India must accelerate reforms to achieve high income status by 2047, which would require an average annual growth rate of 7.8 per cent, the World Bank’s new India Country Economic Memorandum said Friday. The report called for a shift from “business as usual” to “accelerated reforms”, by focusing on productivity growth, reviving and sustaining investment, creating quality jobs, and strengthening growth fundamentals in low income states.
Very few countries have made the transition from middle to high income economies in less than 20 years, while more, including Brazil, Mexico, and Turkey, have remained “trapped” in the upper middle income group, the report said.
“If you look at countries that became upper middle income in the past three decades, only a handful managed to graduate to high income. These include Chile, Romania, Poland, Czech Republic, and Slovakia. A large group never managed to make that leap. So, what does that mean for India? Reaching very ambitious goals requires equally ambitious reforms and relentless implementation capabilities,” Aurelien Kruse, World Bank’s lead economist in India, said.
For India to become a high income economy by 2047, gross national income (GNI) per capita would have to increase by nearly eight times from $2,540 in 2023, the report estimated. In 2023, countries with GNI per capita above $14,005 were high income, whereas those between $4,516 to $14,005 were upper middle income, according to the World Bank’s classification method.
“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 report said.
In a business as usual scenario, investment will peak at 37 per cent of gross domestic product (GDP) by 2035 and growth will average at 6.6 per cent each year. With accelerated reforms, on the other hand, the share of investment in GDP will reach 40 per cent by 2035 and the economy will grow at 7.8 per cent, the report said.
The rate of gross capital formation to GDP was 31.4 per cent in 2023-24 at current prices. The Ministry of Statistics and Programme Implementation (MoSPI) on Friday revised the real GDP growth rate for 2023-24 to 9.2 per cent and has estimated growth in 2024-25 at 6.5 per cent.
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The report called for further financial sector reforms to ensure efficient credit allocation and minimize risks, including deepening the corporate bond market and facilitating greater access to credit for micro, small and medium enterprises (MSMEs).
It also stressed targeting greater public investments in sectors that crowd-in private investments, like agriculture and allied activities, urban development, and transport.
Auguste Tano Kouamé, World Bank’s country director for India, said more reforms are needed to boost private investment. “The reforms that have been made till now are very good. They’ve helped achieve a lot. But they’re clearly not enough,” Kouamé said.
The report said that lowering tariffs and addressing barriers to trade and foreign direct investment (FDI) would further drive economic growth. Opening up the economy to imports to integrate into global value chains (GVCs) would also lead to productivity gains and increase in exports, it said.
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“Some segments of the economy are characterized by significant market concentration and a relatively large state presence, which is likely to discourage market entry,” the report added, referring to sectors such as petroleum, computer and communications equipment, and cement.
For good quality jobs, the report recommended targeting stronger growth in labor-intensive sectors and scaling up MSMEs.
“Traditional market services and intermediate manufacturing have a high capacity to absorb less-educated workers and strong backward linkages with downstream manufacturing units,” it said. Traditional market services include hospitality, commercial trade and communications, and can benefit from better road and power infrastructure and lower barriers to the entry of new firms.
“For the intermediate manufacturing sector, policies targeting labor regulations and land availability along with improvement in quality of logistics infrastructure will be critical,” the report said.
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It also highlighted the need for state-specific policies to bridge income disparities and drive inclusive growth.
“In the absence of large-scale inter-state migration, inclusive growth will require greater income convergence across states. States are not converging in terms of per-capita incomes. A differentiated policy approach rather than a ‘one size fits all’ is required. Less developed states should focus on strengthening the fundamentals of growth, while relatively more developed states could prioritize the next generation of reforms,” it added.