India, one of the fastest-growing major economies in the world, faces a daunting challenge as the World Bank projects it will take 75 years for its per capita income to reach a quarter of U.S. income levels if current trends persist. This stark warning was issued as part of the World Bank’s ‘World Development Report 2024,’ which highlights the risks of the “middle income trap” for 108 countries, including India and China.
The Middle-Income Trap and India’s Economic Aspirations
Prime Minister Narendra Modi has set an ambitious vision for India to become a developed economy by 2047, marking the centennial of its independence. However, the World Bank’s report casts a shadow over this vision, suggesting that achieving such a transition in the next 25 years, akin to Korea’s economic miracle, would be extraordinarily challenging.
Indermit Gill, the World Bank’s chief economist, emphasized that many middle-income countries, including India, still rely on outdated economic policies focused primarily on expanding investment. He likened this to “driving a car just in first gear and trying to make it go faster,” warning that without a shift in strategy, these countries are unlikely to achieve the prosperity they aspire to by mid-century.
A Grim Outlook for Middle-Income Economies
According to the World Bank’s analysis, nations like China, India, Brazil, and South Africa face significant hurdles in their quest to join the ranks of high-income countries. Historically, countries tend to hit a “trap” at about 10% of annual U.S. GDP per capita, currently around $8,000. This threshold often marks the point where growth stalls, and only a select few nations have managed to break through it since 1990, often due to unique circumstances like EU integration or the discovery of new natural resources.
The Need for a New Economic Playbook
The World Bank’s report stresses that the traditional playbook for economic development, which relies heavily on investment, is no longer sufficient. Instead, Mr. Gill advocates for a phased approach: starting with a focus on investment, followed by the integration of new technologies from abroad, and finally adopting a balanced strategy that includes investment, technology infusion, and innovation.
This new approach is essential given the myriad challenges facing middle-income countries today, including aging populations, rising debt, geopolitical tensions, and the need for sustainable development. “With growing demographic, ecological, and geopolitical pressures, there is no room for error,” Mr. Gill cautioned.
Conclusion
As India aims to transform itself into a developed economy by 2047, the path ahead is fraught with challenges. The World Bank’s sobering analysis underscores the need for a radical shift in economic strategy to avoid the middle-income trap and achieve long-term prosperity. By embracing a balanced approach that combines investment, technological adoption, and innovation, India and other middle-income countries can hope to overcome these obstacles and secure a brighter economic future.