Bangladesh keeps outrunning India in per capita GDP race

Bangladesh is forecast to remain ahead of India in terms of per capita gross domestic product (GDP) in the next five years to 2026 powered by buoyancy in remittance, exports and agricultural activities.

With $355 billion, Bangladesh, the second-biggest economy in South Asia, first overtook India in 2020 in terms of per capita GDP, a measure of the economic prosperity of a nation, thanks to its more than 6 per cent annual economic expansion for the last 15 years.

Bangladesh managed to grow even during the pandemic when most of the economies contracted.

India, one of the main economic powerhouses in Asia, saw its economic output decline to $2,660 billion in 2020 as it suffered a severe setback from the crisis. As such, its per capita GDP declined to $1,929 from $2,098 in 2019, according to the World Economic Outlook database of the International Monetary Fund (IMF).

But on Tuesday, the lender forecast that Bangladesh’s per capita GDP would accelerate to $2,138 this year, and India’s to $2,116. And Bangladesh will continue outrunning India for the next five years as well.

The IMF said India’s economy rebounded by 9 per cent in 2021. Yet, the growth is not going to enable India to surpass its close neighbour in terms of per capita economic output.

Bangladesh’s GDP will stand at $565 billion five years later. India’s size will be $4,393 billion.

“The good news is Bangladesh is catching up on the per capita income metric,” said Zahid Hussain, a former lead economist at the World Bank’s Dhaka office.

“This is true generally in relation to the rest of the world and our biggest neighbour, India. It goes to show the dynamism of Bangladesh’s economy in normal times and resilience in crisis.”

He, however, says people need to be more guarded in reaching conclusions on whether Bangladesh has become richer than India in terms of income per capita.

“The answer is yes if you compare GDP per capita in current US dollars as reported in the IMF’s report.”

“The conclusion will be very different when you compare nominal GDP per capita in US dollars adjusted for differences in purchasing power of national currencies.”

Purchasing Power Parity (PPP)-based GDP is calculated by dividing nominal GDP by the PPP exchange rate. The latter reflects the purchasing power of the national currency relative to that of the US dollar in the US.

Bangladesh’s PPP exchange rate is Tk 33 per USD in 2021 compared to India’s 22 rupees. This means it takes Tk 33 to buy in Bangladesh what one American greenback can fetch in the US.

The same basket costs 22 rupees in India. Thus, the purchasing power of the Indian currency is 33 per cent higher than the purchasing power of the taka.

Citing IMF’s report, Hussain said based on the PPP exchange rates, per capita GDP in India in 2021 is $7,319, which is 27 per cent higher than Bangladesh’s $5,733.

India’s per capita GDP in PPP dollars is projected to rise to $10,866 and Bangladesh’s to $ 8,859 by 2026.

On average, Indian per capita income would still be 22.6 per cent higher than Bangladesh, but the difference is projected to shrink, Hussain said.

“So, the general conclusion that Bangladesh is catching up still holds.”

“But whether Bangladesh has exceeded and will continue to exceed India in terms of per capita GDP depends critically on whether we adjust the nominal GDP per capita in USD for differences in the purchasing power of national currencies in Bangladesh and India.”

Zaid Bakht, a former research director of the Bangladesh Institute of Development Studies, said Bangladesh’s economy grew as its real sectors such as agriculture, remittance, and export performed well despite the pandemic.

On the other hand, the population growth remains low, resulting in an increased per capita GDP.

“There will be a significant effect on the economy when mega public infrastructure projects become operational within the next five-six years,” said Bakht.

BIDS Director-General Binayak Sen said per capita consumption had been low in India since 2012, and its economic growth declined to 2.5 per cent before the pandemic struck, owing to demonetisation and political instability.

After Covid-19 emerged, the Indian economy suffered recessions, whereas people in Bangladesh were able to resume economic activities after the two-month’s shutdown.

“And the extent of injury to the economy was not that much as was feared. So, the IMF’s projection appears to be realistic.”

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