New Delhi: India will need to accelerate reforms to achieve an average annual growth rate of 7.8 per cent for becoming a high-income economy by 2047, a World Bank report said on Friday.
To achieve this goal India would require reforms in financial sector as well as in land and labour market, the World Bank said in its India Country Memorandum titled ‘Becoming a High-Income Economy in a generation’.
Recognizing India’s fast pace of growth averaging 6.3 per cent between 2000 and 2024, the report notes that India’s past achievements provide the foundation for its future ambitions.
“However, reaching the ambitious target of becoming a high-income economy by 2047 will not be possible in a business-as-usual scenario… for India to become a high-income economy by 2047, its GNI (gross national income) per capita would have to increase by nearly 8 times over the current levels; growth would have to accelerate further and to remain high over the next two decades, a feat that few countries have achieved.
“To meet this target, given the less conducive external environment, India would need to not only maintain ongoing initiatives but in fact expand and intensify reforms,” the World Bank report said.
In recent years, India has introduced a host of structural reforms to transform the country into a global manufacturing hub, to boost infrastructure, improve human capital, and leverage digitization, while at the same time bolstering macroeconomic stability.
“To reach high income by 2047, India’s growth rate needs to average 7.8 per cent, in real terms, over the coming decades… Only an ‘accelerated reforms’ package would put India on track to become high-income by 2047,” the report said.
World Bank India country director Auguste Tano Kouame said lessons from countries like Chile, Korea and Poland show how they have successfully made the transition from middle to high-income countries by deepening their integration into the global economy.
The report said that over the past decades, India has developed at a scale and pace that few would have thought possible.
From 2000 to today, in real terms, the economy has grown nearly four-fold, and GDP per capita has almost tripled. Because India grew faster than the rest of the world, its share in the global economy has doubled from 1.6 per cent in 2000 to 3.4 per cent in 2023. India has become the world’s fifth largest economy.
“This remarkable development story also includes a steep decline in extreme poverty, and massive expansion of service delivery and essential infrastructure. Building on these achievements, India has set the ambitious goal of becoming a high-income country by 2047,” the report added.
India can chart its own path by stepping up the pace of reforms and building on its past achievements, Kouame said.
The report evaluates three scenarios for India’s growth trajectory over the next 22 years.
“India can take advantage of its demographic dividend by investing in human capital, creating enabling conditions for more and better jobs and raising female labour force participation rates from 35.6 per cent to 50 per cent by 2047,” said Emilia Skrok and Rangeet Ghosh, co-authors of the report.
In the past three fiscal years India has accelerated its average growth rate to 7.2 per cent, it said.
In order to maintain this acceleration and attain an average growth rate of 7.8 per cent (in real terms) over the next two decades, the Country Economic Memorandum recommends four critical areas for policy action, including increasing investment, promoting structural transformation and creating more jobs.
For India to become a high-income economy by 2047, its GNI per capita would have to increase by nearly 8 times over the current levels; growth would have to accelerate further and to remain high over the next two decades, a feat that few countries have achieved.
To meet this target, given the less conducive external environment, India would need to not only maintain ongoing initiatives but in fact expand and intensify reforms including easing access to land, boosting agricultural productivity, facilitating labour mobility to bolster labour productivity, improving physical and digital infrastructure and improving the efficiency of public spending on human capital development.
The report recommended incentivising the private sector to invest in job-rich sectors like agro-processing manufacturing, hospitality, transportation, and care economy to harness the full potential of India’s demographic dividend.
This requires targeted strategies for labour-intensive sectors, a bigger skilled workforce, greater access to finance and fostering an innovation-driven economy, it said.
Strengthening infrastructure, adopting modern technology, streamlining labour market regulations and lowering the compliance burden on firms will further drive productivity and competitiveness, it said, adding, these steps will help India catch up to peers like Thailand, Vietnam and China in Global Value Chain (GVC) participation rates.
With regard to boosting investment, the report said, strengthening financial sector regulations, removing constraints to formal credit for micro, small, and medium enterprises (MSMEs), and simplifying foreign direct investment (FDI) policies will be critical.
The report suggested for a differentiated policy approach whereby less developed states could focus on strengthening the fundamentals of growth (health, education, infrastructure, etc.), while more developed states could prioritise the next generation of reforms (better business environment, deeper participation in GVCs, etc.).
The Centre can facilitate this growth process through more incentive-driven federal programmes such as the recently announced urban challenge fund to support better performance in lagging districts and states, it said.
More incentives and capacity building will help low-income states improve efficiency of public expenditure and enable them to catch up with the leaders, it added.
