There are 108 low- and middle-income countries that have 75 percent of the world’s population, and slow economies, rising debt, and political rivalries are what shape today’s world of politics.
World Development Report 2024 presents an apocalyptic scenario of India’s economic future. It says it will take 75 years for this country to escape the middle-class trap.
Up until now, several barriers still stand between Viksit Bharat. However, this scenario may change if it leaves behind its present movement and embraces a new one.
How does the World Bank classify the economies ?
The World Bank Group classifies world economies into four income groups:
Low income – $1,145 or less ( Rs.96,281 or less)
Lower-middle – $1,146 to $4,515 (Rs. 96,345 to Rs.3,79,582)
Upper-middle – $4,516 to $14,005 (Rs.3,79,666 to Rs.11,77,421)
High Income – Greater than $14,005 ( Greater than Rs.11,77,421)
The classifications are updated every year on July 1, based on Gross National Income per capita of the preceding calendar year.
GNI estimates are based upon conversion factors that are constructed according to the Atlas method, which in its present form was first adopted in 1989.
When India marks its 100th anniversary of independence in 2047, the government wants to have left its current condition and achieved an area where substantial change has taken place.
The government has set a target with the goal to accomplish significant modifications by 2047 and is dedicated to bring out a true change in the current state the affairs. The dream is to change the nation into a fully developed country. This effort has been guided by NITI Aayog’s recent paper titled “Vision for Viksit Bharat @ 2047,” which guides one through the comprehensive roadmap towards achieving a tech-savvy, economically robust, and inclusive society. Critical attention to the document, however, is paid towards the need for India to avoid the so-called “middle-income trap” for achieving such ambitious growth targets.
Regressions for Middle income economy
Inequality: According to Oxfam India Report, between 2012 and 2021, more than 40% of the total wealth generated during the said period was concentrated in the hands of only 1% of India’s population, while this wealth trickled down to reach only 3% of that, at the bottom 50%. The inequality in wealth has been high, and though GDP per capita of India has registered an all-round growth, middle income economy growth has been held back by it.
Increased Interest Payments: India’s external debt increased by $39.7 billion from the end of March 2023 to $663.8 billion on June 26, 2024. The US government of India is expected to carry over 131 trillion rupees in internal debt by 2023, compared to an estimated 99 trillion rupees in 2021.The increase in debt thus attracts greater interest payments, and that translates into obligation burden in government expenditure. This leaves fewer productive funds available for investment – critical growth drivers of economic growth.
Crowding out private investment: the overwhelming government borrowing crowds out private investment through the high-interest rates that made funding dearer to the private sector. The circumstances stifled economic growth and employment creation as the per capita income depreciated.
Higher taxes and Reduced spending: Apart from debt management, the government could adopt higher taxes and reduced public services. It would further reduce disposable income and curb economic activity, bringing about a decrease in per capita income.
Difficulty in Channelling Technological Innovations: India has really gone a long way on the technology side; however, integrating innovations across all sectors is still a challenge. No access to modern technology, a low investment in research and development, and the gap between the research institutions and industries are mostly arguing for low productivity and competitiveness.
Decrease in Labour Participation: The failure to participate in the labour force can be attributed to multiple reasons such as unemployment, mismatched skills, and social factors that discourage participation by certain groups such as women. This could lead to lower economic growth and productivity.
India’s case is rather problematic in terms of a likelihood of the middle-income trap escape, though it has to be noticed that it is not unique in this. A good example is Brazil. At the beginning of this century, Brazil really was at the crossroads of major advancements: high commodity prices and quite effective social programs lifting millions of people out of poverty. It appeared that Brazil could continue its development process from the middle-income to the high-income class.
However, the per capita income has been fairly reasonable at over $10,000 as of 2024, leaving Brazil stuck in the middle-income trap. The leading problems have been inequality of incomes and the fact that 80% of the wealth is concentrated in the hands of the top 10%, whereas the rest hardly reap benefits from the economy. More structural issues entail corruption and vulnerability to fluctuations in the international prices of commodities, which have also arrested its growth momentum.
The only route to India is, thus, out of the middle-income trap and on to strategies that break the nation free from it. This might include:
1.Increasing Technological Accessibility
For instance, South Korea transformed from a nation of absolute poverty to absolute wealth through increased investment in technology and education. South Korea’s government invested in Research and Development so as to make companies like Samsung and LG leaders in their respective fields.
Take Action for India: Establish research centers, internet connectivity in villages, and start-ups may enable Indians to get better access to technology. An example is the “Digital India” initiative.This may yield results in the long run.
2. High Labour Participation
Sweden: Sweden has among the highest labour participation rate; main reasons are policies promoting work-life balance. It features generous parental leave, low-cost childcare, among others. This, therefore, becomes a high inducement for both males and females to be actively involved in the workforce.
Action for India: India can make preparations for labour force participation by supporting the policy establishment for women and other minority groups, working hours, and training programs. Economic output can be considered a high condition if there is a strong economy-based strategy on employment among women.
3. Income Inequality
Example: Costa Rica-the progressive taxation and social programs in Costa Rica increase accessibility to education and healthcare, further reducing income inequality. Costa Rica, therefore enjoyed stable growth with better living standards for the citizens.
India can take action by carrying out policies targeted at redistributive welfare, that would involve improving public services and social safety nets to better assist the underprivileged.A start in the correct path was the Mahatma Gandhi National Rural Employment Guarantee Act, or MGNREGA.
4. Institution building
Example: Singapore: Good institutions, with an element of low corruption, have created good business and investment environments. Stability has attracted foreign investment and taken the economy forward.
Action for India: The governance needs to be improved with greater transparency by removing all bureaucratic obstructions and checking corrupt practices. Efforts such as the GST have been made to make it easy to pay taxes and simplified tax structure.
5. Economic Diversification
Germany: The German economy is not just manufacturing-intensive. They also rely heavily on the technology and services base, too. For Germany, it is the “Mittelstand”-its small and medium-sized enterprises-that spells economic strength and feasibility.
Action for India: It can be pushed through support given to sectors such as renewable energy, manufacturing and information technology. Policies in investment towards emerging sectors like electric vehicles and pharmaceuticals will reduce dependence on any one sector.
Conclusion
If these examples are well learned and strategic initiatives are taken for India to overcome those challenges of the middle-income trap, then it will be a move toward success. Important steps in sustainable growth and transition to high-income status for India will involve innovation, labour participation, income inequality, institution building, and economy diversification.
