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The World Bank released its updated list of income classifications, grouping 218 economies based on per capita income. Though the list remains more or less the same, a few countries have moved up the ladder, from lower-middle-income to upper-middle-income.
The most prominent amongst them is Sri Lanka, which, until two years ago, was facing a severe economic crisis due to its sovereign debt default in 2022. The country has seen its GDP grow by 5% in 2025, while its Gross National Income (GNI) has increased by 11.2% during the year, promoting it to upper middle income status. Besides Sri Lanka, emerging Southeast Asian economies Vietnam and the Philippines have also moved to the upper middle income status. India, meanwhile, remains at the lower-middle income category.
Why India hasn’t moved up
Though India remains one of the fastest growing economies, with GDP growing at 7.7%, -more than Sri Lanka’s- in 2025, India hasn’t addressed the challenges related to its large economy, population and its uneven growth model.
Even as the government continues to boast about its GDP growth numbers, this growth hasn’t reached the most vulnerable sections of society- those who need it the most.
India’s labour is highly skewed towards low productivity sectors like agriculture, construction and trade, with the informal nature of the labour at about 90%, particularly high in rural areas. Labour participation has remained low in recent years, rising barely 8 percentage points to 56.4% between 2018 and 2024, with women facing difficulties in entering the labour market.
As the world’s most populous nation, any gains from wealth generation spreads very thinly, keeping the per capita GDP at a modest $2,810, ranking 150th amongst the economies listed. Sri Lanka’s is at $4,516, while The Phillippines is at $4,443, with both economies growing due to sustained growth and financial stability boosting overall per capita incomes.
Given that India skipped a manufacturing-heavy development to focus largely on service growth, India’s manufacturing output has historically remained less than 20% of overall GDP, impacting formal jobs as people move on to less skilled work.
India also faces challenges with a low skilled workforce, with the present educational system inadequate for market needs. India is also not innovating enough as much as it should, with R&D spends a measly 0.7% of GDP, impacting growth and potential market leadership.
What India needs to do
To reach upper middle income status, India needs to increase investment into its economy to 40% by 2035, while helping its Micro, Small, and Medium Enterprises (MSMEs) gain access to credit and mentorship through structured reforms. India will also need to transition away from agriculture and move towards skilled jobs in the manufacturing and service sectors.
Under PM Modi’s Viksit Bharat by 2047 initiative, the government is working towards these aims, though there is a lot of work to be done yet. India’s upgrade to upper-middle-income status could come in the next decade, but that depends on how well the government implements the reforms required for the same.
English (US) ·