Bangladesh to Beat India in Terms of Per Capita Income..

The Re-Beginnan | Vol.2 | Issue 21

Bangladesh to Beat India in Terms of Per Capita Income, Says IMF; An In-Depth Analysis

What’s the Deal?

According to IMF’s (International Monitory Fund) latest report “World Economic Outlook, October 2020: A Long and Difficult Ascent”, Bangladesh will beat India in terms of real GDP per capita in FY2021. But the frightening part is that India had a lead of 25 per cent just 5 years ago. According to the IMF report, the Indian economy is set to contract by 10.3 per cent in 2020–21 due to the pandemic but will bounce back to 8.8 per cent in 2021–2022. A 9.5 per cent contraction of the Indian economy is projected by the RBI (Reserve Bank of India).

India’s per capita GDP will slump to $ 1,877 (lowest in four years) while Bangladesh’s per capita GDP will grow by 4 percent to $ 1,888, says the report. Bhutan, Maldives and Sri Lanka are also set to outperform India’s per capita GDP in 2020–21 leaving Pakistan and Nepal below India who’re set to report lower per capita GDP.

What Does IMF data Throw Light On?

The report published by the IMF in June said that the Indian economy will contract by 4.5 per cent but the revised projections show the slump to be at 10.3 per cent due to the Covid-19 pandemic.
An upward revision of 0.8 per cent is projected from the June report in terms of global growth, which takes it to a contraction of 4.4 per cent.
India’s per capita GDP will again overtake Bangladesh in 2021, with IMF projecting it to be at $ 2,030 against $ 1,990 of the latter.
In 2024 the projected per capita GDP of India and Bangladesh will match each other at $ 2,540.
Bangladesh’s projected per capita GDP of $ 2,756 is set to beat India’s projected per capita GDP of $ 2,729, in 2025, said the IMF.
Nepal and Sri Lanka’s per capita GDP are projected to be $ 1,115 and $ 3,698.
Per capita GDP of China in 2020 is projected to be $ 10,839.
The projections on per capita GDP makes India the third poorest in South Asia, just above Pakistan and Nepal.

Why Should India be Concerned?

India was one of the top performers a few years ago and India’s per capita GDP was around 40 per cent higher than Bangladesh’s 5 years ago.
Bangladesh’s per capita GDP has been increasing at a CAGR of 9.1 per cent, compared to 3.2 per cent of India in the last 5 years.
The merchandise trade of India with other countries had already been weaking even before the pandemic hit the economy. Since June 2019, country’s exports have been in negative region.
Due to the pandemic India has stopped importing. That showed a trade surplus in the month of June for the first time in 18 years. This trade surplus is not a positive one as India’s imports and exports both declined a lot.
India’s gross savings rate has seen a downward trend and has touched a 15-year low due to the economic slowdown and weakened macroeconomic position of the country. India’s gross savings rate was 36 per cent in 2007, 34.6 per cent in 2012 and it fell to 30.1 per cent in 2019. Due to the low saving rate, India has witnessed a decline in private investments.

What has Bangladesh Done Differently to See This Growth?

Bangladesh took advantage of the on-going US-China trade war and adapted to the changing landscape and grew its exports.
There has been a 44 per cent rise in Bangladesh’s exports since 2015. Bangladesh has exported goods worth $ 45.7 billion around the globe in 2019. If $ 45.7 billion is divided among Bangladesh’s population of 166.6 million people, it will roughly add $ 275 to the per capita GDP of every citizen.
Even though India shares its biggest land border with Bangladesh, yet our trade with them is third ($ 5 billion approx.) of what Bangladesh has with China that amounts to $ 15 billion.
A rise in the rate of savings and investment is also being witnessed in Bangladesh. The gross savings rate has been showing an uptrend at 27.4 per cent, 29.5 per cent and 30.1 per cent in June 2018, June 2019 and June 2020 respectively.
There has been an exponential rise in sales of saving certificates and Bangladesh has also been witnessing a growing flow of credit to the private sector.

Comparison to Bangladesh in Terms of GDP in terms of PPP (Purchasing Power Parity) and Social Development Indicators

IMF estimated India’s GDP PPP in 2020 to be at $ 6,284, compared to Bangladesh which stood at $ 5,139, which isn’t a big gap.
Bangladesh has fared better than India in terms of infant mortality, immunization, global hunger index, gender development index and even world happiness index.
While Bangladesh is 2 positions behind India in terms of Human Development Index (HDI), this is because this also includes GDP as a sub-parameter in it. Bangladesh is on a trail to cross India in HDI.

Conclusion

“I’ve now checked the data. IMF’s estimate shows Bangladesh will cross India in real GDP per capita in 2021. Any emerging economy doing well is good news. But it’s shocking that India, which had a lead of 25% 5 years ago is now trailing. This calls for bold fiscal/monetary policy,” Said Kaushik Basu, Cornell University’s Professor of Economics and former Chief Economist of the World Bank.