{"id":36547,"date":"2025-01-31T18:55:38","date_gmt":"2025-01-31T13:25:38","guid":{"rendered":"https:\/\/www.nextias.com\/ca\/?p=36547"},"modified":"2025-01-31T18:55:39","modified_gmt":"2025-01-31T13:25:39","slug":"middle-income-trap","status":"publish","type":"post","link":"https:\/\/www.nextias.com\/ca\/current-affairs\/31-01-2025\/middle-income-trap","title":{"rendered":"Middle-Income Trap"},"content":{"rendered":"\n<p><strong>Syllabus: GS3\/Economy<\/strong><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Context<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li>India is a <strong>middle income country<\/strong> despite being the world&#8217;s fifth-largest economy by nominal GDP, highlighting the issue of <strong>Middle-income Trap.<\/strong><\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>About<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li>As per the Finance Ministry India is expected to become <strong>the third-largest economy in the world <\/strong>with a GDP of<strong> $5 trillio<\/strong>n in the next three years and touch <strong>$7 trillion by 2030.<\/strong><\/li>\n\n\n\n<li>India has also set an ambitious target to become a <strong>US$ 30 trillion economy by 2047.<\/strong>\n<ul class=\"wp-block-list\">\n<li>NITI Aayog&#8217;s vision for Viksit Bharat<strong> aims to elevate India to high-income status by its centenary of independence.<\/strong><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>NITI Aayog\u2019s \u2018Vision for Viksit Bharat @ 2047<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li>India must grow its GDP<strong> ninefold<\/strong> from the <strong>current US$3.36 trillion<\/strong> and increase its per capita income<strong> eightfold <\/strong>from <strong>US$2,392 per annum<\/strong> to reach developed nation status.\u00a0<\/li>\n\n\n\n<li><strong>The paper identifies structural challenges<\/strong> such as enhancing manufacturing and logistics and bridging rural-urban income disparities.<\/li>\n\n\n\n<li>It highlighted the need to balance energy security, access, affordability, and sustainability.\n<ul class=\"wp-block-list\">\n<li>It also stressed the importance of improving industrial competitiveness to transform the agricultural workforce into an industrial one.<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Classification of Countries by World Bank<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li>The World Bank&#8217;s income classifications divide countries into <strong>four categories<\/strong> based on their <strong>gross national income (GNI) per capita<\/strong>.\n<ul class=\"wp-block-list\">\n<li><strong>Low-Income Countries (LICs):<\/strong> GNI per capita of $1,145 or less<\/li>\n\n\n\n<li><strong>Lower-Middle-Income Countries (LMICs): <\/strong>GNI per capita between $1,146 \u2013 $4,515<\/li>\n\n\n\n<li><strong>Upper-Middle-Income Countries (UMICs):<\/strong> GNI per capita between $4,516 \u2013 $14,005<\/li>\n\n\n\n<li><strong>High-Income Countries (HICs):<\/strong> GNI per capita of more than $14,005.\u00a0<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li>The World Bank revises this classification every year on July 1 based on the latest <strong>Atlas Method GNI per capita data<\/strong>. The classification applies to all countries with a <strong>population over 30,000.<\/strong><\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Middle Income Countries (Data World Bank)<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Middle income countries <\/strong>are home to 75% of the world\u2019s population and 66% of the world\u2019s poor.\n<ul class=\"wp-block-list\">\n<li>At the same time, MICs represent about<strong> one third of global GDP <\/strong>and are responsible for 40% global economic output.<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li>Over the last 34 years, only 34 middle-income economies have transitioned to higher income levels, most countries were part of the <strong>European Union.<\/strong>\n<ul class=\"wp-block-list\">\n<li>It also includes Saudi Arabia, Latvia, Bulgaria and South Korea.<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Middle-income Trap<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>The World Development Report 2024 <\/strong>by the World Bank \u2014 calls attention to the phenomenon of the <strong>\u201cmiddle-income\u201d trap.<\/strong><\/li>\n\n\n\n<li>It is described as a situation where <strong>countries struggle to attain high-income status.<\/strong>\n<ul class=\"wp-block-list\">\n<li>It was coined in <strong>2007 <\/strong>by the World Bank to describe countries mostly in <strong>Latin America and the Middle East<\/strong> who, despite economic growth and falling poverty rates, were never able to become high-income countries.