India must bridge trust gap to escape middle-income trap: Chief Economic Advisor

NEW DELHI: Chief Economic Advisor V. Ananth Nageswaran delivered a stark warning to India's industry leaders today, identifying a critical "trust deficit" and unsustainable economic imbalances as key threats to the nation's ambition of becoming a developed economy by 2047.
Speaking at the CII Annual Business Summit, Chief Economic Advisor (CEA) outlined a three-pronged strategy – "Trust, Deregulate, and Reciprocate" – as the essential formula to avoid the middle-income trap.
The CEA sees three major challenges to India's development goals.
The Mismatched Inheritance: India, he argued, is saddled with a capital-intensive development model born from the Western Industrial Revolution – a historical "accident" driven by labor scarcity after the Black Death. This model is fundamentally "alien" to India's core strength as a labor-abundant nation, creating an inherent handicap.
The Energy-Transition Tightrope: Achieving 'Viksit Bharat 2047' before 'Net Zero 2070' requires navigating a complex energy transition. The inherited model relied on cheap, abundant power, but the shift to renewables brings high costs (doubling investment for backup power, grid upgrades like China's $800 billion plan) and strategic vulnerabilities due to dependence on critical minerals from "strategically difficult" sources.
The Profit-Job Imbalance: Nageswaran highlighted a concerning trend: corporate profitability has surged significantly faster than both capital formation (investment) and worker compensation. While acknowledging past reasons (balance sheet repair, global sluggishness), he declared this imbalance unsustainable for a nation needing to create 8 million non-farm jobs annually. "This is something we cannot afford for the next 25 or 30 years," he stated bluntly. The distribution of gains from AI/robotics between capital and labour will be crucial for future income growth and savings.

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