The Reality Check: Why India May Not Achieve Developed Nation Status as Projected

India's ambition to become a developed nation is a well-known narrative, echoed by policymakers, economists, and visionaries. With a GDP growth rate often highlighted as among the highest in the world, many assume that India is on a straightforward path to development. However, when we examine the latest economic policies, educational frameworks, financial systems, and the 2024 Union Budget, a different picture emerges—one that reveals deep-rooted structural challenges that could impede India's progress toward developed nation status.

This blog aims to provide a reality check, grounded in the latest data and analyses, to understand why India might not achieve its ambitious development goals as easily as some may think.

1. Economic Slowdown and Budget Constraints

India's GDP growth rate, which averaged around 7% in the last decade, has shown signs of slowing down. The Reserve Bank of India (RBI) recently revised its GDP growth projection for FY 2024-25 to 5.8%, reflecting a mix of global economic uncertainty and domestic challenges. 

2024 Union Budget Insight:

The 2024 Union Budget focused heavily on fiscal consolidation with a reduced fiscal deficit target of 5.5% of GDP, down from 6.4% in the previous year. While this move aims to stabilize the economy, it has come at the cost of reduced public spending in crucial sectors like education and healthcare. Public spending on these sectors has remained stagnant at around 2.9% and 1.8% of GDP, respectively, far below the global average.

Why It Matters:

Reducing the fiscal deficit is crucial for economic stability, but it also limits the government's ability to invest in social infrastructure. With less investment in education and healthcare, the foundation required for sustained economic growth and development weakens. A lower GDP growth rate further exacerbates the problem by reducing the economic pie available for distribution among a rapidly growing population.

2. Education: Failing to Bridge the Skills Gap

The 2024 Economic Survey highlighted a worrying trend in India’s education sector: while enrollment rates are high, the quality of education remains poor. The New Education Policy (NEP) 2020 aimed to overhaul the system, but the latest data indicates that implementation has been uneven and slow. 

Skill Development Gaps:

A report by the National Skill Development Corporation (NSDC) in 2024 found that nearly 60% of graduates in India are not employable due to a lack of skills. This is a critical issue, given that the education system is not aligning with the needs of the job market. The lack of investment in vocational training and STEM (Science, Technology, Engineering, and Mathematics) education further widens the skills gap.

Why It Matters:

A poorly educated and under-skilled workforce limits India’s ability to move up the value chain in global markets. Without substantial improvements in the quality of education and skill development, India will struggle to transition from a service-based economy to a knowledge-based one, essential for becoming a developed nation.

3. Healthcare: A System in Distress

India's healthcare system is in dire need of reform. The 2024 budget allocated just 2.1% of GDP to healthcare, a slight increase from previous years but still far below the 5% recommended by the WHO for developing countries. The COVID-19 pandemic exposed significant weaknesses in India's healthcare infrastructure, from inadequate hospital beds to a lack of trained medical personnel.

Public vs. Private Spending:

Approximately 70% of healthcare expenses in India are out-of-pocket, according to a 2024 report by the National Health Authority (NHA). This reliance on private spending places a heavy burden on low-income families and exacerbates economic inequality.

Why It Matters:

A robust healthcare system is a cornerstone of a developed nation. Inadequate public healthcare spending not only affects the health and productivity of the population but also increases economic inequality, which in turn hampers overall development.

4. Digital and Financial Inclusion: Still a Long Way to Go

While India has made significant strides in digital payments and financial inclusion, thanks largely to initiatives like Jan Dhan Yojana and the rise of fintech, gaps remain. According to the Financial Inclusion Index 2024, nearly 30% of India's adult population still lacks access to formal banking services. Moreover, the digital divide persists, with rural areas lagging far behind urban centers in terms of internet penetration and digital literacy.

2024 Financial Landscape:

The 2024 Union Budget introduced several measures to promote digital payments and financial literacy. However, the allocation for these initiatives was less than 0.5% of GDP, indicating a lack of prioritization. Additionally, recent surveys have shown that digital transactions, while increasing, are still heavily skewed towards urban, educated populations.

