Source– The post is based on the article “Express View: India’s road to 2047” published in “The Indian Express” on 26th July 2023.
Syllabus: GS3- Indian economy and growth
Relevance: Development model for high growth
News- In his Independence Day speech last year, Prime Minister Narendra Modi laid out his vision for India to achieve developed country status by the 100th year of its independence.
A recent study by economists at the Reserve Bank of India provides some clues on the growth trajectory needed to hit the target.
What are the prospects of India achieving the status of high income country?
India has a per capita income of $2,388 in 2022. It is currently classified by the World Bank as a lower middle income country.
As per IMF, the country’s per capita income is expected to rise to $3,720 by 2028. So, it is unlikely to achieve upper middle income status by the end of this decade.
Recent Reserve Bank of India study– Presently, the World Bank classifies countries with per capita incomes surpassing $13,025 as high income countries.
If inflationary effects are taken into account over the next few decades, a country’s per capita income would need to exceed $21,664 by 2047 to maintain high-income classification.
To reach this objective, the nominal per capita GDP in USD needs to increase at a yearly rate of 9.1 percent during this timeframe, which translates to 7.6 percent in real GDP terms.
However, achieving these growth rates poses a challenge. The study highlights that even during India’s most favourable 25-year period between 1993-94 and 2017-18, such growth rates were not achieved.
Countries that have achieved high income status have taken a conscious decision to industrialise and focus on external trade.
This is a challenge for the Indian economy. The level of merchandise exports has not reached the levels envisaged.
Manufacturing’s share should increase to 25% of value added. A business as usual approach is not sufficient.
The RBI study advocates for the urgent need to increase investments in the economy, reduce logistics costs, focus on skilling the labour force, investing more in health and education, and scaling up R&D.