India's high-income goal by 2047 needs faster growth, policy push

Enhancing productivity through innovation and technology infusion is critical. India must facilitate technology transfer, improve ease of doing business, and incentivise research and development

Reaching high-income status by 2047 is undoubtedly challenging for India but not necessarily an impossible feat, according to a new report from the World Bank. While several countries have spent more than 20 years in the upper middle-income country (UMIC) group without being able to transition to the high-income group, the World Bank report notes India requires an annual economic growth rate of nearly 7.8 per cent for the next two decades to achieve its ambition of being a high-income country. While this is higher than India’s historical average, it is not unprecedented. In the past, countries such as South Korea have made such a leap through sustained reforms and right policy intervention.

 

The report, titled “Becoming a High Income Country in a Generation”, does well to outline the structural reforms India must undertake to achieve the target. This must come with increased private-sector participation in capital formation by deepening financial markets and reducing investment friction, and through enhanced infrastructure spending, technology adoption, and sound macroeconomic fundamentals. India will need to achieve an investment-to-gross domestic product (GDP) ratio of 40 per cent by 2035. Enhancing productivity through innovation and technology infusion is critical. India must, therefore, facilitate technology transfer, improve ease of doing business, and incentivise research and development. Financial-sector reforms to mobilise long-term capital and a targeted push towards industrialisation, particularly in labour-intensive sectors, can further help India remain competitive.

 

Additionally, the report underscores that human-capital development and regional disparities need urgent attention. For instance, women’s workforce participation has improved steadily since 2017-18, but there remains scope for substantial expansion. Accordingly, it recommends raising the female labour force participation rate to 55 per cent by 2050. The report also calls for allocating resources to relatively productive sectors and providing more support to laggard states to ensure balanced development across all regions in the country. More incentives and capacity building will help low-income states improve the efficiency of public expenditure and enable them to catch up with the leading ones. The International Monetary Fund, in its latest country report on India, also underscored the need for comprehensive measures including creating high-quality jobs, invigorating investment, and increasing trade integration through tariff and non-tariff reduction measures.

 

The challenge for India is that it needs to accelerate its growth rate at a time when the global environment has become less supportive. Trade fragmentation and the realignment of global economic and geopolitical forces can not only affect supply chains in the medium term but also affect investment. This means India will have to increase its efforts substantially. As the World Bank report notes, the Indian economy is less open to trade than it was a decade ago. Relatively high tariffs, including on intermediate goods, contribute to high trade costs, affecting trade openness and the ability to participate in global value chains. Countries that have moved from low-income to middle-income or middle-income to upper-income categories exhibited greater openness to trade. To grow at nearly 8 per cent per annum, all cylinders will need to fire. Indian policymakers thus need to work on multiple fronts. The global environment has only made their task more complicated.