Why It Matters:

For India to become a developed nation, it must ensure inclusive growth. This means providing access to financial services and digital tools across all sections of society. The current digital and financial divide hampers economic mobility and prevents large segments of the population from fully participating in the economy.

5. Agriculture: A Sector in Crisis

Agriculture employs nearly 50% of India's workforce but contributes only about 17% to the GDP, highlighting the sector’s low productivity. The 2024 budget allocated 2.5% of GDP to agriculture, focusing on subsidies rather than structural reforms. This approach fails to address core issues such as land fragmentation, lack of modernization, and inadequate access to markets.

Subsidy Dependence and Reform Resistance:

Despite subsidies for fertilizers, power, and credit, farmer incomes remain low. According to the National Sample Survey Office (NSSO), the average monthly income of an agricultural household in 2024 was around INR 10,000 ($120), barely sufficient to meet basic needs.

Why It Matters:

For India to advance, the agricultural sector must become more productive and sustainable. Without substantial reforms, including improved infrastructure, better access to technology, and a shift towards high-value crops, agriculture will continue to be a drag on the economy rather than a driver of growth.

6. Environmental Sustainability: Overlooked and Underfunded

India faces severe environmental challenges, from air pollution to water scarcity. The 2024 budget allocated less than 1% of GDP to environmental initiatives, which is grossly inadequate given the scale of the crisis. According to the Environmental Performance Index (EPI) 2024, India ranks 168th out of 180 countries, a stark indicator of its environmental management failures.

Climate Change Impact:

A study by the Indian Institute of Tropical Meteorology predicts that India could lose 2-3% of its GDP annually due to climate change impacts by 2050. This includes losses from extreme weather events, reduced agricultural yields, and health impacts from pollution.

Why It Matters:

Ignoring environmental sustainability not only jeopardizes public health and quality of life but also has significant economic implications. A focus on short-term growth at the expense of long-term environmental sustainability will hinder India’s path to becoming a developed nation.

7. Rising National Debt and Inflation Concerns

India's national debt has been rising, reaching 85% of GDP in 2024, up from 70% in 2010. This increasing debt burden, combined with inflationary pressures, poses significant risks to economic stability. The 2024 Union Budget has aimed to curb inflation, currently hovering around 6%, by tightening monetary policy and reducing subsidies. However, these measures have also slowed economic growth and increased the cost of living for ordinary Indians.

Why It Matters:

High national debt limits the government's ability to invest in development projects and reduces fiscal flexibility. Inflation erodes purchasing power, disproportionately affecting the poor and increasing economic inequality.

8. Geopolitical Risks and External Dependencies

India's geopolitical position brings with it both opportunities and risks. The recent tensions with neighboring countries and dependencies on imports for energy and technology have made the economy vulnerable to external shocks. The 2024 Economic Survey highlighted the need for reducing dependency on imports, especially in sectors like electronics and pharmaceuticals.

Why It Matters:

Economic resilience is key to development. A heavy reliance on imports makes India vulnerable to global supply chain disruptions and economic downturns. Building self-reliance through increased domestic production and strategic reserves is essential for long-term stability.

9. Corruption and Bureaucratic Inefficiency

Despite various reforms, corruption and bureaucratic inefficiency continue to plague India. The Corruption Perceptions Index (CPI) 2024 ranks India 85th out of 180 countries, indicating widespread corruption. Additionally, the World Bank’s Ease of Doing Business Report places India at 63rd, reflecting ongoing bureaucratic hurdles that impede business operations and investment.

Why It Matters:

Corruption and inefficiency in governance are major obstacles to development. They increase the cost of doing business, discourage investment, and undermine public trust in government institutions.

Conclusion

While India has the potential to become a developed nation, the challenges outlined above present significant roadblocks. The 2024 Union Budget and recent economic policies, while well-intentioned, fall short of addressing the structural issues that need urgent attention. To change its trajectory, India must adopt a more holistic approach to development that goes beyond mere economic growth. This includes investing in human capital, ensuring inclusive growth, promoting sustainability, and fostering good governance.

For India to achieve its development aspirations, it must recognize and address these challenges head-on. Only then can the country hope to transform its potential into reality, creating a prosperous future for all its citizens.