- THE DAWN OF THE ECONOMIC DILEMMA
“The most perfect political community is the one in which the middle class is in control and outnumbers both of the other classes.”
-Aristotle
The year 2008, marked a significant shift in the Indian economy. India managed to rise and pull itself out of the low-income slab only to fall prey to a yet another vicious trap. The key feature of it being implosive stagnation. The group that is being referred to in the above situation is the middle-income group, and the nightmare for emerging economies that dwell within this is the ‘Middle-income trap.’
The macroeconomic goal of every country lies in achieving long term economic stability. Many of the countries are not able to fulfil this desire due to the middle-income trap. This leaves them in a state that requires them to achieve their developmental goals with economic anxiety.
The middle-income trap refers to the economic development situation in which a country attains a certain income level and gets stuck at that level or income range.
In the short term, it may not result in any adverse conditions, but over some time, it will lead to stagnation and lack of growth, which may affect the country’s gross income.
Many countries face this obstacle that has often proven daunting and consistently elusive to overcome. This disables their sustenance in the international markets.
Middle-income countries face three major threats — the first one being, lack of private investment, second, lack of inclusive growth. Finally, this results in a lack of environmental sustainability due to unbalanced growth. Due to these challenges, the economy fails to capitalize and diversify further.
The Indian economy houses people from different economic backgrounds. We have the rich, the poor as well as the middle class. And there is quite a disparity between these classes. Owing to this widespread inequality, our policies must give room for adequate growth and development to take place at the lower levels of the socioeconomic pyramid, thereby ensuring inclusive growth. This would require the generation of the country’s human resource by improving the quality of health care, education and skill development.
From the above graph, we can see that the poverty rates in India have fallen, but the policies that are being undertaken need to ensure India’s sustenance and growth in the global economy.
The emerging Indian economy needs to make a shift to the higher income economic group, and else we will lose our growth momentum and market vibrancy. The average income of the Indian economy lies between $1005 and $12,235.
Developing economies need to adopt specific strategies for avoiding the middle-income trap. Every country in this group needs to find the right mix of demand and supply side policies to raise its per capita income and achieve a homogeneous growth in the domestic and international markets.
Every country demands different approaches to solving this crisis, given their diverse economic, social, cultural, demographic, and political situations. A country like India can implement within itself policies that improve these policy areas.
The growth process in the country must shift from low-value-added to high- value-added sectors of production. The above-stated measure can be further enhanced by reallocating the resources to the right segments of manufacturing. The focus on input-driven growth must decrease. Instead, countries must improve their competitiveness in the markets that cover domestic and overseas territories. Inflation and debt must be kept under a check to attract foreign investors, thereby, increasing the countries investments. Economic systems within the country must be accustomed to adapting to the rise in the credit supply within the market. Investments in human capital, which eventually leads to the creation of the human resource of the country will provide the country with a comparative advantage. Finally, providing opportunities to all, the sections of the society will enable the country to lift its per capita income and increase the GDP growth of the country. This step will also facilitate inclusive growth.
In recent years, India is referred to as one of the fastest growing economies. To keep up with the ever-increasing competitiveness in the global markets, India must step up its game by implementing policies and laws that will benefit and aid the country in achieving its goals of sustainable development which will enable them to move up the income ladder.
