India Finance, or finance in India, has become a key driver of economic growth. The economy of India is the fourth largest in the world in terms of GDP. India adopted protectionism and self-reliance philosophies for strengthening and growing its economy following its independence in 1947. The country opened its doors in 1991, allowing free trade on the current account. Although the agriculture and allied sectors employ roughly 60% of the total Indian workforce, they account for merely 17% of the nation’s GDP (as of 2007). The service and industrial sectors account for 54% and 29% of the GDP, respectively.
With the turn of the millennium, a new era began in the growth of the Indian economy. From fiscal 2003-2004 to fiscal 2007-2008, India recorded high single-digit GDP growth rates. Although India’s GDP growth slowed in 2008 due to global recession, it remained in the high single-digit range.
India Finance: Currency
The official currency of India is the INR (Indian National Rupee). The currency is issued by the country’s central bank, the Reserve Bank of India (RBI), which regulates foreign exchange in the country. Although there are no currency conversion limitations for the Indian rupee, the RBI has placed restrictions on the capital account. Although local firms can take capital out of the country to expand in the international markets, local households cannot diversify their portfolio globally.
From 1950-1951 to the mid-1970s, the INR was linked to the Pound Sterling. From 1975 to 1982, the effective rate of the INR was linked to a "basket of currencies" of India’s key trading partners. From 1982, the rupee was linked to the US dollar. In 1991, the RBI began removing restrictions and the valuation of the currency became determined by a 'managed' or 'dirty float' regime.
India Finance: Stock Market
The Indian stock market comprises of two major stock exchanges, the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE), of which the former is more popular. While the BSE is a 30-stock sensitive index, or Sensex, the NSE index comprises of 20 companies. Stock market trading and the functioning of the stock exchanges, brokers, investment advisors and portfolio managers are regulated by the Securities and Exchange Board of India (SEBI).
India is second only to the US in terms of the number of companies listed on its stock exchanges. India has become a preferred location for global investment firms after it liberalized its financial policies in the early 1990s. Although the participation of the middle class has increased since 2000, when the market crossed 6,000 points, the contribution of this section of investors is still limited.
India Finance: Commodity Market
Trading in the Indian commodity market did not gain momentum till the early 1990s due to several restrictions imposed by the government. The Indian government has taken several measures, including the setting up of 21 regional and four national commodity exchanges, to enhance the efficiency of the commodity trading market. One of the top online commodity exchanges is National Commodity & Derivatives Exchange Limited (NCDEX). Futures trading in the commodity market is regulated by the Forward Markets Commission.