India May Take 75 Years To Match Quarter Of US' Per Capita Income: World Bank

India faces major challenges in its pursuit of becoming a high-income country in the coming decades, according to a recent World Bank study.

The report estimates that, at the current rate, India may take up to 75 years to reach just a quarter of the United States' per capita GDP.

Photo Credit: PTI

This finding contrasts sharply with India's ambitious goals, as outlined in the Niti Aayog's approach paper for 'Viksit Bharat @2047,' which envisions India as a $30 trillion economy by 2047, with a per capita income of $18,000 per annum, up from the current $3.36 trillion GDP and $2,392 per capita income.

The World Development Report 2024 highlights that "at current trends, it will take China more than 10 years just to reach one-quarter of US income per capita, Indonesia nearly 70 years, and India 75 years."

The report notes that although the Indian Prime Minister's vision is to transform the nation into a developed economy by 2047, the growth prospects for middle-income countries, including India, are not improving.

The global economy has shifted from being healthy and integrated to increasingly fragmented, with foreign trade and investment channels becoming more constrained due to geopolitical tensions.

A key obstacle identified in the report is the sluggish growth of firms in India compared to those in the United States.

The growth rates of firms in India, Mexico, and Peru are far lower, with firms expanding by less than a factor of three. In contrast, firms in the US show more dynamism, with the share of small firms declining by 60% by the age of 25, whereas in India, this decrease is only about 10%.

The report notes that "the Indian economy lacks the mechanism for effective selection among firms, hindering the reallocation of resources to more productive users."

The study also points out that more than 100 countries, including India, China, Brazil, and South Africa, face serious challenges that could impede their efforts to transition to high-income status.

The World Bank report describes the "middle-income trap," where countries often stall at around 10% of the US' annual GDP per capita-about $8,000 today.

Despite significant economic growth since 1990, only 34 middle-income economies have successfully transitioned to high-income status, with many benefiting from factors like integration into the European Union or newly discovered oil reserves.

As of the end of 2023, 108 countries were classified as middle-income, with annual GDP per capita ranging from $1,136 to $13,845.