Economic Highlights

New Delhi, 27 July 2026

Prosperity Paradox, 6^th Largest

STILL LOWER MIDDLE INCOME!

By Shivaji Sarkar 

The World Bank classifies India as a lower-middle-income (LMI) economy rather than a “weak country”, a status it has maintained since 2009. In other words, the WB has not revised India’s actual socio-economic status for the last 17 years. 

This has caused a dichotomy. In the perception of WB, the LMI classification is based on India's Gross National Income (GNI) per capita, “which reflects the average income earned per person,”. While the World Bank regularly monitors India's economic performance and highlights challenges like sluggish private investment and labour market issues, it also frequently projects India to be one of the fastest-growing major economies globally, pegging its real GDP growth around 6.5 per cent. However, the income at the per person level has not gone up a bit. 

Russia classified as a high-income, upper-middle-sized nation with a nominal GDP scaling around $2.0 to $2.6 trillion has a nominal GDP per capita of roughly $17,500–$18,500. 

The WB determines country classifications using economic brackets based on GNI per capita: Low-income: $1,145 or less, Lower-middle-income: $1,146 to $4,515, Upper-middle-income: $4,516 to $14,005; High-income: $14,006 or more. 

When assessing India's economic vulnerabilities or potential, the WB generally evaluates specific sectors like structural employment, domestic demand deceleration, and fiscal deficits rather than labelling the entire country as “weak”. It means despite its LMI status continuing, overall, the aggregates have improved but on the basis of per capita income, the status stagnates. 

What it does not explain is how the government’s growing reliance on low-paid contractual employment across sectors may have contributed to India's continued LMI status, even as the economy, at around $4.15 trillion in 2026, ranks as the world's sixth largest, according to the IMF World Economic Outlook. 

The WB’s evaluations of the Indian economy highlight several fundamental challenges starting with Low Labour Force Participation, Lagging Structural Transformation, Regional Inequality, Private Investment, Credit Constraints and global headwinds. 

India's overall labour force participation rate stands at roughly 56.4 per cent, which falls well behind regional peers like Vietnam (73 per cent) and the Philippines (60 per cent). Simply termed it means that the country could not result in better jobs. It also reflects on the country’s change of various labour codes. 

These policies have favoured employers by suppressing wages despite rising living costs. They have also affected India's international standing on labour and income indicators. It is time to revisit labour reforms of the past two decades that expanded low-paid contractual employment and weakened job security across sectors, even as overall employment has declined. Global benchmarks judge countries not merely by GDP, but by wages, working conditions, labour participation and social welfare.

India spends about 7 per cent of its GDP on welfare, with state governments bearing nearly 90 per cent of the implementation costs, while the Union government's direct contribution is below 2 per cent of GDP. Welfare spending covers food security, rural housing, drinking water, health and cash transfers. Social sector expenditure has grown steadily in recent years, but several ministries continue to face fund utilisation gaps, highlighting the need for more efficient allocation of public resources. This also affects the standings internationally. 

About 45 per cent of India's workforce is employed in agriculture, which requires a difficult shift toward higher-productivity. Disparities persist across Indian states. While wealthier states must focus on deeper global value chain integration, less developed states urgently need improvements in basic public infrastructure, health, and education. 

Recruitment freezes or improper employments have neither helped the country’s standings nor the social conditions leading to continue with low-paid employments across the sectors either in the government or on the private sector. 

The international system evaluations are not depended on macro tag like world standing in economy but actually the micro systems that improved in the case of Vietnam but not India. 

Boosting the long-term investment rate from the current 33.5 per cent of GDP up to 40 per cent is fundamental to achieving high-income status. This requires removing constraints that block formal credit for micro, small, and medium enterprises (MSMEs). It’s no secret that India’s MSME sector gasps. This again means compromising on several parameters. 

It leads to the global headwinds. The economy remains vulnerable to external shocks, such as supply chain disruptions and volatile energy prices driven by geopolitical conflicts. The recent US-Iran war exemplifies the best. It also exposes that there are policy inadequacies that country has not be able to correct. In fact, Pakistan having the same LMI label is criticised for the fundamental failures. 

India may take postures but in actual terms it has not been able to better its either functioning or the economic and social conditions of its people. The businesses appear pampered, as they have high profit percentages but their profits have not helped the country. High poverty impacts the IMF standings and abysmal socio-economic conditions. 

The country takes pride in the WB’s current India portfolio. It comprises about 79 operational WB commitments totalling roughly $20 billion and massive International Financial Corporation backing. But are these funds properly utilised? 

This impacts the overall performance. The large sum pours in, but it does not give the benefit to the country for the purpose it’s given. That would be possible if the overall system corrects and the larger number of people actually benefit. The system derails with policy formulations or may be even misinterpretation of privatisation. It has become synonymous with profit. There has to be certain standards in profits as well. It means sharing the good and creating an equitable system.

 It is not becoming equitable causing many disbalances that do not give the country a standing that it needs to establish. The WB aims at boosting private sector-led job creation and economic growth. The programmes seek to create employment annually. It backs reforms in tax simplification, labour laws, ease of doing business, trade and investment, entrepreneurship, and capital mobilisation, while reducing compliance burdens and improving policy predictability to strengthen economic resilience and investor confidence. Mostly these could not happen to the desirable extent, leading to lop sided developments. 

The WB prescriptions need review and ways to strengthen the system have to be evolved for ensuring change during the next decade or earlier.---INFA 

(Copyright, India News & Feature Alliance)