Why Bangladesh has left India far behind
Ajit RanadeMar 30, 2021, 08:17 IST
In just 10 short years, the country has surpassed its much bigger neighbour on several economic and social development metrics
Just 14 years ago, in 2007, the per capita income of Bangladesh was half of that of India. And last year, it surpassed India. The second decade of the millennium has been a golden one for Bangladesh, which the rest of the emerging market economies can only envy. Remember, in 2010, the world was still trying to recover from the crash-landing of Lehman and the unleashing of a global financial crisis. A year later, the European economies were hit by a crisis of sovereign debt, which might have spilled over into a full-blown banking crisis. As if that wasn’t enough trouble for the global economy, in 2013 we had the famous episode of the ‘taper tantrum’. The word ‘taper’ was uttered rather casually by Ben Bernanke, chairman of the Federal Reserve Bank of the US, to indicate that the huge monetary expansion in the wake of the Lehman crisis, should now be “tapered”. Mind you, he said taper, ie, only reduce the enormous pace of expansion of money supply.
This mere word sent the world’s financial markets into a spasm, and capital flowed out of emerging market economies in sudden panic. India was counted as one among the “fragile five” economies. Our exchange rate dropped, inflation was in the double digits, interest rates spiked and bank loans were turning bad in big numbers. Bad news for the macroeconomy all round; and to cap it all, was a series of corruption scandals which really soured the mood of investors. Soon after, a new government took office in India, the exchange rate stabilized and foreign money started flowing back in, although in 2016, demonetisation was another avoidable disruptive negative shock. Since then, we’ve had the rollout of the Goods and Services Tax, a new insolvency law and a bunch of other reforms. But the fact is that for the last five years, India’s economic growth rate has continuously declined, and the Covid year has made it go into a deep recession.
All this background is necessary to appreciate just how well Bangladesh has done in this past decade, which culminates with the golden jubilee of its independence. While India’s GDP growth went down from 8 to minus 10 in five years, Bangladesh’s growth rates have been 7.3, 8, 7.9, 8.2 and 4.2. Even in the pandemic year, it will have a positive growth. And next year it will accelerate. During this past decade, high economic growth has made it possible to reduce poverty from 19 to nine per cent, as measured by the World Bank norm. Export growth has been nearly 15 per cent for several years, making it a global leader in garments export, which accounts for nearly 80 per cent of its exports, and provides five million jobs, mostly to women. Its garments exports - at $33 billion - are more in absolute, not relative, terms than India. By contrast India’s merchandise exports have had a cumulative zero growth in the past five years. In this past decade Bangladesh’s IT exports have gone up from $800 million to $5 billion which, adjusted for its population, is equivalent to $35 billion dollars for India. That’s quite amazing for a late starter in IT and software exports. Foreign direct investment during the decade has gone up from less than a billion dollars in 2009 to nearly $4 billion now (equivalent to India getting $28 billion, adjusted for population). Inbound remittances from non-resident Bangladeshis are about $21 billion, which would be $140 billion, proportionately for India. Bangladesh is building a network of 100 special economic zones to enable further FDI. It has nearly completed a 6.15 kilometre multipurpose road and rail bridge over the river Padma which now links 21 southern districts to the capital city of Dhaka. This connectivity alone could add one per cent to GDP growth, as per expectations.
All illustrations: Ajit Ninan
There are other metrics where Bangladesh has done very well. Its female labour force participation rate is 37 per cent, as against 21 per cent for India. In the global hunger index, it is ranked 88, as against India at 102, out of 117 countries. Life expectancy in Bangladesh is 72 years versus India’s 69. In the gender parity index, it is ranked at 50, as against India at 112, out of 154 countries.
By any measure, these are impressive achievements for a country born out of a violent and bloody civil war in which three million people were killed, and which was written off rather contemptuously and arrogantly by Henry Kissinger as a “basket case”. In its 50th year, not everything is hunky dory of course, and there are serious challenges of corruption, civil liberties and development lying ahead. India would do well to sign a special free trade treaty to exploit mutual growth potential. A recent World Bank report says with an FTA and better rail, road, water and air connectivity, Bangladesh exports to India can rise by 297 per cent, and India’s exports could rise by 172 per cent.
Imagine trucks from Agartala transiting through Bangladesh to reach Kolkata, and thereby cutting the distance by 1,200 km. And if India’s Northeast can access Chittagong port, which is just 200 km away, the potential for increased exports to the rest of the world is huge.
India and Bangladesh have vast synergies to exploit in trade, commerce, investment, energy security (natural gas), logistics and also geopolitics. For the moment, this is Bangladesh’s moment to savour its achievements of a glorious decade.
Ajit Ranade is an economist and writes on the wheels that make Mumbai run — money and economy
(Disclaimer: The views expressed here are the author's own)