Why India Is Still Classified as Lower-Middle-Income Despite Rapid Growth
Why India Is Still Classified as Lower-Middle-Income Despite Its Global Ambitions
India is often described as a rising global power, a major technology hub and, in some narratives, a future “Vishwa Guru” – a moral and intellectual guide to the world. Yet, according to the World Bank’s income classification, India has been a lower-middle-income country since 2007 and has not yet moved into the upper-middle-income bracket, unlike peers such as Malaysia and Brazil. This article explains how the classification works, why India remains in the lower-middle-income category, how it compares with other emerging economies, and what economists say it needs to do to move up.
How the World Bank Classifies Countries by Income
The World Bank classifies economies annually based on gross national income (GNI) per capita, using the Atlas method to smooth exchange-rate fluctuations. Countries are grouped into:
- Low income
- Lower-middle income
- Upper-middle income
- High income
Thresholds are updated each 1 July, adjusted for global inflation and other factors. For recent years, the World Bank has set lower-middle-income economies as those with GNI per capita between roughly US$1,136 and US$4,465, and upper-middle-income economies above that up to about US$13,845 (figures vary slightly year to year). These thresholds are documented in the World Bank’s annual country and lending group updates.
According to World Bank data, India entered the lower-middle-income group in 2007 and has remained in that category as of the latest available classification. Malaysia and Brazil crossed into upper-middle-income status much earlier, reflecting their higher average incomes.
Malaysia, Brazil and India: Different Income Paths
While India, Malaysia and Brazil are often compared as large emerging economies, their income trajectories diverged decades ago, according to World Bank historical classifications and academic analyses of growth.
- Malaysia – Malaysia became an upper-middle-income economy in the early 1990s, with most sources placing the transition around 1992 (some secondary sources cite 1996, reflecting methodological revisions). Its export-led industrialisation, particularly in electronics and palm oil, and relatively high investment in infrastructure and basic education supported the move up.
- Brazil – Brazil has been classified as an upper-middle-income economy since the World Bank began using its income system in the 1980s. Despite episodes of high inflation, debt crises and slow growth, its resource wealth, industrial base and higher urbanisation helped keep average income above the lower-middle threshold.
- India – India moved from low-income to lower-middle-income status in 2007, reflecting gains since the 1991 economic reforms. However, its GNI per capita has not yet reached the upper-middle-income cut-off. As a result, it is still grouped with economies such as Bangladesh, Nigeria and Kenya rather than with upper-middle-income countries like China, Brazil or Malaysia.
Economists point out that these categories are average-income measures. They do not fully capture inequality, regional differences or non-monetary aspects of development, but they are a widely used benchmark in global finance, aid and trade discussions.
India’s Current Income Status by the Numbers
Based on the latest World Bank and IMF data available up to late 2025, India’s status as a lower-middle-income country is underpinned by several indicators:
- GNI per capita – India’s GNI per capita in current US dollars remains below the World Bank’s upper-middle-income threshold. Exact figures vary by year and data source, but India’s per-person income is a fraction of that in Malaysia or Brazil.
- GDP size vs. GDP per capita – India is among the world’s largest economies in total GDP (in both nominal and purchasing-power-parity terms), yet its GDP per capita is much lower because income is divided among more than 1.4 billion people.
- Comparative ranking – On GDP per capita rankings compiled by organizations such as the IMF and World Bank, India typically appears well below upper-middle-income countries, often grouped with lower-middle-income peers across Asia and Africa.
These data help explain why, despite visible progress in technology, infrastructure and services, the average Indian’s income still falls into the lower-middle bracket.
Rapid Growth, Uneven Prosperity
Experts describe India as a country with high growth but uneven prosperity. Since the early 2000s, India has often recorded real GDP growth rates among the fastest in the world, driven by services, information technology, domestic consumption and, more recently, manufacturing initiatives.
Yet several structural features limit how far this growth translates into higher average income:
- Population size and demographic structure – India has a very large and still-growing population. Even strong GDP growth must be shared among hundreds of millions of people, many of whom are entering the labour force each year. This dilutes gains when measured per capita.
- Large informal sector – The International Labour Organization and Indian government surveys have repeatedly found that a majority of workers are employed in the informal sector, often in low-productivity, low-wage jobs without social security. This keeps average incomes low even as formal sectors thrive.
- Rural–urban divide – A significant share of India’s population still lives in rural areas, where productivity and incomes are typically lower than in cities. While urban tech hubs such as Bengaluru, Hyderabad and Gurgaon exhibit high incomes, they do not represent the national average.
Economists from Indian institutions and international organizations have noted that these structural factors help explain the gap between India’s global profile and its lower-middle-income classification.
Inequality, Poverty and Human Development
Another reason India remains in the lower-middle-income group is the persistence of income inequality and ongoing challenges in health, education and basic services.
- Poverty reduction with large absolute numbers – World Bank analyses suggest that India has lifted hundreds of millions of people out of extreme poverty over the past three decades. However, because of its population size, a large absolute number of people still live with low incomes, which weighs on the national average.
- Human Development Index (HDI) – United Nations Development Programme (UNDP) reports consistently place India in the medium human development category, below many upper-middle-income economies. Indicators such as life expectancy, years of schooling and gross national income per capita are improving but from a lower base.
- Regional disparities – States like Kerala, Tamil Nadu and Maharashtra often report social and economic indicators comparable to upper-middle-income countries, while others lag significantly behind. The national classification, however, reflects the aggregate across states.
Researchers from Indian think tanks and universities highlight these disparities as central to understanding why the average income level remains in the lower-middle bracket despite notable progress in select regions and sectors.
