Is India s 4 Trillion GDP Actually a Trap Economic Case Study

India has now surpassed Japan to become the world's 4th largest economy in the world. It is now worth more than 4 trillion dollars. Hi everybody, India just hit the 4 trillion dollar GDP mark. India has crossed to become the world's 4th largest economy in the world. We've raced past the United Kingdom, we've beaten Japan and we are now the world's 4th largest economy. So the Indian economic miracle is here, right? No, no, no. Guys come on, it's okay to be happy with 4 trillion dollars. But do you realize, India looks nothing like Japan, UK or France. And don't get me wrong, it is a milestone. But here's the thing about milestones. Sometimes they are signs of progress and sometimes they are just tombstones with better lighting. Because behind the 4 trillion dollar flex is a silent creeping danger that has already crushed countries like Malaysia, Brazil, South Africa and Thailand. And I'm not saying this, the World Bank itself is saying this. This trap is called the middle income trap. In India, in Brazil, there's a lot of optimism that countries will move from middle income to high income. In the real world, that's not happening. It means that we'll be a middle income country and then our growth will begin to falter unless we are able to increase the sources of demand. It means in short, we will not be South Korea, we will not be China, we will be Brazil, we will be South Africa. We will be a middle income country with large numbers of people in poverty. It's a meagre 2,900 dollars per year. Now that ranks India relatively much lower. So before we light more fireworks over GDP, what we need to see is that India is already getting divided. While one India is celebrating the 4 trillion dollar GDP mark, the other India is still wondering how to stretch 400 rupees till the end of the month. While one India is building startups, the other India is still searching for toilets. While one India is flying to Bali for offsites, the other India is still walking 5 kilometers just for clean water. And both these Indias are real. They exist on the same street, sometimes even in the same house. And the truth is, a 4 trillion dollar economy with two Indias is not a success story. It's an incomplete story. But the good news is that we can fix it. And in today's case study, we want to use the World Bank's report to help you understand why exactly is India failing, which economic mistake did Malaysia, South Africa and Brazil make that killed their growth, what do we need to learn from the legendary story of South Korea and what are the lessons that you, me and a billion other people need to scream to our politicians. This video is brought to you by the Communication Masterclass course. If you're an executive who wants to communicate your ideas as powerful leaders and not as shy, timid individuals, you must join our Communication Masterclass course. Because the truth is, you could be the hardest working person in the room. But if you're not communicating your value, you will always stay invisible. And the person who knows how to speak well will always get the promotion that you deserve. So if you're this ambitious person who wants to speak with confidence and clarity, you must join our Communication Masterclass course. And if you don't find value in this course in the first 7 days, we will return your money with no questions asked. I have crafted this course specially to teach you how to speak with clarity and fluency, how to master the art of storytelling to dominate your meetings, how to structure your message and impress your boss and how to overcome communication challenges and speak like a leader. On top of that, I will personally be hand-holding you during our bi-weekly live session so that all your challenges, all your doubts and all your problems are solved during the course itself. So if you want to excel at your career and if you want to become a confident leader, click the link in the description and I will see you in the live session. To understand the problem with the Indian economy, you first need to understand the dangers of the middle income trap. And the classic case study to understand it would be the Malaysian miracle story of 1960. The states of Malaysia are mainly lands of jungles and swamps, so most of the people live near the sea or on the banks of the rivers. To help overcome a limited food supply, the government has built ponds and stocked them with fish to provide an additional source of food. And even though they've been living in the country all their lives, they don't exist legally as a people in the place they were born. But they've been denied their basic rights that other citizens enjoy, including the rights to education, healthcare and employment. Is there really a future for them, living in a home away from home? You see, back in the 1960s, this is what Malaysia looked like. It was filled with slums, people were poor and Malaysia was just another poor country struggling to survive. While the Malaysians earned just $240 a year, nearly half of their population