India has a developing market-oriented economy with substantial state participation in strategic sectors.
It is the world's sixth-largest economy by nominal GDP and the third-largest by purchasing power parity (PPP) as of April 2026. On a per capita income basis, the nation is ranked 149th by nominal GDP and 119th by PPP-adjusted GDP as of 2026. From independence in 1947 until 1991, economic development was characterized by protectionist economic policies, with extensive state intervention, demand-side economics, natural resource optimization, and regulation. An acute balance of payments crisis in 1991 led to the adoption of broad economic liberalisation in India and indicative planning.
Nearly 70% of India's GDP is driven by domestic consumption, with the nation consistently the world's third-largest consumer market. As of 2025, the service sector accounts for around 55% of GDP. Aside from private consumption, India's GDP is fueled by government spending, investments, and exports. As of 2025, India is the world's 7th-largest importer and the 10th-largest exporter. India is often described as the "pharmacy of the world", supplying around one-fifth of global demand for pharmaceuticals to over 200 countries. India is the largest vaccine manufacturer globally by volume, accounting for over 60% of the world's production. India is the world's fifth-largest manufacturer, representing 3.2% of global manufacturing output. India's digital economy was estimated to be 11.7% of GDP, with its total value expected to surpass US$1 trillion by 2029. Nearly 63% of India's population lives in rural areas, and generates about 46% of Indian GDP.
India has been a member of the World Trade Organization (WTO) since 1995. It ranks 41st on the Global Competitiveness Index and 39th in the Global Innovation Index. As of 2025, India ranks third in the world in total number of billionaires. India's Gini coefficient fell to 25.5 by 2023, making it the fourth-most equal country globally, suggesting significant progress in income equality. Economists and social scientists often consider India a welfare state.Kapur, D. and Nangia, P. (2015) 'Social Protection in India: A Welfare State Sans Public Goods?', India Review, 14(1), pp. 73–90. .Aspalter, Christian, The State and the Making of the Welfare System in India (14 December 2010). Journal of National Development, Vol. 3, No. 1, pp. 149-79, 2003, Available at India's overall social welfare spending stood at 8.6% of GDP in 2022.Government's spending on Social Services increased significantly during the pandemic Press Information Bureau. Government of India, Ministry of Finance 31 January 2022. Retrieved 29 November 2022. It has two of the world's ten largest stock exchanges. India has free-trade agreements with many world nations, including the European Union, and is a member of numerous economic organisations. India is a lower-middle income country with much of its modern economic development focused on improving standards of living for its population, which has been the largest in the world since the mid-2020s. The accuracy of Indian economic and inflation data has been challenged by the IMF for not suitably incorporating the informal sector and consumption.
History
Indus Valley Civilisation, the early civilisation of India and Pakistan, developed the economy of agriculture and craft which later spread into central India. Angus Maddison estimates that from 1-1000 AD, the regions making up the present-day India contributed roughly 30% of the world's population and GDP.Maddison, Angus (2003): Development Centre Studies The World Economy Historical Statistics: Historical Statistics, OECD Publishing, , p. 261
India experienced per-capita GDP growth in the high medieval era. By the late 17th century, most of the Indian subcontinent had been united under the Mughal Emperor Aurangzeb, which for a time Maddison estimates became the largest economy and manufacturing power in the world, producing about a quarter of global GDP, before fragmenting and being conquered over the next century. The combination of protectionist, import-substitution, Fabian socialism, and social democratic-inspired policies governed India for sometime after the end of British rule. The economy was then characterised as Dirigism, due to extensive regulation, protectionism, and public ownership of large monopolies. Since 1991, continuing economic liberalisation has moved the country towards a market-based economy. By 2008, India had established itself as one of the world's faster-growing economies.
Ancient and medieval eras Indus Valley Civilisation The citizens of the Indus Valley civilisation, a permanent settlement that flourished between 2800 BCE and 1800 BCE, practised agriculture, domesticated animals, used uniform weights and measures, made tools and weapons, and traded with other cities. Evidence of well-planned streets, a drainage system, and water supply reveals their knowledge of urban planning, which included the first-known urban sanitation systems and the existence of a form of municipal government.
West Coast Maritime trade was carried out extensively between southern regions of India and Southeast Asia and West Asia from early times until around the fourteenth century CE. Both the Malabar and Coromandel Coasts were the sites of important trading centres from as early as the first century BCE, used for import and export as well as transit points between the Mediterranean region and southeast Asia. Over time, traders organised themselves into associations which received state patronage. This state patronage for overseas trade came to an end by the thirteenth century CE, when it was largely taken over by the local Parsi, Jewish, Syrian Christian, and Muslim communities, initially on the Malabar and subsequently on the Coromandel coast.
