GDP Battle: Bangladesh Vs India

GDP Battle: Bangladesh Vs India

  • Reading time:5 mins read

The International Monetary fund’s (IMF) latest economic outlook stated that Bangladesh has surpassed India in GDP per capita. The IMF forecasts that India’s per capita GDP might witness a decline of almost 10.3 per cent in 2020, on the contrary, for Bangladesh the corresponding figure shows a rise of almost 4 per cent. In 2020, the per capita income of an average citizen of  Bangladesh would be more than the per capita income of an average Indian citizen. This came out to be quite shocking as India dominated almost 25% in comparison to Bangladesh just five years ago in terms of real per capita GDP. After independence, India’s economic growth in terms of GDP has been better than Bangladesh for a major number of years and the Indian economy has mostly been over 10 times the size of Bangladesh and grown every year.

It is observed that previously India’s economic performance has been stellar in comparison to Bangladesh.

So, how did this happen? What was the reason that made India lag? 

Mainly, three reasons can be accounted for such a reversal.

The first and the most significant reason was the relative impact of Covid-19 and strict lockdown regulations on the economies of both countries in 2020.  Due to this, India’s GDP is expected to contract by nearly 10%, yet, Bangladesh is not being affected by the pandemic as worse as India. Its GDP is expected to rise by 4% which will create an enormous rift between both of the economies.

Secondly, Bangladesh’s economy has pegged rapid GDP growth from 2004. From 2004-2016, India’s economic growth was significantly more than that of Bangladesh, however, it was then in 2017, that India’s growth rate started to decelerate sharply and Bangladesh’s economic growth caught more pace. 

Thirdly, over the same period that is from 2004-2016, India’s population grew faster than that of Bangladesh. Due to the effect of these two factors, the per capita GDP gap which existed between the two started to narrow down and it was closed rapidly in the last few years.

How did Bangladesh illustrate such robust growth in recent years and created its strides? 

Well, there are many reasons which went to the advantage of Bangladesh and helped the country to maintain healthy economic growth.

 The primary reason has been that the country has witnessed a steady increase in its export numbers and the rate of savings and investment. In addition to that, moving away from Pakistan and establishing its own economic and political identity proved to be quite favourable as, before independence, they had struggled to grow rapidly. Further, a key driver of growth has been the garment industry of the country which has accounted for the majority of its exports. The labour laws in the country are comparatively less stringent and they have ensured greater participation of women in their workforce. Other sectors such as the industrial and service sector have also led the GDP growth as they have created several job opportunities in the country and have been more rewarding than even the agricultural sector. The major reason behind the success has been the improvement of several social and political metrics such as health, hygiene, sanitation, education, women’s development and participation of women in politics and business.

When the government was questioned about the reason behind this difference, they clarified that the per capita GDP of India is way ahead of Bangladesh when comparison happens in terms of Purchase Power Parity (PPP). PPP is a popular metric used by macroeconomic analysts which compares different countries and their currencies through a “basket of goods” approach. It allows economists to compare economic productivity and standards of living between the countries and several countries adjust their GDP figures to reflect PPP. In 2019, India’s GDP in purchasing power parity terms was 11 times more than that of Bangladesh while the population was 8 times more. As PPP comparison of GDP is important it gives India an edge over Bangladesh and experts will not be able to blindly conclude that India is lagging than Bangladesh.

Since the economies of both the countries have witnessed tremendous changes, it has led to the GDP per capita of Bangladesh being higher than India. However, will India be able to match up to Bangladesh?

The answer to this question is YES, as the IMF projections appearing for next year indicate that India is likely to grow at a rapid pace. The good news for India is that IMF projections have quoted India’s per capita GDP to be higher in comparison to Bangladesh, but this good news is unlikely to last for a long time as it is projected that Bangladesh will match India’s per capita GDP in 2024 and will be outperforming India again in 2025. Therefore, it can be alleged that both the countries are likely to be neck to neck in terms of per capita GDP in the future.

To recover from the so-called  ‘symbolic blow’ and to be significantly ahead of Bangladesh, India should undertake some stringent economy-boosting measures such as investing in job-creating projects like infrastructure, energy etc. Policymakers must become more selective and avoid unnecessary sector reallocations as activity begins in the country again. The approach should shift gradually from protecting old jobs to getting people back to work. Tapping into the manufacturing sector would be critical to achieving high growth rates since India’s dependency on agriculture is huge. The sector should be given the required importance to accelerate the growth of India.