India's rise as high-income developed country 'not guaranteed': Gill

Gill noted that there were only 34 countries which transitioned from a middle-income to a high-income country in the period between 1990-2023, he says

Underscoring the threat of a middle-income trap, World Bank Chief Economist Indermit Gill has said that India’s rise as a high-income developed country is “not guaranteed” unless it takes specific measures, including giving more economic freedom and improving quality of education.

“The odds are against India simply based on international experience. It is not guaranteed for a very simple reason. I have been looking at so many countries that were in India’s situation, doing quite well, and in the end, they ended up getting stuck at per capita income levels of $4,000-7,000 for a long time. That’s the reason why I say there is no guarantee. You can’t think of many countries of India’s size who have gone on to become high income countries,” Gill said during an interview with senior journalist Karan Thapar.

 

Gill noted that there were only 34 countries which transitioned from a middle-income to a high-income country in the period between 1990-2023. He said that most of these countries enjoyed some special circumstances which facilitated this transition, while only a handful of countries among these 34 like South Korea and Taiwan had circumstances like India.

“There are usually some special circumstances such as countries having oil and gas, natural resources which (then) coincided with high commodity prices and they got to high income. Second group are the countries which are in the neighbourhood of the EU and they got access to the western market, western know-how and western finance, and they got a lot of pressure to improve their institutions,” he added.

Gill remarked that the sum total of people living in the countries that have gone from middle income to high income is very small since roughly 6 billion people live in middle income economies and only 250 million have progressed to the high income category, making it difficult, especially for larger economies like India, to get to high income.

Asked about what India needs to do to avoid being stuck in the middle-income trap, Gill said that India will have to work on three things – give more economic freedom, create equal opportunities for women, and improve the quality of education.

“A big part of economic freedom is to keep the size of the government small so that you don’t have a big imprint of the government on the private sector and the second part of economic freedom is openness to make sure that even your large companies face the heat of competition,” Gill said.

Further, he said that India’s potential growth rate is around 6.5 per cent and is equally distributed between productivity growth, investment and increase in labour.

In an approach paper summarising its vision for 'Viksit Bharat', Niti Aayog, in July, had said India needs to grow at a sustained pace of 7-10 per cent for 20-30 years to escape the middle-income trap and become a developed nation with a per capita income of $18,000 per annum and the size of a $30 trillion economy by 2047.