India has progressed on many fronts, it must avoid middle-income trap: PM's eco advisory panel chief

India has progressed on many fronts, and the country must avoid the middle-income trap and build on its achievements to create a society and economy that is prosperous and inclusive, Economic Advisory Council to the Prime Minister (EAC-PM) Chairman S Mahendra Dev said on Saturday.

Addressing the '104th SKOCH Summit', Dev said that India has undertaken numerous reforms, including GST reforms, RERA, IBC, 100 per cent FDI in insurance, private participation in nuclear energy, quality control orders, and ease-of-doing-business initiatives.

"India has progressed on many fronts. With the right allocation of resources across sectors, strong reforms, and efficiency-led growth, India can significantly increase its global economic share," he said.

The eminent economist said that political stability, macroeconomic stability, and a large domestic market are key strengths of India.

"...India must avoid the middle-income trap and build on its achievements to create a society and economy that is prosperous, inclusive, and pro-nature," he said.

The Middle-Income Trap is a situation where a country's economic growth stagnates after becoming a middle-income nation, unable to make the leap to high-income status, as seen in Latin America.

Dev noted that structural transformation remains crucial as agriculture still employs 46 per cent of workers but contributes only 15 per cent of GDP.

"Manufacturing employs only 11-12 per cent, with a 17 per cent GDP share. Increasing manufacturing and services is essential," he said.

Dev said that the government investment through budgets and capital formation is important, but private capital must increase significantly.

"Private investment's share has declined in recent years, and without its revival, we cannot reach an investment rate of 35-38 per cent," he said.

Pointing out that the Economic Survey suggests that 8 per cent growth is required to achieve the developed-economy status, Dev said there are two benchmarks: NITI Aayog suggests a per capita income of USD 18,000, while others argue USD 14,000 may suffice.

"Therefore, 7-8 per cent growth could be adequate," he said.

According to him, while there are also global headwinds: geopolitical tensions, rising protectionism through tariffs, and weakening multilateral institutions such as the WTO, the Government of India is addressing these through a four-fold approach: supporting affected industries and MSMEs, diversifying export markets, accelerating free trade agreements, and continuing dialogue with major partners like the US.

He said India's exports have diversified, including at the state level.

"For example, seafood exports from Andhra Pradesh are being redirected to Australia. Free trade agreements are being fast-tracked, and engagement with the US remains critical due to its influence on investment sentiment," Dev said.

Noting that exports account for only about 20 per cent of India's GDP, while 80 per cent depends on the domestic economy, he said, policies must therefore focus on capital, efficiency, and productivity within the domestic market.