Context: Recently, the World Bank has released a report titled ‘India Country Economic Memorandum’ which has called for accelerated reforms to help India achieve high income status by 2047.
India will need to grow by 7.8% on average over the next 22 years to achieve the country’s aspirations of reaching high-income status by 2047.
Relevance of the Topic:Mains: Viksit Bharat- Recommendations
Major Highlights of the Report
- Global Experience in Economic Transition:
- Only a few countries, such as Chile, Romania, Poland, Czech Republic, and Slovakia, have transitioned from middle to high-income status within two decades.
- Many others, including Brazil, Mexico, and Turkey, have remained in the upper-middle-income trap.
- India needs ambitious reforms and effective implementation to avoid stagnation.
- India’s Growth and Investment Projections:
- India’s Gross National Income (GNI) per capita must increase nearly eight times from $2,540 (2023) to exceed the $14,005 high-income threshold.
- Under a moderate reform scenario in India:
- Investment is projected to peak at 37% of GDP by 2035.
- Economic growth is expected to average 6.6% annually.
- Total factor productivity (TFP) growth would peak at 2.5%.
- Female labor force participation (FLFPR) is expected to increase to 45% by 2045.
- India needs ‘accelerated reforms’, with which:
- Investment share in GDP could reach 40% by 2035.
- Growth could reach 7.8% annually, enabling high-income transition.
- Total factor productivity (TFP) growth would peak at 2.7%.
- FLFPR is expected to increase to 55% by 2050.
Key Reform Areas
- Financial-Sector Reforms:
- Ensure efficient credit allocation and risk minimisation.
- Deepening corporate bond markets.
- Facilitating further credit access for Micro, Small, and Medium Enterprises (MSMEs).
- Boosting private and public investments: Increasing public investment in sectors that crowd-in private investment, such as:
- Agriculture and allied industries
- Urban development
- Transport infrastructure
- Trade and FDI liberalisation:
- Reducing tariffs and trade barriers.
- Encouraging participation in Global Value Chains (GVCs) to enhance productivity and exports.
- Addressing market concentration and large state presence in key sectors like petroleum, IT equipment, and cement.
- Creating Quality Jobs:
- Targeting stronger growth in labor-intensive sectors
- Expanding MSMEs to increase employment opportunities.
- Supporting traditional market services (hospitality, trade, and communications) through better infrastructure and reduced entry barriers.
- Enhancing intermediate manufacturing by reforming labor regulations, improving land availability, and upgrading logistics infrastructure.
- State-specific growth strategies:
- Addressing inter-state income disparities for inclusive growth.
- Encouraging policies for large-scale inter-state migration.
- Implementing differentiated policy approaches, rather than a ‘one size fits all’ approach:
- Less-developed states: Strengthening growth fundamentals.
- Developed states: Focusing on next-generation reforms.
By implementing these reforms, India can sustain high growth, create employment opportunities, and improve the standard of living for its citizens.