Vision 2047 Document: Introduction

• Announcement of Panch Pran: On August 15, 2022, Indian Prime Minister announced five pledges (Panch Pran) from the Red Fort to make India a superpower.
  • The first pledge was to make India a developed nation by 2047.
• Vision 2047 Document: The Indian government, along with NITI Aayog, prepared the Vision 2047 document, providing a roadmap to make India a $30 trillion economy and increase per capita income from $2,600 to $18,000.

Defining a Developed Nation

• No Official Definition: There is no official status or definition of a “developed nation” by any world institution.
• Categories as per World Bank: The World Bank divides countries into four categories:
  • Low income countries
  • Lower middle income countries
  • Upper middle income countries
  • High income countries
• Current Status of India: India currently falls under the lower middle income category with a per capita income of $2,612.
  • To be considered developed, India needs to increase its per capita income to $20,000-$25,000, requiring exceptional growth rates.

Challenges in India’s Economic Landscape

According to the Indus Valley Report 2024, there are three major challenges that could hinder India’s mission to become a developed country:

• Inadequate Gross Fixed Capital Formation (GFCF): 

  • India’s economy is consumption-led, with 60% dependent on private consumption and only 29% contribution from GFCF. 
    • For instance, India’s GFCF has never exceeded 35% between 2001 and 2023, while China consistently invests above 40% in capital assets.
    • GFCF: It represents a country’s investment in physical assets like buildings, roads, and machinery, which drive long-term growth, productivity, production, and exports.

• Lack of Credit: 

  • Private companies require loans to invest, and the MSME sector (contributes 29% to India’s GDP) is struggling with credit shortages.
    • India’s domestic credit to the private sector is only 54% ($1.6 trillion), compared to China’s 182% ($32 trillion).
    • Despite having 110 unicorn startups, venture funding in India has been declining since 2017 due to credit shortages and high Non-Performing Assets (NPA) in the banking sector.

• Increased Government Debt: 

  • India’s government debt is 84% of its GDP, while China’s is only 68%. The International Monetary Fund (IMF) warned that India’s government debt might reach 100%, negatively impacting the economy.
    • India’s low income tax base is a major factor behind the high government debt, with only 1.5% of people paying income tax.
    • High government debt leads to a crowding-out effect, reducing the availability of loans for the private sector.

Way Forward

• Addressing inadequate GFCF, lack of credit, and increased government debt is essential for India’s growth. 
• Improve ease of doing business, providing credit guarantees to MSMES and increase the tax base.
• Investing in human capital, particularly the youth, is crucial for India’s growth and development.

Conclusion

Investing in human capital and implementing reforms will be key to achieving the goal of becoming a $30 trillion economy with high per capita income.