On 1 August 2024, the World Bank released its World Development Report 2024. Titled ‘The Middle Income Trap’, it has made negative comments about India and other emerging economies such as Indonesia, Vietnam, South Africa, etc.
The report says it will take another 75 years for India to reach even one-fourth of the USA’s per capita income. It’s an attempt to mock India’s resolve that by the year 2047, it will become a developed economy riding on manufacturing development.
The World Bank claims that the report is based on data from 108 middle-income economies that account for 75 per cent of the world’s population and generate 40 per cent of the world’s GDP. But it is nothing more than an opinionated piece devoid of logic and understanding of realities on the ground.
The report has criticised the industrial policy of India and Indonesia, which is aimed at getting rich quickly on the basis of very high growth. Instead, they advocate for slow but continuous growth for a longer period.
The report suggests that middle-income countries should give up their obsession with domestic technology development and use the technology developed by high-income countries. Any attempt to develop one’s own technology, it said, will be a waste of resources. The report gives the examples of South Korea and Brazil. The East Asian country encouraged the adoption of foreign technology by providing government aid, which led to it catching up and eventually leading on this front. The report has criticised Brazil as it discouraged foreign technology by imposing a tax on international intellectual property. There was a rapid rise in patent applications but they were all low quality.
India has been cautioned not to try to develop its own technology, which Malaysia and Indonesia have attempted. Surprisingly, India’s semiconductor policy and defence self-reliance policy have also been criticised. Analysing this report, The Economist said that after India imposed a ban on the import of 509 defence products, it dropped out of the list of top 25 defence exporters in the world.
Using the theories of the famous economist Schumpeter in the report, the authors said that due to “policy-induced distortions”, such as high regulatory costs, in countries like India, Mexico and Peru, even efficient firms don’t grow at the rate they do in high-income countries. The report says that, while an average American firm grows seven times in size in 40 years, in India it only doubles.
But the World Bank has got it all wrong.
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India as a world leader
It seems that the World Bank is irked because the Indian government rejected EV company Tesla’s proposal and refused to give complete exemption on import duty. The authors of the World Bank Report probably do not know that India’s automobile industry has a place of its own in the world. Automobile companies in the country have started manufacturing electric vehicles in large quantities. Sixty-six per cent growth is being seen in the sale of electric vehicles in India.
India is also developing rapidly in the domain of online transactions. UPI, which has been recognised by the World Bank, has revolutionised businesses, especially small ones. Today, India’s UPI has carved a place for itself in the world of online transactions and many countries are eager to adopt it. After the development of this technology in India, companies like Visa and Mastercard have started feeling the heat.
India has started doing international transactions partially in rupees, such as buying oil from friendly countries which is obviously not liked by the US and countries in Europe.
The space sector is another domain where India developed indigenous technology to launch projects like PSLV and Chandrayaan successfully. It is worth mentioning that when India sought cryogenic engine technology, India’s demand was reportedly outright rejected by Russia.
India is the first country to reach the dark part of the moon and we did it for just Rs 615 crore. Meanwhile, the US’s Apollo mission to the moon cost the country over $250 billion (adjusted for inflation up to 2020).
While The Economist, finds merit in WDR’s argument in India erring in its defence production program, they will have to understand that India’s defence exports have increased manifold in the last five years and it has become a centre of attraction for defence products such as big guns, missiles, rifles and even fighter planes.
Why does the World Bank forget that despite all these so-called ‘mistakes’, India has remained the fastest-growing major economy in the world, while developed countries are going through a situation of inflation and contraction or stagnation?
Most European countries are going through terrible levels of inflation, economic decline and debt burden. In contrast, India is coming out of a deficit in the balance of payments. The rupee is more stable than before, infrastructure is constantly improving, and there is continuous progress in intellectual property—more patents are being given than before. One lakh patents were granted in India in 2023. In the Union Budget for 2024-25, a fund of Rs 1 lakh crore has been created to promote innovation in the country’s sunrise sectors.
There is an unprecedented reduction in multidimensional poverty and there have been schemes to provide houses to homeless people. Government welfare schemes that provide electricity, water, toilets, education, and health facilities are changing the lives of the poor. India is being praised by the bodies like United Nations Development Programme for these measures.
The World Bank must know that at present India’s per capita income on the basis of purchasing power parity is above $10,000, which is certainly more than 10 per cent of the US’s per capita income. Therefore, it is logically not right to mock India’s resolve to become a high-income country in the next 23 years.
Many feel that if the World Bank is criticising India’s path of development, then this path is definitely correct. It is just trying to push an agenda through such reports.
In the past too, the World Bank and the International Monetary Fund have tried to obstruct India’s path by imposing many conditions at the behest of developed countries.
The authors of the report have tried to justify their arguments under the guise of ‘Middle Income Trap’. They should know that the strategy of Atmanirbhar Bharat is not based on the redundant theories being quoted by the World Bank. It is the result of the learnings of the past, from following the blind path of globalisation, which has caused the total collapse of domestic industry in the country.
The policymakers of India should not only reject such reports, but the Indian government should also register its protest against the same and suggest that the World Bank not misuse its special status.
Ashwani Mahajan is a professor at PGDAV College, University of Delhi. He tweets @ashwani_mahajan. Views are personal.
(Edited by Theres Sudeep)