The Rise of India: An Emerging Economy

Three decades ago, India was still finding its footing as a market economy. Today, it is being spoken about in the same breath as global powerhouses, courted by investors, and studied as a case in how a young, populous nation can reshape its growth trajectory. The story of India’s rise is not accidental. It is the result of policy shifts, demographic advantages, and sector-specific booms that have compounded over time. Understanding this transformation is central to grasping why India is now called an emerging economy with global relevance.

A three-decade growth story 🔗

India’s economic liberalisation in 1991 marked the starting point of a longer transformation. Since then, the economy has sustained an average growth rate of above 6 percent for nearly three decades, with growth even accelerating past 8 percent annually in the post-pandemic years between 2021 and 2024. This is not a short burst of expansion but a structural shift.

The numbers tell the story clearly. Since 2000, India’s economy has nearly quadrupled in real terms, and per capita income has almost tripled, pushing India’s share of the global economy from 1.6 percent in 2000 to well over 3 percent today. This growth has coincided with a sharp fall in extreme poverty, which dropped from over 16 percent in 2011-12 to close to 2 percent within a decade.

What makes this growth distinctive is the path India took to get there. Unlike most industrialising economies that moved from agriculture to manufacturing before finally reaching services, India largely leapt from agriculture straight into services, with the sector’s share of value added rising from around 30 percent to over 55 percent. This unusual sequencing is one reason India’s growth model looks different from that of China or the East Asian “tiger economies.”

Foreign investment finding a new favourite 🔗

Nothing signals investor confidence quite like the flow of foreign capital, and India has increasingly become a preferred destination. Total foreign direct investment (FDI) inflows have grown from around 36 billion dollars in FY 2013-14 to a record high in recent years, driven largely by reforms that opened up sectors like insurance, defence, and single-brand retail to greater foreign ownership. Technology, manufacturing, and infrastructure remain the biggest magnets for this capital.

Computer software and hardware alone emerged as the largest recipient of FDI equity inflows in a recent fiscal year, nearly doubling year-on-year, while investments in automobiles and pharmaceuticals point to a broader “China+1” strategy among global companies looking to diversify their supply chains beyond a single country. India’s growing base of engineering talent, English-speaking workforce, and improving infrastructure make it an attractive hedge for multinational manufacturers and technology firms alike.

The IT and pharmaceutical boom 🔗

Information technology: from back office to boardroom 🔗

Few sectors capture India’s economic rise better than information technology. From contributing a mere 0.4 percent to GDP in the early 1990s, the IT industry now accounts for a substantial and growing share of national output. Industry revenue has climbed from around 167 billion dollars in FY18 to an estimated 315 billion dollars by FY26, with exports contributing the bulk of this figure. The sector is expected to cross the 350-billion-dollar mark and contribute roughly 10 percent of GDP in the near future.

What began as low-cost software outsourcing has evolved into a broader technology ecosystem spanning artificial intelligence, cloud computing, and global capability centres set up by multinational corporations in Indian cities. Non-metro cities are now driving a growing share of IT hiring, showing that this growth is no longer confined to Bengaluru or the National Capital Region.

Pharmaceuticals: the world’s pharmacy 🔗

India’s pharmaceutical sector has earned the country its reputation as the “pharmacy of the world.” India is the largest producer of vaccines globally, accounting for roughly 60 percent of global vaccine production and supplying medicines to over 150 countries. Pharma exports touched over 30 billion dollars in FY 2024-25, and the industry is working towards an ambitious target of 450 billion dollars by 2047.

Nine of the world’s top 25 generic drug manufacturers are Indian companies, and the country produces hundreds of active pharmaceutical ingredients along with tens of thousands of generic drug brands. Regulatory reforms have also made India one of the most preferred global destinations for clinical trials, reinforcing its position in cost-effective pharmaceutical innovation.

The engines behind the growth 🔗

A young and growing workforce 🔗

India’s demographic dividend is often cited as its single biggest long-term economic advantage. With a median age of around 28 years, compared to close to 38 in China and 48 in Japan, India’s working-age population is projected to touch its highest share of the total population by around 2030. This translates into a growing labour supply at a time when many advanced and even some emerging economies are ageing rapidly.

This dividend, however, is not automatic. It only pays off if the workforce is productively employed, which is why skilling and job creation remain central to policy discussions around this demographic advantage.

Rising education levels and an expanding middle class 🔗

Alongside a young population, India has also seen improving literacy and higher enrolment in secondary and tertiary education over the decades. This has fed directly into the kind of skilled labour pool that sectors like IT and pharmaceuticals depend on.

