India's economy is calculated to be the third largest in the world in terms of purchasing power parity and the sixth largest in terms of nominal GDP. India is also one of the most important G20 economies with a growth rate averaging around 7% over the past two decades. In the last quarter of 2014, it became the fastest growing major economy in the world, overtaking the People's Republic of China. Although both countries showed very similar growth rates in 2016, China's growth is forecast to slow down, while the Indian economy's growth will recover to 7.2% in 2017. According to a PWC report, The World in 2050, India's nominal GDP could surpass that of the United States as early as 2040. The report also forecasts India's GDP to double to $5 trillion by 2025.

There are several key reasons for India's positive long-term growth prospects, including its relatively young population (with a correspondingly low dependency ratio), healthy investment and savings rates, and increasing integration into the global economy. The Indian economy is believed to have the potential to become the third largest in the world by the next decade and one of the two largest by mid-century.

Another reason why India's economy has grown faster than other countries is probably due to the increase in government investment, which incidentally also plays a significant role in the second fastest growing economy in the world - China. Meanwhile, slow-growing Western countries rely mostly on private rather than government investment.

India's service sector is one of the fastest growing in the world, growing at 9% every year since 2001. India has emerged as a major exporter of Business Process Outsourcing (BPO) services, software and IT services, making it the largest private employer in the country. India also has the fastest growing number of internet users in the world, showing the huge potential of e-commerce in India. Flipkart and Amazon are the best examples of e-commerce success in India. India is also the third largest startup hub in the world with more than 3100 tech startups in 2014-2015.

As India's economy continues to diversify and grow, agriculture's contribution to the country's GDP has steadily declined since 1951, but it still plays a significant role in the country's socio-economic development and is one of the largest sources of employment. India currently ranks second in the world for agricultural production.

Foreign direct investment is currently an important driver of economic development in India. Foreign companies are investing in fast-growing private companies to take advantage of lower wages and a burgeoning business environment. India is extremely attractive to foreign investors. In fact, in the first half of 2015, it overtook the US and China as the top destination for FDI, attracting US$31 billion compared to the US's US$27 billion and China's US$28 billion.

Among other things, the service sector has attracted a large part of foreign direct investment since 2011. The service sector includes finance, banking, insurance, non-financial business services, outsourcing, research and development, courier services, and technology testing and analysis. During FY 2014-15, the service sector attracted US$3.25 billion, representing 17% of total FDI.

The services sector is followed by construction development (new housing, housing, urban development and infrastructure) with FDI worth US$2.89 billion, telecommunications sector (paging, mobile and basic telephone services) with US$2.57 billion and computer software and hardware with foreign direct investment worth US$2.20 billion in the same period.