lived below the poverty line. In fact, 50% of them couldn't even read or write. But this is when the Malaysians decided to change their destiny. And just like India today, they went all in on three important investment pillars. Just like India today is building highways after highways, Malaysia increased their infrastructure spending from just 1.9% of its GDP to 9.4% of GDP. Secondly, just like India, Malaysia invested heavily into primary and secondary education and increased literacy to 96%. And finally, Malaysia improved ease of doing business with free trade zones, tax breaks and cheaper electricity. This is how within a decade, Malaysia went from an Asian nightmare to an Asian miracle. Look at this, the average income in Malaysia went from $374 in 1970 to $4,405 in 1995. And guess what, it crossed $10,000 by late 2011. So Malaysia's per capita GDP increased by 2,500% in just a few decades. But here's where the problem started. Look at this chart, it shows how Korea, Poland and Chile grew over the past 60 years. And here you can see that all three nations started off as poor nations. But watch what happens next. Korea somehow pulls away and gets richer and richer and crosses $30,000. While all other countries, they stall around $15,000. Why? Because here's what people forgot about the Malaysian miracle. The Malaysian miracle wasn't built on tech or innovation or billion dollar brands. It was built on just one thing, cheap labor. Malaysia opened its doors in the 1980s and 90s and the world rushed in. Intel, Sony, AMD, Motorola all came to Malaysia because it was the factory of Asia. Labor was cheap, land was affordable and the government made it easy to set up shop. Assembly lines ran day and night, exports boomed and jobs exploded. For a while, it worked very, very beautifully. Intel Corporation chose Penang as its first site outside of the US in 1972. The tech powerhouse currently employs more than 8,000 highly skilled Malaysians. As Malaysia grows more prosperous, we're beginning to see a rising middle class which is demanding more services. In 1980, Malaysia's GDP was near $25 billion and the country's economy has been booming. Malaysia has become a barometer for the emerging markets. But here's the catch. When your only value is cheap labor, your biggest threat is just someone cheaper. I repeat, when your only value is cheap labor, your biggest threat is just someone cheaper. And that is exactly what happened to the Malaysian miracle. As Malaysia developed, wages naturally went up. So increasing wages sounds good, right? But the problem was that the moment Motorola, Intel and all other companies saw another country that was cheaper, they simply moved out. And look at this, by 2020, the average monthly earnings for manufacturing workers in Malaysia was $458. Meanwhile, Vietnam was significantly lower at $310, Indonesia was even lower at $208 and Thailand was slightly below Malaysia at $397. Not because Malaysia failed, but because Malaysia got expensive without getting better. And here's another trap that Malaysia fell into. While a lot of people went to school, the education system did not produce innovation. It produced graduates with degrees, but very few opportunities to apply them. So from 2000 to 2010, Malaysia still assembled, but Malaysia did not design. They still exported, but they never really built great brands. They still worked very hard, but they couldn't move higher. So eventually, when the factories started leaving, the economy had no new engine to replace them. And the result? Well, the first generation worked and the second generation was just left underemployed. And eventually, the country's economy started stalling. In the face of the economic downturn and the low wages that we're seeing, especially for university graduates, they find it very hard to get work which is commensurate with their qualification. More than 250,000 students graduate from higher education institutions every year. But sadly, one out of five graduates remain unemployed. Now Malaysians should brace for tough times as the economy is facing real problems amid external situations beyond its control. Projects abandoned, the currency plummeting, banks and major corporations teetering. Foreign investors the world over are pulling out capital from emerging markets such as Malaysia because of concerns over global growth. Look at this chart. Malaysia's income grew very fast up to 2009. But after that, you see a flat, wavy, stuck curve. There was no crash as such, but there was no progress also. And look at this. In 2023, over 36% of Malaysian university graduates were underemployed. You know what that means? Engineers were working as customer service representatives. Degree holders were delivering food orders. And after four years of university, graduates were asked to spam call people and sell insurance. This was the story of Malaysia. Sounds very familiar to India, right? But this is where India needs to turn to South Korea. Because South Korea is truly an economic miracle. In the 1960s, South Korea was one of the poorest countries in the world. In fact, even poorer than Malaysia. It was a wall-torn, resource-starved and desperate country. But you know what they had? They had a generational vision. One generation would work, the next would study, and the third would invent. That is how the per capita GDP of South Korea started rising. Let me explain. The first generation of South Korea was the generation of workers. They worked in textile factories, shipyards, and steel plants. Hard labor, long hours, and low pay. But they produced something valuable, something exportable. And those exports brought in foreign money into the economy. This first wave of employment lifted the GDP per capita from just $280 in 1970 to $1,715 by 1980. 