Impact of the COVID-19 Pandemic
The COVID-19 pandemic had a significant impact on the Indian economy. During this period, several international rating agencies reduced their growth forecasts for India’s economy for the financial year 2020–21. Many agencies even predicted negative GDP growth, indicating that the country would enter a recession.
This downturn became the most severe economic slowdown India had experienced since 1979. During the pandemic period, the Indian economy contracted by about 6.6 percent. This decline, however, was slightly better than earlier estimates, which had predicted a contraction of about 7.3 percent.
Economic Recovery After the Pandemic
After the pandemic, the Indian economy began to recover. In 2022, the global ratings agency Fitch Ratings upgraded India’s economic outlook to stable. Similar outlooks were also maintained by S&P Global Ratings and Moody’s Investors Service.
The recovery was reflected in strong economic growth. In the first quarter of the financial year 2022–23, India’s economy grew by about 13.5 percent, showing a strong rebound after the pandemic-related slowdown.
Growth of the Labour Force
India has one of the largest workforces in the world. With around 607 million workers, India currently has the second-largest labour force globally. The workforce continues to grow rapidly, with about 46.6 million workers added during 2023–24 alone.
At the same time, India’s fertility rate has been declining steadily. It has fallen from around 3.3 in the year 2000 to about 1.9 by 2025. This level is below the replacement rate of 2.1, which is considered necessary to maintain a stable population over time.
Productivity and Outsourcing Industry
Labour productivity in India remains lower than in advanced economies, but it is comparable to levels seen in other emerging Asian countries such as China.
India’s outsourcing industry has also undergone a transformation. Earlier, outsourcing mainly involved call centre services and business process outsourcing work. Much of this work is now handled by countries such as the Philippines and other Southeast Asian nations.
In recent years, India’s outsourcing sector has shifted toward higher-value services such as software development, consulting, engineering services, and research-based work.
Global Capability Centres and Technology Workforce
India has become an important global centre for technology and research. The country hosts more than half of the world’s Global Capability Centres. These centres perform important functions such as product engineering and research and development for multinational companies.
India is also home to about 20 percent of the world’s semiconductor chip design engineers. As of early 2025, the country has an estimated 4.3 million software engineers, which represents about 14.7 percent of the global software engineering workforce.
Foreign Direct Investment and Trade Agreements
India continues to attract significant foreign investment. In the financial year 2021–22, foreign direct investment inflows into India reached about $82 billion.
The main sectors receiving these investments included finance, banking, insurance, and research and development.
India has also expanded its trade relationships with many countries and regional groups. The country has established free trade agreements and economic partnership arrangements with partners such as the European Union, ASEAN, SAFTA, Japan, South Korea, Australia, New Zealand, Oman, and the United Arab Emirates.
India has also signed agreements with the European Free Trade Association countries, which include Iceland, Liechtenstein, Norway, and Switzerland, as well as with the United Kingdom.
In addition, India maintains Comprehensive Economic Cooperation Agreements with countries such as Singapore, Malaysia, Mauritius, and Japan. The country is also negotiating or reviewing trade agreements with partners including Chile, Canada, Israel, and the Eurasian Economic Union.
India has also signed bilateral investment and tax treaties with several countries such as Bangladesh, Uzbekistan, Kyrgyzstan, Belarus, and Trinidad and Tobago.
India’s Position in the Global Economy
By the middle of 2025, the Government of India announced that the country had surpassed Japan to become the fourth-largest economy in the world in terms of nominal GDP.
IMF Assessment of India’s GDP Data
In 2025, the International Monetary Fund gave India’s GDP data a grade of “C.” The IMF stated that India’s national accounts and inflation statistics do not fully capture the large informal sector of the economy and may not accurately reflect people’s spending patterns.