Does India have potential for investors?
India's economy is calculated to be the third largest in the world in terms of purchasing power parity and the sixth largest if measured by nominal GDP. India is also one of the major G20 economies, with a growth rate averaging around 7% over the last two decades. In the last quarter of 2014, it became the fastest-growing major economy in the world, surpassing the People's Republic of China. Although both countries showed very similar rates of growth in 2016, it is forecasted that while China's growth will decelerate, the growth of India's economy will bounce back to 7.2% in 2017. According to a PWC report, The World in 2050, India's nominal GDP could surpass that of the United States as early as 2040. The report also projects the doubling of India's GDP to 5 trillion USD by 2025.
There are several main reasons for India's positive long-term growth outlook, including its relatively young population (with a correspondingly low dependency ratio), healthy investment and savings rates and increasing integration into the global economy. It is believed that the Indian economy has real potential to become the third largest in the world by the next decade, and one of the two largest by the middle of the century.
Another reason that India's economy has grown more rapidly than those of other countries is believed to be the increase in state investment, which, incidentally, also plays a significant role in the second-fastest-growing economy in the world — China. Meanwhile, slow-growing western countries rely mainly on private rather than state investment.
India's service sector is one of the most rapidly growing in the world, expanding at a rate of 9% each year since 2001. India has become a major exporter of business process outsourcing (BPO) services, software and IT services — the latter being the largest private-sector employer in the country. India also has the most rapidly rising number of internet users in the world, which shows the huge potential of ecommerce in India. Flipkart and Amazon are the best examples of ecommerce success in India. India is also the world's third-largest start-up hub, with more than 3100 tech start-ups in 2014–2015.
As the Indian economy continues to diversify and grow, the contribution of agriculture to the country's GDP has been declining steadily since 1951, yet it still plays a significant part in the country's socio-economic development and is one of the largest sources of employment. India currently ranks second worldwide for farm output.
Foreign direct investment is currently a major driver of economic development in India. Foreign companies invest in rapidly growing private businesses in order to enjoy the benefits of lower wages and a burgeoning business environment. India is extremely attractive for foreign investors. In fact, it surpassed the US and China as the top destination for FDI in the first half of 2015, attracting 31 billion USD compared to the US's 27 billion USD and China's 28 billion USD.
Among others, the service sector has been attracting a large share of foreign direct investment since 2011. The service sector includes finance, banking, insurance, non-financial business services, outsourcing, research and development, courier services and technology testing and analysis. During the 2014–15 fiscal year, the service sector attracted 3.25 billion USD, accounting for 17% of total FDI.
The service sector is followed by construction development (new settlements, housing, urban development and infrastructure) with 2.89 billion USD's worth of FDI, the telecommunications sector (radio paging, cellular mobile and basic telephone services) with 2.57 billion USD and computer software and hardware with 2.20 billion USD's worth of FDI in the same period.