2026_27, in its latest forecast. This contradicts the IMF’s April World Economic Outlook, which was jointly released by the IMF and the World Bank, at 6.5%, revised from an earlier forecast of 6.6%. However, the Reserve Bank of India has revised its GDP forecast for the current financial year to 6.9%, an upward revision from the past. Mody’s estimate comes at a time when India is facing a significant challenge due to global geopolitics, the energy shock resulting from the Gulf War, and the seizure of the Strait of Hormuz. A steep depreciation of the Rupee, around 11% in a year, FII outflows, and diminishing forex reserve.
Moddy’s concern was based on subdued private consumption, lower capital formation, and the impacts of the high energy shock, dampening the positive national economic outlook. Moody’. Forecasts speak of imported inflation and global economic uncertainty. Of course, Moody’s views speak of a higher agricultural export, on account of the Rupee depreciation, the same may be neutralised because of enhanced fuel and fertiliser cost, leaving the economy gasping, with public finance remaining under strain. Economists are more cautious in their assessment, by contemplating that the recovery and rehabilitation of the world economy may take time up to the end of March 27.
Let us discuss the Indian Economy, in retrospect, to have a bird’s eye view of how we reached here. Aungus Maddision, the Nobel laureate, had described that in 1ooo AD, India and China put together were contributing 50 % of the World Economy, and by 1950, it had reduced to 10%. That time, it was with a higher per capita income for India, more than that of European countries. The British rule in India drained India, and it continued unabated till India attained freedom in 1947. The subcontinent’s enduring sea trade had provided the subcontinent with economic clout. After freedom, Nehru, inspired by the Bombay plan, had gone for a five-year planning model, with industrialization till the famous American economist and apostle of free market economy, Milton Friedman, hit at the public investment policy with absolute state control of the economy, and counselled that India has to go for a free market economy, export growth,
However, as per the NPC report, the focus was on planned development, including land, water, natural resources, labour, Agriculture, industry, trade and credit, finance, and education. As an emerging economy, within the iron frame of bureaucratic planning, economic crisis developed, with industrialisation, but the license raj was almost eating away at the vitality of economic development. The economy became insular, and government regulation and control were detrimental to the philosophy of free market economy and to the growth of enterprises. During the sixties, India witnessed the food crisis and received wheat from the USA under the PL 480 programme, and then the green revolution in Agriculture, which created surplus food grain and created a rural rich community, who became active participants in the Indian democratic process. It is estimated that from 1950 to 1980, the GDP growth remained approximately 3.5%, and from 1980_2000 it improved to 5.5%. Nehru’s dream of a stable India was gradually making inroads into the frontier of prosperity, with Indira Gandhi’s policy of Bank Nationalization, which opened the floodgates of success.
The year 1991 was a turning point in India’s economic history, and touted that the PV Narsimha Rao-Manmohan Singh combine mega reform, made India Unbound, and the elephant danced. Though India won political freedom in 1947, it gained economic freedom in 1991. The landmark journey of India started thereafter, with the avowed objective of achieving democratic socialism. Not that the journey was simple and easy going, huge external debt, balance of payment problem, and unsustainable fiscal deficit were the choke points. But after 1991, the fiscal deficit gap was reduced, the balance of payment crisis was minimised, the trade and industrial policy was liberalised, and the Rupee was made partially convertible on the current account to discover its worth in international payment and settlements. Thereafter, there was no looking back. There has been a significant transformation of the Indian economy, despite the globe trotting global financial crisis. India remained insulated, and there was no such direct impact, except for the global supply chain derailment.
The 2019 Covid pandemic, of course, had completely derailed the Indian economy, and the shock had a devastating effect on our economy, clocking a negative rate of growth, the worst in the comity of nations. Population has been a double-edged sword, with 50% of people below the age of 19, adding to the demographic dividend, while it reduces the per capita income with heavy consumption of resources. Gradually, India became the fastest-growing emerging economy, gaining 4 th position in the world in GDP terms, now revised to 6th rank.
From 2000 to 2015, the average growth has been 7.5%. From 2001 to 2009, it was the golden period of growth, sometimes clocking 9% per annum. India is currently on the cusp of a revolution, with the establishment of a globally competitive service economy. In the field of Agriculture and Allied activities, India is leading in either the number one or two position, with good food security. Of course, in manufacturing, in spite of policy-specific measures like Make in India, Atmanirbar Bharat, and PM Gati Shakti. etc, India has been a laggard in comparison with China, as manufacturing has not picked up to the desired level.
The biggest reform in this century, of course, was the GST reforms, a bright example of cooperative federalism. The PLI scheme has boosted India’s entrepreneurs’ morale, and the result is so many unicorns. The demonetisation of high-value currency, of course, destabilised the economy for a while, more so in the unorganised sector, but it has paid dividends by transforming India from a cash society to a less cash society by extending the UPI (United Payment Interface), which has triggered a million mutinies.
Normally, the Indian economy was not so export-oriented from the beginning. Of late, export and defense exports are picking up, IT service orientation, and expansion of the manufacturing sector, education sector is bringing laurels to the economy. Despite the progress in education, manufacturing, controlling the concern of poverty with emphasis on Trickle down theory, controlling inflation by proper inflation targeting, the golden quadrilateral, and the superfast express train, all lead to a revival and nourishment of the Indian economy.
India suffers from an unemployment problem. The ease of doing business has improved, and pay phones, phone pay etc has provided the teeth to explore business opportunities across India. India lacks global competitiveness. Despite these weaknesses, India is almost fourth largest economy (recent change to 6th position on account of the Rupee depreciation and adoption of new series), in terms of purchasing power parity. The start-ups, the digital economy, and defence export are new thrust areas that add to its new status as a superpower in the world. Despite Trump’s tariffs, India’s exports have been eye-catching with 863 billion dollars, a milestone, during 2025_26. India’s effort to gear up its semiconductor business speaks of the new economy and its adoption.
The West Asia war with America supporting Israel has unnerved the world. A black swan moment that has brought volatility, uncertainty, instability, threatening global peace, disrupting supply chains, globalisation, and inducing degrowth and the appearance of inflation or stagflation. This has also affected the Indian economy, with a flight of capital and currency depreciation. The oil shock is unimaginable, triggering a rupee depreciation of 11 to 12% against the dollar and has depreciated 25% against the Australian dollar, significantly against the Chinese yuan, and has depreciated against 25 currencies. CPI inflation has been rising continuously for six months, and in April, it was 3.48%, and food inflation 4.1%. The foreign currency reserve has come down to 690.69 billion dollars. India imports approximately almost 88% of its oil requirement, and that has triggered a vicious cycle.
Prime Minister Narendra Modi’s recent appeal to the nation to maintain austerity, by curtailing petrol expenditure, making a full stop to gold purchase (gold import has increased by 24%), and going for conservation. This appears to be a stress test from India, and the economy is reeling under the oil shock, and is clearly undergoing a bad phase. It may persist further if Xi and Trump meet fails in stopping the war in West Asia.
The broader economy is still under stress, because of the energy shock and despite the government’s importance to energy security, by bringing austerity and enhancing renewable energy production. Kristalina Georgieva’s faith in India’s economy, its resilience, and its growth momentum is noteworthy, as she firmly believes that India remains the fastest-growing economy.
(The writer is a former General Manager of Bank of India. Views expressed are personal.)
