Sunday, 29 April 2018

Who Knows How to Cheat ‘Middle-Income trap’

“Great man come out of the middle class.” _Ralph Waldo Emerson

The Economic definition of the Middle Income Trap is, where a country reaches a certain income level and will get stuck at that level. Many scholars have written books and articles on this topic. I’ll try to reflect my understanding of the topic and some consciences.

The middle-income trap to our generation is like, having an iPhone X on EMIs. Everyone wants luxury – due respect to their income class. Robert Kiyosaki said, “The rich buy assets. The poor only have expenses. The middle class buys liabilities they think are assets. The poor and middle-class work for money. The rich have money work for them.”

Prime examples of middle income trapped countries are South Africa and Argentina.

Yet only a few – most notably South Korea, Taiwan, and Israel – have managed to continue right up to high-income status.

India has entered the middle-income position in 2008 and the per capita income is increasing slowly. The Per Capita Income of the country as per the World Bank’s 2016 estimate is $ 1670.

The middle class is becoming the working poor. If they have one tragic event – illness, loss of job – they have the need for the food bank.

In India, the IT/BPO sector helped many Indians to shift from poor class to middle class – between 2000’s to 2011. Very quickly, these employees’ salary touched to developed countries salaries [in $ terms]. India’s per capita income between 2000 and 2011 was increased with CAGR around 11.5 %, similarly between 2011 and 2016 increment was only CAGR around 3.03 %. Are we heading towards 'Luddite moments'? 

This IT/BPO industry alone can’t take India to the next level. If a country like an India fails to lift per capita income levels, we would be in The Middle-Income trap by somewhere between 2025 to 2035.

To escape the trap Indian needs radical changes in Education industry. Need checklists on Infrastructure projects and manufacturing activities, proper policies to implement Industry 4.0. Government’s initiatives like, Make In India, Startup India, Skill India etc. are to strengthen the ecosystem. India’s reforms also got 30 notches jump in ease of doing business.

We are in 2018, we still have around 8 to 12 years to prepare ourselves to cheat the middle-income trap. Every individual needs to upgrade learning and skills – especially middle-income level employees.

“Progress is impossible without change, and those who cannot change their minds, cannot change anything” _ George Bernard Shaw

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