How can India avoid the Middle Income Trap i Shifting to productivity led growth ii Addres...........

Economic and social issues(Phase-I/II) Nature of Indian economy

Recently, a member of PM Economic Advisory Council (PMEAC) warned that India may be nearing a structuralslowdown and may soon get caught in the ‘middle income trap’ like Brazil and South Africa.The term middle-income trap (MIT) usually refers to countries that have experienced rapid growth and thus quickly reached middle- income status (with Gross National Product per capita between ($1,000 & $12,000), but then failed to overcome that income range to further catch up to the developed countries and achieve high- income status. MIT is a relatively new phenomenon and was first mentioned in 2007 in the World Bank report.The countries caught in the Middle Income Trap are unable to compete with low-income, low-wage economies in manufactured exports and unable to compete with advanced economies in high- skill innovations.According to the idea, a country in the middle income trap has lost its competitive edge in the export of manufactured goods because of rising wages. However, it is unable to keep up with more developed economies in the high-value-added market.

How can India avoid the Middle Income Trap?

i Shifting to productivity-led growth

ii Addressing barriers to effective competition

iii Decentralized economic management

Select the correct answer using the code given below

i and ii only

i and iii only

ii and iii only

all of the above

none of these

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Explanation:

To avoid becoming trapped without a viable high-growth strategy, India needs to:

•Shifting to productivity-led growth: Total factor-productivity growth in middle-income countries requires major changes in education, from primary & secondary schooling to tertiary education so that workers are adept in new skills as per the demands of the markets. Creating such knowledge economy requires long term planning and investment.

•Addressing barriers to effective competition: There is a need to address rigidities that can arise from bankruptcy laws, stringent tax regulations, limited enforcement of IP regulations, imperfect information, discrimination etc.

•Decentralized economic management: Greater powers should be vested in local governments to ensure speedier decision making