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There is little strong evidence that currently recommended higher waist circumference cut-points for Europids compared with South Asians are associated with similar risk for type 2 diabetes. This study was designed to provide such evidence. Longitudinal studies over 5 years were conducted among 5,515 Europid and 2,214 ethnically South Asian participants. Age-standardized diabetes incidence at different levels of waist circumference and incidence difference relative to a reference value were calculated. The Youden Index was used to determine waist circumference cut-points. At currently recommended cut-points, estimated annual diabetes incidence for a 50-year-old Europid was <0.6% for both sexes, and for a 50-year-old South Asian, 5.8% for men and 2.1% for women. Annual diabetes incidence of 1% was observed for a 50 year old at a waist circumference 35–40 cm greater in Europid compared to South Asian men and women. Incidence difference between recommended cut-points and a reference value (80 cm in men, 70 cm in women) was 0.3 and 4.4% per year for Europid and South Asian men, and 0.2 and 0.8% per year for Europid and South Asian women, respectively. Waist circumference cut-points chosen using the Youden Index were shown to be dependent on obesity levels in the population. The much higher observed risk of diabetes in South Asians compared to Europids at the respective recommended waist circumference cut-points suggests that differences between them should be greater. Approaches that use the Youden Index to select waist circumference cut-points are inappropriate and should not be used for this purpose.