Need far-reaching reforms for India to be developed nation

In his Independence Day speech, our Prime Minister Narendra Modi called for suggestions on how India can become a developed nation by 2047. While there would be enough responses from a cross section of people and institutions in India to help the government formulate necessary policies, It would be worthwhile to consider the recommendations of the latest World Development Report 2024 (WDR) on what the developing countries need to do to become developed economies.
 

The WDR, prepared by economists at World Bank and released in the beginning of this month, says that developing countries must avoid stagnation at a per capita income of around $8,000 through investment’ ie increased capital deployment; infusion, ie increased deployment of cutting-edge technology; and innovation ie breakthrough inventions with enormous commercial potential. This can best be done by adopting policies that make it easier to get capital from anywhere in the world, to bring in best knowhow and facilitate their diffusion within the country and to create an ecosystem that fosters and rewards imagination and creativity. This requires reconfiguring economic structures governing enterprises, labour, and energy use in ways that enable greater economic freedom, social mobility, and political contestability, says the WDR.
 

Since 1990, 34 middle-income economies covering only around 250 million people have managed to shift to high-income status. Most of them were either beneficiaries of integration into the European Union or of previously undiscovered oil.

As many as 108 countries are now classified as middle-income, each with annual gross domestic product (GDP) per capita in the range of $1,136 to $13,845. These countries are home to 6 billion people — about 75 per cent of the global population.

They generate more than 40 per cent of global GDP and more than 60 per cent of carbon emissions. And they face far bigger challenges than their predecessors in escaping the middle-income trap: Rapidly ageing populations, rising protectionism in advanced economies, and the need to speed up energy transition.
 

The WDR says that governments of middle-income countries must devise mechanisms to discipline incumbents through competition regimes that encourage new entrants without either coddling small and medium-size enterprises or vilifying big corporations. They must become better at both accumulating and allocating talent, pay much more attention to energy efficiency and emissions intensity, capitalise on crises to alter policies and institutions that no longer suit the purposes they were designed to serve, move away from using relatively superficial measures like firm size, income inequality, and energy sources to make policy and start using unconditionally reliable measures such as value added, socio-economic mobility, and emissions intensity and be more willing to make sensitive data public, to openly debate policy, and take any opportunity to destroy outdated arrangements.
 

India, with a per capita GDP of around $2,700 is at the lower end of the middle-income countries and struggling to attract enough capital in manufacturing despite production-linked incentives in some sectors. The policymakers seem unsure about whether to expose our producers to more competition. Enough talent is available within the country to absorb and diffuse world-class technologies and use artificial intelligence efficiently to boost innovation.
 

That places India in a better position to become a developed country but first, the private and public institutions that have to carry out painful and far-reaching reforms should be willing to fix their governance deficiencies quickly.

Email : tncrajagopalan@gmail.com