Context:

• The World Bank’s upward reclassification of Jordan, Micronesia, the Philippines, Sri Lanka and Vietnam into the upper-middle-income category highlights the importance of sustained economic transformation.
• Vietnam took 16 years to move from lower-middle-income to upper-middle-income status, while China took 13 years.

Case of India:

• India entered the lower-middle-income category in 2007 but remains there.
• If its income grows at 8.5% annually in US dollar terms, compared with 5.4% over the previous decade, it could reach the current upper-middle-income threshold in approximately six years.
• However, economic growth alone does not guarantee broad-based prosperity. Five indicators reveal the structural challenges facing the Indian economy.

Rising Employment, but Low Labour Productivity:

• India’s labour force has expanded by over 100 million in less than a decade, while the unemployment rate has generally declined.
• However, employment does not necessarily imply productive employment, as many workers accept low-paying or insecure work due to limited alternatives.
• Women account for roughly two-thirds of the increase in the labour force, with many engaged in self-employment and agriculture.
• Around 43% of India’s workforce remains employed in agriculture, while 79% of the non-agricultural workforce is engaged in informal enterprises, constraining earnings, social security and economic mobility.

Expansion of Factories Without Manufacturing-Led Employment:

• The number of registered factories doubled from 1.3 lakh in 2004–05 to 2.6 lakh in 2024–25.
• Despite this expansion, manufacturing’s share in GDP and employment has not increased significantly.
• Between 2020–21 and 2024–25, formal manufacturing reportedly generated fewer jobs than the gig economy.
• Although value added per worker has increased, wages have grown more slowly than profits.
• This is due to -
  • Capital-intensive production: Greater reliance on machinery and automation can limit employment generation.
  • Weak labour bargaining power: Workers may receive a smaller share of the value they produce.
  • Rising inequality: Unequal distribution of productivity gains concentrates economic benefits among capital owners.

Public Infrastructure Investment Without Sufficient Private Investment:

• The government has invested heavily in highways, airports, ports and dedicated freight corridors, improving logistics efficiency and industrial competitiveness.
• However, the expected crowding-in of private investment has remained limited.
• For example,
  • Companies have repaired their balance sheets but have often preferred shareholder returns and selective investment over large-scale capacity expansion.
  • Public investment alone cannot sustain long-term growth without complementary private capital formation.

Renewable Energy Growth Outpacing Grid and Storage Capacity:

• India has substantially expanded renewable energy, particularly solar power.
• However, inadequate transmission infrastructure and energy storage have created operational challenges.
• During periods of high solar generation, electricity output may need to be curtailed because of surplus daytime supply and insufficient capacity to transmit or store the power.
• Why does it matter?
  • Manufacturing requires reliable and affordable electricity.
  • Data centres and AI infrastructure need large, dependable power supplies.
  • Renewable energy intermittency can affect grid stability and industrial competitiveness.

Rising Wealth Without a Broad-Based Middle Class:

• India has approximately 94 lakh people who are millionaires in US dollars. This growing concentration of wealth has several implications -
  • Premiumisation: Demand shifts towards premium goods and services.
  • Foreign exchange demand: Overseas education, travel and investments increase demand for foreign currency.
  • Tax revenue potential: Affluent households can contribute significantly to direct taxation.
  • Unequal prosperity: The growth of affluent households does not necessarily indicate the emergence of a large, economically secure middle class.
• The central concern is that wealth creation is not translating sufficiently into widespread improvements in incomes and living standards.

The Way Forward - Converting Growth into Broad-Based Prosperity:

• Employment-oriented growth: Prioritise labour-intensive manufacturing, MSMEs, textiles, food processing, tourism and other employment-generating sectors.
• Formalisation of the economy: Expand access to social security, credit, skills and formal markets for informal workers and enterprises.
• Balanced distribution of productivity gains: Strengthen worker skills, wages and bargaining capacity while improving enterprise productivity.
• Crowd in private investment: Complement public infrastructure spending with a conducive investment environment and predictable regulations.
• Reliable and affordable energy: Integrate renewable energy expansion with storage, transmission and grid modernisation.
• Inclusive wealth creation: Strengthen access to quality education, healthcare, housing and productive livelihood opportunities.

Conclusion:

• India’s transition to upper-middle-income status depends not merely on faster GDP growth but on structural transformation, productive employment and wider distribution of economic gains.
• A combination of globally competitive manufacturing, private investment, modern infrastructure and reliable energy can help convert economic expansion into sustained and inclusive prosperity.