Estudios Económicos


Population 1367.6 million
GDP 2,098 US$
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major macro economic indicators

  2018 2019 2020 (e) 2021 (f)
GDP growth (%)* 6.1 4.2 -9.0 8.0
Inflation (yearly average, %) 3.4 4.8 5.0 4.0
Budget balance (% GDP)* -6.5 -8.0 -13.0 -11.0  
Current account balance (% GDP)* -2.1 -0.9 0.5 -0.9
Public debt (% GDP)* 69.5 72.0 89.0 90.0

(e): Estimate (f): Forecast *FY 2021: April 2021-March 2022


  • Diversified growth drivers
  • Immense workforce and population (over 50% of the population under 25) with good command of English
  • Efficient private sector, especially services
  • Expatriates’ remittances, jewellery, garments, vehicles and medicine exports, as well as tourism revenues, contribute positively to the current account
  • Moderate level of external debt and adequate FX reserves


  • High corporate debt and non-performing loans (NPL)
  • Net importer of energy resources
  • Lack of adequate infrastructure
  • Weak public finances
  • Bureaucratic red tape, inefficient justice
  • Widespread poverty, inequality, and informality
  • Military confrontation in Kashmir with China and Pakistan
  • Non participation in regional trade agreements (Regional Comprehensive Economic Partnership Agreement)


Recovery with existing downside risks

The economy is set to rebound gradually in 2021, but pre-existing headwinds might impede the growth momentum. Private consumption (65% of GDP) is likely to recover slowly due to a weak outlook, as income loss and the increase in unemployment induced by the lockdowns are unlikely to be fully absorbed. Businesses should likely delay capital expenditure because of uncertainties. While the Purchasing Manager’s Index (PMI) is back to expansionary territory since September 2020, reflecting higher demand and an increase in production, unemployment has continued to increase because of the social distancing guidelines that are in place. Standing at 8% as of June 2020, the NPL ratio is set to increase, as SMEs were under strain during the lockdown. Moreover, the four additional months announced by the central state in August (until December 2020) on loan guarantees, moratorium and debt restructuring schemes will further add to pressures on India’s state lenders. Consequently, banks and shadow lenders might constrain credit conditions when access to credit is most needed to restart the economy.

Inflation is likely to decrease and meet the Reserve Bank of India’s (RBI) 2-6% target range, after peaking in 2020 due to disorganized supply chains, floods in eastern India, domestic taxes on petroleum products and a surge in gold prices. This would allow the RBI to conduct further rate cuts in order to support the recovery, after 40 bps rate cuts during the pandemic in the FY 2020-2021. However, a deterioration in asset quality could disrupt monetary policy transmission and weaken the effectiveness of the central bank’s easing measures aimed at supporting the recovery.


Public finances will remain weak

The fiscal deficit is expected to decrease, but should remain higher than pre-COVID-19 levels in FY 2021-2022. The deficit breached nearly 120% of the annual budget estimate for the fiscal year 2020-2021 as of November 2020. The lockdown implemented in March, which suspended all business activities and hampered domestic consumption, deteriorated public revenues. Revenue collection from the Goods and Services Tax (GST) was disappointing, before rebounding in November 2020 as containment measures were eased. The large stimulus package (15% of GDP as of November 2020), aimed at stimulating consumer demand and job creation through direct benefit transfers and social security , would support somewhat the recovery in tax collection. 

The current account balance will likely go in deficit in 2021 (from a surplus in 2020), for the first time since 2003. Imports should increase faster than exports, as demand should gradually improve. However, they should remain subdued in 2021, as the country is still grappling with COVID-19 infections and supply disruptions. Foreign exchange reserves remain at comfortable levels (nearly 14 months of imports as of June 2020), which should help the RBI to protect the rupee from depreciation.


Increasing nationalism

Prime Minister Narendra Modi’s Bharatiya Janata Party (BJP) secured a substantial majority in the Parliamentary elections of May 2019 (349 out of 542 seats). Modi’s second mandate focuses on the liberalization of the economy (such as the recent agricultural reform that triggered strikes among farmers), job creation and investments in infrastructure, while tackling corruption and fostering the ideology of Hindu nationalism. In light of the slow progress on the economic front, worsened by the pandemic, the BJP could opt to intensify its nationalist agenda, which would not please foreign investors, who are keen on secular policies.

On the external front, India is unlikely to join the RCEP any time soon - in order to protect local farmers and industrial interests - due to large deficits with its members, especially China , ASEAN and South Korea. However, by doing so, India could lose market shares in the world’s largest trade bloc. Instead, it is seeking to resume trade talks with the EU - the largest trading partner (11% of Indian exports) - and the U.S. (10.7%) for a free trade agreement, which have been stalled since 2013.


Last updated: February 2021


Due to the increasingly developed banking network in India, SWIFT bank transfers are becoming more popular for both international and domestic transactions.

