Falling behind

The International Monetary Fund (IMF), in its World Economic Outlook, has projected that gross domestic product in India will fall further than in any other major global economy during the pandemic, other than the two early and intense epicentres of the disease, Spain and Italy. This is a reflection on the difficulties involved with restarting economic activity in a large and diverse country following the severe lockdown instituted in March. It also reflects the specifics of the growth path that India has followed in recent years, and the larger questions about the sustainability of growth in India. The comparison with India’s neighbour Bangladesh, which according to the IMF will this year for the first time overtake India in terms of per capita income, is particularly instructive. The IMF sees that, in terms of current dollars, per capita income in India will fall by over 10 per cent this year, to $1,877. But Bangladesh will grow by 4 per cent, and it will thus have a per capita income in 2020 of $1,888. 

This relative position will likely switch back next year as growth rebounds in India. Yet, there are reasons why this might reflect a longer-term trend. In particular, it fits with the notion that India and Bangladesh have been on different growth tracks in recent years. Bangladesh’s compound annual growth rate, according to the IMF, has been about 6 percentage points higher than India’s for the past five years. Clearly, this reflects certain underlying differences in the two country’s economies that need to be examined more carefully. The most obvious such difference is certainly Bangladesh’s export orientation. Its world-beating textiles industry has recovered from incidents such as the Rana Plaza fire that raised questions about its standards and norms. It is fundamentally more efficient than its equivalent export-oriented units in India, thanks to better labour and other regulations — yet there has been an odd unwillingness in India to learn the right lessons. In fact, policy in India has become more inward-looking. Hopefully, this will change now. Bangladesh is only rarely brought up in Indian politics unless it is in the context of accusations of illegal immigration. The two different growth trajectories support the data that suggests such migration is no longer a problem and has not been for at least a decade. 

This is not to say that Bangladesh’s growth story is itself as sustainable as it would like. There are several problems on the horizon. First, it may be too dependent upon a single sector, textiles, and within that on specific low value-add sections of the sector. Moving up the value chain as well as diversifying national exports is a challenge that is yet to be met. Then there is the question of whether sustained high growth will mean Bangladesh loses its various special dispensations from importing countries that it has received as a consequence of low-income status. This will require skilful diplomacy on the part of the government in Dhaka — certainly better than what has been shown by New Delhi, which has allowed such privileges to lapse or be withdrawn in recent years. That said, for India, this is a reminder that there are many lessons in its own neighbourhood it should seek to learn.

 


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