In IMF’s latest Economic Outlook, Bangladesh has overtaken India in GDP per capita. This has caught everyone’s attention.
Do you know?
- In the 2019 edition of Transparency International’s rankings, Bangladesh ranks a low 146 out of 198 countries (India is at 80th rank; a lower rank is worse off).
- In the latest gender parity rankings, out of 154 countries mapped for it, Bangladesh is in the top 50 while India languishes at 112.
Bangladesh surpasses India
- Typically, countries are compared on the basis of GDP growth rate, or on absolute GDP.
- For the most part since Independence, on both these counts, India’s economy has been better than Bangladesh’s.
- This can be seen from Charts 1 and 2 that map GDP growth rates and absolute GDP — India’s economy has mostly been over 10 times the size of Bangladesh, and grown faster every year.
- However, per capita income also involves another variable — the overall population — and is arrived at by dividing the total GDP by the total population.
What made India lag behind?
There are three reasons why India’s per capita income has fallen below Bangladesh this year:
- The first thing to note is that Bangladesh’s economy has been clocking rapid GDP growth rates since 2004.
- Secondly, over the same 15-year period, India’s population grew faster (around 21%) than Bangladesh’s population (just under 18%).
- Lastly, the most immediate factor was the relative impact of Covid-19 on the two economies in 2020. While India’s GDP is set to reduce by 10%, Bangladesh’s is expected to grow by almost 4%.
How has Bangladesh managed to grow so fast and so robustly?
- Freshly start: In the initial years of its independence with Pakistan, Bangladesh struggled to grow fast. However, moving away from Pakistan also gave the country a chance to start afresh on its economic and political identity.
- Diverse labour participation: As such, its labour laws were not as stringent and its economy increasingly involved women in its labour force. This can be seen in higher female participation in the labour force.
- Textile boom: A key driver of growth was the garment industry where women workers gave Bangladesh the edge to corner the global export markets from which China retreated.
- Less dependence on Agriculture: It also helps that the structure of Bangladesh’s economy is such that its GDP is led by the industrial sector, followed by the services sector. Both of these sectors create a lot of jobs and are more remunerative than agriculture.
- Better social capital: Bangladesh improved a lot on several social and political metrics such as health, sanitation, financial inclusion, and women’s political representation.
Retaining the lead
- The IMF’s projections show that India is likely to grow faster next year and in all likelihood again surge ahead.
- But, given Bangladesh’s lower population growth and faster economic growth, India and Bangladesh are likely to be neck and neck for the foreseeable future in terms of per capita income.
