Time is of essence for India to accelerate structural reforms and the changes that are needed are not happening quickly enough, Indermit Gill, Chief Economist and Senior Vice President for Development Economics, The World Bank Group, said on Thursday.

Addressing the second edition of Global Economic Policy Forum 2024, organised by Finance Ministry and Confederation of Indian Industry (CII), Gill highlighted three major structural inefficiencies in India’s economy. 

The first is the underutilisation of capital, with unproductive firms continuing to operate and limiting the potential for resource reallocation to more efficient, value-adding incumbent firms. The second inefficiency is in talent allocation. Despite the increasing demand for skilled labour, India continues to underutilize a significant portion of its talent pool, particularly women. The third challenge is energy efficiency. India’s energy-to-output ratios are high, making the country one of the most energy-intensive economies globally.

High-income country

To transition to a high-income country, Gill suggested that India should prioritise improving productivity through infusion of new technologies and innovation, particularly encouraging the growth of large firms as they are often the engines of innovation. He further stressed the importance of utilizing periods of economic crisis as opportunities to introduce structural reforms. Additionally, he noted that India must also embrace inclusive growth by providing equitable opportunities for all.

Gill also noted that Global economic growth has been decelerating, with potential growth rate in advanced economies halved over the last two decades, and emerging markets and developing economies also experiencing a decline in potential growth rate, exacerbated by geopolitical tensions, trade fragmentation, policy uncertainty and persistent inflation.

Gill noted that middle income countries, including India, are more prone to slowdown compared to low income or high income countries. He observed that the share of middle-income countries in global GDP has grown, but their productivity and efficiency remain significantly below those of high-income economies.

He further added that India is better positioned than many of its peers to navigate the current global challenges. 

Published on December 12, 2024