Syllabus: GS3/Economy
Context
- As per the World Bank’s report (India Country Economic Memorandum), India will need to accelerate reforms to achieve an average annual growth rate of 7.8% for becoming a high-income economy by 2047.
About
- From 2000 in real terms, the economy has grown nearly four-fold, and GDP per capita has almost tripled.
- India grew faster than the rest of the world, its share in the global economy has doubled from 1.6% in 2000 to 3.4% in 2023.
- India has become the world’s fifth largest economy.
Key Points from the India Country Economic Memorandum:
- Target of High-Income Status by 2047: Achievable with ambitious reforms, building on India’s past growth (6.3% from 2000-2024).
- Global Examples: Countries like Chile, Korea, and Poland succeeded in transitioning to high-income by integrating deeper into the global economy.
Key Growth Scenarios for 2047:
- Achieve faster, inclusive growth across states.
- Increase total investment from 33.5% to 40% of GDP by 2035.
- Raise labor force participation from 56.4% to above 65%.
- Overall labour force participation rates have remained low in India compared to countries like Vietnam (73%) and Philippines (60%).
- Accelerate productivity growth.
- India’s GNI (gross national income) per capita must increase nearly 8 times, requiring accelerated growth.
- Demographic Dividend: Invest in human capital, create better jobs, and raise female labor force participation from 35.6% to 50% by 2047.
Critical Areas for Policy Action:
- Increase Investment: Strengthen financial sector regulations, ease MSME credit access, and simplify FDI policies.
- Create More Jobs: Target job-rich sectors (e.g., agro-processing, hospitality), invest in skills, and foster an innovation-driven economy.
- Promote Structural Transformation: Shift labor and resources to higher productivity sectors like manufacturing and services, improve infrastructure, and streamline labor market regulations.
- Enable Faster State Growth: Tailor policies for less developed states (focus on fundamentals) and more developed states (focus on advanced reforms and GVC participation).
- Federal Support: Incentivize low-income states with federal programs like the Urban Challenge Fund to improve public expenditure, efficiency and accelerate growth.
| Classification of Countries by World Bank – The World Bank creates a yearly classification of countries by income, for all countries with populations over 30,000. 1. This classification stays the same throughout the fiscal year (from July 1 to June 30) even if the income data for a country changes. – Low-income countries are those with a gross national income (GNI) per capita of $1,145 or less in 2023. – Lower-middle-income countries are those with a GNI per capita between $1,146 and $4,515 in 2023. – Upper-middle-income countries are those with a GNI per capita between $4,516 and $14,005 in 2023. – High-income countries are those with a GNI per capita of more than $14,005 in 2023. |
Source: IE
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