Why People Think a Higher GDP Will Make India Developed Like America—But It Won’t: Understanding the Reality

When discussing economic development, Gross Domestic Product (GDP) often becomes the go-to metric for policymakers, economists, and the general public. In India, the narrative frequently suggests that a higher GDP will automatically propel the country into the realm of developed nations like the United States, boasting similar infrastructure, roads, healthcare, and educational standards. However, this view is simplistic and, to some extent, misleading. While GDP is a significant economic indicator, it does not capture the full picture of development. In this blog, we will explore why equating GDP growth with holistic development is a fallacy, using statistics and analyses to debunk the myth and uncover the realities of India's growth path.

1. Understanding GDP and Its Limitations

Gross Domestic Product (GDP) measures the total value of all goods and services produced over a specific time period within a country. It is often used as an indicator of economic health and growth. However, GDP only tells part of the story:

GDP Growth Does Not Equate to Income Distribution: India’s GDP may be growing, but income inequality has been rising simultaneously. According to the World Inequality Database, the top 1% in India now hold 22% of the national income, while the bottom 50% hold just 13% as of 2024. This disparity suggests that the benefits of GDP growth are not evenly distributed across the population.

GDP Ignores Quality of Life: A country can have a high GDP but still face issues like poor public health, inadequate education, and low life expectancy. For example, India's GDP was $3.7 trillion in 2023, but it ranked 132 out of 191 countries on the Human Development Index (HDI), indicating a significant gap in overall quality of life.

Environmental Degradation is Not Accounted For: Higher GDP growth can come at the cost of environmental damage, which isn't reflected in GDP calculations. India's rapid industrialization and GDP growth have led to severe environmental consequences, including air and water pollution, which have substantial long-term health and economic costs.

2. Comparing India and the United States: A Flawed Analogy

India's aspiration to mirror the development of the United States is understandable, but there are crucial differences that GDP alone does not address:

Historical Context: The U.S. had centuries to develop its infrastructure, governance, and economic policies. Moreover, much of its initial growth was built on industrial revolutions and global economic dominance, factors that are not directly replicable in today's world.

Structural Differences in the Economy: The U.S. economy is heavily driven by high-tech industries, finance, and services, while India's economy still relies significantly on agriculture and low-wage manufacturing. As of 2024, agriculture employs 41% of India's workforce but contributes only about 17% to GDP, indicating a productivity gap.

Infrastructure Spending and Quality: The U.S. spends a significant portion of its GDP on infrastructure, averaging 2.4% annually over the past decade, compared to India's 1.2%. Furthermore, the quality of infrastructure in the U.S. is generally higher. According to the Global Competitiveness Report, the U.S. ranks 13th in infrastructure quality, while India ranks 70th.

3. Infrastructure and Development: Beyond GDP Numbers

Investing in infrastructure is often seen as a key to development, yet the mere allocation of funds does not guarantee progress. The gap between the expectation and the reality in India is stark:

Corruption and Mismanagement: Transparency International’s Corruption Perceptions Index ranks India 85th out of 180 countries, suggesting that corruption remains a significant issue. Funds allocated for infrastructure often do not fully reach their intended purpose due to bureaucratic inefficiencies and corruption.

Urban-Rural Divide: Development in India is uneven. Urban areas might see modern infrastructure, but rural areas lag far behind. Despite India being one of the fastest-growing economies, 68% of its population still lives in rural areas, many of which lack basic infrastructure such as roads, healthcare, and education.

Maintenance and Sustainability Issues: Even when infrastructure projects are completed, they are often poorly maintained. The World Bank reported that 40% of India’s rural roads were in poor condition as of 2023, mainly due to inadequate maintenance funding.

4. Social Development Indicators: A Stark Reality Check

To understand true development, one must look beyond GDP to social indicators:

Healthcare: India’s healthcare expenditure was just 1.5% of GDP in 2023, compared to 17% in the U.S. As a result, India's health infrastructure is underdeveloped, with only 0.8 physicians per 1,000 people compared to 2.6 in the U.S. Additionally, India’s public health system struggles with shortages of hospitals, staff, and essential supplies.

Education: Literacy rates and educational quality are critical indicators of development. India's literacy rate is around 77.7%, significantly lower than the U.S. rate of 99%. Moreover, the quality of education varies drastically, with rural and underfunded urban schools lacking basic amenities and qualified teachers.

Poverty and Inequality: Despite economic growth, India still has one of the highest levels of poverty in the world. The World Bank estimates that over 10% of the population lives below the international poverty line of $1.90 a day. Inequality is not only an economic issue but also a social one, leading to disparities in access to healthcare, education, and employment opportunities.

5. Employment and Livelihoods: A Critical Perspective

A critical component of development is providing sustainable and quality employment:

Jobless Growth: India has experienced what is often termed "jobless growth," where GDP rises without a corresponding increase in employment opportunities. The unemployment rate in India was 8.3% as of early 2024, a figure that does not fully capture underemployment and informal labor issues.

Informal Sector: The informal sector constitutes about 80% of India’s workforce, where jobs are often precarious, low-paying, and lack benefits. This large informal economy indicates that despite GDP growth, a significant portion of the population does not have access to stable and secure livelihoods.

Skill Mismatch and Education: A World Bank report highlighted that 48% of India's graduates are not employable in the current market due to a mismatch between educational outcomes and industry requirements. This gap further stifles economic development and limits the potential benefits of GDP growth.

6. Environmental Concerns: The Hidden Costs of Growth

Economic growth often comes with environmental costs that are not reflected in GDP:

Air Pollution: India is home to 21 of the world’s 30 most polluted cities, as reported by IQAir in 2024. The health costs associated with air pollution are enormous, with an estimated 1.7 million premature deaths in India in 2023 alone due to air pollution-related illnesses.

Water Scarcity and Pollution: The World Bank estimates that 21% of communicable diseases in India are related to unsafe water. Despite a growing GDP, water scarcity and pollution are worsening, affecting health, agriculture, and overall quality of life.

Deforestation and Climate Change: Rapid industrialization has led to significant deforestation, contributing to climate change and loss of biodiversity. These environmental impacts have long-term economic and social consequences that GDP figures do not account for.

7. Moving Beyond GDP: A Holistic Approach to Development

To achieve true development, India must adopt a more holistic approach that goes beyond GDP growth:

Focus on Human Development: Investment in healthcare, education, and social welfare is crucial. Improving human capital will lead to sustainable economic growth and a better quality of life.

Sustainable Infrastructure Development: Infrastructure projects should be sustainable, inclusive, and well-maintained, ensuring long-term benefits rather than short-term economic boosts.

Address Inequality and Poverty: Targeted policies to reduce inequality and poverty are essential. This includes improving access to quality education, healthcare, and employment opportunities for all, especially marginalized communities.

Environmental Sustainability: Balancing economic growth with environmental sustainability is vital. India must invest in green technologies and sustainable practices to mitigate the environmental impact of development.

Conclusion

While GDP is an important economic indicator, it is not a comprehensive measure of a country's development. The belief that a higher GDP will automatically make India developed like the United States is misguided. True development encompasses a broad range of factors, including social welfare, environmental sustainability, equitable income distribution, and quality of life. By recognizing the limitations of GDP and focusing on holistic development, India can chart a more inclusive and sustainable path to becoming a truly developed nation.