60 years later, Korea has become a global power with the world's 12th largest economy. Korea's export-driven economy is still being driven by six industries, which can expect to expand even further in the future. It is the home of the global headquarters of Hyundai Heavy Industries, South Korea's shipbuilding industry, the number one in the world. South Korea posts a trade surplus for 22 straight months. The Republic of Korea is strengthening its position as an active player in international trade thanks to its manufacturing competitiveness, solid growth of its main export items, and diversification of markets. And then came generation two, the graduate generation. When factory jobs got paid enough to send kids to school, the government stepped in, and the government started investing massively into STEM education. STEM as in Science, Technology, Engineering, and Mathematics. And by 1980s, South Korea had world-class engineers, world-class scientists, and world-class managers. So now, instead of just making things, South Koreans could actually design products, improve products, and manage their production all by themselves. For example, back in the 1970s and 80s, South Korea just assembled televisions using Japanese parts. But by the 1990s, Samsung wasn't just assembling TVs, it designed its own screens, created proprietary chipsets, and led the global display industry. And today, Samsung doesn't just make electronics, it designs screens used in Apple iPhone. Lee has made it one of the world's most important and valuable companies. It's not just making devices, it's making the chips that power them. People probably don't know that we've led memory for three decades. Samsung gained international notoriety with the world's first 64-megabit DRAM chip in 1992. Its presence is so ubiquitous in South Korea that they call their country the Republic of Samsung. Every major company out there, Apple, they have to bend the knee to Samsung. They have to get their chips, their displays. This is a company that everybody has to go through at some point to get what they need because they're so influential. Now let that sink in. The same company that once assembled TVs for others now powers the display of the world's most premium smartphone. That's not assembly, that is value creation. And that is exactly how the GDP per capita skyrockets when you move from cheap labor to world-class innovation. This shift from the factory floor to engineering office pushed up wages, pushed up productivity, and most importantly, it pushed up GDP. Look at this, the South Korean GDP per capita shot up from $6,610 in 1990 to over $12,200 by 2000. And then came the final leap, the generation of innovators. It's part of a wider trend here in Korea to foster the start of new businesses by younger Koreans. The number of new businesses started by people under the age of 30 hit an all-time high. Korea has a very strong engineering base and also design talent, which is very important nowadays. The development of smart cars and eventually driverless vehicles, managing robots in telemedicine or in industry. It's been found that Hyundai Motors, Samsung Electronics, and LG Electronics are among the top 10 global companies with the most patents related to self-driving technology. Korea also attempted a revolution in the information technology industry. The cutting-edge enterprises that were founded during the IT boom provided a new stimulus to the economy. You see, the children of engineers did not just stop at good jobs. They started filing patents, building startups, and launching global brands. And from 2000 to 2020, Korea wasn't just exporting electronics. It exported Samsung smartphones, Hyundai cars, and LG displays. In fact, Hyundai was once mocked for making cheap, clunky cars. But now they build electric vehicles, luxury models, and even invest in hydrogen-powered transport and even flying taxis. This wasn't luck, guys. It was three generations of progress. Factory workers, then engineers, and then world-class innovators. And today, South Korea isn't making cheap assembly goods anymore. They make high-value, globally respected products, because of which today, their per capita income is just growing like crazy. It's not magic. It is the people climbing the economic ladder together. Today, South Korea's per capita GDP stands at $33,000. That is how South Korea made an epic