Parallelly, India’s middle class has expanded sharply, now estimated at several hundred million people and expected to keep growing through this decade. A larger middle class means higher consumption, which in turn fuels demand for everything from smartphones to housing, creating a self-reinforcing growth loop that also attracts foreign retailers and consumer goods companies.

Manufacturing gets a fresh push 🔗

While services have historically led India’s growth, manufacturing is being deliberately revived through initiatives like Make in India and the Production Linked Incentive (PLI) scheme. Launched in 2020, the PLI scheme spans 14 strategic sectors including electronics, pharmaceuticals, automobiles, and renewable energy, with an incentive outlay running into tens of billions of dollars. According to the government’s own assessment, the scheme aims to raise manufacturing’s contribution to 25 percent of GDP and has already seen hundreds of applications approved across its target sectors.

The results are visible in specific pockets. India has gone from being a major importer of mobile phones to assembling most of the phones sold domestically while also exporting a growing volume. Global electronics assemblers have shifted parts of their supply chains to India, a trend directly linked to PLI incentives and improving infrastructure.

Business-friendly reforms and political stability 🔗

Investors do not chase growth numbers alone; they also look for predictability. India’s ease-of-doing-business reforms over the past decade, including the rollout of the Goods and Services Tax (GST), the Insolvency and Bankruptcy Code, and the decriminalisation of thousands of minor compliance provisions, have been aimed squarely at reducing friction for businesses. A National Single Window System now consolidates approvals and clearances that were previously scattered across departments.

Combined with relatively stable governance over the past decade, these reforms have strengthened investor confidence. Political stability matters because large capital commitments, particularly in manufacturing, often take years to yield returns, and investors need reasonable certainty that policies will not change abruptly.

When India was projected to overtake China 🔗

One of the more talked-about milestones in India’s emerging economy narrative came from the International Monetary Fund. In its World Economic Outlook released in late 2015, the IMF projected that India’s growth would rise to 7.5 percent in 2016 while China’s growth would slow to 6.3 percent, a gap of more than one percentage point. This projection was widely reported as the moment India was set to become the world’s fastest-growing major economy, overtaking China for the first time in decades.

The reality that followed was more layered. Here is how the projections evolved over subsequent IMF outlooks:

By January 2017, the IMF revised India’s growth estimate down to 6.6 percent against China’s 6.7 percent, largely because of the temporary disruption caused by India’s currency note ban in late 2016. This episode is a useful reminder that projections, however credible, can shift with domestic policy shocks. Even so, India reclaimed the “fastest-growing major economy” tag in subsequent years, underlining that the underlying growth momentum remained intact despite short-term setbacks.

Piecing the story together 🔗

India’s emergence as a major economy rests on several factors working in tandem: a demographic dividend that keeps the workforce young, a services sector led by IT that punches above its weight globally, a pharmaceutical industry that has become indispensable to global healthcare supply chains, and a manufacturing push that is slowly but steadily gaining ground. Add to this a steady stream of foreign investment and a policy environment that has grown friendlier to business, and the picture of an economy on the rise becomes clear.

None of this means the journey is complete. Per capita income remains modest compared to advanced economies, job creation has not always kept pace with the growing workforce, and manufacturing’s share of GDP still lags behind the ambitions set for it. But the trajectory over the last three decades gives a strong indication of where India is headed and why global investors continue to watch it closely.

What do you think? Do you think India’s growth story is more driven by its services and technology strength, or by the promise of its manufacturing push under initiatives like Make in India? And looking at how the 2016 IMF projections played out, how much weight should students of economics place on such growth forecasts when they can shift so quickly with domestic events?

References

1. https://econofact.org/indias-path-to-becoming-one-of-the-worlds-largest-economies
2. https://www.worldbank.org/en/country/india/overview/
3. https://www.india-briefing.com/news/india-fdi-inflows-fy-2025-26-top-countries-sectors-states-45422.html/
4. https://www.ibef.org/industry/information-technology-india
5. https://www.investindia.gov.in/sector/pharmaceuticals
6. https://www.ey.com/en_in/insights/india-at-100/reaping-the-demographic-dividend
7. https://www.pib.gov.in/PressNoteDetails.aspx?NoteId=155082&ModuleId=3&reg=48&lang=2
8. https://time.com/4064173/india-growth-rate-increase-7-5-imf-report-china/
9. https://money.cnn.com/2017/01/16/news/india/imf-world-economic-outlook-india-china/index.html