{"id":282060,"date":"2024-02-10T19:15:25","date_gmt":"2024-02-10T13:45:25","guid":{"rendered":"https:\/\/forumias.com\/blog\/?p=282060"},"modified":"2024-02-11T10:38:25","modified_gmt":"2024-02-11T05:08:25","slug":"avoiding-the-middle-income-trap","status":"publish","type":"post","link":"https:\/\/forumias.com\/blog\/avoiding-the-middle-income-trap\/","title":{"rendered":"Avoiding the Middle-Income Trap"},"content":{"rendered":"

\"Avoiding<\/p>\n

Source:<\/strong> This post has been created based on the article \u201cAvoiding the middle-income trap\u201d<\/strong> published in \u201cBusiness Standard\u201d<\/strong> on 10th<\/sup> February 2024.<\/p>\n

UPSC Syllabus Topic: <\/strong>GS Paper 3 Indian Economy – Indian Economy and issues relating to growth.<\/p>\n

News:<\/strong> The article discusses the reasons for countries getting stuck in the Middle-Income Trap. It also highlights the characteristics of High-Income countries and India\u2019s status on those parameters. Avoiding the Middle-Income Trap<\/strong><\/p>\n

A detailed article on the Middle-Income Trap<\/strong> can be read here<\/a>.<\/p>\n

What are The Future Projections for India\u2019s Income Levels?<\/strong><\/h2>\n

In 2018, the government set a target of achieving a gross domestic product (GDP) of $5 trillion by 2025. This mark looks likely to be crossed by 2027.<\/p>\n

In per capita terms, a $5 trillion GDP means $3,600- 3,700 per capita, which is categorised as \u201clower-middle income\u201d by the World Bank <\/strong>(between $1,136 and $4,465). \u201cUpper-middle income\u201d is $4,466- $13,845, and anything above is considered \u201chigh income\u201d.<\/p>\n

India should become an upper-middle income country by around 2030. However, many nations get stuck within that income band for decades, and some never become high-income.<\/p>\n

What are The Reasons for Countries getting Trapped in Upper-Middle Income Level?<\/strong><\/h2>\n
    \n
  1. Base effect: <\/strong>This leads to a mathematical slowdown due to a larger base (reference).<\/li>\n
  2. Slower Productivity Gains: <\/strong>Growth also tends to slow since productivity gains become more difficult.<\/li>\n
  3. Demographic Factors: <\/strong>By the time countries hit the high end of upper-middle income, population growth is low, and the workforce is older and smaller.<\/li>\n<\/ol>\n

    What are The Characteristics of High-Income Countries and India\u2019s Status on Those Parameters?<\/strong><\/h2>\n\n\n\n\n\n\n\n\n\n
    Characteristics of High-Income Countries<\/strong><\/td>\nIndia\u2019s situation<\/strong><\/td>\n<\/tr>\n
    1) Highly educated populations and educational systems, which help improve productivity.<\/p>\n

     <\/td>\n

    		Most of the workforce has less than 10 years of schooling.<\/td>\n<\/tr>\n
    2) Good laws and law enforcement, which leads to a safe physical and legal environment.<\/p>\n

     <\/td>\n

    		India has a continuous undercurrent of violence. For instance, Kashmir, Manipur, Chhattisgarh.
    \nThis can lead to internet shutdowns, which cripple the digital economy.<\/td>\n<\/tr>\n
    3) Easily understood, moderate tax codes, applied fairly by honest officials.<\/p>\n

     <\/td>\n

    		India has complicated tax and commercial codes, and corruption is also a prevailing issue.<\/td>\n<\/tr>\n
    4) Reasonably good social security provisions.<\/p>\n

     <\/td>\n

    		India has some welfare outreach but low spends on healthcare.<\/p>\n

     <\/td>\n<\/tr>\n

    5) Almost all high-income countries are high-end democracies.<\/p>\n

     <\/td>\n

    		India is classified as \u201cPartially Free\u201d and its democracy rankings have deteriorated.<\/p>\n

     <\/td>\n<\/tr>\n

    6) Freely convertible currencies.<\/td>\nDue to tight currency controls, we don\u2019t have a freely convertible rupee.<\/p>\n

     <\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

    <\/h2>\n

    Read More UPSC Topics-<\/strong><\/h2>\n\n\n\n\n
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