NEW DELHI, February 28, 2025 - A new World Bank report, launched today, notes that India will need to grow by 7.8 percent on average over the next 22 years to achieve the country's aspirations of reaching high-income status by 2047.
The new India Country Economic Memorandum titled 'Becoming a High-Income Economy in a Generation,' finds that this target is possible. Recognizing India's fast pace of growth averaging 6.3 percent between 2000 and 2024[1], the report notes that India's past achievements provide the foundation for its future ambitions. Getting there however would require reforms and their implementation to be as ambitious as the target itself.
"Lessons from countries like Chile, Korea and Poland show how they have successfully made the transition from middle- to high-income countries by deepening their integration into the global economy," said Auguste Tano Kouamé, World Bank Country Director. "India can chart its own path by stepping up the pace of reforms and building on its past achievements."
The report evaluates three scenarios for India's growth trajectory over the next 22 years. The scenario which enables India to reach high-income status in a generation, requires India to: a) achieving faster and inclusive growth across states; b) increasing total investment from current 33.5 percent of GDP to 40 percent (both in real terms) by 2035; c) increasing overall labor force participation from 56.4 percent to above 65 percent; and d) accelerating overall productivity growth.
"India can take advantage of its demographic dividend by investing in human capital, creating enabling conditions for more and better jobs and raising female labor force participation rates from 35.6 percent to 50 percent by 2047," said Emilia Skrok and Rangeet Ghosh, co-authors of the report.
In the past three fiscal years India has accelerated its average growth rate to 7.2 percent. In order to maintain this acceleration and attain an average growth rate of 7.8 percent (in real terms) over the next two decades, the Country Economic Memorandum recommends four critical areas for policy action:
- Increasing investment: More private and public investment (increasing the real investment rate from around 33.5 percent of GDP to 40 percent by 2035) will be fundamental to long-term growth. The report notes actions such as strengthening financial sector regulations, removing constraints to formal credit for micro, small, and medium enterprises (MSMEs), and simplifying foreign direct investment (FDI) policies will be critical.
- Fostering an environment to create more and better jobs: Overall labor force participation rates have remained low in India (56.4 percent) compared to countries like Vietnam (73 percent) and Philippines (around 60 percent). The report recommends incentivizing the private sector to invest in job-rich sectors like agro-processing manufacturing, hospitality, transportation, and care economy. This requires targeted strategies for labor-intensive sectors, a bigger skilled workforce, greater access to finance and fostering an innovation-driven economy.
- Promoting structural transformation, trade participation and technology adoption: Currently the share of agriculture in employment is 45 percent. Allocation of land, labor and capital to more productive sectors, like manufacturing and services, can help raise firm and labor productivity. Strengthening infrastructure, adopting modern technology, streamlining labor market regulations and lowering the compliance burden on firms will further drive productivity and competitiveness. These steps will help India catch up to peers like Thailand, Vietnam and China in Global Value Chain (GVC) participation rates.
- Enabling states to grow faster and together: The report argues for a differentiated policy approach whereby less developed states could focus on strengthening the fundamentals of growth (health, education, infrastructure, etc.), while more developed states could prioritize the next generation of reforms (better business environment, deeper participation in GVCs, etc.). The center can facilitate this growth process through more incentive-driven federal programs such as the recently announced Urban Challenge Fund to support better performance in lagging districts and states. More incentives and capacity building will help low-income states improve efficiency of public expenditure and enable them to catch up with the leaders.
[1] *6.6 percent if we exclude FY21 and FY22 which was affected by COVID downturn and the immediate rebound.
