Indian Economy: Defying History to Become a Top Economy

Indian Economy: Defying The Odds

India’s Nominal GDP in USD (Bn) 1947-2025*

Indian economy stands among the world’s top five economies, a position that reflects its remarkable journey from colonial subjugation to economic prominence. Unlike other major economies, India endured nearly two centuries of British rule, a period that systematically dismantled its economic, social, and cultural fabric. Yet, in the decades following independence, the country has reclaimed its place on the global stage, growing into an economic powerhouse. In 1947, when it got its independence, India’s nominal GDP stood at 25 billion USD. Fast forward to 2025, its GDP is 4.3 trillion USD (projected).

To appreciate the uniqueness of India’s ascent, consider the following:

Other former colonies like the United States, Australia, Canada, and Brazil have achieved great economic success. However, they are now ruled by the descendants of European settlers rather than their indigenous populations. In contrast, India’s leadership and populace remain primarily indigenous, making its resurgence particularly unique.

South Korea, another economic giant, was once a colony of Japan. Yet, its colonial period lasted only 35 years compared to India’s 200 years under British rule. Like India, Korea suffered a painful partition imposed by foreign powers, splitting the country into North and South. Today, South Korea is a top-10 global economy, with a per capita income nearly ten times that of India.

However, India’s total nominal GDP is more than twice South Korea’s, and its purchasing power parity (PPP) GDP is nearly four times larger. While South Korea grows at a modest 1%–2% annually, India maintains a robust 6%–8% growth rate. South Korea also faces demographic challenges, with an aging population and declining birth rates. Meanwhile, India’s youthful population fuels its economic expansion.

Among the world’s top 16 economies, only two countries—Mexico and Indonesia—experienced longer colonial rule than India. Mexico remained under Spanish rule for 300 years before briefly falling under French control. Today, its power structures still reflect strong European influence. While Mexico has had indigenous leaders, the country is predominantly governed by people of mixed ancestry and European descent. Despite a higher per capita income, Mexico lags behind India in total GDP and economic prospects. India’s nominal GDP is significantly larger, and its economy is growing at a much faster rate.

Indonesia, once a Dutch colony for about 350 years, endured British rule over some of its territories as well. Like India, it is now a democratic nation with a thriving economy. Unlike Mexico, currently Indonesia is ruled by its indigenous population, with no lingering colonial control over its governance. Indonesia’s economic trajectory is one of the most promising in the world, making it the closest comparison to India’s experience. Later in this article, we will examine Indonesia’s story in greater detail.

While we are talking about countries, colonies, colonial powers, and indigenous populations, we must acknowledge that the term ‘indigenous’ is complex, especially for a big and diverse country like India. India is a vast nation with a deep history of migration and cultural exchange. Throughout time, different groups arrived and made this land their home, shaping its diverse social fabric. Among these populations are the Adivasis—India’s tribal communities—who make up about 8.6% of the population (Census 2011). Considered among the earliest inhabitants of the subcontinent, they have long maintained distinct identities, languages, and traditions.

Despite their rich heritage, Adivasi communities remain among the most economically disadvantaged groups in India. Governments at both the state and central levels have implemented policies aimed at their upliftment, yet challenges persist. Issues like limited healthcare, sanitation, employment opportunities, and education gaps still need to be addressed. Conflicts over ancestral lands and displacement also continue to affect their way of life.

However, unlike indigenous communities in other former colonies, Indian tribal populations have not experienced widespread extermination, mass violence, or systemic eradication. In North America, Native Americans suffered forced removals, massacres, and near-genocidal policies. In Australia, Aboriginal communities were displaced and faced brutal government policies aimed at erasing their culture. The Māori of New Zealand endured land confiscation, warfare, and significant population decline due to colonial expansion. By contrast, Indian tribal groups played an active role in resisting British rule and contributed greatly to the country’s fight for independence. We will explore these aspects further in the coming sections.

India’s journey is unlike any other. Emerging from centuries of exploitation, it has risen to become an economic giant while preserving its deep-rooted identity. In the following sections, we will examine how India overcame its colonial past, how it compares with other former colonies, and what makes its economic rise unique.

