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Source- The post is based on the article “Pathways to a Viksit Bharat” published in the “Business Standard” on 16th June 2023.
Syllabus: GS3- Development
Relevance- Issues related in making India an advanced economy
News– The Government of India in 2022 set itself the goal of a “Viksit Bharat”.
What is the meaning of an advanced economy?
The size of the economy is important for many reasons. But, it does not alone qualify a country for advanced status.
For instance, China is the world’s second largest economy. But, it is not considered advanced. Its average citizen is four times poorer than the average Britisher and six times poorer than the average American.
Similarly, India is now the world’s fifth largest economy, having overtaken the UK. But, the average Indian is 20 times poorer than the average Britisher.
In 2022, the International Monetary Fund categorised 41 countries as advanced economies. But, its definition is not clear or consistent over time.
The World Bank uses a cut-off of gross national income per capita of $13,205 in 2022 prices. It classifies around 80 countries in the “high-income” category.
The United Nations Development Programme adds a human dimension through HDI index to GNI per capita. It classifies 66 countries into the “very high human development” category. It is a rough definition of an advanced economy.
What is the level of growth in GNI and HDI needed for India to become an advanced economy?
The World Bank and the UNDP have clear criteria to define an advanced economy. It will take 25 years at a growth rate of 7% per annum in GNI per capita to reach today’s developed country’s GNI per capita of $13,205.
This means GNI must grow at around 8% per annum for the next 25 years, factoring in population growth.
India’s HDI score in 2021 was 0.633. To reach the cut-off of very high human development at 0.8 will require HDI annual growth of around 0.9% per annum.
India’s growth in HDI was around 1.25% per annum between 1990 and 2021. India’s HDI grew at only 0.88 per cent per annum from 2010-21. So, to reach the very HDI category will require to keep this rate for the next 25 years.
India must use its demographic dividend much better than it has done so far. Rising inequality has also hurt its score.
The UNDP calculates that India’s HDI score declines by 24% due to inequality. Halving inequality would increase India’s HDI score above 0.7 and classify India into the high HDI category.
What is the way forward for India to achieve the goal of a “Viksit Bharat”?
To become an advanced economy, India not only needs a more “Samruddha Bharat” but also needs to make a more “Sajit Bharat” (inclusive).
Many upper middle-income countries such as Argentina and Brazil are stuck in the so-called middle-income trap. They did not build the institutional strength required to make a successful attempt to become a developed economy.
India must first strive to reach the upper middle-income status that requires a GNI per capita of $4,255 in 2022 prices. If India grows at 7% in GNI per capita, it will reach the upper income status by around 2032.
Likewise, the UNDP has a “High” human development category. India with an HDI score of 0.633 can reach that category by about 2032 as well.
To reach this intermediate stage, there is a need for stronger institutions, infrastructure, and human capital.
If India reaches this stage, it could fall into the middle-income trap. Once there with stronger human capital and institutions, India can plan for “Viksit Bharat” @ 100.
