Below are some major factors that led to India becoming the fifth-largest economy:
1. Robust policies and GDP growth
Over the last decade, the Indian government implemented strong economic policies. Primarily, these policies focused on increasing productivity and improving business conditions. India's GDP (Gross Domestic Product) grew at an average rate of 6.7%, which is faster than many larger economies like the US and China. Also, the government promoted various reforms that improved trade and supported infrastructure development.
2. Foreign investment and increased FDI inflows
During the past 10 years, India attracted a lot of foreign investment. This was mainly due to reforms that made the business environment more welcoming for global companies. Under Prime Minister Modi’s leadership, India saw a significant 82% increase in Foreign Direct Investment (FDI) inflows.
This increase means more international companies are putting their money into Indian businesses which ultimately boosts local industries and creates jobs. Moreover, these investments help in growing sectors like:
- Technology
- Manufacturing
- Services
This further strengthened India's economy and made it the fifth-largest economy in the world.
3. Public sector reforms
India took several steps to improve the “efficiency of its public sector units (PSUs)”. For the unaware, these PSUs are government-owned companies. They operate in sectors like energy, banking, and transportation. By bringing reforms, the Indian government modernised and restructured these companies.
As a result, the profitability of these PSUs increased and they became more competitive. Moreover, some underperforming companies were either privatised or merged. This reduced government costs and led to better budgetary allocations.
4. Growth of stock markets and financial assets
Over the past decade, India’s stock markets experienced significant growth. As of January 1, 2014, Nifty was at Rs. 6,323.8, whereas as of September 28, 2024, it is Rs. 26,178.95. This clearly shows the rapid rise of stock markets. This particularly happened due to more companies going public and investors showing greater confidence in the economy.
This growth has provided capital to businesses and allowed them to expand and create jobs. At the same, it has increased the wealth of investors. Be aware that strong stock markets are a key indicator of a healthy economy.
5. Defence reforms and Indigenous production
India has focused on strengthening its defence sector by “increasing domestic production” of military equipment. For this purpose, the Indian government has promoted “self-reliance” and has:
- Successfully reduced its dependence on foreign military imports
and - Increased local manufacturing of weapons and equipment
These reforms have developed industries like “aerospace” and “engineering”. Also, they have enhanced India’s defence capabilities and supported economic growth by expanding the manufacturing sector.
6. Privatisation of Air India and PSU banking consolidations
The privatisation of Air India and the consolidation of public sector banks were also some major reforms that led to India becoming the fifth-largest economy. By selling Air India to private investors, the government reduced its financial burden. Notably, this also allowed the airline to operate more competitively.
Similarly, by merging several public sector banks, the government strengthened their ability to offer loans and services. These changes significantly improved the financial health of both the airline and banking sectors. Now, they are more stable and generating a higher revenue.
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