The “Vishwa Guru” Narrative vs. Income Data
The term “Vishwa Guru” is frequently used in Indian political and cultural discourse to describe an aspiration for India to play a guiding role in global affairs, drawing on its democratic model, cultural heritage, scientific achievements and growing economic weight.
Analysts note that this narrative can coexist with the reality of lower-middle-income status, because:
- Soft power vs. income – A country’s cultural influence, diplomatic role and technological capabilities do not always align with its average income level. India’s space programme, digital public infrastructure and pharmaceutical industry, for example, command global attention even though national income per capita remains modest.
- Diverse indicators of progress – Supporters of the “Vishwa Guru” idea point to India’s leadership in forums such as the G20, its role in South–South cooperation, and its innovations in areas like digital payments as signs of global influence beyond income metrics.
- Critiques of the narrative – Critics, including some Indian economists and social scientists, caution that celebrating global leadership narratives can obscure domestic challenges such as underemployment, learning gaps in schools and healthcare access. They argue that progressing to upper-middle-income status requires sustained focus on these issues.
In this view, India’s current status is that of a country with growing global influence but still significant development tasks before it can match the income levels of established upper-middle and high-income economies.
Comparing India with Malaysia and Brazil
Comparing India’s experience with Malaysia and Brazil provides additional context for why their income classifications differ.
- Industrial structure
Malaysia developed a strong base in export-oriented manufacturing, particularly electronics, combined with commodity exports. Brazil built a diversified economy with manufacturing, services and agriculture, including large-scale agribusiness. India’s economy is more heavily weighted towards services, with manufacturing still contributing a smaller share of GDP than in many upper-middle-income peers. - Urbanisation
Both Brazil and Malaysia are more urbanised than India, which typically correlates with higher productivity and incomes. India’s slower pace of urbanisation and the persistence of low-productivity agriculture affect its overall income level. - Timing of growth spurts
Malaysia and Brazil experienced earlier phases of rapid growth, which lifted their average incomes before India’s reforms gathered pace in the 1990s and 2000s. India’s growth, though strong in recent decades, is occurring from a lower initial income base. - Policy and governance factors
Scholars highlight differences in education quality, public health systems, infrastructure and institutional capacity as contributing to varied development paths. While all three countries have faced governance challenges, the mix of policies and implementation has produced different income outcomes.
These comparisons suggest that India’s lower-middle-income status reflects not a lack of progress, but a later and more gradual convergence towards higher income levels relative to some of its peers.
What India Needs to Move into Upper-Middle-Income Status
Policy documents from the Government of India, the World Bank, IMF and independent research institutes outline several areas widely seen as crucial if India is to cross into upper-middle-income status:
- Raising productivity and job quality – Moving workers from low-productivity agriculture and informal employment into higher-productivity manufacturing and modern services is seen as key. Initiatives such as “Make in India” aim to expand manufacturing, though analysts note that results have been mixed and depend on broader reforms.
- Investing in education and skills – Improving learning outcomes in schools, expanding vocational training and strengthening higher education are repeatedly identified as priorities. Reports by organizations such as ASER and the World Bank have highlighted learning gaps that could limit future growth.
- Healthcare and nutrition – Better health systems and nutrition, especially for children, are linked to long-term productivity. Government programmes aim to address these issues, but coverage and quality vary across regions.
- Infrastructure and connectivity – Continued investment in transport, energy, digital connectivity and urban infrastructure is viewed as essential to support businesses and improve living standards, particularly in smaller cities and rural areas.
- Governance and ease of doing business – Simplifying regulations, improving contract enforcement and strengthening institutions are cited by business groups and international agencies as important for sustained private investment.
Opinions differ on which reforms should be prioritised and how quickly change can occur, but there is broad agreement that sustained, inclusive growth would be required for India to move into the upper-middle-income category.
Multiple Perspectives on India’s Income Status
Commentators, policymakers and researchers offer differing interpretations of what India’s lower-middle-income status means.
- Optimistic view – Supporters of a positive outlook emphasise that India has already moved from low-income to lower-middle-income status, reduced extreme poverty, expanded access to electricity and sanitation and built a globally recognised technology sector. They argue that, given its growth rate, India can reasonably aspire to become an upper-middle-income economy in the coming decades.
- Cautious view – Some economists warn of the risk of a “middle-income trap”, where countries struggle to transition from low-cost labour-based growth to innovation-driven growth. They highlight challenges such as low female labour-force participation, skills mismatches and institutional constraints.
- Equity-focused view – Social-policy experts stress that beyond moving up income categories, ensuring that growth is inclusive – across castes, genders, regions and income groups – is crucial. They argue that focusing solely on crossing numerical thresholds can overlook persistent deprivation in marginalised communities.
Together, these perspectives suggest that while crossing into upper-middle-income status is a widely shared goal, debates continue about how to balance growth, equity and broader social objectives.
Visual Context: India’s Development Landscape
Urban centres contribute significantly to India’s GDP, yet large parts of the population still live and work in rural and informal settings, affecting average income levels.
Conclusion: Reconciling Ambition with Statistical Reality
India’s classification as a lower-middle-income country reflects its current average income level, shaped by a vast and diverse population, a large informal sector, regional disparities and ongoing development challenges. At the same time, India’s economic scale, technological capabilities and diplomatic profile are increasingly prominent on the global stage.
As the country pursues ambitions that include becoming a leading knowledge and technology hub, analysts observe that its next milestones – including a shift into upper-middle-income status – will depend on how effectively it can translate growth into broad-based improvements in productivity, human development and living standards across all regions and communities.