<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li><strong>Factors that contribute to this include:<\/strong>\n<ul class=\"wp-block-list\">\n<li><strong>Rising labor costs: <\/strong>As wages increase, industries that depend on cheap labor relocate elsewhere, leaving the country without a new competitive edge.<\/li>\n\n\n\n<li><strong>Declining competitiveness: <\/strong>A lack of investment in higher-value industries, such as technology or advanced manufacturing, lead to economic stagnation.<\/li>\n\n\n\n<li><strong>Insufficient innovation: <\/strong>Without strong innovation ecosystems, countries fall behind in global competition.<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li>Currently, there are <strong>108 countries <\/strong>\u2014 including major economies like <strong>China, Brazil, T\u00fcrkiye and India<\/strong> \u2014 stuck in the \u201cmiddle-income trap\u201d.\n<ul class=\"wp-block-list\">\n<li><strong>Insufficient development of domestic innovation capabilities<\/strong> is at the heart of the middle-income trap.<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Challenges Faced by India<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Innovation &amp; Technology Adoption:<\/strong> Low investment in R&amp;D and innovation limits economic diversification.<\/li>\n\n\n\n<li><strong>Agriculture Dependence:<\/strong> Large portions of the population are still dependent on low-productivity agriculture.\n<ul class=\"wp-block-list\">\n<li>Employment is increasing in agriculture and in low-productive forms following the pandemic.<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li><strong>Slow Wage Growth: <\/strong>According to the Periodic Labour Force Survey (PLFS), nominal wages for regular wage workers at the all-India level between April and June 2023-24 has only grown at around 5%, and that of casual workers at roughly 7%.\n<ul class=\"wp-block-list\">\n<li>With an inflation rate of roughly 5% during this time, this implies that wage earners have seen little to no real wage growth.\u00a0<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li><strong>Global Competition:<\/strong> India faces stiff competition from other emerging economies seeking growth.<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Way Ahead<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Middle-income countries now face bigger challenges such as: <\/strong>ageing populations, geopolitical and trade frictions, and the need to speed up growth without impacting the environment.<\/li>\n\n\n\n<li>A comprehensive innovation-focused strategy with strategic active policies is the only way to escape the middle-income trap.\u00a0<\/li>\n\n\n\n<li><strong>Suggestions:\u00a0<\/strong>\n<ul class=\"wp-block-list\">\n<li>Boosting innovation and technological development.<\/li>\n\n\n\n<li>Investing in human capital, particularly through education and skills development.<\/li>\n\n\n\n<li>Promoting industrialization, especially in high-value manufacturing and services.<\/li>\n\n\n\n<li>Improving infrastructure in underdeveloped regions.<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n\n\n\n<figure class=\"wp-block-table\"><table class=\"has-background\" style=\"background-color:#fff2cc\"><tbody><tr><td><strong><em>Note: For Detailed Analysis about this you can refer our Daily News Decoded Video on <\/em><\/strong><a href=\"https:\/\/youtube.com\/playlist?list=PL1sgm5x8M9FAIX1lbd9Ddm88Ei4ebMHB6&amp;si=9HH5azS9JzZcNO-p\" target=\"_blank\" rel=\"noopener\"><strong><em>NEXTIAS Youtube Channel<\/em><\/strong><\/a><\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<p><strong>Source: IE<\/strong><\/p>\n\n\n\n<p><\/p>\n","protected":false},"excerpt":{"rendered":"<p>India is a middle income country despite being the world&#8217;s fifth-largest economy by nominal GDP, highlighting the issue of Middle-income Trap.<\/p>\n","protected":false},"author":15,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[21],"tags":[],"class_list":["post-36547","post","type-post","status-publish","format-standard","hentry","category-current-affairs"],"acf":[],"jetpack_featured_media_url":"","_links":{"self":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/posts\/36547","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/users\/15"}],"replies":[{"embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/comments?post=36547"}],"version-history":[{"count":1,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/posts\/36547\/revisions"}],"predecessor-version":[{"id":36548,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/posts\/36547\/revisions\/36548"}],"wp:attachment":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/media?parent=36547"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/categories?post=36547"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/tags?post=36547"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}