EAC-PM Chief Warns India: Avoid Middle-Income Trap, Target 7-8% Growth

India Faces 'Middle-Income Trap' Warning

India must actively steer clear of the middle-income trap to secure its future prosperity, cautioned S. Mahendra Dev, chairman of the Economic Advisory Council to the Prime Minister (EAC-PM). This warning comes as the nation navigates its path towards higher economic status.

The middle-income trap describes a scenario where economic growth decelerates, preventing a country from graduating to high-income levels. Dev stressed that building on current achievements is paramount to foster a society and economy that is not only prosperous but also inclusive and environmentally conscious.

Structural Shifts Key to Progress

Dev identified significant structural imbalances requiring attention. Agriculture, while employing nearly half of India's workforce (46%), contributes a disproportionately small share (15%) to the Gross Domestic Product (GDP). Conversely, manufacturing, which employs 11-12% of workers, accounts for 17% of GDP.

"Boosting manufacturing and services is essential," Dev stated, underscoring the need for a strategic shift in economic focus. This transformation is vital for sustainable growth and job creation.

Growth Targets and Income Benchmarks

The Economic Survey suggests an 8% growth rate is necessary to reach developed-economy status. Dev noted varying benchmarks for per capita income, with NITI Aayog proposing $18,000 and others suggesting $14,000 could be sufficient. "Therefore, 7-8 per cent growth could be adequate," he concluded, setting a clear growth imperative for policymakers.