When will India be a developed country?

  • If India keeps growing in the same manner it does today, it will NEVER become a developed country.

    Let us first see how other countries and continents have become “developed”.

    Europe

    The emergence of the the Bubonic Plague and the subsequent Crisis of the Late Middle Ages created a dire shortage of the farmers and put an end to feudalism and lordship in the European continent, and hence set the foundation for private ownership and capitalism. At this time, the continent underwent a period of radical social transformation, also called as the Renaissance.

    Later, the European continent was the first to undergo industrialization. Combined with the age of exploration and establishment of colonies around the world, they became wealthier, and the standard of living of their miniscule populations significantly increased. After the two World Wars, the European society modernised, and its industry recovered, and Europe came to what it is today.

    Europe slowly became economically and socially developed, shaped by massive events that occured over the course of 600–700 years.

    US

    The US wasn’t a significant power until the arrival of Industrial revolution. For Europe, US was became a location for cheap and efficient manufacturing starting from the 1850’s. US manufactured to cater to European consumption. The American industry gained further importance after the second World War, because the industry in Europe was shattered. The increase in high value industrial output resulted in higher wages and living standards, and US developed.

    Australia

    Australia became an independent nation in 1901, before which it was a British dependency. With a resource-rich land and a miniscule population, combined with good governance; Australia quickly developed into a first-world nation.

    Japan

    Socially, Japan developed during the Meiji era (1868- 1912), which brought modernizing reforms in Japanese society. The Meiji era also resulted in Japan shifting from an agrarian to an industrial economy. After the second World War, Japan focused on technological exports to rebuild their industry. Japan became one of the largest technological exporters, which helped develop the entire country in a few decades.

    South Korea

    Korea was a Japanese colony until 1945. After the second World War, Korea was split into two halves. South Korea was an agrarian economy until the 1960’s. South Korea initially relied on Japanese investments, after which they focused on technological exports. The rapid industrialization led to prosperity and social progress, and South Korea became developed in a mere 40 years.

    Gulf states

    The Gulf states have massive oil reserves, a much required resource in the world. They sold the oil and invested it in the development of their country. As a result, in 30–40 years, countries like UAE and Qatar have undergone a massive transformation.

    China

    Starting from the 1980’s, US and Europe had a very high consumption of goods, but manufacturing there was very expensive. China opened up its economy and became a cheap manufacturing hub, catering to the consumers in US and Europe. Government investment on infrastructure, combined with the ease of setting up a factory in China quickly made it the “World’s factory”. Later, China empowered their local companies, making them competent enough to cater to the international market. Nowadays, the Chinese government is focusing more on R&D, enabling China to also become a technological giant, and converting to a high value industry.

    China has still a long road to become a developed country, but it’s travelling very fast.

    By looking at these examples, the picture is very clear. To become a developed country,

    1. The country must excel in producing/extracting something of high value, i.e. something that the world wants.
    2. The country must attempt to solve a cause that is a pressing issue in most of the world.
    3. A large chunk of the country’s population must be employed in fulfilling any of the above two conditions.

    India doesn’t do any of these things. Most of its economic growth stems from foreign investment, service sector and consumer spending. A country can never become developed if it acts like the “back office” and the “customer care” of the world.

    India doesn’t excel in producing anything that the world has in high demand- be it agriculture, manufacturing produce, minerals or technology. India doesn’t have anything to leverage.

    In this case, India is headed for a middle-income trap, similar to the likes of Philippines, Sri Lanka, Indonesia, Iran, etc.

    The middle income trap is a situation that an emerging economy has the potential to face. It is a situation in which extreme poverty becomes negligible and the middle class balloons. The country has lost the race in cheap exports, when compared to other emerging economies; but neither can generate high value products to compete with developed countries.

    As a result, the country is unable to progress economically, and is “stuck” in the same place.

    It occurs when a country is unable to convert its cheap labor based industry to a high-value industry.

    Countries like Turkey, Malaysia, Brazil and Mexico have already been stuck in the trap. No country that has been stuck in that trap has ever been able to come out of it.

    The conclusion

    Developing the manufacturing sector and reforms in R&D is the only way to evade this trap. The harsh reality is, we have been ignoring this year after year. Even today, our manufacturing is miserable and our R&D is virtually non-existent.

    The problem is far larger and more urgent than Indians think. By 2030, we are expected to become a $10 trillion economy, with a per capita income of nearly $ 6700.

    If India doesn’t course-correct, it will lose all it’s competitive advantage and get stuck in the trap forever. After that lies a period of perpetual stagnation.

    I hope I am wrong.

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