India's economy: services earn it, farming employs it

Where India's output actually comes from

Three sectors divide the Indian economy, and they divide it in two different ways depending on whether the count is money or people. Services produced 55.6% of gross domestic product in 2025, industry 26.3% and agriculture 18.1%. The employment figures run close to the reverse: agriculture took 46.1% of the workforce in 2023-24, manufacturing 11.4%, and services outside agriculture about 28.9% in 2022-23.

Demand tells a third story. Nearly 70% of Indian GDP is domestic consumption. External trade came to 46% of GDP in 2025, against 6% in 1985, so the opening has been real and recent. Rural India holds nearly 63% of the population and generates about 46% of output.

The scale underneath these shares is the part that resists comparison. The labour force stood at 617 million people in 2025, and 46.6 million workers were added in the single year 2023-24. Nominal gross domestic product was 3.39 trillion United States dollars in 2022, the Human Development Index reading was 0.633 in 2021, and the Gini coefficient was 35.7 in 2019.

Why nearly half of workers still farm

Agriculture and its allied activities, forestry, logging and fishing, accounted for 18.4% of GDP while employing 45.5% of workers. The output share has been falling for seventy years, from 52% of GDP in 1951 to 15% in 2023. The employment share has barely moved, and after a decline before the pandemic it rose again, reaching 46.1% in 2023-24. Farm work absorbed the people the rest of the economy did not hire.

Yields explain part of why so much labour is needed for so little output. Average yields in India generally run at 30 to 50% of the highest average yields recorded anywhere for the same crops. The Green Revolution from 1965 raised productivity through high-yielding seed varieties, heavier fertiliser use and better irrigation, and it has been criticised for encouraging capitalised farming and for widening income differences between farmers while leaving institutional reform untouched.

Water sets the ceiling. India receives an average of 1,208 millimetres of rain a year and 4,000 billion cubic metres of total annual precipitation, of which 1,123 billion cubic metres is usable surface and groundwater. Irrigation reaches 546,820 square kilometres, about 39% of cultivated land, which leaves three fifths of Indian farmland waiting on the monsoon. Foodgrain production was flat at roughly 316 megatonnes in 2020-21. The cattle herd numbered 303 million animals in 2023, and inland and marine fisheries employ close to 6 million people.

What follows from the rain is visible in the growth figures. Agricultural output grew 4.6% in the 2024-25 financial year, up from 2.7% the year before, and the World Bank attributed the acceleration to favourable weather. Since 1991 no Indian government has cut farm subsidies or rewritten labour law, and the farming and trade union lobbies are the reason usually given.

How the software export industry grew

The industry began with a policy document. The New Computer Policy of 1984, introduced under Rajiv Gandhi, eased import restrictions on technology and offered incentives for software exports. The same administration set up Software Technology Parks, which supplied infrastructure, tax relief and faster data links to firms selling services abroad. That combination arrived seven years before the wider economy was opened.

Information technology and business process management now contributes roughly 7.5% of GDP and over 35% of India's service exports, and its revenues passed 300 billion dollars in the 2026 financial year. The workforce behind it was estimated at 4.3 million software engineers in early 2025, about 14.7% of the global software engineering workforce, and India supplies about 20% of the world's semiconductor chip design engineers.

The content of the work has changed. Voice-based call centre contracts moved to the Philippines and other Southeast Asian countries, and the Indian industry shifted to software development, consultancy, engineering and research. India hosts more than half of the world's Global Capability Centres, the in-house engineering and research offices foreign companies run for themselves rather than contracting out, and Bengaluru moved from being a low-cost offshore location to a corporate research cluster. Installed data centre capacity reached 950 MW, with a further 850 MW projected by 2026, and the digital economy was estimated at 11.7% of GDP.

Services exports carried the trade account in 2024-25. Export growth reached 6.3%, up from 2.2% the previous year, and the World Bank identified software and business services as the source of the increase.

