T
he economic picture of India has thrown an extraordinary mark of economic divide in one single economy. Five of India’s states and union territories – namely Delhi, Karnataka, Telangana, Tamil Nadu and Gujarat – have crossed the income level boundary of World Bank's per capita income measure that distinguishes “lower-middle income” countries from “upper-middle income” countries, which is normally used for defining income level boundaries of nations but not states within one nation.
As per a comparison between the per capita income levels of these states to the World Bank's Atlas method, these five states belong to the same income category as Brazil, Mexico and Thailand even when some of the most populous states of India lag behind many smaller economies.
According to the World Bank's economy classification based on country income classification criteria, which are set once every July 1 on the basis of per capita Gross National Income (GNI) measured in the Atlas method, four groups can be distinguished.
For the present-day period (2026-27), the economies whose per capita income is less than $1,175 can be termed "low-income economies," while the economies having a per capita income between $1,176 and $4,635 are termed "lower middle income."
Economies having a per capita income between $4,636 and $14,375 can be termed as the upper middle income, whereas the economies having a per capita income more than $14,375 are termed as the high-income economies. By applying these criteria to classify Indian states that are considered lower-middle-income economies at present, an extremely unequal India is revealed.
Even though India as a country is still a lower-middle income economy according to the World Bank's classification criteria, Indian states classification through the same criteria reveals that some of India's richest states reach the threshold of upper-middle-income economy.
The five states that fulfill all these criteria
This is the state that claims to possess the highest per capita income as compared to other states in India and union territories. The per capita income of this state is $6,217.
The economic activities in this state are mostly in the form of services and businesses. Furthermore, the fact that there are very few people in this state as compared to economic activities taking place in this state has helped in the state achieving high per capita income.
Karnataka is the second state as far as per capita income is concerned, whose per capita income is $5,579.
Third position has been taken by Telangana with an income level of $5,407, primarily because of the developments in the field of IT and pharmaceutical industry in Hyderabad. It is quite fascinating to note that Telangana is positioned first among all those states which possess a population of more than three crore.
The per capita income of $5,329 has been earned by Tamil Nadu, owing to its diversified industrial sector in the automobile industry, textiles, electronics, and services of Chennai.
Gujarat has succeeded in occupying the fifth position with a per capita income of $4,734, narrowly missing the cut-off level of $4,636.
A number of other larger states came very close to the threshold for upper-middle-income status but fell just short. The figure for Maharashtra was $4,628; that for Haryana was $4,627; and that for Kerala was $4,610—all within range of the $4,636 figure and highlighting that it would take only a little movement either in economic growth or currency values to push further states up into the category on future evaluations.
India's richest and poorest states are separated by an enormous income disparity. Bihar registered a per capita income of just $984, making it India's poorest major state and one that is below the World Bank's low-income category for countries.
Uttar Pradesh had a per capita income of $1,403, and Jharkhand recorded a per capita income of $1,470, both at the bottom of the lower-middle-income range—figures that a number of reports have noted as being lower than those in neighboring Nepal.
Reasons for the Persistence of the Disparity
One factor shared by those regions that have entered upper middle income status is that they are very focused on services, IT, manufacturing, or trading. For example, Delhi, Bangalore, Hyderabad, and Chennai all have highly developed economies, based in particular on white-collar and export businesses that increase the per capita figure in the wider region, despite relatively low agricultural output in rural parts.
On the other hand, regions such as Bihar and UP feature both a large population and a history of being less industrialised and more agricultural-based economies, thus depressing per capita figures regardless of how big the GDP of the region may be.
Given that per capita income is a measure of dividing total income by population size, larger, less industrialised regions have a structural problem here.
As economists have pointed out for some time now, India has experienced an uneven development experience over the past few decades following liberalization reforms in 1991, with coastal and southern states developing more quickly than northern and eastern regions of India. This recent categorization into World Bank income bands does not represent a new trend but rather a new way to articulate this old story.
Implications Moving Forward
India's development experience of "two speeds" will be illustrated by India being comprised of two groups of states where one group operates at a level similar to middle-income emerging countries while the other group struggles to overcome the problems faced by low-income countries.
The divergence strengthens the case for continued Finance Commission devolution favouring lower-income states, targeted capital expenditure in states such as Bihar, Uttar Pradesh and Jharkhand, and sustained investment in the Aspirational Districts Programme aimed at improving human development indicators in India's lagging regions.
