Economic Survey 2017: Volume I, Chapter 5: Is there a “Late Converger Stall” in Economic Development? Can India Escape it?

The first order fact about the developing world today is that this is an era of unprecedented prosperity. And that is true about India too which has been one of the most dynamic economic performers in the world. A major driver of these good times, is “economic convergence,” whereby poorer countries have grown faster than richer countries and closed the gap in standards of living. The convergence process has been broadening and accelerating for the last 20-30 years. However, while fears of a middle-income trap are overblown, could there be a slowdown in this process for lower-middle-income countries such as India.? The possibility of such a “Late Converger Stall” arises because of four possible headwinds in the post-Global Financial Crisis era that were largely absent for the early convergers such as Japan and Korea. These headwinds include: the backlash against globalization which reduces exporting opportunities, the difficulties of transferring resources from low productivity to higher productivity sectors (structural transformation), the challenge of upgrading human capital to the demands of a technology-intensive workplace, and coping with climate change-induced agricultural stress. India has so far defied these headwinds but can continue to do so only if the challenges are decisively addressed.