Why is it in the News?

India will aim to become a ‘developed nation’ by 2047, with an economy of $30 trillion in its 100th year of independence, which will be propelled by radical policy changes and reforms in governance by 2030.

News Summary:

• The 'Viksit Bharat @2047' document, which outlines this vision, is nearing completion, following its inception in December 2021 by Prime Minister Narendra Modi.
• Ten sectoral groups of secretaries (SGoSs) were entrusted with the task of preparing sector-specific visions, and these are nearly finalized.
• Niti Aayog will consolidate these sectoral visions into a single comprehensive document by December, following consultations with SGoSs and thought leaders, including industry leaders.
• Prime Minister Modi is expected to unveil this vision document in December or January.

What is the Current State of the Indian Economy?

• India’s economy was $3.5 trillion in FY23, but currently with a GDP of $3.7 trillion, it is estimated to be the 5th largest economy in the world and according to some projections, India's GDP will surpass that of Germany and Japan by 2030.
• The country’s per capita income was estimated at around $2,500 in FY23.
• Nations with per capita income beyond a threshold of $17,000 are considered as developed.
• This rapid rate of economic expansion would result in India becoming the second-largest economy in the Asia-Pacific region.

NITI Aayog Vision India@2047 Document:

• The process of shaping the Vision India@2047 document commenced in December 2021.
• To ensure comprehensive coverage, ten groups of secretaries were assembled, each focused on distinct sectors such as rural and agriculture, infrastructure, social vision, welfare, technology, governance, security, foreign affairs, and more.
• This document will provide a blueprint for achieving the ambitious goal of transforming India into a $30-trillion developed economy by 2047, with a per-capita income ranging from $18,000 to $20,000.
• It will encompass a range of crucial elements, including re-engineering government processes, implementing reforms, and streamlining the efforts of various ministries and departments to eliminate redundancy.
• Expect insights into India's global involvement in areas like trade, investment, technology, capital flows, and research and development.
• Furthermore, the document will shed light on which Indian companies are poised to lead on the global stage and the strategic approach for nurturing the ecosystem required to realize this vision.
• It will also delve into matters related to human capital development, leveraging the nation's vast market size, and addressing regional disparities.
• The vision document will also provide a roadmap, delineating where India aims to be in 2030 and, ultimately, in 2047."

What are the obstacles ahead in implementing the Vision India@2047?

• NITI Aayog is assisting Gujarat and Andhra Pradesh in preparing their vision documents in order to bring them into compliance with the national vision document.
• While other states, such as Uttarakhand, Goa, Tamil Nadu, and Uttar Pradesh, are working on their own documents.
• Middle-income trap: The plan will include safeguards to make sure the economy stays out of the "middle-income trap".

What is the middle-income trap?

• According to the World Bank, the term "middle-income trap" describes a scenario in which a nation with a middle-class income is unable to make the transition to a high-income economy because of growing expenses and a decrease in its competitiveness.
• It's when per capita income reaches around $5,000 to $6,000, and then progress slows down.
• Low-income countries often tend to transition faster to middle-income levels, driven by low wages, cheap labour and basic technology catch-up.
• However, only a few countries manage to achieve high-income status.

What are the reasons for the middle-income trap?

• An example of what is known as the "middle-income trap" is when labour wages become so high that a middle-income nation is unable to compete on a global scale in the production of standardized, labour-intensive goods.
• But because of its relatively low productivity, it is also unable to compete on a large enough scale in higher value-added activities.
• As a result, growth is slowing, wages are stagnant or falling, and the informal economy is expanding.

Countries that are stuck in the middle-income trap:

• Historically, some evidence suggests that Latin American and Middle Eastern countries suffered middle-income traps for at least four or five decades.
• According to a World Bank report, out of 101 middle-income countries in 1960, only 13 countries achieved high-income status by 200
• The most recent examples are Brazil and Mexico, which were touted to transition to developed economies but failed to achieve the same success as Japan or some countries in Eastern Europe.

What Strategies Can Help India Overcome Middle-Income Traps?

• Investment: India should aim for an investment-to-GDP ratio of 35%. Achieving this goal requires boosting savings to 32% of GDP.
• In the fiscal year 2022, savings and investment rates were 30.2% and 29.6%, respectively, indicating the need for further growth.
• Balancing Fiscal Consolidation with Growth: India faces a challenge with a general public debt of 83% of GDP and high fiscal deficits.
• Balancing fiscal consolidation while meeting targets set under the Fiscal Responsibility and Budget Management (FRBM) framework is crucial.
• Structural Reforms: The Asian Development Bank (ADB) emphasizes the need for structural reforms in India to address issues like structural bottlenecks, declining investment, and an increasing current account deficit.
• Notable reforms include the Insolvency and Bankruptcy Code (IBC), which has strengthened the country's banking systems.
• Education and Skill Development: Skill development is vital for enhancing labour productivity and promoting inclusive growth.
• Recent reports suggest that employability among young people needs improvement, emphasizing the importance of education and skill enhancement programs.
• Research, Development, and Innovation: Innovation plays a significant role in transforming India's economy. India's progress in the Global Innovation Index reflects its potential.
• Initiatives like the CoWin platform for monitoring vaccination programs and the development of data ecosystems through platforms like UPI and Aadhaar are driving India's growth.
• Climate Change Adaptation: India should focus on developing and customizing adaptation technologies and solutions to address climate-induced vulnerabilities.
• This includes addressing challenges in agricultural production, food security, disaster risks, resource access (water, power, coastal resources), and human health in the face of climate change.