World Bank predicts 75-year journey for India to escape from middle-income trap

New Delhi: India may face a long wait before reaching one-fourth of the United States' per capita income, with the World Bank forecasting a timeline of 75 years in its 'World Development Report 2024: The Middle Income Trap.' In contrast, China is expected to achieve this milestone in just over a decade, while Indonesia is predicted to reach it in 70 years.

What is middle-income trap?

According to the World Bank, by the end of 2023, 108 countries fall within the middle-income category, with annual per capita GDP ranging from $1,136 to $13,845. These nations collectively represent 75% of the global population or approximately 6 billion people. The report highlights a stark reality: nearly two-thirds of individuals in these countries live in extreme poverty.

What is the "middle-income trap" and how can countries escape it?

The World Development Report outlines a comprehensive roadmap to help developing economies achieve high-income status.
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The middle-income trap occurs when a nation’s per capita income becomes stuck at around 10% of GDP per capita, approximately $8,000. This stagnation typically arises as countries become wealthier. The $8,000 threshold is positioned midway within the World Bank's defined middle-income range.

What are new challenges?

The report outlines several challenges that middle-income countries will face, including:

• Rapid aging populations
• Rising national debts
• Geopolitical and trade tensions
• Conflicts between growth and environmental safety

Despite these hurdles, many countries continue to apply outdated strategies from the previous century to spur investment. The World Bank likens this approach to driving a car in first gear while attempting to accelerate.

Blueprint for growth

Indermit Gill, Chief Economist at the World Bank, emphasized that middle-income countries are at a critical juncture in the pursuit of global economic prosperity. These nations must adopt innovative methods for raising capital to tackle challenges related to demography, ecology, and geopolitics. Gill noted that since 1990, only 34 countries have transitioned from middle-income to high-income status, primarily through EU integration or discovering oil reserves.