With the risk of India getting stuck in the middle-income trap, the government is working on a detailed report on how to avoid such a situation. Sources told TNIE that India has only 20 years left to escape the middle-income trap, and therefore, it is studying countries which successfully avoided getting into the trap.
“Since 1990s, only 34 middle-income economies have managed to shift high income category, we will study what they did to escape the trap. We will also study those countries which failed to do so, and the mistakes they committed,” said a government official on the condition of anonymity.
The report is only in its early phase, and the official did not give any timeline for finalization of the report. As per sources, the government is studying a World Bank report on middle-income trap that was published in 2024. The World Bank in a report titled World Development Report 2024: The Middle Income Trap in 2024 had said that more than 100 countries —including China, India, Brazil, and South Africa — face serious obstacles that could hinder their efforts to become high-income countries in the next few decades.
As per World Bank classification, countries with per capita annual GDP in the range of $1,136 to $13,845 are classified as middle-income countries. India has per capita GDP of around $3,000. India has set the target of achieving $10,000 (at current prices) per capita GDP by 2047.
The World Development Report 2024 argues that many countries that successfully escape poverty struggle to move beyond middle-income status because the drivers of early growth stop working. In the initial stages, growth is powered largely by investment—building infrastructure, expanding labour participation, and accumulating capital. But as countries get richer, these strategies deliver diminishing returns, and growth begins to slow. According to it, economies fail to transition to a more advanced model based on technology adoption and innovation, and as a result, they stagnate at moderate income levels.
In the case of India, the report presents a mixed picture. India has strong growth ambitions and has achieved notable success in sectors like computing and digital services, where competition between new firms and established players has driven innovation. However, the broader economy still reflects many of the typical characteristics of middle-income countries. A large share of firms remains small and low-productivity, and there are significant distortions in how capital and labour are allocated. The report suggests that, at current trends, it could take India several decades—around 75 years—to significantly close the income gap with advanced economies like the US.