MIDDLE-INCOME TRAP

For India, lessons from countries like South Korea (the most impressive transition), Chile and Poland are probably most relevant to escape the middle-income trap

- Ajit Ranade

Around 1990, India and China had roughly the same economic size and per capita income in dollar terms.

China's per capita income was lower than that of India. Both were ranked between 140 to 145 out of 190 odd countries. China's economic reforms had started in 1978, but the real momentum to their growth was yet to kick in. India's reforms started in the next year i.e. 1991, thirteen years behind that of China. Fast forward to the present. These two are now the second and fourth largest economies in the world. China became the second largest economy back in 2010. India has attained the fourth rank just this past week as per the International Monetary Fund, and this was proudly announced by the CEO of Niti Aayog, on the sidelines of the meeting of the Governing Council of Niti, chaired by the Prime Minister. The CEO was confident that India would overtake Germany to become the third largest economy in the next three years.

The rise of India and China in the past three decades is nothing short of spectacular, historic and unprecedented. Together the two giants of Asia represent 40% of humanity. India's economic size is presently about $4.1 trillion, while China is $19 trillion which is five times bigger. India's economy has grown at 6.3% per annum from 2000 till 2024 in real terms, as per World Bank (WB). This is the fastest growth rate among large economies. In recent years, the average rate of growth of India has gone up to about 7.3%. As compared to 1990, India's economy is now 11.5 times bigger, while the population is only 1.6 times larger. This means the per capita income has grown substantially from about $360 in 1990 to $2700 in 2025.