Per capita GDP: Explainers
Bangladesh is ahead of India in social indicators and is now set to outperform the big neighbour in per capita GDP. Bangladesh needs to do much better to sustain the success, economists and business leaders tell Jahidul Islam and Farhad Hossain of The Business Standard
Govt expenditure, revenue generation still challenges
Dr Ahsan H Mansur
Despite significant progress in GDP growth and increase in per capita national income, Bangladesh is facing challenges in quantity and quality of government expenditure, revenue generation and some other fields of macroeconomy.
Revenue generation, compared to the size of the GDP in Bangladesh, is lowest among not only the South Asian countries but also the rest of the world. The lowest revenue cannot not support a significant expenditure.
Keep updated, follow The Business Standard's Google news channel
Slightly higher per capita GDP than India is definitely impressive for Bangladesh, but we need to know whether the higher GDP is enough or not to ensure higher welfare of the citizens.
Per capita income in Bangladesh, calculated by Purchasing Power Parity (PPP), is $5139 which is $6284 in India. It implies that people in India are enjoying additional purchasing power worth $1145 in a year compared to those in Bangladesh.
How can the government of a country feel complacent when the people of the country buy 22.28% lower commodity compared to the people of the neighbouring country?
However, India is projected to again beat Bangladesh in terms of per capita GDP in FY2021 and will grow at a higher rate compared to Bangladesh. We have to formulate and implement policies to ensure a long time sustainable growth for the coming years.
Revenue generation by the government and higher public expenditure could ensure further growth and wellbeing of people of Bangladesh. The government should reform its taxation policies and prevent leakages to achieve the status of a developed country.
The government also needs to ensure quality expenditure to develop infrastructure besides easing the cost of doing business.
The impact of Covid-19 was harder in India and the country failed to manage the crisis properly. But Bangladesh managed the pandemic better than many countries including India. That is why the per capita of GDP in India reduced significantly and fell even below that of Bangladesh.
Dr Ahsan H Mansur, the executive director of Policy Research Institute.
A great achievement but we need to do better
Zahid Hussain
Bangladesh is ahead of India in social indicators. Nobel Laureate economist Amartya Sen has frequently cited this example at global forums. Now Bangladesh is trying to catch up with India in economic indicators as well. Bangladesh's outperforming India in terms of per capita GDP (gross domestic product) reminds us of that.
This is undoubtedly a momentous achievement for us. However, there is no scope for feeling complacent. We need to do better.
In the past, we used to compare Bangladesh with Pakistan on these issues. However, Pakistan is not a stable country from that standpoint. On the other hand, India is one of the largest economies in the world and is also the largest democracy. Therefore, to move ahead of this country on any issue is a great achievement for Bangladesh. However, there is no question of rivalry here.
Bangladesh and India are neighbours. Therefore, it is wise to move forward together. The development of the two countries will further enrich the region. Both countries will benefit if they work together in removing Bangladesh's trade barriers with India, resolving the water-sharing issue, and sending the displaced Rohingya people back to Myanmar.
India has fallen behind in per capita GDP primarily because the Indian economy is more closely linked to the global economy than Bangladesh's. As a result, the negative impact of the coronavirus has been more adverse in India than in Bangladesh. Consequently, India's GDP growth has dropped to negative levels, but Bangladesh has not plummeted to that extent.
On the other hand, economic recovery in India will also be slower than in Bangladesh because of the former's close links with the global economy. Against this backdrop, Bangladesh is likely to be ahead of India in the days ahead. Besides, India's growth has been declining since 2016 but Bangladesh has made steady progress during this period. This has had a positive impact on the per capita GDP growth.
Besides, the rate of population growth is higher in India compared to Bangladesh. The country has been able to leverage its lower population growth since per capita GDP is calculated by dividing GDP by the total population. What is most striking is that Bangladesh has come into discussions by virtue of its economic achievements. The country is being talked about in Indian political circles and media.
As is the case in Bangladesh, inequality prevails in India. Many wealthy people in India have made into the club of global billionaires. From that perspective, inequality in Bangladesh is not as extreme as in India. Still, we need to focus on reducing inequality. We need to make sure that wealth does not become concentrated in a few hands.
Zahid Hussain is an economist.
Goal should be overall development, not beating India
Dr Mustafa K Mujeri
The per capita gross national income (GNI) and purchasing power parity (PPP) are relatively more acceptable in the global arena than the Gross Domestic Product (GDP) per capita. The PPP calculates how comfortable the people of a country are in their lifestyles. But, Bangladesh lags far behind India in terms of GNI and per capita PPP.
The Covid-19 pandemic has temporarily dropped India's per capita GDP as India's economic growth has shrunk by more than 10% in one year. The situation will change next year if India's growth becomes normal.
It is good for us that our GDP has been growing steadily for more than a decade. But surpassing India can never be our main goal.
According to the World Bank, Bangladesh is still in the lower-middle income group. And as per the United Nations, we are still on the list of least developed countries.
