India Set to Join Upper-Middle-Income Nations by 2030

India Set to Join Upper-Middle-Income Nations by 2030

Why in News? 

India is projected to join the ranks of upper-middle-income nations by 2030, according to a new State Bank of India (SBI) Research report, aligning it with countries like China and Indonesia under the World Bank’s current classification.

Highlights of SBI Research Report on India’s Transition

• Upper-Middle Income Status: The SBI Research report forecasts that India will transition into an upper-middle-income country by 2030 with per capita GNI projected to touch around $4,000–$4,276, close to the current World Bank threshold. This milestone aligns India with peers like China and Indonesia under existing income classifications.
• Historical Income Growth: India’s per capita GNI progression shows a rapid climb: it took 62 years post-Independence to reach $1,000 (2009), 10 more years to reach $2,000 (2019), and an additional 7 years to hit $3,000 (2026). The report states this steady uptick supports confidence in touching $4,000 by 2030.
• Economic Size: The report highlights India’s GDP transformation: from $1 trillion (circa mid-2010s) to $4 trillion by 2025, with projections of becoming a $5 trillion economy by 2027-28, and a $10 trillion economy by 2035-36. India is also expected to be the world’s third-largest economy by 2028, behind the US and China. 
• Growth Performance: SBI’s analysis shows India’s growth has increasingly outpaced peers: its percentile rank in average real GDP growth moved from the 92nd percentile (25-year horizon) to the 95th percentile (last decade) among developing and emerging market economies, indicating stronger relative performance.
• Pathway to High-Income Status: Looking beyond 2030, the report examines the high-income threshold. To reach this by 2047 (Viksit Bharat vision), India’s per capita GNI must grow at a compound annual growth rate (CAGR) of ~7.5% – 8.9%, depending on future thresholds, implying continued economic dynamism.
• Nominal GDP Growth Requirements: Achieving and sustaining these income milestones requires robust nominal GDP growth. SBI calculates that, given average population growth (~0.6%) and typical deflators (~2%), India’s nominal GDP in US dollar terms needs ~11.5% annual growth over the medium term, a rate seen before the pandemic and considered within reach.

What Upper-Middle-Income Status Means?

• About: Upper-Middle-Income Status is a country classification used by the World Bank based on per capita Gross National Income (GNI) measured in current US dollars using the Atlas method. It reflects a nation’s average economic output per person and serves as a broad proxy for standard of living and economic development.
  • It implies that a nation has achieved sustained economic growth, stronger industrialization and services sectors, and higher living standards than lower income peers. 
  • It correlates with improved infrastructure, education and health outcomes, though disparities may persist. 
  • It also shifts a country’s policy focus from basic growth to inclusive, quality growth and innovation-driven development.
• Purpose: The purpose of income classification is to provide a standardized global framework for comparing economic performance, guiding development policy, allocating international assistance, and assessing a country’s progress on poverty reduction and prosperity goals. 
• Current Threshold: As per the World Bank’s latest Upper middle-income group thresholds, for the 2025 fiscal year classification used in early 2026 is $4,496 – $13,935. These thresholds are updated annually to reflect global inflation and economic changes.
• Criteria: A country’s classification depends solely on its annual per capita GNI:
  • Measure total Gross National Income in current USD using Atlas conversion factors.

• Divide GNI by population to get per capita GNI.
• Compare with income thresholds to assign the income group.  

• • Countries: As of the latest data (2024-25 classification), there are about 54 countries in the upper-middle-income group. Examples include: China, Indonesia, South Africa, Brazil, Mexico and Turkey.

• India’s Current Status: Currently, India is classified as a lower-middle-income country with per capita GNI below $4,496.

