India’s odds of becoming high-income country in near future ‘decidedly daunting’: World Bank

The odds of middle-income countries, including India, growing to high-income status within a generation or two are “decidedly daunting” with rising debt and aging populations, the World Bank said. 

Middle-income countries are prone to systematic growth slowdowns—a concept termed the “middle-income trap,” the World Development Report 2024 said.

The report acknowledged the “big plans” by some countries, including India and China.  

“If your country is China, your 14th Five-Year Plan envisions reaching the median gross domestic product (GDP) per capita of developed nations by 2035, thereby greatly expanding your middle class. If it is India, your prime minister’s vision is to turn the nation into a developed economy by 2047, the centennial of independence,” the report said. 

It, however, said that these countries are  in a race against time.

“The ambition of the 108 middle-income countries with incomes per capita of between $1,136 and $13,845 is to reach high-income status within the next two or three decades,” the report said.

“Since the 1990s, many of them have done well enough to escape low-income levels and eradicate extreme poverty, leading to the general perception that the last three decades have been great for development. But this is because of abysmally low expectations—remnants from a period when more than two-thirds of the world lived on less than a dollar a day,” it said. 

“During the last decade their prospects have worsened. With rising debt and aging populations at home, growing protectionism in advanced economies, and escalating pressures to speed up the energy transition, today’s middle-income economies are growing into ever-tighter spaces. The odds that the 6 billion people in today’s middle-income countries will see their countries grow to high-income status within a generation or two were never that good. Now they are decidedly daunting,” the report further said. 

The World Bank identifies 108 countries as middle-income countries, representing about 40% of the global economy, home to about 75% of the world’s population and more than 60% of the world’s poor. 

Middle-income trap is defined as a situation in which a middle-income country experiences systematic growth slowdowns as it is unable to take on the new economic structures needed to sustain high-income levels. The median growth slowdown episode occurs when a country reaches about 11% of the gross domestic product per capita of the United States. 

Drawing upon the development experience since the 1950s and advances in economic analysis by Schumpeterian economists, World Development Report 2024 identifies pathways for emerging market economies to avoid the “middle-income trap.”

In his preface to the report, Indermit Gill, chief economist of the World Bank Group, predicted 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 road ahead has even stiffer challenges than those seen in the past: rapidly aging populations and burgeoning debt, fierce geopolitical and trade frictions, and the growing difficulty of speeding up economic progress without fouling the environment,” he said. 

“Yet many middle-income countries still use a playbook from the last century, relying mainly on policies designed to expand investment. That is like driving a car just in first gear and trying to make it go faster. If they stick with the old playbook, most developing countries will lose the race to create reasonably prosperous societies by the middle of this century,” Gill added. 

Prime Minister Narendra Modi has set a target of India becoming a high-income country, or a developed country, by the centenary of its independence in 2047. 

Government think tank NITI Aayog said India needs to strive to be a $30 trillion economy with a per capita income of $18,000 per annum to become a developed nation by 2047. 

As per the World Bank’s 2023 definition of high-income countries, they are those whose per capita income is more than $14,005.