Q. 224.7( 3 Votes )
What is the main criterion used by the World Bank in classifying different countries? Describe its limitations.
The World Development Report (WDR) is an annual report published since 1978 by the International Bank for Reconstruction and Development (IBRD) or World Bank. It provides an in-depth analysis of various aspects of economic development. The main criterion used by the World Bank in classifying different countries is per capita income which is the total income of the country divided by its total population. Countries with per capita income of US$ 12236 per annum and above in 2016, are called rich countries and those with per capita income of US$ 1005 or less are called low-income countries. India comes in the category of low middle-income countries because its per capita income in 2016 was just US$ 1840 per annum. The rich countries, excluding countries of the Middle East and certain other small countries, are generally called developed countries. These include countries like the USA, France, and Japan.
Per capita income as an indicator of development has the following limitations:
1. Per capita income does not reflect the standard of living of the people. Since it is an average, it does not provide a fair picture regarding the income distribution between people. It can hide the fact that in spite of a high per capita income, the majority of said income is limited to a few numbers of people, making per capita income an unsatisfactory indicator of development.
2. An increase in per capita income may not raise the real standard of living of people. It is possible that while per capita real income is increasing per capita consumption of goods and services might be falling. This happens when the Govt. might itself be using up the increased income for massive military build-up necessitating the heavy production of arms and ammunition.
3. Per capita income does not reflect social development in a country. Increase in income is not synonymous with an increase in economic welfare. Thus, per capita, income fails to be an adequate measure of development.
The Human Development Index which takes education and life expectancy along with per capita income to measure development is a better indicator as it encompasses the multidimensional facets of development.
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