India’s per capita income may reach developed economy threshold by 2040

A sustained reforms push will help boost India’s per capita income to within striking distance of the World Bank’s threshold for developed economies by 2040, a new study has projected.

A determined pursuit of wide-ranging reforms in labor, capital, and productivity can lift India’s average annual GDP growth to 8% through 2030, the research by ANZ India said. 

Potential growth can remain above 7% for much longer in such a scenario, while India’s nominal GDP and per capita income can surpass $20 tn and $13,000, respectively, by 2040, the study said.

The World Bank’s current threshold for enumerating an economy as a high-income country is $13,845.

However, if growth drivers evolve along a baseline or ‘business as usual’ trajectory, India’s potential growth is seen slowing from an average of 6.2% this decade to 4.6% by 2050, it added.

“Slower potential growth will be inevitable in the coming decades, as India’s economic ‘catch-up’ progresses. Yet, if India manages to durably lift fundamental drivers of growth, it can sustain higher growth rates over a longer period,” ANZ chief economist for Southeast Asia and India Sanjay Mathur, foreign exchange strategist Dhiraj Nim and economist Arindam Chakraborty said in the research report.

“In fact, since the reforms we highlighted are slow-moving structural developments, the difference between potential growth estimates in the ‘baseline’ and ‘reforms’ scenarios can materially widen in the future,” the authors said in the report.

Assuming a reasonable inflation trajectory, India’s nominal GDP could surpass $7 trillion by 2030 in the baseline scenario and $8 trillion in the ‘reforms’ scenario, it added.

The difference between nominal GDP under the two scenarios will widen further, as projections till 2040 show, reflecting the enormous size of the economic opportunity that India can tap into if its reform momentum goes the right way, it said.

Nominal GDP represents raw economic output, while real GDP adjusts for inflation.

In the baseline scenario, India’s nominal per-capita income could rise to $9,500 by 2040, and in the reform scenario, it could be 40% higher at $13,000, the study added.