Can India become a developed country in 25 years?

What does it mean to be a developed country, and what will it take to get there?

In his address to the nation from the ramparts of the Red Fort on August 15, Prime Minister Narendra Modi called for India to transition to a developed country in the next 25 years.

t will involve pulling millions more out of poverty, creating enough jobs, raising living standards, giving access to superior and affordable healthcare for ordinary citizens and education.  (Reuters)

What does it mean to be a developed country, and what will it take to get there?

The World Bank considers gross national income (GNI) per capita as a barometer to categorise nations as “least developed country”, “developing country” or “developed country”.

While the widest measure of the income generated within the country is the Gross Domestic Product or GDP, which denotes the total value of economic output, GNI is an even wider measure. GNI includes a nation’s GDP plus the income it receives from abroad.

Nations with a GNI per capita of $12,696 or more, which include most western countries and some Asian economies, are considered to be developed. Those below this income benchmark are taken to be developing economies, including India.

The story of India’s development

India’s current GNI per capita, according to the World Bank, is roughly $2,200, which actually makes it a lower middle-income developing country.

So, the answer to the question, what will it take India to get there, is a steep six-times jump in India’s GNI from its current levels.

Most economists will readily agree that for India to leapfrog straight to being a developed country will require very high rates of growth, sustained year after year, and all-round development.

Development plays a central role in the politics of most nations that gained independence from colonial rule. This is because there is a certain urgency to catch up to rich nations and the colonisers.

Development is also closely linked to nationalism. Governments project development as a national cause. This is probably why the names of institutions set up immediately after India’s Independence for overall development of the country often had the word national in them. For instance, the National Dairy Development Board or say the National Institute for Micro Small and Medium Enterprises, etc.

In democracies, development is also very desirable because it wins votes. But it’s often top-down, and an elitist vision of politics. This is why it also tends to get mired in disputes when it comes to actual execution on the ground. In rural Odisha, a farmer whose land was to be acquired for a road project, in response to an academic researcher’s question on how he viewed development, said: “Development is very important, but not on my land!”

Cut to the chase, despite the pandemic, no other country has grown as fast as India. One reason for this is the high pandemic-related spending by the government. The government also managed to keep vital rural supply lines functional during the pandemic, which shielded the agriculture sector that employs nearly half of all Indians.

From a larger perspective, it will take humungous strides in many areas to raise India’s gross national income six times, the cut-off which will make it a developed nation. It will involve pulling millions more out of poverty, creating enough jobs, raising living standards, giving access to superior and affordable healthcare for ordinary citizens and education.

The middle-income trap

There is another structural challenge of a very different sort. Many experts argue that India will have to forcefully escape what some economists call the “middle-income trap”, which is akin to a space shuttle using extra thrust to escape Earth’s gravity. This is notoriously difficult, as experiences of several countries show.

The term, middle-income trap, was first used by economists Indermit Gill and Homi Kharas. They found a general trend among many Latin American, Middle-eastern and East Asian countries, where the pace of development from low-income to middle-income status was fairly rapid.

However, once these countries reached the middle-income stage, growth and prosperity began to stall. It’s kind of a steady state i.e. economies neither grew nor shrunk.

Of 101 developing economies classified as middle income in the 1960s, only 13 went on to become rich nations by 2008, the economists found. Others were stuck with “per capita income remaining at 20-40% of the level in the US in PPP terms for several decades”.

Brazil, Mexico and South Africa are some leading examples of this middle-income trap. However, the trap is not inevitable. Many economies have managed to beat it. Singapore, South Korea and Taiwan have done it. So have Japan, Malaysia and Chile.

So, India’s new ambition of being a developed country during the next 25 years is justifiable, simply because it has still to pull a large section of its population out of poverty (going by the Tendulkar Committee estimates, the last available national poverty count).

What will it take?

So, the next question is what will it take, apart from sustained levels of very high growth? China pulled 800 million people out of poverty, according to the World Bank, only because it grew 10% or more for about three decades.

The first step has to be a fairly appreciable rise in productivity. The growth rate of output per worker on an annual basis dipped from 7.9% in 2010 to 3.5% in 2019, according to the International Labour Organization’s estimates. In the vast farm sector, it’s worse. The GDP per worker in agriculture is one-third of the economy-wide GDP per worker. This means productivity in agriculture is too low to lift the overall economy.

Growth is a necessary but not sufficient condition for human development. India’s growth hasn’t been matched by commensurate job creation. The employment elasticity of India’s growth – new jobs created with an increase in growth – has been low. India’s unemployment rate has been between 7% and 8%, according to the Centre for Monitoring Indian Economy, a data firm. Sufficient quality job creation will require more reforms and skilling.

Jim O’Neill, a former Goldman Sachs economist who coined the term BRICS, presented a paper to PM Modi in 2013, when he went to Gujarat at Modi’s invitation. The paper was titled 10 Things for India to Achieve Its 2050 Potential.

O’Neil’s paper spelt out things that aren’t radically different but nonetheless important. It emphasised a sharp focus on infrastructure, education, better health care, further liberalisation of financial markets and attention to the environment. Indeed, there’s no need to reinvent the wheel. Only that the wheel needs to rotate faster.

The views expressed are personal