Colonial Wound: Why The Rise of The Indian Economy is Extraordinary

Before British rule, the Indian economy was one of the most prominent economies in the world. It contributed nearly 24% of global GDP in the early 18th century. India was a land of thriving textile production, rich agriculture, and skilled craftsmanship. Indian weavers, blacksmiths, and merchants had a global reputation. Cities like Dhaka, Bombay (now Mumbai), Calcutta (now Kolkata), Masulipatnam, Venaras (now Baranasi), Madras (now Chennai), Murshidabad, Surat, etc, were hubs of trade and wealth. But colonial rule changed everything.

The British systematically dismantled the Indian economy. The textile industry, once the backbone of India’s wealth, was destroyed by British policies. Indian weavers were forced to buy expensive British-made cloth while heavy taxes crushed local producers. The famous Bengal weavers had their thumbs cut off, as some accounts suggest, to ensure they could not compete with British mills. Indian steel and shipbuilding industries were also undermined. Railways, often cited as a British gift to India, were primarily built to transport raw materials to British factories and ship finished goods back to Indian markets.

The economic damage went beyond industries. British policies caused repeated famines, with tens of millions dying between the 18th and 20th centuries. The Great Bengal Famine of 1943 alone killed an estimated 3 million people while British authorities continued exporting food. The infamous “Drain of Wealth” policy meant that a significant portion of India’s earnings was siphoned off to Britain. According to economist Utsa Patnaik, this wealth drain amounted to nearly $45 trillion in today’s terms. By 1947, India’s share of global GDP had collapsed to around 3%. The country, once an economic powerhouse, was left impoverished.

In contrast, other major economies did not suffer such prolonged exploitation. The United States was a British colony, but by 1776, it had gained independence and had control over its own economic policies. It industrialized rapidly, fueled by abundant natural resources and immigration. China, though it faced the Opium Wars and territorial losses, never fell entirely under colonial rule. Its economy remained intact, allowing it to rebuild in the 20th century. Germany and Japan, despite facing devastation in World War II, had never been subjected to centuries of colonial extraction. Both nations recovered quickly due to their industrial foundations, access to capital, and strategic rebuilding efforts.

The rise of the Indian economy is not just about growth. It is about recovering from an unprecedented scale of economic destruction. While countries like the United States and Germany built their wealth through industrialization and innovation, India first had to rebuild what was lost. The fact that India has reached the ranks of the world’s top five economies, despite its colonial past, makes its achievement extraordinary.

The scars of colonialism still linger. Infrastructure, industry, and education had to be rebuilt from the ground up. Policies focused on self-sufficiency, such as those led by the Green Revolution and IT boom, played a role in reversing centuries of damage. But the deeper success lies in the ability of the Indian economy to reclaim its place in the world. Few nations have risen from such systematic exploitation to become an economic force. The story of India and the Indian economy is one of resilience, persistence, and an unyielding will to move forward.

Impact of Colonialism on The Indian Economy

Indian Economy and Settler-Colonial Economies: Why They Don’t Compare

The economic rise of countries like the United States, Canada, Australia, New Zealand, and Brazil is often cited as evidence that former colonies can prosper. However, these nations followed a very different path from India. Unlike the Indian economy, which had to rebuild after centuries of colonial extraction, these economies were established under European control and have remained under European-descended leadership. Their indigenous populations faced displacement, marginalization, and even extermination. India, on the other hand, remains governed by its native people, making the resurgence of the Indian economy unique.

European Settler Rule in Former Colonies

The United States, Canada, Australia, and New Zealand were once under British colonial rule, but their histories diverged sharply from India’s. These nations were not colonies in the sense that India was. Instead, they became settler colonies, where European migrants not only ruled but also permanently settled. The European settlers replaced the indigenous populations as the dominant demographic and political force.

In the Americas, European settlement led to widespread displacement and deaths of native communities. The indigenous population of the United States declined dramatically due to war, forced removals, and diseases brought by Europeans. In Australia, the Aboriginal population suffered extreme violence, land seizures, and systemic oppression. The same happened in Canada and New Zealand, where native peoples were pushed to the margins of society. Today, while indigenous communities exist in all these countries, they form a small fraction of the population and continue to face socioeconomic disadvantages.

Brazil presents a similar case. Colonized by Portugal in the early 1500s, Brazil was built through the exploitation of indigenous labor and the transatlantic slave trade. Over time, European settlers became the dominant political and economic class. Today, most of Brazil’s wealth and power remain concentrated among people of European descent. Though Brazil is ethnically diverse, indigenous communities hold little influence over national politics and economy.

