Context:
The World Development Report 2024 indicates that India might need up to 75 years to reach just one-quarter of the US income per capita.
Key Findings of the Reports
Global Hurdles to High-Income Status
- More than 100 countries, including India, are encountering significant obstacles in their pursuit of high-income status over the coming decades.
- According to the report it will take China more than 10 years to reach one-quarter of US income per capita and Indonesia nearly 70 years.
The Middle-Income Trap
- The report highlights recurring challenges countries face as they grow wealthier, often encountering a ‘Middle-income trap’
What is the Middle-income trap?
- The middle-income trap is a situation for Middle Income Countries where they are not able to move up to the Higher income status due to the operation of several adverse factors.
- The World Bank defines middle-income countries as those with a per capita income that reaches approximately 10% of the annual GDP per person in the USA, which is about USD 8,000 today.
- Since 1990, only 34 middle-income economies have transitioned to high-income status.
- Low-Income Economies: For the current 2024 fiscal year, low-income economies are defined as those with a Gross National Income (GNI) per capita of $1,135 or less in 2022, calculated using the World Bank Atlas method.
- Lower middle-income economies are those with a GNI per capita between $1,136 and $4,465 (India).
- Upper middle-income economies are those with a GNI per capita between $4,466 and $13,845 (China).
- High-income economies are those with a GNI per capita of $13,846 or more.
The World Development Report (WDR)
- WDR is an annual publication by the World Bank since 1978.
- It delves into a specific aspect of economic development each year, providing in-depth analysis and recommendations on topics like agriculture, the environment, poverty, etc.
The Need for a New Approach
- World Development Report 2024 outlines how all developing economies can avoid the middle-income trap.
The 3i Approach Strategy
- The report recommends a “3i approach” focusing on investment, innovation, and infusion of technology to achieve high-income status.
- Countries should adopt a sequenced and progressively more sophisticated mix of policies according to their development level.
- Low-income countries: Prioritize investment (the “1i” phase).
- Lower-middle-income countries: Move to the “2i” phase, incorporating technology infusion.
- Upper-middle-income countries: Implement the “3i” phase, combining investment, infusion, and innovation.
- For innovation, countries should push boundaries rather than merely borrow ideas from global leaders.
Case Study: South Korea
- The report highlights how South Korea exemplifies the successful implementation of the 3i strategy.
- Its per capita income surged from $1,200 in 1960 to $33,000 in 2023.
Challenges for India:
- Infrastructure gaps: Inadequate transportation, energy, and digital infrastructure hinder economic growth.
- Education and skill development: A large, young population requires substantial investment in education and skill training to meet labor market demands.
- Inequality: Persistent income and wealth disparities can limit domestic consumption and investment.
- Governance and corruption: Weak governance and corruption erode investor confidence and hinder efficient resource allocation.
Future Vision:
- India’s Vision for 2047: According to Niti Aayog’s ‘Vikshit Bharat @2047’ approach paper, India aims to become a $30 trillion economy by 2047, with a per capita income of $18,000 per annum, up from the current $3.36 trillion and $2,392 per annum.