India: In Search of the Drivers of the Next Wave of Growth.

India’s unprecedented growth since the mid-1990s and increased macroeconomic resilience has been against the backdrop of wide-ranging reforms, growing trade and financial integration, buoyant external demand, and ample global liquidity. Looking ahead, like most emerging markets, India is likely to face stronger headwinds, with less buoyant external financing conditions, and potentially lower growth in advanced markets. This raises questions about the sustainability of growth, sources of future growth, and reform priorities for restoring the momentum of convergence to higher income levels. Using the “distance to frontier” approach, the analysis in this article finds that the sizeable convergence gaps with respect to advanced and other emerging market economies imply considerable opportunities for catch-up. But structural transformation and convergence to higher living standards in India will be conditional on policy and institutional reforms to alleviate market and government failures, as well as on the ability of labor and capital to move toward higher-productivity sectors and activities. [ABSTRACT FROM PUBLISHER]