Comparison between India and Bangladesh’s GDP

#GS3 #Economy

 

The International Monetary Fund’s latest update on the World Economic Outlook was released recently. In the IMF’s estimation, in 2020, growth of India’s gross domestic product (GDP) will witness a contraction of over 10%.

  • But more than the sharp contraction, what has caught everyone’s attention is that in 2020, the per capita income of an average Bangladeshi citizen would be more than the per capita income of an average Indian citizen.

How did this happen?

  • Typically, countries are compared on the basis of GDP growth rate, or on absolute GDP. For the most part since Independence, on both these counts, India’s economy has been better than Bangladesh’s. India’s economy has mostly been over 10 times the size of Bangladesh, and grown faster every year.
  • However, per capita income also involves another variable — the overall population — and is arrived at by dividing the total GDP by the total population.
  • As a result, there are three reasons why India’s per capita income has fallen below Bangladesh this year.
  • The first thing to note is that Bangladesh’s economy has been clocking rapid GDP growth rates since 2004. However, this pace did not alter the relative positions of the two economies between 2004 and 2016 because India grew even faster than Bangladesh. But since 2017 onwards, India’s growth rate has decelerated sharply while Bangladesh’s has become even faster.
  • Secondly, over the same 15-year period, India’s population grew faster (around 21%) than Bangladesh’s population (just under 18%).  The combined effect of these two factors can be seen in how the per capita GDP gap had closed considerably even before Covid-19 hit. Bangladesh’s per capita GDP was merely half of India’s in 2007 — but this was just before the global financial crisis. It was roughly 70% of India’s in 2014 and this gap closed rapidly in the last few years.
  • Lastly, the most immediate factor was the relative impact of Covid-19 on the two economies in 2020. While India’s GDP is set to reduce by 10%, Bangladesh’s is expected to grow by almost 4%. In other words, while India is one of the worst affected economies, Bangladesh is one of the bright spots.

Is India expected to regain the lead again?

  • Yes. 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.
Print Friendly and PDF
blog comments powered by Disqus