India may need over 75 years to reach a quarter of US income per capita due to middle-income trap: World Bank
Since 1990, only 34 middle-income economies have managed to transform into high-income status.
The World Bank’s “World Development Report 2024: The Middle Income Trap” reveals that India, along with 99 other countries, will face significant hurdles in their journey toward achieving high-income status. According to the report, India is projected to take nearly 75 years to reach just one-quarter of the US income per capita. This extended timeline underscores the formidable challenges that India must navigate to significantly elevate its income levels and economic status.
The report indicates that India’s progress is lagging compared to other nations. While India grapples with these challenges, China is expected to reach the same stage of economic development in just over 10 years. Indonesia, on the other hand, may require almost 70 years to achieve similar progress. These projections highlight the varying trajectories of different countries as they strive to improve their economic standing relative to the US income per capita.
The Middle Income Trap and Its Implications
The “World Development Report 2024” discusses the concept of the middle income trap, a situation where countries experience stagnation after reaching a certain level of annual GDP per capita, which is approximately 10% of the US income per capita, or about $8,000 today. This trap is a significant barrier that many nations encounter, causing them to remain in the middle-income bracket without advancing to high-income status.
As of the end of 2023, 108 countries fell into the middle-income category, with annual GDP per capita ranging from $1,136 to $13,845. These nations collectively represent 75% of the global population, amounting to around six billion people. Notably, this group includes two out of every three individuals living in extreme poverty, emphasizing the substantial economic disparities that exist within these countries.
The report highlights several key challenges that middle-income countries face, including rapidly aging populations, rising debt levels, geopolitical tensions, and trade frictions. Additionally, these countries struggle with the complex task of accelerating economic progress while managing environmental concerns. The report criticizes the reliance on outdated strategies that focus primarily on expanding investment, likening it to driving a car in first gear and expecting it to go faster.
Indermit Gill, Chief Economist of the World Bank Group and Senior Vice President for Development Economics, stresses the need for updated strategies to overcome these challenges. Gill believes that without significant changes in approach, most developing countries will struggle to build prosperous societies by mid-century. The future of global economic prosperity will largely depend on how effectively middle-income countries address these issues and transition to high-income status.
Pathways to High-Income Status
The report also sheds light on the factors that have contributed to the successful transition of some middle-income economies to high-income status since 1990. Notably, 34 middle-income countries have managed this feat, with more than one-third of them either joining the European Union or benefiting from newly discovered oil reserves. These examples demonstrate that strategic economic policies and external factors can play a crucial role in overcoming the middle income trap.
The World Bank’s findings emphasize the urgency for middle-income countries to adopt innovative and effective strategies to break free from the middle income trap and achieve high-income status. The challenges are significant, but with the right policies and approaches, these countries can make meaningful progress toward improving their economic conditions and achieving greater prosperity.
In conclusion, the road to reaching the US income per capita remains long and arduous for many countries, including India. The World Bank’s report highlights the critical need for updated strategies and effective policies to navigate the middle income trap and advance towards high-income status. As nations work to address these challenges, the global economic landscape will continue to evolve, with middle-income countries playing a pivotal role in shaping future prosperity.
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