Standby Letters of Credit constitute a reliable means of payment, as a bank guarantees the debtor’s credit quality and repayment abilities. Confirmed Documentary Letters of Credit are also recognised, although these can be more expensive, as the debtor guarantees that a certain amount of money is available to the beneficiary via a bank.

Post-dated cheques, a valid method of payment, also act as a debt recognition title. They allow for the initiation of legal and insolvency proceedings in cases of outstanding payments.

Debt collection

Amicable phase

The practice of amicably settling trade receivables has proven to be one of the most productive solutions, as it allows the parties involved to deal with the underlying issues of the settlement in a more efficient and cost-effective manner. Average payment collection periods vary between 30 to 90 days following the establishment of contact with the debtor. Local working practices mean that debtors pay directly to the creditor, rather than to a collection agency. Indian law does not regulates late payments, or provide for a legal enforceable late payment interest rates. In practice, debtors do not pay interest on overdue amounts.

Major issues in the country currently mean that debtors are facing huge financial difficulties. The situation has deteriorated since demonetisation in November 2016 and the introduction of the GST unified tax structure (the Goods & Service Tax), in July 2017. The other main reason for payment delays is the complexity of payment procedures and approvals by banks for the restructuring plans of major players in the manufacturing sector. India is faced with a severe problem of bad loans and most of them have been declared as NPAs by the banks. This deteriorating asset quality has hit the profitability of banks and eroded their capital, thereby curbing their ability to grant much-needed loans to industries for their restructuring and revitalisation.


Legal proceedings

Indian companies have a preference for amicable recovery methods, as the country’s judicial system is both expensive and slow. There is no fixed period for court cases, while the average length is from two to four years. The statute of limitations is three years from the due date of an invoice. The statute of limitations can be extended for an additional three years, if the debtor acknowledges the debt in writing or makes partial payment of the debt.

Legal proceedings are recommended after the amicable phase, if debtor is still operating and in good financial health, is wilfully resisting payment, disputing the claim for insignificant reasons, not honouring payment plans or not providing documentary evidence.


Type of proceedings
  • Arbitration:arbitration can be initiated if mentioned in the sales contract - otherwise the case can be sent to the National Company Law Tribunal (the NCLT) for registered companies.
  • Recovery Suits:recovery suits tend to become a long, drawn-out battle and are usually regarded as best avoided.
  • National Company Law Tribunal:the NCLT was created on June 1, 2016. It has jurisdiction over all aspects of company law concerning registered companies. Its advantages are that it can hear all company affairs in one centralised location and that it offers speedy processes (taking a maximum of 180 days). It also reduces the work load of the High Courts. The NCLT recently enacted a new Insolvency and Bankruptcy Code. Decisions of the NCLT may be appealed to the National Company Law Appellate Tribunal (NCLAT). The NCLAT acts as the appellate forum and hears all appeals from the NCLT. Appeals from the NCLAT are heard by the Supreme Court of India.

Enforcement of a Legal Decision

A local judgment can be enforced either by the court that passed it, or by the court to which it is sent for execution (usually where the defendant resides or has property). Common methods of enforcement include delivery, attachment or sale of property, and appointing a receiver. Less common methods include arrest and detention in prison for a period not exceeding three months.

India is not party to any international conventions governing the recognition and enforcement of foreign judgments. However, the Indian government has entered into 11 reciprocal arrangements, and judgments from the courts of these reciprocating countries can be executed in India in the same way as local judgments. For judgments from non-reciprocating territories, a suit must be brought in India based on the foreign judgment before it can be enforced. 

Insolvency proceedings

The Insolvency and Bankruptcy Code, introduced in 2016, proposes two independent stages:


Insolvency resolution process (IRP)

The IRP provides a collective mechanism for creditors to deal with distressed debtors. A financial creditor (for a financial debt), or an operational creditor (for an unpaid operational debt) can initiate an IRP against a debtor at the National Company Law Tribunal (NCLT). The Court appoints a Resolution professional to administer the IRP. The Resolution professional takes over the management of the corporate debtor and continues to operate its business. It identifies the financial creditors and holds a creditors committee. Operational creditors above a certain threshold are also allowed to attend meetings, but they do not have voting power. Each decision requires a 75% majority vote. The committee considers proposals for the revival of the debtor and must decide whether to proceed with a revival plan, or to liquidate, within 180 days.



A debtor may be put into liquidation if a 75% majority of the creditors’ committee resolves to liquidate it during the IRP, if the committee does not approve a resolution plan within 180 days, or if the NCLT rejects the resolution plan submitted on technical grounds. Upon liquidation, secured creditors can choose to realise their securities and receive proceeds from the sale of the secured assets as a priority.

Under the current Insolvency and Bankruptcy Code, the highest priority is given to insolvency resolution process and liquidation costs. Thereafter, proceeds are then allocated to employee compensation and secured creditors, followed by unsecured and government dues.

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