India Can Avoid Middle-Income Trap With Huge Investment In Education, Infra: Economist Piketty

The Indian economy can escape the 'middle-income trap' with substantial investments in education, healthcare, and infrastructure, French economist and inequality specialist Thomas Piketty said on Tuesday, stressing that involvement in global coalitions is essential to driving inclusive and sustainable growth.

The middle-income trap is an economic situation when a country can no longer compete internationally in labour-intensive goods because wages are relatively too high, and also cannot compete in higher value-added activities because productivity is relatively too low. The result is slow growth, stagnant or falling wages, and a growing informal economy.

The prominent economist emphasised that India's involvement in global coalitions is essential to driving inclusive and sustainable growth.

"India can escape the middle-income trap, but this will require massive investment in education, health and infrastructure," Piketty told PTI in an interview.

"We also need India to participate in broad international coalitions supporting a more inclusive and sustainable development model," the eminent economist noted.

When asked whether India could ever overcome the middle-income trap -- especially as AI and technological disruptions threaten to widen wealth disparities -- the Paris School of Economics professor and World Inequality Lab co-director advocated for democratic regulation of AI, together with a proper accounting of the material footprint of AI and other sectors.

Asked if AI could become the next geopolitical battleground, he said the real issues today are the transition to low-carbon energy systems and the shift from material to immaterial sectors. "There is both a political and an environmental dimension to the issue," he emphasised.

"If we do not reduce our material footprint drastically, life on earth is going to become very painful, particularly in a country like India," Piketty said, adding that from this viewpoint, he thinks the real geopolitical battleground of the future is climate, not AI.

He noted that the current obsession for AI is at best a diversion, and can even aggravate the environmental crisis.

"It reflects the fact that far too many resources and too much power have been accumulated by a small group of tech billionaires who are completely disconnected from the issue of sustainable and inclusive development," Piketty said.

Drawing on Kim Stanley Robinson’s novel The Ministry for the Future, Piketty pointed out that world leaders only began re-evaluating development models after devastating catastrophes.

"We hope that we do not need to go through such catastrophes," Piketty said.

Artificial intelligence has become a major geopolitical battleground as global powers are competing for control over critical technology, data, and global influence.

Responding to a question on international tax coordination, he said it is very interesting to see that the global wealth tax proposal -- which was first pushed in 2014 in his book 'Capital in the 21st Century' -- has already managed to make its way to the official G20 discussion table in 2024, at the initiative of Brazil and South Africa.

Piketty observed that the demand for economic justice and climate reparations will grow bigger and bigger in the future, and it is critical that India participate to this movement and in the construction of a new global majority in favour of a sustainable development model.

According to the World Development Report 2024, more than 100 developing countries, including China, India, Brazil, and South Africa, face serious obstacles that could hinder their efforts to become high-income countries in the next few decades.

The report argues that many countries that successfully escape poverty struggle to move beyond middle-income status because the drivers of early growth stop working.

In the initial stages, growth is powered largely by investment -- building infrastructure, expanding labour participation, and accumulating capital. But as countries get richer, these strategies deliver diminishing returns, and growth begins to slow.

According to the report, economies fail to transition to a more advanced model based on technology adoption and innovation, and as a result, they stagnate at moderate income levels.

With about three-fourths of the world's population, 108 middle-income countries account for nearly 40% of global economic activity. Of every five people in extreme poverty globally, more than three live in middle-income countries.

Since 1990, only 34 middle-income economies have managed to shift to high-income status, and more than a third of them were either beneficiaries of integration into the European Union or of previously undiscovered oil.

According to Unesco's 2026 Sustainable Development Goal 4 (SDG 4) scoreboard, India remains just above Unesco's minimum GDP benchmark for education, but the sector's share in government spending has slipped below the prescribed threshold.

India's spending on education has remained at 4.1% of GDP since 2015, but its share of public expenditure has declined 1.5 percentage points to 14.2%.