🌐 World Bank’s Income Classification: UPSC Perspective

Curated by Suryavanshi IAS | GS Paper 2 & 3 | Prelims + Mains Ready

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📌 Why in News?

Every year, the World Bank classifies countries into income groups based on Gross National Income (GNI) per capita. This classification is a critical benchmark in global development policy, used widely in economic, health, and aid-related statistics.

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🧭 Relevance to UPSC Syllabus

Paper	Topic	Subtopics
GS Paper 2	International Institutions	Role of World Bank in development
GS Paper 3	Economic Development	Poverty, income classification, global inequality
GS Prelims	Current Affairs	International reports and indices

💡 Key Concepts

🔹 What is GNI per capita?

• Gross National Income (GNI): Total income earned by a nation’s residents, including domestic income and income from abroad (remittances, foreign investments).

• GNI per capita = GNI / Population

• Expressed in U.S. dollars after converting from local currencies using official exchange rates.

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🔹 World Bank’s Income Classification (2024)

Income Group	GNI per capita (USD)
Low-income	$1,135 or less
Lower-middle income	$1,136 – $4,495
Upper-middle income	$4,496 – $13,935
High-income	More than $13,935

🔁 Updated every July, with adjustments based on global inflation.

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🔄 Method of Classification

• Absolute thresholds (not relative or percentile-based).

• Countries can move up or down based on:

  • GNI growth or decline

  • Exchange rate changes

  • Population revisions

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📈 Trends Over Time

• In 2004, 37% of the global population lived in low-income countries.

• In 2024, that number fell to less than 10%.

• Meanwhile, upper-middle income group share rose from <10% to 35%.

➡ Shows global upward mobility, but inequality still persists.

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🏦 Evolution of the System

• Introduced in the late 1980s to determine lending eligibility (especially concessional loans).

• Now used for research, aid allocation, and development planning.

• No longer linked directly to World Bank’s operational decisions.

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📝 UPSC Mains Linkages

GS Paper 2:

• Role of multilateral institutions in development

• Criteria used for foreign aid and concessional lending

GS Paper 3:

• GNI vs GDP debate in development measurement

• Use of economic indicators in poverty and inequality analysis

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📚 Previous Year UPSC Prelims Questions (Within 8 Years)

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❓Q1. Which of the following best describes the term 'GNI'? (UPSC Prelims 2020)

a) Total value of goods and services produced in a country in a year

b) Total value of income earned by nationals of a country

c) Net exports of a country

d) Total tax revenue collected by a government

✅ Answer: b)

📘 Explanation: GNI includes GDP plus income earned from abroad. It reflects the total earnings of residents.

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❓Q2. Consider the following statements: (UPSC Prelims 2018)

1. The World Bank classifies countries only for concessional loan purposes.

2. The income group classification is based on relative global income percentiles.

Which of the above is/are correct?

a) 1 only

b) 2 only

c) Both 1 and 2

d) Neither 1 nor 2

✅ Answer: d)

📘 Explanation:

• Statement 1 is incorrect: The classification is not solely for lending today.

• Statement 2 is incorrect: Classification is based on absolute income thresholds, not relative percentiles.

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❓Q3. With reference to the international organizations, consider the following pairs: (UPSC Prelims 2017)

Organization	Description
World Bank	Classification of countries by income
WTO	Facilitates free trade only in goods

Which of the pairs is/are correctly matched?

a) 1 only

b) 2 only

c) Both 1 and 2

d) Neither 1 nor 2

✅ Answer: a)

📘 Explanation:

• World Bank indeed classifies countries by income.

• WTO deals with goods and services, not just goods.

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🧠 Mains Practice Questions

GS Paper 2 (250 words):

“Discuss the role of the World Bank’s income classification system in global development discourse. Evaluate its relevance and limitations for low-income countries.”

GS Paper 3 (250 words):

“Gross National Income per capita is a better measure of development than GDP per capita. Critically analyze in the context of global inequality and poverty.”

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🧾 Summary for UPSC

Concept	UPSC Angle
GNI per capita	Economic development measure
Income thresholds	Global poverty and inequality
Upward income movement	Progress of SDG-1 (No poverty)
Volatility due to exchange rate/population	Policy fragility in classification
Use in aid and research	GS2 (Development assistance)

📌 Keywords for Prelims & Mains

• GNI vs GDP

• World Bank income groups

• Absolute vs Relative classification

• Concessional loans

• Global income inequality

• Economic indicators

• SDGs and development metrics

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📘 Note from Suryavanshi IAS:

Understanding how global institutions classify countries helps aspirants tackle Prelims questions smartly and gives depth to Mains answers on development, equity, and global governance.