By Sandeep Vempati
Would the Modi government’s sustainable growth strategy, guided by the self-reliance principle, anchored in five foundational pillars and driven by five strategic frontiers, along with active management of Indian economy steer clear of challenges including middle income trap and position India as developed nation by 2047 amid increasing geopolitical uncertainty, geoeconomic fragmentation and Chinese surplus capacity?
A closer look at the Indian state and the state of the Indian economy reveals five structural advantages which, taken together, position India at a comparative advantage vis-a-vis top 20 economies and countries with at least 100 million population while powering the transition to high income status.
Democracy as a growth advantage
Democracy is foremost, yet least appreciated, advantage. A democratic system enables inclusive economic participation and creates mechanisms including electoral process, parliamentary scrutiny, opposition parties, courts, media and civil society that can generate pressure for correcting policy failures. For instance, the UPA government was dislodged in 2014 for its economic mismanagement leading to Prime Minister Narendra Modi holding office for three consecutive terms.
An IMF working paper finds that growth is more likely to be sustained under democratic systems while output collapses tended to be more persistent under autocratic systems. The World Bank’s 2025 report on Vietnam’s pathway to high income future calls for an accountable civil service, stronger oversight and greater roles for civil society and media. Innovation, creatively destructive and imperative for high income status, is difficult to be suppressed under democracy. Russia’s inability to innovate due to significant energy resources and lack of political contestability exemplifies this.
Second is developmental capitalism. It is an approach to development in which state deliberately shapes the conditions and direction of market-led transformation. Since 2014, the Modi government lifted 250 million out of poverty, commenced credit access to underprivileged, built massive physical infrastructure, scaled digital public infrastructure, improved quality of expenditure, undertook skilling and coordinated strategically with industry through PLI. But Saudi Arabia’s state led development and diversification failed to perform on domestic industry diversification and raise labour productivity. Similarly, China’s state directed capitalism could not ignite the much needed private consumption, continuing its exposure to the vagaries of the external demand.
Third is debt sustainability. Debt accumulation and debt stock are both reflections of the country’s economic policies and activities, but not a direct measure of the quality of those policies. Fiscal consolidation is one of the channels to improve debt sustainability. Over the last 12 years, the Modi government witnessed two phases of successful fiscal consolidation. A third phase is underway from FY27 to FY31. In comparison, high debt stock of the UK, France, Italy and Spain remain vulnerable to rising interest costs, growth shocks, ageing related expenditure and deteriorating external environment.
The fourth is demographic dividend. India not only has the world’s largest working age population, but its labour force participation rate has been rising since the commencement of the annual periodic labour force survey in 2017-18. This trend is expected to continue under the sustainable growth strategy. While India remains at an early phase of demographic dividend, Australia, Canada, Germany, Indonesia, Japan, and South Korea are either in post or late phase.
Other benefits of India’s demographic dividend include relatively low wages and diverse skilled labour. According to ILOSTAT 2025, average monthly earnings of employees in Brazil, Mexico, the Netherlands, the Philippines, Turkiye and Switzerland are higher than in India’s across manufacturing, information and communication, financial and insurance activities and, professional, scientific and technical activities. India’s labour productivity has also been rising since 2014 and with increasing firm size. The US, meanwhile, suffers from the triple whammy of ageing population, high wages and rising debt stock.
Domestic demand is last in the series. As the demographic dividend translates into a higher labour force participation rate, the resulting expansion of incomes creates a large domestic demand, a subset of aggregate demand, in the form of consumption and capital formation by private and government sectors. Large domestic demand, in turn, creates a powerful virtuous cycle for firms to experiment, invest and build supply chains, reach economies of scale, absorb technology, raise productivity, become competitive, export more and then scale even higher to focus on innovation. Apart from scoring low on Worldwide Governance Indicators, Bangladesh, Egypt, Pakistan, Nigeria, Congo and Ethiopia cannot match India’s scale of demand.
India’s growth path to 2047
The World Bank notes that India will need to grow by 7.8% in real terms until 2047 to reach high income status. A 7.8% real GDP growth print in the first quarter of FY27 despite tariff pressures and unprecedented crude oil supply disruptions caused by war in West Asia reflects the outcome of five structural advantages studded sustainable growth strategy while painting a picture of resilience, competitive and cooperative federalism and active management of economy including crude, commodities and currency.
With India’s relative structural advantages complemented by the confidence of resilience and the Modi government’s sustained focus on skilling, raising productivity, labour-intensive and high-tech manufacturing, global capability centres (GCCs) and free trade agreements (FTAs), including with the US, both domestic and global investors would step up investments for fulfilling domestic demand and deepening global integration. In an interconnected world clouded by VUCA – volatility, uncertainty, complexity and ambiguity – for the foreseeable future, the trio of growth diversification, self-reliance, and resilience is indispensable.
The World Bank advocates a 3i strategy – investment, infusion and innovation – to escape middle-income trap. Because the government capex has expanded, increasing private investment due to FTAs and exports channel will witness infusion and the innovation seeds have been sown, India’s high income status is sure by 2047.
(The writer is an economist & columnist, and a member of the Bharatiya Janata Party)
Disclaimer: The views expressed are the author’s own and do not reflect the official policy or position of Financial Express.