Investing in research and development, closing skill gaps, and supporting the growth of high-tech industries are critical steps toward economic advancement.
Author
Deepanshu Mohan, Professor of Economics and Director, Centre for New Economics Studies, O.P. Jindal Global University, Sonipat, Haryana, India
Summary
Is India transgressing in a regressive decline towards a middle-income trap?
Recently economists like Indermit Gill and Homi Kharas’s work on the middle-income trap explore the stagnating growth trajectories of the East Asian economies followed by a period of rapid growth. Their core idea of ‘policy misdiagnosis,’ resulting from unsupportive political and economic structures in a country is one that deeply resonates with India’s growth story.
Economists, including Barry Eichengreen, Indermit Gill and Ricardo Hausmann, explore the concept of a “middle-income trap,” where countries struggle to transition from middle to high-income status.
Eichengreen highlights that to break free, countries need structural reforms, more innovation, and a focus on developing human capital. Hausmann emphasises economic diversification and strengthening institutions, while Gill focuses on the need to improve economic productivity.
Each of these ideas resonate with India’s current macroeconomic challenges. Issues like stagnant economic (especially labour) productivity, rigid labour markets, and a need for greater innovation have held back the country in its growth trajectory. By tackling these, India has the potential to avoid getting stuck and instead move toward sustained and inclusive high-productive growth.
Structural reforms mean making it easier for businesses to operate by cutting red tape and improving infrastructure like roads, ports, and digital networks. This also means giving workers better opportunities by modernising labour laws and investing in education and skills.
Published in: The Wire
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