Global economic trends have shown a contraction in most countries due to the Covid-19 pandemic. One of the hardest-hit economies is India, with a projected contraction of over 10% of its GDP according to the recent update of the World Economic Outlook 2020. This contraction is double the 4.5% projected in the April edition. The World Economic Outlook is a survey conducted by the International Monetary Fund (IMF), typically published biannually in April and October.
Global and Indian Economic Overview
The global economy’s growth is set to contract by 4.4% in 2020, with an anticipated recovery of 5.2% in 2021. However, India’s economy, severely impacted by the Covid-19 pandemic, is set to contract by 10.3% in 2020. This can be attributed to the drastic disruptions in supply and demand conditions due to the spread of Covid-19 and containment measures. Nevertheless, it’s predicted that India will see an 8.8% growth rate in 2021, reclaiming its role as the fastest-growing emerging economy, even surpassing China’s projected growth rate of 8.2%. Among major economies, China is the only one to experience a positive growth rate in 2020 of 1.9%.
India-Bangladesh Differences In GDP and Per Capita Income
A closer look at India’s economy relative to Bangladesh reveals some interesting insights. IMF’s forecasts suggest that Bangladesh’s per capita GDP is likely to outperform India in 2020. Despite this, India poised to grow faster in 2021, potentially pulling ahead once more. Over the five-year period ending in 2025, Bangladesh’s per capita GDP is expected to marginally beat India, with figures of USD 2,756 and USD 2,729 respectively.
Comparative Economic Performance Since Bangladesh’s Independence
Historically, since Bangladesh’s independence, India’s economy has consistently outperformed Bangladesh’s. With an economy over ten times the size of Bangladesh and a faster growth rate, India has maintained a healthy lead. One exception occurred in 1991, when India experienced a severe financial crisis and its GDP growth was just over 1%. During that year, Bangladesh’s per capita GDP outpaced India’s. However, India regained its lead soon after.
Reasons Behind Current Per Capita Income Differences
The current gap in per capita income between India and Bangladesh can be attributed to three main factors. Firstly, since 2017 India’s growth rate sharply decelerated while Bangladesh’s accelerated. Secondly, India’s population grew at a faster rate, about 21%, compared to Bangladesh’s population growth rate of just under 18%. Lastly, the relative impact of Covid-19 on the two economies in 2020 varies greatly. While India’s GDP is set to reduce by 10%, Bangladesh’s is expected to grow by nearly 4%.
Factors Behind Bangladesh’s Fast Growth
Several factors can be credited for Bangladesh’s remarkable economic growth. These include gaining independence from Pakistan, less stringent labour laws, increased female participation in the workforce, a robust garment industry in exports, and a GDP led by industry and services sectors. Furthermore, over the past two decades, Bangladesh has made significant improvements in various social and political metrics such as health, sanitation, financial inclusion, and women’s political representation.
Comparative Strengths of Indian Economy
Despite trailing behind in per capita GDP, India boasts some advantages. For instance, India’s level of poverty is much lower than that of Bangladesh’s. According to the World Bank, poverty in Bangladesh is expected to increase substantially in the short term. Also, India surpasses Bangladesh in basic education parameters which results in its higher rank in the Human Development Index. India is also ranked higher in indexes such as Ease of Doing Business and Global Innovation Index.
Looking Ahead
Despite current challenges, both India and Bangladesh have opportunities for growth. To take advantage of these opportunities, it’s suggested that India reverses its recent trade stance, reduces tariffs, embraces free trade agreements, and seeks greater integration with global supply chains. China’s rising wages present an opportunity for countries like Bangladesh and India post-Covid-19, as companies look to hedge their supply chain risks and shift away from China. This would, however, require a strategic pivot away from protectionist policies.
