India’s ambition to become a high-income economy by 2047 will be determined not simply by how fast it grows, but by how productively it puts its people, capital and technology to work. Without better jobs, higher value addition and sustained improvements in living standards, rapid economic expansion may not deliver the prosperity the country seeks. The International Monetary Fund’s recent book, Shaping the Future of Asia: Opportunities and Challenges, offers a useful framework for understanding what India must get right.

Asia’s economic transformation has been remarkable. Between 1990 and 2023, its per capita income almost doubled, while its contribution to global economic growth rose from around one-quarter to two-thirds. The region now accounts for about 40% of global trade. But the forces that drove this transformation are changing. Sluggish productivity growth, demographic ageing, geopolitical tensions, artificial intelligence and the energy transition are reshaping the region’s prospects.

For India, the lesson is clear: the advantages that fuelled growth so far cannot be taken for granted. The next phase must be about turning potential into productivity.

Services Evolve
India’s services-led development has given it an enviable position in the global economy. Since the 1990s, information technology and business-process services have connected the country to international markets, while Bengaluru, Hyderabad and Pune have emerged as major technology hubs. This success is a foundation for further progress, but it cannot be the final destination.

Moving up the value chain will require a shift from traditional outsourcing towards product development, research and development, and knowledge-intensive services. AI makes that transition more urgent. The IMF identifies India, China and Indonesia among the large emerging Asian economies well placed to embrace the technology. Yet being well placed to adopt AI is not the same as capturing its economic benefits.

Those benefits will depend on digital infrastructure, investment, workforce skills and regulation that encourages innovation while managing risks. More importantly, adoption must extend beyond a small group of firms and highly skilled workers. If AI improves productivity only in a narrow segment of the economy, its wider contribution will remain limited. India must use the technology to augment workers, develop new products and services, and help employees adapt as the nature of work changes.

The same distinction between potential and outcomes applies to India’s demographic advantage. A large working-age population offers an opportunity, not a guarantee of prosperity. A demographic dividend materialises only when people can acquire relevant skills, enter the labour market and find productive employment. Otherwise, a growing workforce can become a source of economic strain.

Job creation must therefore sit at the centre of economic policy. Education and vocational training need to reflect employers’ changing requirements, while greater female participation in the workforce will require fewer barriers to employment and entrepreneurship. Flexible working arrangements and continuous reskilling will also matter as automation and digitalisation alter existing jobs.

Nor can India assume that manufacturing alone will absorb its expanding workforce. Protectionism, geopolitical tensions and technological change are complicating the traditional path from agriculture to manufacturing and then to higher-value services. Productive employment must grow across both manufacturing and services, with neither treated as a substitute for the other.

Industrial Discipline
Industrial policy is another area where ambition must be matched by evidence. Government support can help address market failures, but it does not automatically create competitive industries. The distinction matters as India seeks to strengthen domestic manufacturing and move into higher-value activities.

The IMF’s examination of data from nine Asia-Pacific economies, including India, finds that targeted industries were, on average, less productive than other industries. Median productivity in targeted industries and firms also declined in most of the economies studied, with particularly pronounced declines in India, Australia, Japan, Malaysia and Vietnam.

These findings do not establish that industrial policy caused the decline. The IMF cautions that other distortions may have affected the results, and governments may have targeted industries or firms that were already struggling. Even so, the evidence raises an important question: is public support building firms that can compete, innovate and become more productive, or simply sustaining existing activity?

Subsidies, incentives and protection may have a role, but they cannot replace technological upgrading, competition, efficient resource allocation and stronger business capabilities. Industrial policy must be selective, transparent and rigorously evaluated, with clear objectives and measurable performance indicators. Its success should be judged by productivity gains, innovation and international competitiveness, rather than by the amount of support disbursed or investment announced.

The same focus on outcomes should guide trade policy. India’s services capabilities give it a strong base for deeper integration with Asian and global markets, but reducing tariffs alone will not deliver the full benefits of openness.

The IMF highlights the cost of non-tariff barriers, estimating that their elimination between regional trading partners could raise long-term regional GDP by nearly 2%. Its simulations suggest that reducing barriers with partners beyond the region could deliver roughly twice the benefits. Better trade facilitation and cooperation in investment, competition policy, public procurement and services could help India capture these gains.

However, openness also creates adjustment costs. Firms, workers and regions have unequal capacities to respond to competition. Social protection, labour-market support and skills training must accompany integration so that its benefits reach beyond a handful of industries and locations.

Finance and Transition
India’s digital payments revolution demonstrates how technology can reduce friction in economic activity. The Unified Payments Interface, cited by the IMF as an example of financial digitalisation, has expanded mobile payments and can improve access to financial services while lowering transaction costs. But efficient payments do not solve the wider problem of financing productive businesses.

Young and innovative enterprises often struggle to obtain bank loans because they lack tangible assets or established credit histories. The IMF notes that market-based financing remains marginal relative to bank financing across much of Asia, with India and Indonesia among the exceptions. Deeper capital markets and suitable financing instruments could help firms fund research, innovation and expansion. The objective must be to finance viable businesses at different stages of development, rather than simply increase the supply of credit.

The energy transition presents a further test of how India manages economic change. Renewable energy is expanding, but coal remains important. The IMF considers a scenario in which coal demand in India and China declines as they meet their power-generation commitments under their Nationally Determined Contributions by 2030. This implies a gradual shift rather than the immediate elimination of coal, but communities, workers and businesses dependent on carbon-intensive activities may still face disruption.

Expanding renewable capacity is therefore only part of the task. Reskilling workers, supporting affected regions and helping people move into other productive activities will be essential to managing the transition without imposing unnecessary costs on livelihoods.

India’s 2047 ambition will ultimately depend on whether these policies reinforce one another. Technology must improve productivity beyond a narrow group of firms; education must prepare people for productive work; industrial policy must reward competitiveness; finance must support innovation; and trade and energy policies must enable change without leaving workers and regions behind.

India has significant advantages, from its working-age population and globally competitive IT sector to its digital infrastructure and potential for deeper trade integration. But none guarantees high-income status. The demographic window will not remain open indefinitely, and technological change will not wait for institutions to catch up.

The real measure of India’s progress towards 2047 will be whether growth generates better jobs, higher incomes and wider economic opportunity. Productivity is not merely another economic indicator to track along the way. It is the link between the country’s existing strengths and the prosperity it hopes to achieve.