Thursday, 20 Aug, 2026
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New Delhi does not need another short-lived boom. It needs sustained growth built on higher investment, lower production costs, better capital use and steady productivity gains
India’s ambition to become a developed economy by 2047 faces a simple but formidable test: it must grow much faster, and keep doing so for a very long time. NITI Aayog Vice-Chairman Ashok Lahiri has estimated that India needs an average nominal growth rate of 9.25 per cent a year to achieve developed-country status by 2047. That is an unusually demanding target. India has never sustained such an expansion over two consecutive decades.
The challenge becomes clearer when India’s record is compared with China’s. In the first two decades from 1960, India actually outpaced China in per capita income growth when measured in dollar terms. India’s per capita income grew at a compound annual rate of 5.1 per cent during 1960-79, compared with 3.9 per cent for China.
The picture changed dramatically thereafter. During 1980-99, India’s per capita income grew at only 2.5 per cent annually, while China managed 8.3 per cent. China’s per capita income rose from $184.3 in 1960-79 to $881.1 in 1980-99, while India’s increased from $228 to $441.9.
Yet the comparison needs some qualification. In national-currency terms, India’s per capita income growth during 1980-2019 was not far behind China’s. A major reason China looks much stronger in dollar terms is currency movement. The rupee depreciated more sharply against the dollar than the yuan, reducing the dollar value of India’s income gains.
More recently, India has regained some ground. Over the past six years, its per capita income growth has again exceeded China’s, even though India has not come close to the 9.25 per cent nominal growth Lahiri says is required for the 2047 goal.
That improvement matters, but it does not remove the underlying problem: India needs a much larger and more productive investment cycle.
Investment is the bridge between faster growth and higher incomes. Historically, India’s investment rate has trailed China’s, except for a few years. The gap became particularly wide in the 2010s, when China’s investment rate moved above 40 per cent of GDP, while India averaged around 30 per cent.
The encouraging part is that India has become more efficient in using capital. In the last decade, India’s incremental capital-output ratio (ICOR) was lower than China’s. A lower ICOR means the economy requires less additional capital to generate an extra unit of output. That is an important advantage because simply throwing more money at investment does not guarantee faster growth.
The lesson, therefore, is not that India must copy China’s investment rate mechanically. It is that India needs more investment and better-quality investment. Higher capital formation, alongside stronger productivity, infrastructure, skills and technology, will be essential if growth is to move decisively higher.
The historical experience of East Asia shows both the opportunity and the urgency. Major East Asian economies took roughly 19 to 26 years to move from lower-middle-income status to high-income status. India, by contrast, has remained stuck in the lower-middle-income category for 16 years, since 2010.
That is the central economic challenge behind the 2047 ambition. India has already demonstrated that it can grow rapidly and improve the efficiency with which it uses capital. It has also regained ground against China on recent per capita income growth. But becoming developed is not about producing a few years of strong growth. It requires sustained expansion over decades.
The arithmetic is unforgiving. A 9.25 per cent annual nominal growth rate maintained for more than two decades would represent an economic transformation on a scale India has never previously achieved for such a prolonged period.
The good news is that the gap between aspiration and possibility is not fixed. NITI Aayog’s broader Viksit Bharat framework also stresses productivity, investment, infrastructure, human capital, innovation and institutional reforms as essential to the transition.
India therefore does not need another short-lived growth spurt. It needs to turn growth into a sustained economic process: raise investment, lower the cost of producing output, improve capital efficiency and lift productivity year after year.
The comparison with East Asia offers a useful benchmark. The comparison with China offers a warning. And the 9.25 per cent figure offers the hard arithmetic.
India has 21 years to prove that an economic expansion it has never sustained for two decades can become the foundation of Viksit Bharat.
