World Bank Report Highlights Reforms Needed for India's Economic Ascent The report suggests that ongoing efforts to enhance digital and physical infrastructure will yield efficiency gains, reducing ICOR across all scenarios, though the decline is most pronounced in the high-reform scenario
You're reading Entrepreneur India, an international franchise of Entrepreneur Media.
India's path to becoming an upper-middle-income country (UMIC) by the early 2030s and a high-income country (HIC) by 2047 hinges on structural transformation, investment revival, job creation, and economic convergence across states, according to the latest India Country Economic Memorandum by the World Bank. The report underscores that to achieve these milestones, India's economy must grow at an average of 7.8 per cent annually until 2047.
To bridge the gap with middle- and high-income nations, India must address key deficiencies in investment, productivity, and employment. In 2021, India's GDP per person employed stood at just one-fourth of the average of UMICs and HICs, while gross capital formation per worker was merely one-tenth. The employment-to-population ratio in these countries was also significantly higher—1.3 times India's rate—highlighting the urgency of labor market reforms.
The report presents multiple growth scenarios, demonstrating the effects of varying reform intensities. A scenario of sluggish reform momentum would see the investment-to-GDP ratio stagnate around 35 per cent until 2035 before declining, with ICT capital's contribution to investment remaining at current levels. Female labor force participation (FLFPR) would show no significant improvement, while total factor productivity (TFP) growth would peak at 2.5 per cent early in the next decade before moderating.
Conversely, a moderate reform scenario envisions the investment-to-GDP ratio gradually rising to 37 per cent by 2035, with equal contributions from physical and ICT capital. In this case, FLFPR is expected to increase to 45 per cent by 2045, and TFP growth would peak at 2.7 per cent before tapering off.
The most ambitious scenario, characterized by accelerated reforms, projects the investment-to-GDP ratio increasing to 40 per cent by 2035, again driven by equal contributions from physical and ICT capital. FLFPR is expected to climb to 55 per cent by 2050. This scenario also anticipates a significant decline in the incremental capital-output ratio (ICOR), indicating higher efficiency of capital use. Additionally, the share of agriculture in GDP is projected to shrink by eight per centage points by 2047, with industry gaining the most from this shift, while the services sector remains stable.
Crucial to sustaining this growth trajectory are advancements in infrastructure, technology infusion, and labor market participation, especially for women. The report suggests that ongoing efforts to enhance digital and physical infrastructure will yield efficiency gains, reducing ICOR across all scenarios, though the decline is most pronounced in the high-reform scenario.
India has the potential to accelerate its transformation into a global economic powerhouse. However, as the World Bank warns, any slowdown in reforms could significantly impede this trajectory, preventing the country from unlocking its full economic potential.
