The World Bank, for the year 2019, categorised the world largest democratic country into the ‘lower-middle’ income section.
Every year, on July 1st, the World Bank releases its data regarding the categorisation of the world economies into four parts- ‘Low, Lower-middle, upper-middle and high-income countries’.
This year, the international organisation based on Washington, categorised India into ‘lower-middle’ income country group.
Although, this is not the first time that New Delhi has been classified into this category, but since the foundation of the international organisation, it termed the world largest democracy into lower-middle’ income group.
How does the World Bank calculates this?
The World Bank classifies economies based on gross national income per capita in the US dollars. And this calculation is called the Atlas Method.
What is GNI (Gross National Income)?
GNI is the total amount of money earned by a nation’s people and businesses. The number includes the nation’s gross domestic product plus the income it receives from overseas sources.
Now, this year, the World Bank has changed its GNI per capita value.
GROUP JULY 1, 2020 (NEW) (US $) 2019 (OLD) (US $)
Low income <1,036 <1,026
Lower-middle income 1,036-4,045 1,026-3,995
Upper-middle income 4,046-12,535 3,996-12,375
High income >12,535 >12,375
Earlier, the World bank consider 1,026-3,995 US$ into the lower-middle-income group. This year, it has increased to 1,036-4,045 US $.
The classifications change for two reasons:
- In each country, factors such as economic growth, inflation, exchange rates and population growth income GNI per capita.
- To keep the income classification thresholds fixed in real terms, they are adjusted annually for inflation.
Interestingly, India’s neighbouring country, Nepal, which has been in news for the last two months, has changed its category from ‘low income’ to ‘lower-middle-income’ group.
Apart from the Himalayan country, ten more countries able to change its category.
Countries like Sri Lanka has moved from Upper-middle income to lower-middle-income category whereas Sudan has degraded from ‘lower-middle-income’ to ‘low-income’.
Had the World Bank COVID impact taken into consideration?
No. The World Bank’s income classifications use the GNII of the previous year (2019 in this case).
Thus, the GNI numbers that are used to this year’s classification do not reflect the impact of COVID-19.