India as a Developed Nation – Explained, pointwise

Introduction

In his Independence Day speech on August 15, 2022, the Prime Minister of India said, “We must work towards turning India into a developed nation by 2047.” The PM spoke about India’s achievements and challenges while rolling out the 25-year goal to make India a developed nation by 100th year of Independence. India is still classified as a developing country and the gap to be plugged to become a developed country is still very wide. Hence, achieving this target will not be easy. Nevertheless, this is an ambitious and worthy target. And to achieve this ambition, very dedicated and focused efforts would be required from all the stakeholders, the Government and citizens, the public institutions as well as the private sector, from the policymaking to its flawless execution.

What is a developed nation?

Although, India is world’s sixth largest economy with a GDP of ~US$ 3 trillion, it is classified as a developing nation. 

There is no all-agreed definition of a developed country. More than a strict definition, a developed country differs from a developing one in categorisation used by international institutions e.g., the United Nations uses the World Bank’s categorisation based on Gross National Income (GNI) per capita (in current US dollars). It classifies countries into low (Income < US$ 1,086), lower-middle (Income between US$ 1,086-4,255), upper-middle (Income between US$ 4,256-13,205) and high-income countries (Income > US$ 13,205). The low and middle-income countries are referred to as developing countries, and the high-income economies as developed nations.

Source: Indian Express

*(Atlas Method: The World Bank’s official estimates of the size of economies are based on GNI converted to current U.S. dollars using the World Bank Atlas method. The Atlas method smoothes exchange rate fluctuations by using a three year moving average, price-adjusted conversion factor).

Apart from the income criterion, there are other broad parameters based on which distinction is made. A developed nation is industrialized, has a high quality of life, a developed economy and advanced technological infrastructure relative to less industrialized nations. Developed countries perform well on key economic criteria:

Gross Domestic Product (GDP): Countries with a high GDP and per capita income (the amount of money earned per person) are considered developed.

Level of industrialisation: Countries in which the tertiary and quaternary sectors of industry dominate are described as developed. Developed countries generally have more advanced post-industrial economies, meaning the service sector provides more wealth than the industrial sector.

The Tertiary Sector includes companies that provide services such as financial, retail, legal, business processes etc. Quaternary sectors include knowledge-based activities such as information technology, research, and development, as well as consulting services and education. 

Other criteria are the scale of infrastructure, the general standard of living, and the Human Development Index (HDI).

Why is India classified as a developing country?

First, the World Bank currently categorizes India as a lower-middle income economy. On per capita income, India is behind even Bangladesh. China’s per capita income is 5.5 times that of India, and the UK’s is almost 33 times.

Second, there has been substantial progress in infrastructure development in the last 75 years but still millions in villages even now go hungry and are devoid of schools, hospitals, roads and other such basic facilities. 

Third, the level of infrastructure in urban areas is poor. Most Indian cities have vast slum areas indicative of poverty. There is inadequate piped clean drinking water system, sewerage network or waste treatment facilities. Urban transport infrastructure is unable to cope up with rising vehicles. Urban flooding has become a common phenomena.

Fourth, India performs poorly with respect to social indicators in comparison to developed nations e.g., the infant mortality rate (the number of infant deaths per 1,000 live births) has reduced from 76 in 1996 to 27 in 2020, but it was still over four times the OECD average of 6. Less than 33% of India’s population had received tertiary education, compared to 77% in the OECD economies. India’s female labor force participation declined in the last 25 years, whereas it increased in OECD countries. 

India’s Human Development Index Score at present is 0.645 (UNDP 2020 Report) and is ranked at 131. Most developed nations have HDI Score > 0.85 (top 40 countries).

Source: Indian Express

India’s per capita energy consumption is much below developed countries.

Source: Business Standard

Why is India still a developing nation?

First, the British colonial rule drained Indian economy for almost 200 years. According to some estimates, India’s share in the world economy declined from 24.4% in 1700 to 4.2% in 1950. India at Independence, inherited a very weak economy with poor industrial base, under-developed agriculture and poor quality of human resource (18% literacy).

Second, the speed of development has not been as good as it should have been to leapfrog into the developed nations bracket. The reasons include: (a) India has the second largest population in the world that is mostly poor. This places a huge financial burden on the government finances; (b) High levels of corruption and inadequate technological advancement have also slowed down India’s growth story; (c) Almost ~50% of the people are still engaged in the primary sector (agriculture etc.) whose income generation potential is low. Vast potentials in the secondary (industry) and tertiary (services) also are yet to be realized. Economists argue that failure to undertake reforms in agriculture (like China did in 1970s-80s) prevented structural transformation of Indian economy (higher proportion of tertiary and secondary sector in employment); (d) The pace of economic growth for the most part since Independence hovered around 3%. This pace of economic growth was too slow to pull large proportion of population out of poverty. 

What have been India’s achievements since Independence?

Source: Mint

How much gap is to be covered to make India a Developed Country by 2047?

India’s per capita income has to grow at 12% to reach the level of OECD Countries. The historic average of India’s per capita income growth rate is 2.8% only. 

Source: Business Standard

To catch up with the OECD economies, India will need to increase its infrastructure considerably e.g., India had only 30 colleges per 100,000 people in 2019-20, and AISHE data shows that enrolments per college declined compared to 2015-16. So to reach OECD level of 77% tertiary education level is huge task.

India’s life expectancy at birth would have to improve faster than it did in the last 25 years to reach OECD levels. At the current pace, it would fall short of OECD economies—India added nine years to life expectancy for both males and females between 1995 and 2020.

Source: Business Standard

Similarly, India’s IMR is expected to be above OECD Level, though the gap would have been plugged to a large extent by 2047.

Source: Business Standard

Hence, the biggest challenge in achieving the target by 2047 is that the gap with repect to the developed countries is too big.

What steps are required to make India a Developed Country?

First, India must undertake reforms for structural transformation of the economy. There is need to create employment opportunities in the secondary (industrial) and tertiary (service) sectors in order to raise income levels and reduce the burden of population on agriculture. The transformation is necessary to reap the demographic dividend.

Second, the delivery standard of Government services, especially in health and education need radical improvement. The Government must increase public expenditure on health and education and bring it at par with the developed economies (as % of the GDP).

Third, there is a need for a strong action to curb corruption. This would ensure that Government benefits reach the intended beneficiaries and leakages are minimized. Similarly a check on tax evasion will ensure an increase in Government’s tax revenues, which will improve room for spending on welfare sector.

Fourth, the urban local governance must be transformed. The urban planning process needs an overhaul in order to ensure sustainable and inclusive urbanization.

Fifth, to make India a developed nation, the deep rooted inequalities in Indian society must be eliminated, especially gender inequalities. It is an ongoing transformation. In lots of aspects, the situation has improved considerably since Independence e.g., in the recently concluded Commonwealth Games, 40% of India’s medallists were women. Yet, there is need to eliminate injustices on the basis of gender, caste, religion, region etc. in order to create a just and inclusive society.

Conclusion

In essence, making India a developed nation by 2047 is a big challenge. While policies and their effective implementation will be the primary levers to achieve this goal, ensuring unity, and thus, a unified purpose, should be the first step towards ‘Mission 2047’. Many commentators had written India off in 1947; yet India not only survived, but thrived in many dimensions. The same spirit is needed now to realize India’s full potential and make it a developed country.

Syllabus: GS III, Indian Economy and issues related to growth and development.

Source: Indian Express, Economic Times, Business Standard, Mint