THE CONTEXT: Considering recent developments, India needs to have a clear roadmap for growth to become a developed country by 2047. International financial organizations currently classify countries with a per capita income of $13,845 and above as developed countries. In 2047, this threshold would be higher. India’s per capita income is $2,500 (IMF, April 2024), which shows the distance to travel. Based on assumptions of the future exchange rate of the rupee and domestic inflation, India needs to have an average annual real rate of growth of six to seven percent to achieve this level of per capita income.
ISSUES:
- Economic Growth and Per Capita Income: As of 2024, India’s per capita income is $2,500. India is projected to grow at 6.8% in 2023-24. Countries with a per capita income of $13,845 and above are classified as developed. India needs an average annual real growth rate of 6-7% to achieve the target and Increase Gross Fixed Capital Formation (GFCF) to 35% of GDP.
- Investment and Capital Formation: India’s GFCF rate is nearly 35% of GDP. Government capital expenditures have significantly increased post-COVID. The challenge is a High % fiscal deficit post-COVID of 5.9% in 2023-24. Encourage private investment by improving the business environment and reducing regulatory hurdles.
- Export-Led Growth: India’s share in world exports increased from 0.6% in 1970 to 2.5% in 2022. India has shown excellence in service exports. Increasing protectionism and slower growth in developed countries are challenges. Focus on both merchandise and service exports. Identify and promote “sunrise” industries like food processing.
- Job Creation and Technological Adaptation: Employment elasticity decreases with respect to output. AI and automation could potentially impact job displacement. Growth risks without adequate job creation. Invest in skill development to adapt to new technologies. Promote employment-friendly sectors.
- Poverty and Inequality: Extreme poverty in India has fallen below 3%, with the latest update showing 2%. The Gini coefficient has declined from 0.472 in 2014-15 to 0.402 in 2022-23. Ensuring that the benefits of growth are distributed equitably. Strengthen social safety nets like subsidized food grains.
- Health and Education: Government spending on education and health is below global averages. Improve the quality and access to health and education services. Increase public expenditure on health and education.
THE WAY FORWARD:
- Boosting Private Investment: Simplify regulations, reduce bureaucratic red tape, and ensure a transparent and predictable policy environment to attract domestic and foreign investments. China’s SEZs have attracted significant foreign investment by offering tax incentives, streamlined customs procedures, and infrastructure support.
- Financial Sector Reforms: Address the banking sector’s non-performing loans (NPLs) to improve credit availability to the private sector. Strengthening the insolvency and bankruptcy framework and recapitalizing banks can achieve this. Encourage PPPs in infrastructure projects to leverage private sector efficiency and investment. Singapore has consistently ranked high in the World Bank’s Ease of Doing Business index due to its efficient regulatory environment and solid legal framework.
- Identify and Support Sunrise Industries: Focus on sectors with high export potential, such as food processing, pharmaceuticals, and electronics. Improve logistics and reduce trade barriers to make exports more competitive. This includes investing in ports, roads, and digital infrastructure. South Korea’s focus on high-tech industries and strategic government support has made it a leading exporter of electronics and automobiles. Germany’s support for its small and medium-sized enterprises (SMEs) has helped them become global leaders in niche markets.
- Job Creation and Skill Development: Invest in vocational training and skill development programs to equip the workforce with skills relevant to emerging industries, including AI and machine learning. Germany’s Dual Education System combines classroom education with hands-on training in companies, ensuring students acquire practical skills.
- Ensuring Equitable Growth: Strengthen social safety nets such as subsidized food grains, healthcare, and education to ensure that the benefits of growth reach the poorest sections of society. Brazil’s Bolsa Familia Program provides financial aid to poor families, conditional on school attendance and vaccinations, significantly reducing poverty and inequality. The Scandinavian Welfare Model Combines high levels of social welfare with economic competitiveness, ensuring equitable growth.
- Adopting New Technologies: Invest in digital infrastructure to support adopting new technologies across industries. Israel’s strong focus on R&D and innovation has made it a global leader in technology and startups. Estonia’s e-governance and digital infrastructure have made it one of the most advanced digital societies in the world.
THE CONCLUSION:
India’s development strategy should be multi-dimensional, focusing on raising investment rates, emphasizing manufacturing, services, and exports, absorbing new technologies, and promoting employment-friendly sectors. Job creation remains the most formidable challenge, but with a comprehensive and inclusive approach, India can aspire to achieve developed country status by 2047.
UPSC PAST YEAR QUESTIONS:
Q.1 Development and welfare schemes for the vulnerable, by their nature, are discriminatory in approach. Do you agree? Give reasons for your answer. 2023
Q.2 Besides the welfare schemes, India needs to manage inflation and unemployment deftly to serve society’s poor and underprivileged. Discuss. 2022
Q.3 Earn while you learn scheme needs strengthening to make vocational education and skill training meaningful.” Comment. 2021
Q.4 Faster economic growth requires an increased share of the manufacturing sector in GDP, particularly of MSMEs. Comment on the present policies of the Government in this regard. 2023
Q.5 Is inclusive growth possible in a market economy? State the significance of financial inclusion in achieving economic growth in India. 2022
MAINS PRACTICE QUESTION:
Q.1 Discuss the multi-dimensional strategy that India should adopt to become a developed country by 2047. Highlight the importance of investment, export orientation, technological absorption, job creation, and equitable growth in this context.
SOURCE:
https://indianexpress.com/article/opinion/columns/india-developed-2047-9364529/
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