The report stated that these countries need a “3i approach” focusing on investment, innovation and infusion of technology to achieve the high-income status.
(Photo-IANS)
More than 100 countries, including India, are facing significant hurdles in achieving high-income status in the coming decades. According to the World Development Report 2024, India may require up to 75 years to reach just one-quarter of the US income per capita. Similarly, China is projected to take over 10 years, while Indonesia could need nearly 70 years to reach the same milestone. The report highlights a common trend observed in countries as they grow wealthier, encountering a ‘trap’ when reaching around 10% of the annual US GDP per person, equivalent to USD 8,000 today. This threshold falls within the range of what the World Bank defines as middle-income countries.
The study draws on insights from the past 50 years to emphasize the challenges faced by economies striving to break through this income barrier.
Middle-income countries, totaling 108 at the end of 2023, have a significant impact on the global economy. With a population of six billion, these nations are home to 75% of the world’s people, yet two-thirds of those living in extreme poverty reside there. The challenges ahead are formidable, including aging populations, mounting debt, geopolitical tensions, and environmental concerns.
The World Bank warns that relying on outdated policies will hinder progress, likening it to driving a car in first gear while aiming for speed. Indermit Gill, Chief Economist of the World Bank Group, emphasizes the need for a new approach to avoid falling behind in creating prosperous societies by mid-century.
“Yet many middle-income countries still use a playbook from the last century, relying mainly on policies designed to expand investment. That is like driving a car just in first gear and trying to make it go faster,” the report said.
If they stick with the old playbook, most developing countries will lose the race to create reasonably prosperous societies by the middle of this century, said Indermit Gill, Chief Economist of the World Bank Group and Senior Vice President for Development Economics.
The 3i approach strategy
The report stated that these countries need a “3i approach” focusing on investment, innovation and infusion of technology to achieve the high-income status.
The 3i strategy, proposed in the report, said that according to the level of their development, countries should adopt a “sequenced and progressively more sophisticated mix of policies”. Low-income countries should focus on the “1i” part of investment and once they reach the lower-middle-income status, they should move to the “2i” phase that includes an infusion of technology as well.
The final stage is the “3i” one which should be activated upon reaching the upper-middle-income status where countries should combine all three, investment, infusion, and innovation. For the innovation part, countries should push the boundaries rather than just borrow ideas from global leaders.
The World Bank report mentioned the example of South Korea’s successful implementation of the 3i strategy. Its per capita income increased from $1,200 in 1960 to $33,000 in 2023.
Growth rates of firms in India, Mexico, and Peru
The growth rates of firms in India, Mexico, and Peru are far lower than those of firms in the United States, with firms expanding by less than a factor of 3.
Conversely, when firms with growth potential lack dynamism, they fall short of displacing unproductive small firms from the market. This absence of creative destruction results in a stark contrast: although the share of small firms with at most four workers declines by 60% by the age of 25 in the United States, the decrease is only about 10% in India.
The report proposes a strategy for countries to reach high-income status. Depending on their stage of development, all countries need to adopt a sequenced and progressively more sophisticated mix of policies Since 1990, only 34 middle-income economies have managed to shift to high-income status – and more than a third of them were either beneficiaries of integration into the European Union, or of previously undiscovered oil, the World Bank said.
According to the approach paper for ‘Viksit Bharat @2047’ put out by the Niti Aayog recently, India will strive to be a $30 trillion economy by 2047 with a per capita income of $18,000 per annum from $3.36 trillion and $ 2,392 per annum, respectively.