What the licence raj did to industry

Policy after 1947 was built on import substitution, state ownership and five-year plans modelled on Soviet practice. Steel, mining, machine tools, telecommunications, insurance and power generation were effectively nationalised in the mid-1950s, and the Avadi Resolution of January 1955 declared the governing party's objective to be a socialistic pattern of society. The regime of industrial licensing that resulted became known as the Licence Raj.

Dissent is on the record and was ignored. B R Shenoy, a former student of Friedrich Hayek, was the sole dissenter among the twenty-one economists convened in 1955 to review the Second Five Year Plan, and his Note of Dissent argued that deficit financing and state-led industrialisation would produce chronic inflation and balance of payments pressure. Consumer prices rose about 30% over the course of that Plan. The Swatantra Party, founded in 1959 by C Rajagopalachari with Minoo Masani and N G Ranga, campaigned for a market economy and the dismantling of industrial licensing, held 44 seats after the 1967 general election, and dissolved in 1974.

The effect on capital was measurable. Foreign direct investment averaged around 200 million dollars a year between 1985 and 1991, and government approval was required for nearly 60% of new foreign investment in industry. Growth ran at 2.9% through the 1970s. It reached 5.6% through the 1980s, after Indira Gandhi opened car assembly to the private sector through Maruti Suzuki, built industrial model townships for component suppliers, and expanded steel, fertiliser, oil and cement capacity.

Why the balance of payments broke

Two shocks arrived together in 1990 and 1991. The Soviet Union, India's principal trading partner, collapsed, and the Gulf War pushed oil prices up. India faced default on its external loans and asked the International Monetary Fund for a 1.8 billion dollar bailout, which the Fund made conditional on deregulation. The Narasimha Rao government, with Manmohan Singh as finance minister, abolished the Licence Raj, cut tariffs and interest rates, ended many public monopolies and allowed automatic approval of foreign direct investment across much of the economy.

The trade figures record what followed. Goods and services trade rose from 16% of GDP in 1990-91 to 47% in 2009-10. Exports covered 66.2% of imports in 1990-91 and 80.3% by 2002-03. Nominal GDP per head went from 308 dollars in 1991 to 1,380 dollars in 2010 and an estimated 2,731 dollars in 2024, with gross national income per head put at 2,878 dollars for 2025 by the International Monetary Fund.

Poverty measured at the international line of 2.15 dollars a day in 2017 purchasing power terms fell from 16.2% in 2011-12 to 2.3% in 2022-23, which the World Bank counted as about 171 million people leaving extreme poverty. India's share of the world economy went from 1.6% in 2000 to 3.4% in 2023, and the economy nearly quadrupled in real terms over those years while income per head almost tripled. Growth was 6.5% in the 2024-25 financial year and was expected to reach 6.3% in 2025-26. The Reserve Bank of India held its policy repo rate at 5.25% in August 2026.

Why most Indian work stays informal

Around 90% of the Indian workforce is employed outside the formal sector. The Ministry of Statistics and Programme Implementation reported that the unorganised non-farm sector employed about 19% of workers while producing 6% of GDP in 2021-22 and 2022-23. Other estimates put the organised sector at roughly 7% of all workers, leaving 93% in some unorganised arrangement. Of the total workforce, 57.3% are self-employed and a further 18.3% are unpaid helpers in household enterprises, and neither category produces a payslip.

How many rules a business must follow

Formalising a firm means accepting a compliance load that has been counted. A 2022 report by the Observer Research Foundation and TeamLease Services found Indian businesses carrying more than 69,000 individual compliance obligations and 6,600 recurring statutory filings each year under 1,536 federal and state laws. The same report counted 26,134 criminal clauses in India's business laws, and found that 37.8% of the 69,233 compliances it identified carried imprisonment as a punishment. A 2025 report by the Vidhi Centre for Legal Policy, a New Delhi think tank, counted 7,305 distinct offences across 370 central laws. Economists have linked that burden directly to the share of Indian employment that stays unregistered.