Silk Route Other scholars suggest trading from India to West Asia and Eastern Europe was active between the 14th and 18th centuries. During this period, Indian traders settled in Surakhani, a suburb of greater Baku, Azerbaijan. These traders built a Hindu temple, which suggests commerce was active and prosperous for Indians by the 17th century.
Further north, the Saurashtra and Bengal coasts played an important role in maritime trade, and the Gangetic plains and the Indus valley housed several centres of river-borne commerce. Most overland trade was carried out via the Khyber Pass connecting the Punjab region with Afghanistan and onward to the Middle East and Central Asia. Although many kingdoms and rulers issued coins, barter was prevalent. Villages paid a portion of their agricultural produce as revenue to the rulers, while their craftsmen received a part of the crops at harvest time for their services.
Mughal, Rajput, and Maratha eras (1526–1820)
The Indian economy was the largest and most prosperous throughout world history and would continue to be under the Mughal Empire, up until the 18th century.Karl J. Schmidt (2015), An Atlas and Survey of South Asian History, page 100 , Routledge Sean Harkin estimates that China and India may have accounted for 60 to 70 percent of world GDP in the 17th century. The Mughal economy functioned on an elaborate system of coined currency, land revenue and trade. Gold, silver and copper coins were issued by the royal mints which functioned on the basis of free coinage. The political stability and uniform revenue policy resulting from a centralized administration under the Mughals, coupled with a well-developed internal trade network, ensured that India–before the arrival of the British–was to a large extent economically unified, despite having a traditional agrarian economy characterised by a predominance of subsistence agriculture. Agricultural production increased under Mughal agrarian reforms, with Indian agriculture being advanced compared to Europe at the time, such as the widespread use of the seed drill among Indian peasants before its adoption in European agriculture, and possibly higher per-capita agricultural output and standards of consumption than 17th century Europe.
The Mughal Empire had a thriving industrial manufacturing economy, with India producing about 25% of the world's industrial output up until 1750, making it the most important manufacturing centre in international trade. Manufactured goods and cash crops from the Mughal Empire were sold throughout the world. Key industries included textiles, shipbuilding, and steel, and processed exports included cotton textiles, yarns, thread, silk, jute products, metalware, and foods such as sugar, oils and butter. Cities and towns boomed under the Mughal Empire, which had a relatively high degree of urbanization for its time, with 15% of its population living in urban centres, higher than the percentage of the urban population in contemporary Europe at the time and higher than that of British India in the 19th century.
In early modern Europe, there was significant demand for products from Mughal India, particularly cotton textiles, as well as goods such as spices, peppers, indigo, silks, and saltpeter (for use in munitions). European fashion, for example, became increasingly dependent on Mughal Indian textiles and silks. From the late 17th century to the early 18th century, Mughal India accounted for 95% of British imports from Asia, and the Bengal Subah province alone accounted for 40% of Dutch imports from Asia.Om Prakash, "Empire, Mughal ", History of World Trade Since 1450, edited by John J. McCusker, vol. 1, Macmillan Reference USA, 2006, pp. 237–240, World History in Context. Retrieved 3 August 2017. In contrast, there was very little demand for European goods in Mughal India, which was largely self-sufficient. Indian goods, especially those from Bengal, were also exported in large quantities to other Asian markets, such as Indonesia and Japan. At the time, Mughal Bengal was the most important centre of cotton textile production.Richard Maxwell Eaton (1996), The Rise of Islam and the Bengal Frontier, 1204–1760, page 202 , University of California Press
In the early 18th century the Mughal Empire declined, as it lost western, central and parts of south and north India to the Maratha Empire, which integrated and continued to administer those regions. The decline of the Mughal Empire led to decreased agricultural productivity, which in turn negatively affected the textile industry. The subcontinent's dominant economic power in the post-Mughal era was the Bengal Subah in the east., which continued to maintain thriving textile industries and relatively high real wages. However, the former was devastated by the Maratha invasions of Bengal and then British colonization in the mid-18th century. After the loss at the Third Battle of Panipat, the Maratha Empire disintegrated into several confederate states, and the resulting political instability and armed conflict severely affected economic life in several parts of the country – although this was mitigated by localised prosperity in the new provincial kingdoms. By the late eighteenth century, the British East India Company had entered the Indian political theatre and established its dominance over other European powers. This marked a determinative shift in India's trade, and a less-powerful effect on the rest of the economy.
British era (1793–1947)