According to the International Monetary Fund’s (IMF’s) latest World Economic Outlook (WEO) report, in October 2020, Bangladesh is all set to overtake India in per capita gross domestic product (GDP) in 2020. India’s per capita GDP is expected to decline by 10.5 per cent to USD 1,877 in 2020, while Bangladesh’s per capita GDP is expected to rise by 4 per cent to USD 1,888. The figures have sparked a controversy, with the Opposition targeting the Centre for the slowdown.
As per the available data, Bangladesh’s per capita GDP grew at a CAGR of 9.1 per cent in the last five years, as against India’s 3.2 per cent. Bangladesh’s growth story can be attributed to a booming export sector and a healthy growth in savings and investment rates.
If Bangladesh’s per capita income exceeds India’s, then the latter will be the fourth-richest country in South Asia after Sri Lanka, Maldives. The Indian economy will see a steep decline due to the Covid-19 pandemic in South Asia. IMF has predicted India’s GDP to contract by 10.3 per cent in 2020-21.
However, IMF has predicted that India will recover faster than most of the nations in 2021, when India’s per capita GDP is predicted to grow at 8.2 per cent to USD 2,030, as against Bangladesh’s expected growth of 5.4 per cent to USD 1,990.
Decline did not happen in just 1 year Five years ago, India’s per capita income was 40 per cent higher than Bangladesh’s. However, in the last five years, Bangladesh’s economy grew at 9.1 per cent compounded whereas India grew at only 3.2 per cent compounded.
As per reports, on all major indices such as global hunger index, gender development index, world happiness index, immunisation, infant mortality, etc., Bangladesh was ahead of India. And India was ahead on only two indicators—per capita income and human development indicators.
The metrics compared are misleading: The GDP per capita is only an estimate for one indicator of the average standard of living or welfare in a country. There could be several other indicators of the standard of living in the country, like the human development index. And even if one were to take GDP as the indicator, there can be many ways to measure it.
The ‘real’ GDP is to be measured in local currency after taking out effects of inflation, and then, all local currency estimates of real GDP have to be converted into comparable dollars.
The IMF has focused only on comparisons based on GDP measured at current market exchange rates, but these are not always an apt yardstick for global comparisons on welfare because they might not include domestic inflation or productivity growth.
The more appropriate basis of comparison is purchasing power parity (PPP) exchange rates, even as GDP is kept constant. Using this metric, India is ahead of Bangladesh, and despite the coronavirus-induced lockdown and its effect, it will probably remain so.
The economist also said that India has no room for complacency since the impact of the pandemic has been severe. India would return to the pre-Covid level of real per capita GDP only in 2022, which means three lost years.
Needless to say, however, that Bangladesh will at some point have a higher per-capita income than India. This is because India has a higher population than Bangladesh so even though we have a higher GDP in absolute levels, the per capita figure could be smaller in future years.
Courtesy: The Print Team, Oct 15, 2020 and Oct 17, 2020; The New Indian Express, Oct 15, 2020; Swarajya, Oct 18, 2020