Economic Development Under European Control

Unlike India and the Indian economy, these settler-colonial economies did not experience economic destruction at the hands of foreign rulers. Instead, they were developed under European control, benefiting from direct investment, infrastructure expansion, and trade networks that favored their growth. The United States, for example, gained economic strength through British trade and later through territorial expansion. Canada, Australia, and New Zealand were integrated into the global economy as key suppliers of raw materials to Britain. Brazil, while originally an extractive colony, became a major agricultural and industrial economy under European-influenced governance.

The situation of India and the Indian economy was different. Under British rule, the Indian economy was systematically drained. Industrialization was suppressed, traditional industries were dismantled, and their wealth was siphoned off to Britain. When India gained independence in 1947, it had to rebuild its economy from scratch. Unlike settler colonies, which inherited well-functioning economies, India was left with deep poverty and structural economic weaknesses.

Rebuilding of India and The Indian Economy

The difference between the Indian economy and settler-colonial economies lies in who controlled economic development. In settler colonies, European-descended rulers shaped policies that benefited their economies from the start. India, however, had to reclaim its own economic destiny after centuries of subjugation. Despite this, the Indian economy has emerged as one of the world’s largest economies, an achievement unmatched by any other nation with a similar colonial past.

The United States, Canada, Australia, New Zealand, and Brazil never had to recover from colonial extraction. Their economic rise was built within the European system, while India had to rebuild itself after colonial devastation. This makes the resurgence of the Indian economy extraordinary. The story of India and the Indian economy is about resilience rather than inherited privilege.

China and Japan: Why Their Rise is Different

Rise of the Indian Economy vs. the Chinese and Japanese Economies

The journey of the Indian economy to become a top-five economy is often compared to that of the Chinese and Japanese economies. Both China and Japan faced foreign aggression, economic disruptions, and war, yet they emerged as economic powerhouses. However, their paths to prosperity differ significantly from India’s. Neither endured the kind of systematic colonial exploitation that India and the Indian economy faced under British rule. Understanding these differences helps to highlight why India’s rise is uniquely challenging and remarkable.

Japan, unlike India, was never colonized. It retained its sovereignty, maintained control over its institutions, and pursued industrialization on its own terms. During the Meiji Restoration, Japan underwent rapid modernization, adopting Western technology while maintaining its political autonomy. By the early 20th century, Japan was a growing imperial power rather than a colony. It built a strong manufacturing base, developed advanced industries, and expanded its economy through military conquests in Korea, Taiwan, and Manchuria. Even after its defeat in World War II, Japan benefited from U.S. aid, investment, and its pre-existing industrial foundation to rebuild quickly. Unlike India, Japan did not have to reconstruct an economy that had been systematically drained by a colonial power.

China presents a different case. It suffered greatly at the hands of foreign powers, particularly during the 19th and early 20th centuries. The Opium Wars (1839–1842, 1856–1860) resulted in humiliating treaties that forced China to cede territories like Hong Kong and open its economy to exploitative Western trade. Foreign powers controlled key coastal cities through treaty ports, and Japan’s invasion in the 1930s further weakened the country. However, China was never fully colonized. It retained territorial integrity, its ruling class, and its economic base. The exploitation China endured was severe, but it was not subjected to the same direct rule and wealth extraction that India faced for nearly 200 years.

By the mid-20th century, China embarked on a state-controlled industrialization process. The economic reforms of the late 20th century, particularly under Deng Xiaoping, transformed China into the world’s manufacturing hub. Unlike India, which had to navigate post-colonial economic restructuring while preserving its democratic framework, China’s authoritarian model allowed for rapid, centralized decision-making and economic planning. Additionally, China’s vast state-controlled enterprises and aggressive trade policies propelled its rise in a way that the Indian economy could not replicate.

The key difference is that the Indian economy had to be rebuilt from deep colonial devastation. In 1947, at the time of independence, India’s share of global GDP had fallen to around 4%, a dramatic decline from its pre-colonial economic strength. Unlike Japan, which had built its industries before World War II, or China, which retained its economic base despite foreign aggression, India had to start from near economic ruin. The colonial Indian economy was designed for extraction, not development. The education system, infrastructure, and industries were built not to serve the Indian economy but the British interests.

