The economy of India, when measured in dollar exchange rates, is the twelveth largest in the world, with a GDP of US $1.25 trillion (2008). It is the third largest in terms of purchasing power parity. India is the second fastest growing major economy in the world, with a GDP growth rate of 9.4% for the fiscal year 2006–2007. However, India's population translates into a per capita income of $4,542 at PPP and $1,089 at nominal value (revised 2007 estimate). The World Bank classifies India as a middle-income country. India has a very diversified economy, including agriculture, handicrafts, textiles, manufacturing, and a multitude of services. Although two-thirds of the Indian workforce still earn their livelihood directly or indirectly through agriculture, services are a growing sector and play an increasingly important role of India's economy. The advent of the digital age, and the large number of young and educated population is fluent in English, is gradually transforming India as an important 'back office' destination for global outsourcing of customer services and technical support. India is a major exporter of highly-skilled workers in software and financial services, and software engineering. Other sectors such as manufacturing, pharmaceutical, biotechnology, nanotechnology, telecommunications, shipbuilding, aviation and tourism are showing strong potential with growth rates higher.

India has followed an approach inspired socialist for most of its independent history, with strict government control over private sector participation, foreign trade, and foreign direct investment. However, since early 1990, India has gradually opened up its markets with economic reforms by reducing government controls on foreign trade and investment. The privatisation of publicly owned industries and the opening up of certain sectors to private and foreign interests has progressed slowly in the middle of a political debate.

India is facing a rapidly growing population and the challenge of reducing economic and social inequalities. Poverty remains a serious problem, although it has declined significantly since independence. Official surveys estimated that in the year 2004-2005, 27% of Indians are poor.