The World Bank's latest income classification has created a stark contrast between neighboring countries, with Sri Lanka re-entering the upper-middle-income group while India remains classified as lower-middle income. According to reports from Business Standard, this distinction is crucial because the World Bank's classification is based on per capita income rather than GDP size. For the current classification, economies with a GNI per capita of $1,136 to $4,495 are categorized as lower-middle income, while those with GNI per capita of $4,496 to $13,935 qualify as upper-middle income. Being classified as an upper-middle-income economy carries practical implications beyond prestige, as it can influence the terms on which a country accesses international financing, development assistance, and investment flows.
Sri Lanka's upgrade comes after a remarkable recovery from one of its worst economic crises, crossing the $4,496 GNI per capita threshold required for upper-middle-income status, albeit narrowly according to the World Bank. The country was battling a sovereign default in 2022 and had $51 billion in foreign obligations suspended. The World Bank noted that Sri Lanka's economy expanded by 5% in 2025, supported by a broad rebound across industries and stronger tourism and financial services. The reclassification is based on Gross National Income (GNI) per capita figures and signals that Sri Lanka's economic stabilisation efforts — supported by an International Monetary Fund bailout programme and a series of painful structural reforms — are beginning to bear measurable results. However, economists and policymakers have urged caution, noting that Sri Lanka's recovery remains fragile, with the country still navigating complex debt restructuring negotiations and managing the social impact of austerity measures.
Sri Lanka's success lies in its remarkable implementation capacity, as noted by Prof Dr Mustafizur Rahman, Distinguished Fellow at the Centre for Policy Dialogue (CPD). "Their real strength lies in the fact that whatever decisions they take, they actually implement. That is good governance, institutional capacity, the ability to follow through on decisions, and consistent monitoring of whether implementation is actually happening on the ground. After the Rajapaksa era, re-establishing good governance was the task, and they have managed to do this remarkably well." The country first reached upper-middle-income status in 2019 before losing it during the crisis, but this time the stabilisation framework survived a change of government, with the National Peoples Power administration maintaining the IMF-backed programme rather than reopening it. The next external debt repayments fall due from mid-2027, and the country's capacity to generate foreign exchange through trade-led growth will determine whether this upgrade proves durable.
While India as a whole remains in the lower-middle-income category with GNI per capita of $2,500-$2,700, five Indian states and Union Territories have crossed the World Bank's upper-middle-income benchmark. According to latest reports, Delhi leads with per capita income of $6,217, followed by Karnataka at $5,579, Telangana at $5,407, and Tamil Nadu at $5,329. Gujarat also clears the benchmark with $4,734 per capita income. The contrast highlights sharply different economic realities within India, with Maharashtra missing the threshold by just $8 at $4,628, Haryana $9 short at $4,627, and Kerala needing only $26 more to cross the $4,636 threshold. At the other end of the spectrum, Bihar has the lowest per capita income among major states at $984, followed by Uttar Pradesh at $1,403 and Jharkhand at $1,470. The income gap between states has widened significantly, with the Gini coefficient rising from 0.230 in 1994-95 to 0.261 in 2025-26, and the gap between states at the 90th and 10th percentiles increasing from 2.38 times to 3.73 times.
Vietnam's upgrade was driven by sustained export-led growth, with exports rising by more than 15% in both 2024 and 2025. According to the World Bank, GDP grew by 7% and 8% respectively, while GNI expanded at an average annual pace of 10% between 2021 and 2025. This demonstrates that different paths of economic progress can lead to upper-middle-income classification.
