‘India stuck in lower-middle income trap’: P Chidambaram flags 6.5% growth; calls for 'Manmohan Singh-like courage'

Senior Congress leader and former Union Minister of Finance P Chidambaram on Sunday asserted that India's growth rate of 6.5 per cent is not a moment of celebration, but rather an indicator that the nation is stuck in the lower-middle income trap. He argued that the country lacks the "ideas or intrepidity" to break out of this situation, calling for “Manmohan Singh-like courage.”

“A growth rate of 6.5 per cent is not a moment of celebration. It means that India is stuck in the lower-middle income trap without the ideas or the intrepidity to break out. It is a time for summoning Manmohan Singh-like courage,” Chidambaram wrote in a X post (formerly Twitter).

Income stagnation and how to fix it?

Chidambaram further highlighted that India's persistent average growth rate of 6.5% over several years is “dismal” as it keeps the country in the lower-middle income group. To exit this classification, India's Gross National Income (GNI) per capita of $2,650 (in 2024) needs to double.

“I think an average growth rate of 6.5 per cent a year over several years is dismal. That rate keeps India in the group of countries with a ‘lower-middle income.’ India's GNI per capita of USD 2650 (in 2024) needs to double to get India out of the lower-middle income group. If India's current rate of growth is sustained, it will take nine years to achieve that goal” the former Union Minister posted on X.

Concerns over capital formation decline

Chidambaram pointed to a significant decline in capital formation, which he views as a critical issue. The Gross Fixed Capital Formation (GFCF) has dropped from 35.8% of the Gross Domestic Product (GDP) in 2007-08 to 30.1 per cent of GDP in 2024-25.

Whereas, the Private Fixed Capital Formation (PFCF), which is a part of the total GFCF, has also fallen from 27.5% of GDP in 2007-08 to 23.8% in 2022-23, Chidambaram said quoting last available official data.

Rising unemployment in the nation

Speaking about private capital “shying away from India,” Chidambaram said that the primary reason is the “trust deficit between the government of India and the industry.”

He also added that unemployment rate for the educated unemployed people is 29.1% since there are no jobs in the country for this particular group.

“There are no jobs for the 'educated unemployed', and the unemployment rate for this group is 29.1 per cent. Youth unemployment' rate is 45.4 per cent,” Chidambaram added.

India’s unemployment rate for those aged 15 years and above has increased marginally to 5.2% in September from 5.1% in August owing to a rise in joblessness in both rural and urban areas, Mint reported earlier.