Inclusive Growth Path

India, a rapidly growing economy, is still far behind when it comes to income per capita compared to developed nations. While developed nations hold per capita incomes upwards of $14,000, India stands significantly lower. To transition into the “developed” category, India needs to reach this threshold, which seems unlikely given current growth rates and structural issues. If India is to become the third-largest economy or reach the $5 trillion goal within the next few years, an ambitious 9% growth rate is essential. However, with an average growth rate of just 6.5% over the last decade, achieving 9% appears daunting.

To meet the ambitious per capita income goal by 2047, India would need a sustained growth rate of 11.5% over the next 25 years—an accomplishment few economies have ever achieved over such an extended period. Projections indicate that even if India achieves steady growth, the gap with high-income countries may narrow but not close entirely. For instance, developed nations growing at 2% or 2.5% will continue to expand, which means that India's $14,000 per capita target will remain elusive without transformative strategies.

One of the most glaring issues India faces in its developmental journey is inequality. A significant disparity exists in income distribution, with a small fraction of the population enjoying substantial incomes while the vast majority remain below taxable income thresholds. For instance, out of over 900 million income tax filers, about 500 million report minimal or zero taxable income. As the Prime Minister highlighted, only about 1.1% of the 1.4 billion population are effective taxpayers, representing the wealthiest segment of society.

The data from the E-shram portal further underscores this inequality. This platform, intended for workers in the unorganized sector, shows that around 30 million workers report earnings below ₹10,000 per month. This large section of the population, with meager earnings, contrasts sharply with the 1% of citizens who pay substantial income taxes, illustrating the stark economic divide.

The reasons behind this disparity can be traced back to the top-down approach that India has traditionally pursued in its economic development. Influenced by the post-independence drive for rapid industrialization, India prioritized large-scale projects, such as factories and dams, over grassroots economic activities. While such projects are essential, they do not create enough jobs to support the broader population, leading to a concentration of wealth and development in specific areas and among certain groups.

India's development strategy must now evolve to emphasize a bottom-up approach. Inspired by Mahatma Gandhi's vision, a shift toward village-based development would involve investing in local economies, encouraging small and medium-sized enterprises (SMEs), and fostering industries that generate substantial employment. Bottom-up development is not only a matter of equity but also a more sustainable means of growth for a country as diverse and populous as India.

Trickle-down economics—the idea that benefits for the wealthy will eventually benefit the entire society—has largely failed in the Indian context. Instead, targeted interventions to elevate the lower-income groups are required. Investment in education, health, and vocational training, particularly in rural and underserved areas, would empower individuals to contribute productively to the economy, ensuring that growth reaches every stratum of society.

Addressing this divide is crucial for India to genuinely progress toward developed status. Without inclusive growth, achieving high per capita income or significant GDP growth remains hollow. Only by integrating the vast majority of its population into its growth strategy can India aspire to be a truly developed nation. Through a balanced and inclusive approach, India can bridge the gap, reduce inequality, and foster a more resilient economy for the future.