The India vs Bangladesh Fallacy
"Bangladeshis will soon be richer than Indians"
"Bangladesh set to overtake India in per capita GDP," says the IMF.
These headlines caused many alarm bells to ring in India. This article analyses the truth of this statement.
As per IMF's WEO report, the per capita GDP of India was $1,877 in 2020 whereas Bangladesh's per capita GDP stood higher at $1,888 in 2020. Moreover, as per the report, the per capita GDP of India was set to increase to $2,729 in 2025, while Bangladesh's per capita GDP would rise a step higher to $2,756 by 2025.
Surely this is enough to believe that the Indian economy has slipped many rungs down if Bangladesh, our neighbour, is doing better than us. The India-vs.-Bangladesh GDP per capita comparison has sparked anxiety and acrimony.
As a matter of fact, about 5 years ago, India’s per capita income was 40% higher than that of Bangladesh.
But since the report focuses on comparing the countries' GDP based on current prices rather than the constant prices, it led to the wrong conclusion that Bangladesh is ahead of India. GDP at current prices is not an appropriate welfare comparison as it does not adequately reflect the inflation rates. A more valid estimate is GDP based on constant prices, which shows that India is ahead, and despite COVID's more adverse impact in 2020, it is likely to remain so. There are many other indicators that must be taken into account to grasp the bigger picture. Hence, on a more appropriate metric, India has not been surpassed and is unlikely to be surpassed in the future by Bangladesh.
However, there is no room for complacency.
GDP is just one indicator to judge how good the economic growth of a country is in comparison to another country. In order to come to a better conclusion, there are some other indicators that we need to analyze. Bangladesh, today is setting a very great example for its neighbouring countries as to how development can really be achieved.
What are some of the things that we can learn from Bangladesh?
Bangladesh's remarkable growth in the last two decades is to be commended. If we look at the HDI, then the average life expectancy of a Bangladesh citizen is 3 years more than that of an Indian. Whether it is infant mortality or child nutrition, Bangladesh is better than us in most of these fields.
But here are certain key indicators where Bangladesh is excelling rapidly -
Female literacy - This metric states the percentage of women in the country who know how to read and write and have completed the first 5 years of primary education. According to a 2018 research, this statistic in India stands at 48%. This is a very low number as compared to other neighbouring countries such as Nepal (92%), Pakistan (74%) and Bangladesh (54%).
Fertility Rate - Despite Bangladesh being a very densely populated country, the fertility rate of Bangladesh has reached the replacement level. The level of fertility at which a population exactly replaces itself from one generation to the next is known as replacement level fertility. In developed countries, replacement level fertility is generally defined as 2.1 children per woman on average.
Female Labour Participation - An indicator where there's a stark difference between the two countries is Female Labour Participation. The percentage of Female Labour Participation has dropped from about 30.3 to 20.3 in India while the exact opposite has happened in Bangladesh with the rate increasing from about 24.7 to 36.4. This clearly shows how Bangladesh has done a much better job in terms of women upliftment and empowerment.
Working women in Bangladesh earn more than their Indian counterparts, as shown in the graph above. This may be attributed to Bangladesh's prominence in the clothing sector, which primarily employs women.
Coming to the most important question, how did Bangladesh succeed?
Bangladesh's garment industry is often regarded as the primary driver of the country's economic progress. Another intriguing fact about Bangladesh's readymade garment (RMG) industry is that over 80% of the employees are women. This has been the case since the 1980s, when RMG became the first industry in Bangladesh to provide large-scale employment opportunities for women, in a country where women had typically not worked outside the home.
Some other reasons for the success of the RMG industry include-
As per a paper titled ‘What explains India’s poor performance in garments exports?' by Saon Ray of Indian Council for Research on International Economic Relations (ICRIER): “Bangladesh produces simple apparel such as t-shirts, shirts in bulk... While India manufactures superior quality woven and knitted products."
One of the major reasons for Bangladesh’s competitiveness is that it is cheaper to produce goods in Bangladesh than in India. A Case Study of India written by Pankaj Vashisht and Nisha Rani of ICRIER: “The unit labour cost of producing a cotton shirt in the United States is around $7, while the unit labour cost of producing the same shirt in India comes at around 50 cents, whereas in Bangladesh the unit labour cost is only 22 cents."
According to the Economic Survey of 2019-20: “Bangladesh… [has] more than 80% of the market value of exports by large enterprises, India has 80% by small enterprises." Readymade garment exporters in Bangladesh, therefore, have economies of scale. Moreover, Bangladesh’s exports to the European Union and Canada are largely duty-free.
A distinguishing feature of Bangladesh's boom is strong growth in its manufacturing (industrialisation) and exports, unlike India's. A study by the ADB found Bangladesh to be among the Asian countries with the highest increase in their manufacturing share and output (GDP) growth during the 1970s-2010s, along with Bhutan, Cambodia, Malaysia, South Korea and Thailand.
Prior to the arrival of COVID-19, India's growth was faltering. As a result, it is undeniable that India faces a difficult battle ahead. The impact of the coronavirus has been severe in India. India will only return to its pre-Covid LEVEL of real per capita GDP in a few years.