India will need to sustain an average growth rate of 7.8 percent over the next 22 years to achieve its goal of becoming a high-income country by 2047, a World Bank report has said, making a pitch for sustained reforms.
While the country’s economic trajectory has laid a strong foundation, realising this ambitious target will require comprehensive and sustained reforms, The India Country Economic Memorandum, Becoming a High-Income Economy in a Generation, released on February 28, says.
The reports came a few hours ahead of the release of the GDP number for the December quarter in which the Indian economy likely grew at 6.3 percent from 5.4 percent in the previous quarter, buoyed by rural recovery and a capex push from the Centre, a Moneycontrol poll of 19 economists has said.
Releasing the report, World Bank country director for India Auguste Tano Kouame said while the 7.8 percent growth rate is the benchmark for long-term sustainability, it does not need to be achieved every single year.
"It can be higher in conducive years and lower in others. There is no need to be worried about year-to-year volatility," he said.
India need not rely excessively on global economic conditions for growth but should focus on domestic factors to drive expansion, Kouame said.
World Bank lead economist Aurelien Kruse said while fiscal consolidation is important, an aggressive approach may not be advisable.
“Do not argue for aggressive fiscal consolidation, it needs to be gradual. Multidimensional poverty has gone down in the last few years. Welfare outcomes have grown significantly,” Kruse said.
Trade amid global headwinds
Kruse also stressed the importance of trade participation, particularly in the context of shifting global supply chains.
"India has specific features and must balance global headwinds with unique opportunities from China-plus-one. Openness in trade is crucial, regardless of whether agreements are bilateral or multilateral," he said.
Follow our live blog for the latest on December GDP data
Investment and jobs critical
The report underscores the need for higher investment and job creation to sustain long-term growth.
While India’s economic expansion has accelerated to an average of 7.2 percent in the past three years, private investment has not yet responded as expected despite a favourable environment.
"Investment-to-GDP has started to decline, which is a worry, though financial sector conditions remain conducive," Kruse said.
The report identifies low labour force participation, particularly among women, as a key challenge.
"Employment remains concentrated in agriculture and other low-productivity sectors. Women's participation in paid employment is low, and targeted interventions are necessary," Kruse said.
India's overall labour force participation is currently 56.4 percent, lower than countries like Vietnam (73 percent) and the Philippines (around 60 per cent).
The report recommends raising this to over 65 percent by 2047, with a focus on increasing female workforce participation from 35.6 percent to 50 percent.
Structural reforms and state-level growth
The World Bank’s report presents three possible scenarios for India’s growth trajectory, with the most optimistic path requiring:
Raising the total investment rate from the current 33.5 percent of GDP to 40 percent by 2035
Achieving faster and more inclusive growth across all states
Accelerating overall productivity growth through innovation, digitalisation, and better labour allocation
The report says India's structural transformation has been slow, with 45 percent of employment still in agriculture.
"Allocation of land, labour, and capital to more productive sectors, like manufacturing and services, can help raise firm and labour productivity," it states.
Strengthening infrastructure, streamlining labour laws, and reducing compliance burdens on businesses are suggested to improve competitiveness.
The report calls for differentiated policy approaches at the state level.
Less-developed states should focus on improving fundamentals such as health, education and infrastructure, while more advanced states should prioritise deeper integration into global value chains and business-friendly reforms.
"The Centre can facilitate this growth process through more incentive-driven federal programmes, such as the recently announced Urban Challenge Fund," the report says.
Sustained effort
Despite the challenges, World Bank officials are optimistic about India’s ability to achieve its goal.
“India has strong foundations of macroeconomic stability, a demographic dividend, strong reform momentum, a large market, and strategic and political opportunities. All engines of growth will need to work faster,” Kruse said.
Kouame pointed to lessons from other countries that have successfully transitioned to high-income status.
“Countries like Chile, Korea, and Poland have deepened their integration into the global economy to make this transition. India can chart its own path by stepping up the pace of reforms and building on its past achievements,” he said.
While India's economic future is promising, achieving high-income status by 2047 will require sustained and inclusive growth, targeted policy interventions, and deeper structural reforms, the report says.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
