India - Diversified Economies in the World

India has one of the largest, most highly diversified economies in the world, but, because of its enormous population, it is--in terms of income and gross national product (GNP) per capita--one of the poorest countries on Earth. India is developing into an open-market economy, yet traces of its past import resistent policies remain. Economic liberalization, including reduced controls on foreign trade and investment, began in the early 1990s and has served to accelerate the country's growth, which has averaged more than 7% per year since 1997. India's diverse economy encompasses traditional village farming, modern agriculture, handicrafts, a wide range of modern industries, and a multitude of services. Slightly more than half of the work force is in agriculture, but services are the major source of economic growth, accounting for more than half of India's output, with only one-third of its labor force. An industrial slowdown early in 2008, followed by the global financial crisis, led annual GDP growth to slow to 6.5% in 2009, still the second highest growth in the world among major economies. India escaped the brunt of the global financial crisis because of cautious banking policies and a relatively low dependence on exports for growth. India's fiscal deficit increased substantially in 2008 due to fuel and fertilizer subsidies, a debt waiver program for farmers, a job guarantee program for rural workers, and stimulus expenditures. The government abandoned its deficit target and allowed the deficit to reach 6.8% of GDP in FY10. Nevertheless, as shares of GDP, both government spending and taxation are among the lowest in the world. The government has expressed a commitment to fiscal stimulus in FY10, and to deficit reduction the following two years. India's long term challenges include widespread poverty, inadequate physical and social infrastructure, limited employment opportunities, and insufficient access to basic and higher education. Over the long-term, a growing population and changing demographics will only exacerbate social, economic, and environmental problems.