InvestorQ : How should India react to the IMF report that Bangladesh could overtake India in GDP per capita?
Dawn Cherian made post

How should India react to the IMF report that Bangladesh could overtake India in GDP per capita?

Mitali Bhutta answered.
1 month ago

Here are some key points to be kept in mind about the export competitiveness of India versus China and Bangladesh.

· Kaushik Basu of the World Bank has said that India had a edge of 25 years over Bangladesh and it is surprising that it is still trailing Bangladesh on most parameters including per capita GDP.

· In fact, Basu points out that the focus should not be to get the better of Bangladesh in export competitiveness instead of obsessing too much over China. Kaushik Basu also points out that the Western businesses will look at China as an alternative to India only if India does not get stuck in a lower-middle-income trap.

· The concern is also that it could dent India’s image in the sub-continent if a small nation like Bangladesh created by India overtook them in per capita GDP despite having substantial challenges on population and poverty.

· Interestingly, the pandemic has only highlighted the problem, which has existed all along. For example, Bangladesh’s new infections peaked in mid-June, while India’s daily numbers are tapering only in October and that is also not a confirmed trend. Just to compare on numbers, Bangladesh recorded 5,600 Covid deaths, while fatalities in India were more than 20 times. Population of India is just 8 times larger.

· Economists at Penn State point out that even without the pandemic, India would have eventually lost the race to Bangladesh. Vietnam is already punching slightly above its weight, but the moral of the story is that Bangladesh and Vietnam are emulating China and not India.

· What economists really fear is that India may take a counterproductive response to this. That means; India may end up erecting barriers to imports and make stuff for the domestic economy. It may be self-reliance on the back foot.

In short, if you compare India and Bangladesh, it is not just about trade. It is the composition that has gone all wrong. If India needs to create 8 million jobs as promised, then a focus on manufacturing and exports is inevitable. That is the lesson from Bangladesh.