Updated: October 16, 2020 7:18:11 am
A man works at a construction site in Dharmsala, Tuesday, Oct. 13, 2020 (AP Photo: Ashwini Bhatia)
The latest update of the International Monetary Fund on the Outlook for the world economy published on Wednesday. According to the IMF estimate, in 2020, India’s gross domestic product (GDP) growth witness a contraction of more than 10%. This more than doubles the level of contraction – 4.5% – that the IMF had projected for India just a few months ago.
But more than the sharp contraction, what has caught everyone’s attention is that in 2020, the per capita income of the average Bangladeshi citizen could be more than the per capita income of an average Indian citizen.
How did this happen? Isn’t India one of the largest economies in the world?
Countries are typically compared on the basis of the growth rate of GDP or on absolute GDP. For the most part since independence, in both respects, India’s economy has been better than Bangladesh’s. This can be seen in Charts 1 and 2 which map the growth rates of GDP and absolute GDP: India’s economy has been mostly more than 10 times the size of Bangladesh and has grown faster every year.
Source: World Economic Outlook Report, 2020
However, per capita income also involves another variable, the population in general, and is obtained by dividing the total GDP by the total population. As a result, there are three reasons why India’s per capita income has fallen below Bangladesh this year.
* The first thing to note is that the Bangladeshi economy has been posting rapid GDP growth rates since 2004. However, this pace did not alter the relative positions of the two economies between 2004 and 2016 because India grew even more faster than Bangladesh. But from 2017 onwards, as Figure 1 shows, India’s growth rate has dramatically slowed, while Bangladesh’s has accelerated even more.
* Second, over the same 15-year period, the population of India grew faster (about 21%) than the population of Bangladesh (just under 18%).
The combined effect of these two factors can be seen in how the per capita GDP gap had closed considerably even before Covid-19 arrived (Graph 3). Bangladesh’s GDP per capita was just half that of India in 2007, but this was just before the global financial crisis. It was roughly 70% that of India in 2014 and this gap has closed rapidly in recent years.
* Finally, the most immediate factor was the relative impact of Covid-19 on the two economies in 2020. While India’s GDP will decline by 10%, Bangladesh’s is expected to grow by almost 4%. In other words, while India is one of the worst hit economies, Bangladesh is one of the bright spots.
Has this happened before?
Yes. In 1991, when India was going through a severe crisis and growing just over 1%, Bangladesh’s GDP per capita surpassed that of India. Since then, India has again taken the lead.
Is India expected to regain leadership again?
Yes. IMF projections show that India is likely to grow faster next year, and in all likelihood to rise again. But, given Bangladesh’s lower population growth and faster economic growth, India and Bangladesh are likely to be side by side for the foreseeable future in terms of per capita income.
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How has Bangladesh managed to grow so fast and so strongly?
In the early years of its independence from Pakistan, Bangladesh struggled to grow rapidly. However, moving away from Pakistan also gave the country a chance to start over with its economic and political identity. As such, its labor laws were not as strict and its economy increasingly involved women in its workforce. This can be seen in a higher female participation in the labor force (Graph 5). A key driver of growth was the garment industry, where female workers gave Bangladesh the upper hand to corner global export markets from which China pulled out.
Source: Global Hunger, Informality and Covid-19 Report, World Bank
It also helps that the structure of the Bangladesh economy is such that its GDP is led by the industrial sector, followed by the service sector. Both sectors create many jobs and are more remunerative than agriculture. India, on the other hand, has struggled to boost its industrial sector and still has too many people who depend on agriculture.
Beyond the economy, one of the main reasons for Bangladesh’s progressively faster growth rate is that, especially over the past two decades, it improved various social and political metrics, such as health, sanitation, financial inclusion, and political representation of women. women.
For example, despite the fact that a smaller proportion of its population has access to basic sanitation, the death rate attributed to unsafe water and sanitation in Bangladesh is much lower than in India (Figure 5).
When it comes to financial inclusion, according to the World Bank’s Global Findex database, although a smaller proportion of its population has bank accounts, the proportion of inactive bank accounts is quite small compared to India.
Bangladesh is also well ahead of India in the latest gender parity rankings. It measures the differences in political and economic opportunities, as well as the educational level and health of men and women. Of the 154 assigned countries, Bangladesh is in the top 50, while India languishes at 112.
The same trend holds for the Global Hunger Index. The GHI goes beyond treating hunger in terms of calorie intake. Four factors are analyzed: undernutrition (reflecting inadequate food availability), childhood wasting (reflecting acute malnutrition), stunting (reflecting chronic malnutrition), and infant mortality (reflecting both poor nutrition inappropriate as an unhealthy environment).
In addition to the progress it has made, what challenges does Bangladesh face?
The past 15 years have witnessed a tremendous change in the position of Bangladesh in the world. It has left Pakistan far behind and has escaped the difficult initial years to establish a democratic system. But its progress is still doubtful. For example, its poverty level is still much higher than India’s (figure 4). In fact, according to the World Bank, “poverty is expected to increase substantially in the short term, with the greatest impact on employed and self-employed workers in the non-agricultural sector and salaried workers in the manufacturing sector.”
Source: World Bank Informality and Covid-19 ReportFurthermore, it still lags behind India in basic education parameters and that is what explains its lower rank on the Human Development Index.
But Bangladesh’s biggest concern is not on the economic front, even though its poorly regulated garment industry is known to take shortcuts in job safety and onerous working conditions are beginning to have negative health implications.
The greatest threat to their prospects comes from their day-to-day politics. The main political parties routinely engage in violent oppression among themselves. His everyday public life is riddled with corruption. In the 2019 edition of Transparency International’s rankings, Bangladesh ranks low in 146 out of 198 countries (India ranks 80; a lower rank is worse). Add to this a massive wave of radical Islam, which has resulted in the death of several bloggers for expressing unpopular opinions.
These developments have the ability not only to stop Bangladesh’s progressive social reforms that have empowered women, but also to derail its economic miracle.
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This article first appeared in print on October 16, 2020 under the title ‘The Bangladesh Comparison’.
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