transformation from $150 per capita GDP to $33,000 per capita. If this is very clear to you, let's talk about India. Because while we've been watching Malaysia stall and South Korea rise, India is approaching its moment of truth. So the question is, where does India stand today? Well, on paper, India looks like it's booming. Record-breaking startups are coming out. Bullet trains are being planned. Highways are being built at lightning speed. GDP is growing faster than major economies all around the world. All these numbers look very, very lucrative. But if we look closely, the picture is far, far complicated. You see, India officially became a lower-middle-income country in 2007. Today, our per capita income is around $2,400. And if you look at the historical progress, it looks like a significant progress. But here's where the number hides. India is not one economic story. It's three different countries stacked on top of each other. Let's break it down. The top 10%, as in the top 120 million Indians, live like Germans, earning more than $15,000 per capita. They've got global jobs. They invest in U.S. stocks. And they order avocado toast via Zomato. The middle 300 million Indians live like Bangladesh. They hustle. They escape poverty. But they're just one medical bill away from slipping back. And then we have the bottom billion. Here, we have one billion people with a per capita income of just $1,000. And these people live like the people of sub-Saharan Africa. Yes, you heard that right. Over one billion Indians live like the poorest parts of the world. We're talking about no proper sanitation, no stable electricity, no digital access, and very limited opportunity. It's very bad for children to study in the power grid. They've been admitted to a hostel. What does it mean for rural areas where children don't have access to devices by which they can access online classes? For the young and the old, this railway track is their equivalent of a bathroom. These public facilities are filthy, smelling, and the only option for people here if they want to use a public toilet. Smart grid or smart meter. Advanced technology is being used. Street lights are being upgraded. We can't get out of this tunnel. Everything is affected because we don't have the correct tools. We have to do something. So while India's average per capita income is $2,400, the economic experience of the bottom 70% is nothing short of a nightmare. And this is where it gets scary. Just like Malaysia, India is banking on cheap labor and exports from this bottom billion. We're trying to grow by assembling phones, cars, and gadgets. But here's the hard truth. Wages alone won't build a rich country. And factories alone won't lift a billion people out of poverty. And Malaysia tried that, but they got stuck. And today we have three big traps that we're just walking right into. First is the education trap in India. In India, we produce millions of graduates every year. But only about 45% of them actually possess the necessary skills for the job market. Now that's not a skill gap. That is a system failure. We've built coaching centers, but we forgot to build campuses. We teach kids to crack exams, but not solve problems. And the result? Underpaid engineers, unemployed MBAs, and a generation full of degrees, but no direction. In fact, the underemployment situation is so bad that when the UP government released 62 posts for a peon's job, more than 93,000 people applied, including 3,700 PhDs, 50,000 graduates, and 28,000 postgraduates. This is the education trap that we're walking into. Third grade education and no scope of innovation. Then we have the next trap, which is the innovation deficit trap. Despite our massive size and potential, you know what? India spends only 0.7% of its GDP on R&D. And if you compare that to other countries, it will put you to shame. South Korea stands at 5.21%, Germany stands at 2.68%, China stands at 2.56%. Now mind you, we're talking about the Chinese economy, which is sitting at $17 trillion, which is practically four times bigger than India. So if you see, we are practically nowhere, guys. In fact, India files fewer than 100,000 patents a year. While South Korea files over 150,000 patents, the US files 280,000 patents, and China files 600,000 patents a year. They built Samsung, Hyundai, and LG, while we're still waiting for the next Indian global brand. And you know what's the worst part? We're not even good at assembly, guys. We're not building the next Samsung. We're not building the next Hyundai. We're not even winning the low-cost manufacturing game. Did you know that? This is a game that Malaysia played 40 years ago, by the way. And let me tell you why. We are still struggling with basic literacy. Our engineering colleges are not producing inventors. They produce copy-paste research papers just to pass semester exams. And thirdly, even if our people want to work, we don't have enough factories. Do you remember the grand vision of Make in India? It was supposed to make India the factory of the world. But 10 years later, what happened? Manufacturing's