New Delhi: It could take nearly 75 years for India’s per capita income to reach a quarter of the income levels of the United States if current trends persist, according to a World Bank report released on Thursday.
The report, titled "World Development Report 2024: The Middle Income Trap," underscores the formidable obstacles over 100 countries, including India, face in their journey towards high-income status over the next few decades. Drawing on data from the past 50 years, the report highlights that while China may take over a decade to reach one-quarter of the US’s income per capita, Indonesia is projected to take nearly 70 years at current growth rates.
The World Bank identifies a significant "trap" that countries encounter as they become wealthier, typically at around 10% of the US’s annual GDP per person, which currently equates to $8,000 (approximately Rs 6.7 lakh). This figure falls within the range of what the financial institution terms "middle-income" countries.
Since 1990, only 34 middle-income economies have transitioned to high-income status. The report notes that more than a third of these countries benefited significantly from their integration into the European Union or the discovery of oil reserves. By the end of 2023, 108 countries were classified as middle-income, each with an annual GDP per capita ranging between $1,136 (Rs 9,95,193) and $13,845 (Rs 11,60,175). These nations collectively represent about six billion people, or 75% of the global population, with two out of every three people living in extreme poverty.
"The road ahead presents even stiffer challenges than those seen in the past: rapidly aging populations, burgeoning debt, fierce geopolitical and trade frictions, and the growing difficulty of accelerating economic progress without harming the environment," wrote Indermit Gill, chief economist at the World Bank group.
"Yet many middle-income countries still rely on outdated policies designed primarily to expand investment," he added. "That is like driving a car in first gear and expecting it to go faster." Gill emphasized that adhering to such outdated strategies would hinder most countries from achieving "reasonably prosperous societies by the middle of this century."
The report offers a framework for countries to "escape" the middle-income trap, proposing a three-pronged strategy: initially focusing on investment, then incorporating new technologies from abroad, and finally balancing investment, infusion, and innovation.
The World Bank report also refers to Prime Minister Narendra Modi’s vision of transforming India into a developed economy by 2047, the centenary of the country’s independence. While the Indian government and others aspire to emulate the economic transition of countries like South Korea, the report cautions that it would be miraculous if today’s middle-income economies could achieve in 50 years what South Korea accomplished in just 25.
The daunting path ahead underscores the need for innovative policies and strategic investment to overcome the middle-income trap and realize the vision of a developed economy.