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What is the middle-income trap and why it matters for India? Discuss some measures to overcome it.

Topic: Indian Economy and issues relating to planning, mobilization, of resources, growth, development and employment.

4. What is the middle-income trap and why it matters for India? Discuss some measures to overcome it. (250 words)

Reference:  Live Mint

Why the question:

The article suggests focusing on improving productivity and thereby the manufacturing sector to avoid the middle-income trap. Thus the question.

Key Demand of the question:

Discuss the concept of Middle income trap and explain how India can avoid the middle income trap.

Directive:

Discuss – This is an all-encompassing directive – you have to debate on paper by going through the details of the issues concerned by examining each one of them. You have to give reasons for both for and against arguments.

Structure of the answer:

Introduction:

Start with what you understand by Middle income trap.

Body:

This trap was first conceived by World Bank economists. They found that of the 101 developing economies that could be classified as ‘middle income’ in 1960, only 13 managed to become rich nations by 2008. There is little consensus on why some countries succeed in making the transition to high-income status.

But a distinctive attribute of those that succeed in the transition to high income is productivity improvement.

Suggest how India can avoid middle-income trap.

Conclusion:

Conclude with solutions.