share of GDP has barely moved. It was 15% in 2014. And even after 10 years, it's still lingering around 15 to 17%. This is the reason why our productivity cannot skyrocket. Our cheap labor is not being leveraged. And even if we succeed in cheap labor tomorrow, if there's another country in Asia or Africa that has cheaper labor, just like in Malaysia, companies will move out of India. This is how we are walking into a middle-income trap. So the question is, what do we do? Well, the solution is pretty straightforward. It's called the 3-I framework. Investment, innovation, and infusion. Let's look at South Korea again to understand better. In the 1960s, while South Korea's GDP per capita was $150, instead of depending on foreign aid, they built a roadmap to attract investment. They poured money into infrastructure, reformed land rights, made starting businesses ridiculously easy, and most importantly, they invested in primary education with laser focus. This attracted factories. Factories created jobs. Jobs created income. And that income lifted millions of people out of poverty. We are partially succeeding here, but not fully. There is still a lot more work to do. Malaysia succeeded at this first stage as well. But here's where most countries stop. And here's where Korea knew something that others did not. Korea knew that investment alone cannot make Korea rich. And this is where the next stage starts, which is called infusion, as in climbing the value chain. In South Korea, instead of staying at the bottom of the supply chain, they decided to climb it. To do that, they imported technology. Samsung began licensing designs from Japanese giants like Sanyo and NEC. They reverse engineered products, built domestic capacity, and produced better versions. And while Samsung was doing this, the Korean government backed them. Look at this line chart. The government first played a crucial role where they introduced adoption subsidies, as in they rewarded companies to copy tech. And while Malaysia kept assembling imported parts, Korea started mimicking global brands. And then they built their own global brands. But even this had limits. Because at some point, you can't just copy, you must create. And this is where the third stage came in, which was the innovation stage. This is called the final leap. In the 1980s and 90s, Korea stopped subsidizing tech adoption, and they started heavily funding R&D. They gave money to companies not to copy, but this time to invent. And the results were absolutely insane. In 1980, Korea spent just 0.5% of GDP on R&D. But by 1990, it tripled to 1.6%. And today, they've tripled it again, reaching 4.8% of GDP. And the result? Private sector R&D exploded, growing by 26 times in a single decade. But here's another important point. Just spending money on R&D doesn't guarantee intellectual property. Because innovation isn't just a result of cash infusion. It is a result of brilliant minds put together. So you need innovators. And you know what Korea did? They ramped up higher education spending, they trained engineers, scientists, managers by the thousands, and the results were revolutionary. Samsung went from selling noodles to inventing curved OLED screens. Hyundai went from assembling parts to building entire vehicles from scratch. LG stopped being a budget appliance maker and started building futuristic batteries and flexible displays. Now you might be thinking, bro, even India has Bajaj, Birla, and Reliance, right? Sure, we do. A few giants are definitely innovating in India. But here's the difference. In India, innovation is the exception. In South Korea, it's the system. And I want to prove this using numbers. In 2023, while South Korea files over 156,972 patents globally, India files just over 82,811 patents. That's a 2x gap, in spite of Korea having just 125th of India's population. So yeah, a country with 100 times less population than India is still spending more on R&D and it is filing more patents than India. A country with 1.4 billion people. So you tell me guys, am I being anti-India or a patriot breaking the delusion that we're living in? Drop a comment below so that we can let India know that real patriotism is not about living in delusion but in fixing reality. And if you're a politician who's watching this episode, please understand that we don't mean to disrespect the work that you've done. We just hope that we do slightly better. Our job as creators is to point out the flaws and improvements that could possibly be made so that we as a country can go further. So you and I are not oppositions. We are on the same team because we both want India to grow. So if you want India to grow, please let us know what you are doing so that we, just like South Korea, can become an economic miracle. That's all from my side for today guys. If you learned something valuable, please make sure to hit the like button in order to make YouTube Baba happy. And for more such insightful business and political case studies, please subscribe to our channel. Thank you so much for watching. I will see you in the next one. Bye bye.