‘Bangladesh’s economic rise & its implications on India’

Context

The International Monetary Fund’s latest World Economic Outlook has triggered much outrage in India.

  • The provocation was the IMF’s prediction that Bangladesh’s per capita GDP will overtake that of India this year.
  • The projected difference is rather small — $1,888 to $1,877 — and unlikely to last beyond this year.
  • But it offered enough ammunition for a political attack on the government’s economic record.

In this context, let’s analyse the strategic consequences of Bangladesh’s economic rise.

Background

To understand the emergence of Bangladesh as an economic power, one needs to look at the past.

  • The decades long oppression, suppression, injustice and severe discrimination against East Pakistan by West Pakistan made the people of the East Pakistan poor and illiterate.
  • For instance, in a typical year of between 1960 and 1970, per capita annual income was Bangladeshi Taka 450 (US$ 5.30, based on 2020 value), nearly half of the population had a deficiency in calories intake, and the literacy rate was 17 percent only.
  • Between 1949-50 and 1969-70, the per capita income of Bangladesh could increase at an annual rate of hardly 0.7 per cent.
  • In fact, during the fifties, the per capita income of Bangladesh declined at an annual rate of 0.3 per cent. Per capita consumption of milk, fats, oil, fish and other protein items were extremely low in Bangladesh.
  • In March 1972, C. Verma wrote in the Economic and Political Weekly that ‘During the last 24 years, while Bangladesh was a part of Pakistan, its economy stagnated. The economic policy pursued by the central government of Pakistan kept it economically backward’.
  • Development expenditure in Bangladesh was extremely low.
  • It is also argued that the policies taken by the central government of Pakistan in the context of foreign aid, trade, interregional trade had severe adverse effects on Bangladesh.

Analysis

What made Bangladesh’s economy ‘grow’?

  • Women empowerment: Bangladesh has made significant strides towards educating girls and giving women a greater voice, both in the household and the public sphere.
    • These efforts have translated into improvements in children’s health and education, such that Bangladeshis’ average life expectancy is now 72 years, compared to 68 for Indians and 66 for Pakistanis.
  • Support to grass-roots initiatives: The Bangladesh government has supported grass-roots initiatives in economic inclusion.
  • Digitisation: Among Bangladeshi adults with bank accounts, 34.1% made digital transactions in 2017, compared to an average rate of 27.8% for South Asia. Moreover, only 10.4% of Bangladeshi bank accounts are “dormant", compared to 48% of Indian bank accounts.
  • Successful manufacturing industry: Another partial explanation for Bangladesh’s progress is the success of its garment manufacturing industry. That is itself driven by a number of factors.
    • One notable point is that the main garment firms in Bangladesh are large—especially compared to those in India, owing largely to different labour laws.
  • Other reasons include-
    • inward remittances
    • sustained growth in agriculture
    • growth in microfinance
    • public investment in big infrastructure projects

Thus, having been born without the law, Bangladesh offered a better environment for manufacturing firms to achieve economies of scale and create a large number of jobs. And though Bangladesh still needs much stronger regulation to protect workers from occupational hazards, the absence of a law that explicitly curtails labour-market flexibility has been a boon for job creation and manufacturing success.

Has this ever happened earlier?

  • In 1991, when India was undergoing a severe crisis and grew by just above 1%, Bangladesh’s per capita GDP surged ahead of India’s.
  • Since then, India again took the lead.

Is India expected to regain the lead again?

  • The IMF’s projections show that India is likely to grow faster next year and in all likelihood again surge ahead.
  • But, given Bangladesh’s lower population growth and faster economic growth, India and Bangladesh are likely to be neck and neck for the foreseeable future in terms of per capita income.

What are the regional implications of Bangladesh’s economic success? 

  • Altering the world’s mental maps: Rapid and sustained economic growth in Bangladesh has begun to alter the world’s mental maps of the subcontinent. Over the last five decades and more, South Asia, for most purposes, has meant India and Pakistan.
    • The other countries were generally described as the “smaller” states of the region. Bangladesh was never really small; its population today stands at about 160 million. It is demographically the eighth-largest nation in the world.
    • The economic rise of Bangladesh is changing some of that. Bangladesh provides a positive narrative about the subcontinent’s prospects.
  • Changing economic weights: This year, Bangladesh’s GDP is expected to reach about $320 billion. It’s growing economic muscle will help Dhaka steadily accumulate geopolitical salience in the years ahead.
    • A decade ago, Pakistan’s economy was $60 billion larger than Bangladesh. Today, Bangladesh’s weight is bigger than Pakistan by the same margin.
  • Economic integration: Third, Bangladesh’s economic growth can accelerate regional integration in the eastern subcontinent.

Collective economic advance

  • The region’s prospects for a collective economic advance are rather dim due to
    • Pakistan’s opposition to economic cooperation with India
    • Pakistan’s support for cross-border terror, the main regional forum for the subcontinent, the South Asian Association for Regional Cooperation (Saarc), is in a coma.
  • Instead of merely praying for the revival of Saarc, Delhi could usefully focus on promoting regionalism among Bangladesh, Bhutan, India and Nepal (BBIN).
  • The BBIN sub-regional forum, activated in the middle of last decade — has not advanced fast enough.
  • It is time for Delhi and Dhaka to take a fresh look at the forum and find ways to widen the scope and pace of BBIN activity.
  • Meanwhile, there is growing interest in Bhutan and Nepal for economic integration with Bangladesh.
  • New geo-politics of the Indo-Pacific: The economic success of Bangladesh is drawing attention from a range of countries in East Asia, including China, Japan, South Korea, and Singapore. The US, which traditionally focused on India and Pakistan, has woken up to the possibilities in Bangladesh. The great power wooing of Dhaka is bound to intensify in the new geopolitics of the Indo-Pacific.
  • A boost to India’s plans: The economic rise of Bangladesh could boost India’s national plans to accelerate the development of its eastern and northeastern states.
    • Bangladesh’s economy is now one-and-a-half times as large as that of West Bengal; better integration between the two would provide a huge boost for eastern India. So would connectivity between India’s landlocked Northeast and Bangladesh.

Concluding thoughts

The economic boom has given the country the confidence to surge ahead. Bangladesh, seen as a bridge between the South and south-east Asia, may not be making a big splash with its development story, but is certainly proving to be the proverbial “tortoise” that may eventually overtake many “hares” with its perseverance. 

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