Today, the rise of the Indian economy is driven by internal entrepreneurship, a democratic system, and the ability to adapt to global economic shifts. The Indian economy has taken decades to undo the economic damage of British rule, but India is now charting its own path. Among the world’s leading economies, the rise of the Indian economy is unique because it was built from the ruins of prolonged, full-scale colonial exploitation.

Indonesia: The Only Other Close Comparison

Indonesia and India share a common history of colonial subjugation and post-independence nation-building. Both countries emerged from European colonial rule around the mid-20th century—Indonesia declared independence from the Netherlands in 1945, achieving full sovereignty in 1949, while India gained independence from Britain in 1947. Today, both nations are governed by their indigenous populations and have made significant strides in economic development. However, the scale and complexity of India’s rise set it apart in notable ways.

Post-Independence Economic Trajectories

In the early years following independence, Indonesia faced significant economic challenges. The economy remained heavily reliant on plantations and mines established during Dutch colonial rule, with limited manufacturing activity. Poverty and illiteracy were widespread, and the country struggled to produce enough rice to feed its growing population.

From 1949 to 1965, Indonesia experienced modest economic growth, primarily between 1950 and 1957. However, political instability and economic mismanagement led to dwindling growth rates from 1958 to 1965.

A series of economic reforms in the late 1980s, including a managed devaluation of the rupiah and financial sector deregulation, attracted foreign investment, particularly in export-oriented manufacturing. As a result, Indonesia’s economy grew by an average of over 7% from 1989 to 1997.

Indian Economy and Indonesian Economy: Some Key Indicators

As of 2023, Indonesia’s GDP stands at approximately $1.37 trillion, with a GDP per capita of $4,920. In contrast, India’s GDP is around $3.3 trillion, with a GDP per capita of $2,481.

Despite Indonesia’s higher GDP per capita, the Indian economy is more than twice the size of the Indonesian economy in absolute terms. Both countries have maintained steady economic growth, with Indonesia’s GDP growth projected at 5.0% in 2023 and an average of 4.9% over the medium term from 2024 to 2026. India’s growth rates have been comparable, often exceeding 6% in recent years.

Scale and Complexity of The Rise of The Indian Economy

The ascent of the Indian economy is marked by its vast and diverse population, which presents both opportunities and challenges. With over 1.4 billion people, India must create millions of jobs annually to accommodate new entrants into the workforce. The country’s diversity in languages, cultures, and religions adds layers of complexity to policy implementation and economic planning.

Furthermore, India’s democratic framework, while a strength, introduces additional challenges in decision-making and policy execution. The need to balance various regional interests and maintain social cohesion requires careful navigation, making economic reforms and development initiatives more intricate compared to Indonesia’s more centralized governance structure.

How India’s Tribal Populations Fit Into This

Comparison of Indigenous Tribal Populations: India vs. Settler-Colonial Nations

India’s tribal communities, known as Adivasis, form around 8.6% of the population (2011 Census). They are often seen as India’s indigenous people, yet their place in the country’s economic rise is complex. While marginalized in many ways, their experience differs from indigenous populations in settler-colonial economies like the United States, Australia, Canada, and New Zealand, where native peoples were displaced, exterminated, or forced onto reservations.

Unlike the Native Americans, Aboriginal Australians, or Māori in New Zealand, India’s tribal communities were never subjected to mass killings, forced removals, or outright erasure by a settler population. They remained in their ancestral lands, albeit often on the fringes of mainstream development. Their struggles are real—poverty, lack of education, and land conflicts persist. But their presence in Indian society is not one of extinction; it is one of survival and resistance.

India has recognized these challenges and taken steps to address them. The Indian Constitution provides Scheduled Tribes (STs) with protections and affirmative action policies. Reservation quotas in education, government jobs, and legislatures ensure representation. Laws like the Forest Rights Act (2006) grant land rights to forest-dwelling tribal communities. Various welfare programs focus on health, education, and employment for Adivasis.

Progress has been uneven. Many tribal regions remain underdeveloped, and conflicts over land and resources continue. But India’s approach has been one of inclusion rather than exclusion. Unlike settler-colonial nations that erased indigenous histories, India has sought to integrate its tribal communities into the national fabric. The journey is far from complete, but it is one of recognition, resilience, and ongoing effort.

