India’s former Chief Economic Advisor Krishnamurthy Subramanian, who is presently an Executive Director at the International Monetary Fund has said that the middle-income trap concept is tenuous and not robust and he does not believe India will get stuck in it.
Instead, Subramanian says that he believes by 2047, the 100th anniversary of India’s independence, it will be a $55 trillion economy. To achieve this he believes India can easily grow at 8% levels per annum for the next two decades.
In an interview to Karan Thapar for The Wire, Subramanian differed with the view of World Bank Chief Economist Indermit Gill and the author of the middle-income trap concept that the majority of countries get caught in the middle income trap and between 1990 and 2023 only 34 have transitioned from middle-income to high income.
Subramanian argued that in percentage terms the majority of countries comfortably transitioned from middle-income to high income and it’s only a minority that get stuck. He also said the concept was tenuous and lacks robustness because of the vague manner in which it is defined. The width of countries covered by the middle-income trap concept is, he argued, far too large to be meaningful.
Subramanian said that the reason why many economies slow down “could be the result of global economic factors that may have little to do with the middle-income trap” and when those factors change or ameliorate these countries will progress and transition to high income.
He strongly argued that India is unlikely to get stuck in the middle-income trap. Presently its per capita income is around $3,500. The World Bank deems high income to start at around $13,500. Gill was worried that India is likely to get stuck at per capita income levels of $7,000-8,000. As he put it “The odds are against India becoming a high income developed country”. Dr. Subramanian made clear that he disagrees.
Subramanian also believes that India will become a $55 trillion economy by 2047 and he specifically disagreed with a forecast from Ernst & Young that in 2047 it would only be a $26 trillion economy. He also disagreed with a Goldman Sachs forecast that it would take up to 2075 for India to become a $50 trillion economy.
Finally, Subramanian disagreed with the recent World Bank report that says that even after 75 years India’s per capita income will only reach a quarter of the present US per capita income. At the moment, the US per capita income is around $80,000. One quarter of that is about $20,000.
