India ‘must accelerate reforms to speed up growth’

India would need to grow its economy by 7.8% on average over the next 22 years to achieve the country’s aspirations of reaching high-income status by 2047, according to a recent report from the World Bank.

The report – entitled ‘India-Country Economic Memorandum: Becoming a High-Income Economy in a Generation’ – said that while achieving this target was possible, getting there would require reforms and their implementation to be as ambitious as the target itself.

Recognising India’s fast pace of growth averaging 6.3% between 2000 and 2024, the report observed that India’s past achievements provide the foundation for its future ambitions.

“Lessons from countries like Chile, Korea and Poland show how they have successfully made the transition from middle- to high-income countries by deepening their integration into the global economy,” said Auguste Tano Kouame, World Bank Country Director. He added: “India can chart its own path by stepping up the pace of reforms and building on its past achievements.”

The report evaluates multiple scenarios for India’s growth trajectory over the next 22 years. It said that vital to India reaching its targets are:

• achieving faster and inclusive growth across states;
• increasing total investment from current 33.5% of GDP to 40% (both in real terms) by 2035;
• increasing overall labour force participation from 56.4% to above 65%; and
• accelerating overall productivity growth.

Emilia Skrok and Rangeet Ghosh, co-authors of the report, said: “India can take advantage of its demographic dividend by investing in human capital, creating enabling conditions for more and better jobs and raising female labour force participation rates from 35.6% to 50% by 2047.”

In the past three fiscal years, India has accelerated its average growth rate to 7.2%. In order to maintain this acceleration and attain an average growth rate of 7.8% (in real terms) over the next two decades, the Country Economic Memorandum recommends four critical areas for policy action:

• Increasing investment (the rate of private and public investment should increase from around 33.5% of GDP to 40 % by 2035).
• Fostering an environment to create more and better jobs. Overall, labour force participation rates have remained low in India at 56.4% compared with countries like Vietnam (73%) and Philippines (60%). The report recommends incentivising the private sector to invest in big employment sectors like agro-processing manufacturing, hospitality, transportation and care.
• Promoting structural transformation, trade participation and technology adoption.
• Enabling states to grow faster and together. The report argues for a differentiated policy approach whereby less developed states could focus on strengthening the fundamentals of growth (health, education, infrastructure, etc.), while more developed states could prioritise the next generation of reforms.

MSMEs key to achieving growth

India’s micro, small and medium-sized businesses (MSMEs) need to be integrated into larger supply chains to drive real competitiveness and achieve 7%-8% growth, said Suman Bery, Chairman of the Economic Advisory Council to the Prime Minister Government of India.

“Growth happens through innovation and gains from trade, but sustaining momentum is harder when you’re doing well,” said Bery. “The challenge is to keep pushing forward… India’s corporate sector must step up, and MSMEs need to be integrated into larger supply chains to drive real competitiveness and achieve 7-8% growth.”

Bery added: “India has staged a remarkable economic recovery post-Covid, emerging as the fastest-growing large economy in the world, as acknowledged by the IMF. With moderate inflation and declining poverty levels, the country is on a strong growth trajectory. The challenge now is to sustain and accelerate this momentum.”

Highlighting the importance of sustainability, Bery said: “As the world moves towards greener supply chains, Indian enterprises – both large and small – must adapt. Sustainability is no longer just about compliance; it is becoming a core factor in global competitiveness. MSMEs must be supported in this transition, ensuring they are part of a greener, more resilient industrial ecosystem.”