Shortcomings and Challenges of the Indian Economy

The Indian economy has grown into one of the world’s largest economies, yet deep structural challenges remain. Despite the size of the Indian economy, India’s per capita income is low. According to the World Bank, India’s GDP per capita in 2023 was around $2,480, far behind developed nations and even some developing ones. This limits purchasing power and slows improvements in living standards. Economic development is uneven across the country. States like Maharashtra, Tamil Nadu, and Karnataka attract investment and create jobs, while Bihar, Uttar Pradesh, and Jharkhand struggle with poverty and poor infrastructure. This regional divide creates migration pressures, overburdening cities while leaving rural areas underdeveloped.

Unemployment is another pressing concern. India has a large working-age population, but job creation has not kept pace. The Periodic Labour Force Survey (Oct-Dec 2024) reported an unemployment rate of 6.4%. Many jobs are in the informal sector, offering low wages and no social security. Skilled jobs remain limited, and automation threatens traditional employment.

Government spending on public education and healthcare is low. According to the World Bank, India spends about 4.1% (2022) of its GDP on education and around 3.28% (2021) on healthcare, lower than many other developed and developing economies. This leads to overcrowded schools, poorly trained teachers, and a weak healthcare system. Private education and hospitals fill the gap, but they remain out of reach for much of the population.

Corruption remains a deep-rooted issue. Transparency International’s Corruption Perceptions Index (2024) ranked India 96th out of 180 countries. Bureaucratic inefficiencies and bribery hinder business, slow down infrastructure projects, and reduce trust in public institutions. Women face significant economic barriers. According to the Ministry of Labour and Employment of India, in 2024 Female labor force participation in India was only 42%, which is lower than many developed and industrialized nations. Various social norms, safety concerns, and a lack of workplace support limit women’s economic contributions.

Climate change adds further strain. India faces rising temperatures, erratic monsoons, and extreme weather events. Cyclones, droughts, heat waves, and floods disrupt agriculture and livelihoods. Delhi and other cities struggle with severe air pollution, reducing productivity and causing health issues. A low-skilled workforce hampers growth. While India produces millions of graduates, many lack job-ready skills. Vocational training is inadequate, and businesses struggle to find qualified workers. This limits innovation and productivity. Poverty remains widespread, particularly in some states and rural areas.

Niti Ayog of India estimated that in 2023, around 12% of India’s population was multidimensionally poor. Although this figure shows continuous improvement, compared to other top economies of the world, India lags. Malnutrition, lack of sanitation, and poor housing persist in many communities.

The future of the Indian economy is promising, but these challenges must be addressed. Without stronger reforms and investments, growth may not benefit all its people.

Indian Economy: A Story of Unmatched Resurgence

The rise of the Indian economy stands alone in modern history. No other top-five economy endured two centuries of colonial rule, saw its industries dismantled, and faced deliberate economic drain—yet still managed to reclaim its place among the world’s largest economies. The scars of colonialism run deep, but India’s ascent is a testament to resilience, adaptation, and an unbroken civilizational spirit.

Settler economies like the United States, Canada, Australia, and New Zealand built their wealth on land taken from indigenous peoples. Their economies grew under European governance, untouched by the kind of economic destruction India endured. Brazil, a former Portuguese colony, followed a similar pattern, where European-descended elites maintained control even after independence. Countries like Mexico and Indonesia, which also suffered long colonial rule, have seen economic growth, but their scale and trajectory differ from India’s. Mexico’s power structure remains deeply influenced by European ancestry, while Indonesia, though ruled by its indigenous people, has a smaller economy and a different industrial structure.

Among all post-colonial nations, only India and Indonesia remain true economic contenders. Yet, India’s size, diversity, and economic scale set it apart. With a billion-plus population, a vast industrial base, and a fast-growing technology sector, the Indian economy moves at a scale unmatched by any other former colony. The country has not just grown—it has rebuilt itself from the wreckage of colonial exploitation.

Challenges remain. Regional disparities persist, unemployment is a pressing issue, and corruption weakens governance. The struggle for equitable economic growth is far from over. Yet, despite these hurdles, India has carved its own path, neither imitating Western models nor relying on foreign rule to shape its economic destiny.

The story of the Indian economy is more than just numbers, GDP figures, or trade balances. It is a civilizational triumph, a reclamation of what was taken, and proof that history’s weight does not determine the future.

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