Key Growth Drivers Behind India’s Income Transition

• Demographic Dividend and Workforce Advantage: India’s young population — with a median age of roughly 28 years — provides a sustained demographic dividend, meaning a large share of the population is in the working-age group, boosting productivity and consumption. This youthful workforce supports higher labor force participation, especially as female participation improves, enhancing economic potential and driving per capita income growth. 
• Economic Reforms and Policy Initiatives: Pro-growth reforms such as the Goods and Services Tax (GST), production-linked incentive (PLI) schemes, and liberalised FDI policies have strengthened India’s business environment, reduced compliance costs, and increased investment flows. These reforms encourage formalisation of the economy, improve ease of doing business, and attract global capital, all contributing to higher GDP growth, business activity, and per capita income expansion.
• Rising Productivity and Sectoral Transformation: Productivity growth, particularly in manufacturing and services, fuels economic expansion. India’s services sector remains the largest growth engine, contributing over 50% of GDP and employment, especially in IT, finance, and professional services. Enhanced technology adoption, digital infrastructure, and integration into global value chains raise output per worker, improving competitiveness and living standards. 
• Role of Banking in Financial Intermediation: India’s banking sector has strengthened considerably, with deposits rising from ₹88.35 lakh crore in 2015 to ₹231.90 lakh crore by 2025 and credit expansion from ₹66.91 lakh crore to ₹81.34 lakh crore, indicating greater financial intermediation and liquidity in the economy. Stronger banks facilitate more lending to productive sectors, support business expansion, and underwrite infrastructure projects.
• Credit Expansion and SME & Retail Lending: Robust credit expansion — exemplified by SBI’s ~12.7% year-on-year growth in advances — reflects increased lending to retail, agriculture, SME and priority sectors, which drives consumption, investment, and enterprise growth. Wider credit availability enables households and businesses to fund education, housing, capital goods, and working capital, increasing productive capacity and aggregate demand.
• Financial Inclusion and Digital Finance Ecosystem: Financial inclusion has expanded dramatically, marked by over 56 crore PM Jan Dhan Yojana accounts and massive adoption of UPI digital payments (with transactions in FY24 reaching ₹261 lakh crore). These developments bring more households into the formal financial system, reducing reliance on informal credit, increasing savings and investments, and empowering low-income and rural populations.

Challenges on the Path to 2030

• High Unemployment: Despite strong GDP growth, job creation has lagged, and a large portion of the workforce remains in low-productivity informal jobs with limited social security. The unemployment rate was about 3.2% in 2023, but this masks high youth unemployment and underemployment, with over 80% of the unemployed aged 15–29. India needs to generate ~7.85 million nonfarm jobs annually until 2030 to absorb a growing labour force.
• Skill Mismatches: India’s education and skills systems struggle to meet industry needs, leading to large gaps between graduate qualifications and employable skills. This mismatch could undermine the demographic dividend, turning a potential advantage into a challenge as millions of youth remain underemployed or in low-productivity work without adequate technical skills. 
• Low Investment: India’s investment-to-GDP ratio has declined, requiring a sustained rise in both private and public investment to maintain growth. The World Bank notes that India must raise investment rates and ease constraints on credit access for MSMEs to boost job-rich sectors. Persistent infrastructure deficits in transport, power and urban systems raise logistics costs and hamper industrial expansion.
• Persistent Inequality: Income inequality remains a major structural hurdle; the top 10% of Indians control a disproportionately large share of wealth, while rural areas lag in income and services. Regional disparities between states also persist, with richer states posting higher human development indices than lagging states. 
• Global Economic Headwinds: India’s export structure remains concentrated in mid-value goods, limiting integration into global value chains (GVCs) and export-led growth. Continued global economic uncertainties, including slowdowns and trade tensions, make it harder to rely on external demand as a growth engine. 

Way Forward

To achieve upper-middle-income status by 2030, India must pursue job-rich growth anchored in manufacturing expansion, MSME support, and modern services. Priority should be given to human capital investment through quality education, skilling, and health, ensuring the demographic dividend translates into productivity gains. Deepening structural reforms, improving ease of doing business, and boosting private investment are critical. Simultaneously, India must upgrade exports and maintain macroeconomic stability to sustain long-term income growth.