What is the main criterion used by the World Bank in classifying different countries? What are the limitations of this criterion, if any?

The World Bank is a multinational development agency with global goals to eradicate poverty and advance sustainable growth. The World Bank’s classification of various nations according to their levels of economic development and income is one of its main responsibilities. The World Bank uses the categorization system to decide whether nations are qualified for loans and other types of financial aid.

The Criterion Used by the World Bank

Gross National Income (GNI) per capita is the primary factor the World Bank considers when putting nations into categories. GNI per capita is determined by dividing the total income of a nation by the population. This criterion gives an indication of the economic output and standard of living of a nation. Based on their GNI per capita, the World Bank classifies nations into four income groups:

GNI per capita	Classification
$1,035 or less	Low-income countries
between $1,036 and $4,045	Lower-middle-income countries
between $4,046 and $12,535	Upper-middle-income countries:
$12,536 or more	High-income countries

Advantages

The following are some benefits of utilising Gross National Income (GNI) per capita as the primary criterion for categorising various nations:

• Objectivity:  GNI per capita is an objective indicator of a nation’s economic performance and level of life that can be compared between nations and over time. This offers a clear and transparent basis for decision-making and aids in ensuring consistency in the classification system.
• Widely accepted: Other international organisations and governments use GNI per capita as a measure of a country’s economic development. Comparing nations and coordinating initiatives to combat poverty and advance sustainable development are made simpler as a result.
• Population size: GNI per capita accounts for population size variations, which can have an impact on a nation’s overall economic output. This makes it possible to categorise nations according to their real levels of economic development rather than merely their overall size.
• Consistency: The World Bank consistently classifies nations and determines which ones are eligible for financial aid by using GNI per capita as the primary criterion across all of its lending programmes.
• Ease of Measurement: GNI per capita is a reasonably simple statistic to calculate, and data are available for the majority of nations. This makes it a useful and effective categorization criterion. 

Disadvantages

While there are several benefits to considering Gross National Income (GNI) per capita as the primary criterion for classifying various nations, there are also some drawbacks to take into account. They consist of:

• Inequality: A country with a high GNI per capita may nonetheless have a sizable section of its population living in poverty since GNI per capita does not accurately reflect the distribution of income within a nation.
  This can exacerbate inequality within a nation and make it more challenging to combat poverty and advance sustainable development.
• Cost of living: The GNI per capita does not account for regional variations in the cost of living. The purchasing power of a country’s income may be under- or over-estimated because a dollar may go much further in a low-income country than in a high-income one.
• Non-monetary elements: The GNI per capita may not adequately account for non-monetary elements that influence a nation’s growth, such as access to social services like education and healthcare. As a result, even a nation with a high GNI per capita can nevertheless face serious development problems in these fields.
• Dependency on a single metric: Using GNI per capita as the sole criterion for classification risks oversimplifying a nation’s economic progress and failing to adequately account for the complexity of its economic, social, and environmental problems.
• Data limitations: The accuracy and dependability of the classification system may be impacted by the quality and availability of GNI per capita data, which may differ among nations.

When classifying countries, the World Bank also takes into account additional elements like economic diversity and measures of human development in an effort to solve some of these limitations. Despite its shortcomings, the World Bank’s classification system offers a useful framework for comprehending and solving global poverty and inequality. The World Bank can more effectively direct its resources and assist sustainable economic growth and development by employing a variety of indicators and taking the larger context of a country’s development into account.

Frequently Asked Questions

Q 1. What is the GNI per capita in India? How has it evolved throughout time?

Answer – The GNI per person in India has been rising significantly over the last few decades. India’s GNI per capita was $370 in 1990; by 2020, it will have nearly doubled to $2,130. India still has a long way to go in terms of development, though, as evidenced by its high rates of inequality and poverty.
India falls into the lower-middle income bracket as a result. 

Q 2. What is the main criterion used by the World Bank to classify different countries?

Answer: The primary criterion used by the World Bank to divide nations into the four income groups of low-income, lower-middle-income, upper-middle-income, and high-income is gross national income (GNI) per capita.

Q 3. What are the implications of India’s classification as a lower-middle-income country?

Answer: India qualifies for various forms of financial support from the World Bank, such as grants and concessional loans, because it is categorised as a lower-middle-income nation.
The classification of India serves as a reminder that it still has a long way to go in terms of development, particularly in terms of poverty, inequality, and access to basic amenities like healthcare and education. 

Q 4. How does the classification of countries based on GNI per capita impact international development funding?

Answer: By defining a country’s eligibility for particular forms of financial aid, such as concessional loans and grants, the classification of nations based on GNI per capita affects international development funding.
Higher GNI per capita nations may not be eligible for any financial assistance at all, whereas lower GNI per capita nations frequently qualify for more financial aid.

Q 5. Does the use of GNI per capita as the main criterion for classifying countries mean that a country’s development is solely based on its economic status?

Answer: No, the primary classification criterion of GNI per capita does not imply that a country’s development is primarily dependent on its economic standing.
While GNI per capita is a widely used indicator of economic development, other metrics and elements, such as education, healthcare, and other social services, are also used to evaluate a nation’s level of development.