India to take 75 years to reach quarter of US GDP: World Bank report | Economy & Policy News

In an approach paper summarising its vision for ‘Viksit Bharat’, Niti Aayog last week said India needed to grow at a sustained pace of 7-10 per cent for 20-30 years to escape the middle-income trap and become a developed nation with a per capita income of $18,000 per annum and the size of a $30 trillion economy by 2047. “The GDP would have to grow 9 times from today’s $3.36 trillion and the per capita income would need to rise 8 times from today’s $2,392 per annum,” the government’s think tank said after its 9th Governing Council meeting attended by chief ministers and lieutenant governors.

According to the World Bank, economic growth in middle-income countries, including India, is not accelerating. In fact, it is slowing down as incomes increase, with the trend becoming more pronounced each decade, the report said.

“The observed rates of economic growth in middle-income countries do not exceed those in high-income countries by the margins needed to catch up in one generation — or even two or three,” it said.

Indermit Gill, Chief Economist at the World Bank, noted that many middle-income countries continue to rely on outdated strategies from the last century, focusing primarily on policies designed to expand investment. “If they stick with the old playbook, most developing countries will lose the race to create reasonably prosperous societies by the middle of this century,” he said.

The report used estimates from the World Bank’s Long Term Growth Model to suggest that if key drivers of economic growth such as investments in human capital, total factor productivity, labour force participation, and the allocation of economic output to public and private investment continue along with recent and historic trends, most middle-income countries are likely to face significant slowdowns between 2024 and 2100.

The report further revealed a “flat and stay” dynamic in firms in India, Mexico, and Peru, where a company that operates for 40 years typically doubles in size. In contrast, a firm that survives that long in the US will grow seven-fold, highlighting weaker forces of creation in middle-income countries. Additionally, in line with this dynamic, firms in India, Mexico, and Peru often remain microenterprises: nearly nine-tenths have fewer than five employees, and only a small fraction employ 10 or more.

“The longevity of undersize firms — many of them informal — points to market distortions that keep enterprises small while keeping too many in business,” the report said.

The report introduces a “3i strategy” for achieving high-income status, outlining the need for two distinct transitions during the middle-income phase. Initially, countries must move from a “1i strategy,” focused solely on accelerating investment, to a “2i strategy” that combines investment with infusion bringing in and disseminating technologies from abroad. Once this transition is accomplished, the report finally suggests countries adopt a “3i strategy”, which emphasises innovation.

Upper-middle-income countries that have successfully implemented infusion should then focus on innovation moving beyond merely adopting global technological advances to pushing the frontiers of technology themselves. This shift requires further restructuring of enterprises, work, and energy use, with an increased focus on economic freedom, social mobility, and political contestability, it added.

First Published: Aug 01 2024 | 7:04 PM IS