Mint Explainer: Can India become a ‘developed’ country by 2047?
7 min read 18 Aug 2022, 03:03 PM ISTIndia will need gen-next reforms and an iron will. It’s a mountain to climb, but China has shown it’s possible
PremiumCan India become a developed country by 2047, or is it a tall order? Has Prime Minister Narendra Modi set an unrealistic target for the nation? For India to become “developed" in the next 25 years, the Indian economy would need to grow at breakneck speed. And for that, it needs gen-next reforms and must take giant strides on human-development indicators. China has shown it’s not impossible. India is a study in contrasts. It shows characteristics of a developed country in some ways but lags on most socio-economic indicators.
Why is India a developing nation?
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Countries are usually considered “developing" if they are still relatively poor and lag on basic development parameters. India has made rapid strides over the decades, particularly after the watershed 1991 reforms, but still has a long way to go on basic human development and socio-economic indicators.
India has still not completely eradicated hunger, poverty, illiteracy and unemployment. India’s basic infrastructure is getting overhauled—from power to roads to railways to aviation to shipping—but it’s still a mountain to climb.
In contrast, developed economies—G7 or OECD countries, for instance—have high standards of living and almost eradicated extreme poverty which is visible in many pockets of the developing world in Asia and Africa. They score highly on human development and overall socio-economic indicators.
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Even though there is no concrete definition of a developed or a developing economy, many experts consider gross national income (GNI) per capita as revealing data of development.
Now, the World Bank divides countries into four baskets based on their GNI per capita—high income, upper-middle income, lower-middle income, and low income. High-income nations have a GNI per capita of $12,696 and above and are considered developed. India, with a GNI per capita of $2,170, falls into the lower-middle income bracket and is considered “developing" by the World Bank. In fact, all countries with a GNI per capita below $12,696 are considered developing. The Indian economy will need to grow in double digits for a long time to become a developed nation.
The United Nations has its definition of a developing country—it depends on the Human Development Index (HDI). The HDI , with the highest possible score of 1, captures a broad range of factors, including economic growth, life expectancy, health, education and quality of life. A country with a score less than 0.80 is considered developing. India, with a score of 0.645, had a rank of 131 last year, falls in the developing-country bracket.
Still, India, in many ways, is a bundle of contradictions and can match—even surpass—the developed world on some development indicators.
Why is India a study in contrasts?
India is a study in contrasts. Like many developed nations, it’s already a services-led economy. India has morphed into a tech-services powerhouse, with its IT companies serving blue-chip clients across the globe, in the US, EU and beyond. In fact, it never transitioned from an agrarian economy into a manufacturing tiger before becoming a services-powered economy—the pattern followed by many developed economies.
China’s agrarian economy too made way for manufacturing, becoming the world’s factory, harnessing its low labour costs, skilled workforce and good infrastructure. Bangladesh is now attempting something similar.
India, like developed nations, has top-quality institutes of higher learning, from the IITs to the IIMs. Not considered in the league of MIT, Harvard and Stanford yet, but their alumni have run some of the world’s most influential corporations —from Google and Pepsi to IBM and Twitter.
Then, India has one of the most evolved equity markets in the world, another hallmark of a developed economy. Only recently, India was among the first few countries in the world to adopt the T+1 settlement cycle, making it one of the most transparent equity markets in the world. The country today has both a liquid cash and derivatives market and has rewarded investors, including foreign portfolio investors, handsomely over the past couple of decades.
Now, a reality check.
Almost 50% of India’s labour force is still employed in agriculture. Over 90% of its workers are outside the formal economy, most of them employed with MSMEs. In fact, unemployment levels would be much higher than estimated, given the rampant hidden unemployment in agriculture.
India ranks a low 131 on the UN Human Development Index. India’s literacy levels at 77% are much lower than the global average of 85%. Extreme poverty has halved over the past decade or so to about 10%, but on the Global Multidimensional Poverty Index, India ranks a lowly 66 among 109 countries.
Why did Trump stop treating India as a ‘developing’ country?
In February 2020, the Trump administration dropped India and China, along with a few other countries, from its roster of countries labelled “developing" for trade purposes. Countries classified as “developing" can export goods to the US without being slapped tariffs that goods from “developed" countries are levied. The WTO, too, grants trade benefits to “developing countries".
The Trump administration had accused China and India of wrongly seeking trade benefits despite fast-growing domestic economies and a rapidly expanding footprint in global trade. Under the US Generalized System of Preferences, over 2,000 Indian goods were exempt from import tariffs.
Can India become a developed country in the next 25 years?
To become developed in the next 25 years, India will need an long economic boom, sustaining high growth rates to lift millions out of poverty. Remember, China clocked a double-digit real GDP growth for almost three decades, emerging as a manufacturing hub for the world. The results were spectacular—over the past 40 years, the number of poor in China fell by about 800 million, according to the World Bank. In fact, China contributed about three-quarters (75%) of the global reduction in the number of people living in extreme poverty.
India hopes to do something similar with the government’s “Make in India" programme. Like China, it will need an economy on steroids, possibly growing in double digits over the next 25 years. “Indian economy will grow four to five times in nominal terms over the next 25 to 30 years. The challenge is to grow per capita rapidly as well. For that, India will need double-digit growth in nominal terms," says Sachchidanand Shukla, chief economist, Mahindra Group.
But for that to happen, India needs another round of reforms. At the moment, manufacturing is weighed down by archaic labour laws, land acquisition and project approval delays.
There are other gargantuan challenges before India in its quest to become a developed country. For instance, managing rapid urbanization remains a daunting challenge.
Urban centres are the engines of economic growth. India has seen a massive migration to its cities. Niti Aayog estimates India’s urban population has grown more than four-fold between 1970 and 2018, from 109 million to 460 million. “Already the second-largest urban community in the world, the country is expected to add another 416 million people to its cities by 2050 and have an urban share of the population of 50%," says the Aayog.
But this urban transformation would stretch the infrastructure of the cities to a breaking point. Already, slums house 26% of India’s urban population, according to the World Bank. In Mumbai, almost half the population stays in the slums. India needs mammoth capital investment in urban infrastructure, from housing and water to sewerage and transportation. India’s cities would need anywhere between $870 billion and $1.2 trillion, according to different estimates.
And then, India needs to completely overhaul its basic education infrastructure, which is in a shambles at the moment. Several studies have shown that the learning levels of children in government primary schools are woefully inadequate. A poorly educated and unskilled workforce would prevent India from keeping its tryst with a demographic dividend. The Modi government has taken a raft of measures to overhaul the educational framework and skill India’s youth through initiatives such as the New Education Policy, Skill India and Digital India.
India must reform further if it has to escape the “middle-income trap"—a term coined to refer to low-income countries unable to move to higher per-capita income levels. Many Latin American and Middle-Eastern countries struggled to break out of the “middle-income trap" for decades, Brazil and Mexico among them. The Modi government has to ensure India doesn’t fall into the same trap.
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