World Bank Report

Reference:

• According to a recent report released by the World Bank, India will need an average growth rate of 7.8% over the next 22 years to meet the country's aspirations of reaching high-income status by 2047.
• The report is titled 'India-Country Economic Memorandum: Becoming a High-Income Economy in a Generation'.

Key findings of the report:

• For India to become a high-income economy by 2047, its per capita gross national income (GNI) will have to increase by almost eight times from $2,540 in 2023.
  • According to the World Bank's classification methodology, countries with a Gross National Income per capita of more than $14,005 in 2023 will be in the high income category, while countries between $4,516 and $14,005 will be in the upper middle income category.
  • To achieve this target, given the less than favourable external environment, India will have to not only continue with ongoing initiatives but also expand and accelerate reforms.
• Under the normal scenario, investment will reach a high of 37% of gross domestic product (GDP) by 2035 and growth rate will average 6.6% per annum. On the other hand, the report says that with accelerated reforms, the share of investment in GDP will reach 40% by 2035 and the economy will grow at 7.8%.
• The rate of gross capital formation at current prices in 2023-24 is expected to be 37% of GDP. 
  • The Ministry of Statistics and Programme Implementation (MoSPI) has revised the real GDP growth rate for 2023-24 to 9.2% and projected a growth of 6.5% in 2024-25.
• The report finds that significant market concentration and relatively large government presence in certain sectors of the economy such as petroleum, computer and communication equipment and cement are likely to discourage private investment.

Key recommendations of the report:

• Strengthening MSMEs: The report recommends targeting strong growth in labour-intensive sectors and boosting MSMEs for good quality jobs. For this, the following reforms are required in the financial sector to ensure efficient credit allocation and minimise risks-
  • Strengthening the corporate bond market
  • Facilitating greater access to credit for MSMEs
• For the manufacturing sector: Important policies targeting labour regulation and land availability for the intermediate manufacturing sector and improving the quality of logistics infrastructure have been recommended.
• Need for state specific policies: The need for state-specific policies to bridge income inequality and promote inclusive growth has also been highlighted. Since there are differences between states in terms of per capita income, a single policy will not be suitable for all.
  • Less developed states should focus on strengthening the fundamentals of development while more developed states should prioritise next generation reforms.
• Promoting private investment: The need for more reforms to promote private investment in India has been highlighted. However, the reforms undertaken in this context are clearly not enough.
  • According to the report, reducing tariffs and removing barriers to trade and foreign direct investment (FDI) will further boost economic growth, and opening up the economy to imports with the aim of integrating into global value chains (GVCs) will increase productivity and also increase exports.
• Areas of public investment: The report emphasizes more public investment in sectors that attract private investment. These include agriculture and allied activities, urban development and transport etc.
  • Promoting structural change, trade participation and technology adoption: Currently, agriculture accounts for 45% of employment. Allocation of land, labor and capital to more productive sectors such as manufacturing and services can help increase firm and labor productivity.
• Promoting an environment to create more and better jobs: Compared to countries like Vietnam (73%) and the Philippines (60%), the overall labor force participation rate in India has been only 56.4%.
  • The report recommends encouraging the private sector to invest in job-rich sectors such as agro-processing, manufacturing, hospitality, transport and the care economy.
• Demographic dividend: India can reap its demographic dividend by investing in human capital, creating enabling conditions for more and better jobs, and raising the female labour force participation rate from 35.6% to 50% by 2047.