Small firms carry the consequence. India's 63 million micro, small and medium enterprises contribute 35% of GDP, employ 111.4 million people and account for more than 40% of exports, and yet new enterprise formation runs at roughly 1,000 to 1,100 a day, against 16,000 to 18,000 a day in China over the preceding five years.

Why nobody knows the real figure

The measurement itself is contested. In November 2025 the International Monetary Fund graded India's national accounts and inflation data at 'C', on the ground that the informal sector and household spending patterns are not accurately captured. Unemployment is measured the same way: the Periodic Labour Force Survey reported 4.9% joblessness among people aged 15 and over in 2024 and a participation rate of about 56.2%, while critics note that the survey counts one hour of work in a week as employment.

How the states pulled apart

The national averages hide the spread between states. Average income per head was 1,410 dollars in 2011, and in the same year it was 436 dollars in Uttar Pradesh and 294 dollars in Bihar. Six low-income states, Assam, Chhattisgarh, Nagaland, Madhya Pradesh, Odisha and Uttar Pradesh, are home to more than a third of the Indian population.

Projections point the other way. Maharashtra, Tamil Nadu, Gujarat and Karnataka together are projected to account for almost 50% of Indian GDP by 2030, and the five southern states for 35% by 2030 while holding 20% of the population. The five-year plans tried to move industry inland by distributing it across states, and the attempt raised inefficiency without changing the pattern. States with existing infrastructure and educated workforces captured most of what liberalisation offered, and the others have competed with tax holidays and cheap land.

The gap by sex is as wide as the gap between states. Female labour force participation was 30.5% in rural areas and 20.2% in urban areas in 2023-24, against 55.5 and 58.3% for men, and only 15.9% of working women held regular wage or salaried jobs. Among rural working women 73.5% were self-employed, against 59.4% of rural men. Rural women in casual labour earned 259 rupees a day in 2023-24 against 437 rupees for rural men, a difference the survey attributes largely to which occupations each group works in. The World Bank has named raising female participation from 35.6% to 50% by 2047 as a condition of India reaching high-income status, in an assessment published in November 2025.

What India sells and what it buys

The monthly trade account is in deficit and has been since independence on the current account. In June 2026 India exported 40.4 billion dollars of goods and imported 70.8 billion, for a goods deficit of 30.4 billion in that month alone. Across the calendar year 2024 product exports came to 462 billion dollars against imports of 689 billion.

What moves in each direction is unusually legible. The largest export categories in June 2026 were petroleum products at 4.86 billion dollars, telecom instruments at 3.54 billion, drug formulations and biologicals at 2.2 billion, electric machinery at 1.72 billion and gold and precious metal jewellery at 1.2 billion. The largest imports that month were crude petroleum at 14.8 billion dollars, electronics components at 5.71 billion, petroleum products at 4.55 billion, computer hardware at 3.13 billion and coal and coke at 2.77 billion. India buys crude and sells refined product back, and the Jamnagar complex that does much of that work processes 1.24 million barrels of crude a day. Petroleum products and chemicals together account for over 34% of export earnings.

The pharmaceutical trade has the same shape. India supplies around a fifth of global demand for pharmaceuticals to more than 200 countries and produces over 60% of the world's vaccines by volume, and it imports over 70% of its raw active pharmaceutical ingredients, mostly from China. Remittances are the other large inflow: 68.91 billion dollars arrived in 2015, worth 3.32% of GDP that year, and 100 billion dollars in 2022, sent by an estimated 32 million Indians working abroad, most of them in the Middle East.

The rupee traded at 95.5614 to the United States dollar at one in the afternoon on 28 August 2026, and it is legal tender in Nepal and Bhutan as well, both of which peg their currencies to it. India and the European Union announced agreement on a free trade deal in January 2026 after twenty years of negotiation, with both sides aiming for it to take effect in early 2027, and a merchandise and services agreement with the United Kingdom was concluded before November 2025. The stated target is 1 trillion dollars of merchandise exports by 2030.