Our aim should be to quickly graduate to a high-middle income country to make Bangladesh one of the richest countries by 2041. In order to meet all these goals, apart from surpassing India in terms of income, we will have to face many challenges.
However, it is very upsetting that the existing structure of our macro-economy does not have the logistics to meet the challenges to take the country forward.
Bangladesh this time overtakes India in per capita GDP due to temporary fluctuations.
There is no point to be too obsessed with that achievement, rather we need to focus on the existing challenges to move the country towards sustainable development.
Our current growth rate is not enough to graduate to a higher-middle country by increasing national income – the weakest standard of development. We have to increase our growth rate a lot if we just want to increase our income.
But raising income alone would not yield much as we have to improve in many socio-economic indexes, including poverty reduction and minimising inequalities. If we want to make progress in all these development indexes, we will have to face bigger challenges.
We have to ensure overall development by reducing inequality. For this, we need to think about avoiding the middle-income trap – an economic situation in which many countries get stuck for a long time. Many countries have been remaining in the category for even 50-60 years.
We have to focus on formulating and implementing an action plan on how to take the country forward by overcoming all the issues.
Dr Mustafa K Mujeri is former director general of BIDS
Growth continuity, political stability played important role
Dr Zaid Bakht
I see several reasons behind the increase in per capita GDP of Bangladesh more than India. These are the continuity of GDP growth, political stability and less impact of Covid-19 pandemic.
At one time, India's GDP growth rocketed over 8%, but it came down to 4% later. It means, there was no continuity in their growth.
But Bangladesh has successfully maintained its growth momentum. It increased from six to seven percent maintaining a continuous rhythm, and from there to eight percent. The IMF's assessment is the result of this continuity.
India is a country with huge potential and a big economy. Compared to that, Bangladesh's amount of resources is much less. They have a skilled workforce, but Bangladesh has nothing to mention except unskilled labour.
Bangladesh's population growth rate is less than India. It played an important role in the calculation of per capita GDP. Although we will not remain above India for long. In fact, this progress in index will have a positive effect on our psyche.
Internal migration in Bangladesh is less than that of India. For example, few people from Rangpur go to Barisal to earn livelihood. But in India, workers from one province go to work in another province. In other words, their internal migration is much higher than Bangladesh.
As an impact of the corona pandemic, this internal migration in India has stumbled, affecting the income of the workers. India's GDP declined as a result of the decline in workers' income. But nothing like that has happened in Bangladesh. That is why the rate of income reduction due to internal migration is lower here (in Bangladesh) than in India.
Moreover, corona could not affect our agricultural output. It caused little problems in achieving targets in agriculture. In India, on the other hand, the agriculture sector suffered due to drought and heavy rains. This has also affected the GDP.
Apart from this, the Modi government's efforts to free the Indian economy from black money have had a long-term negative impact on the country's GDP. The country is yet to come out of that impact. Moreover, state-based political instability is a regular phenomenon in India, but Bangladesh is free from all these.
However, although our per capita GDP is increasing, inequality is also increasing side by side. The poor are getting poorer. In this case, the government is trying to increase the coverage of social security programmes. Along with this initiative, we need to focus on reducing corruption and enhancing good governance to reduce inequality.
Dr Zaid Bakht is an economist and chairman of Agrani Bank
Not just GDP, well-being of citizens equally important
Dr Sayema Haque Bidisha
Gross Domestic Product (GDP), GDP growth and per capita GDP are not the main determinants of sustainable overall development, although these indicators are given great importance in assessing the economic development of a country.
In addition to GDP, the overall development of any country should be measured through several indicators such as affordability, inequality, deprivation, and the well-being of its citizens. Without complete information on these metrics, there is no scope to say that the economy of Bangladesh is ahead of India based on $11 annual per capita income.
And there is absolutely no room for self-satisfaction in the face of so many problems in the macro-economy. I would say that India is far ahead in terms of size and diversity of economy.
The size of Bangladesh's economy is very small compared to India's. The economy of Bangladesh is also less diverse. In this context, the economies of the two countries cannot be compared.
Even if we wish to compare the economies of the two neighbouring countries, the average per capita income cannot be an acceptable indicator. In order to calculate the average income, earning of a high-income person is combined with a worker's income. But the truth is that my income can no longer be equated with that of a rickshaw puller.
India's per capita GDP has dropped to less than Bangladesh's due to the negative impact of the Corona pandemic. The pandemic has also influenced the latter's economy. However, thanks to the government's social security programs, incentives for the industrial sector, uninterrupted remittances and survival efforts of the informal sector, Bangladesh is on the path to rapid recovery.
Although the severity of the Covid-19 outbreak has decreased in both countries, neither has become COVID-free. Apart from that, there is concern and anxiety in both countries about the second wave of the pandemic, which will inform the future course of both economies. However, it goes without saying that except for per capita national income, India is ahead in all indices.
Instead of indulging in self-congratulations, emphasis must be placed on the speedy implementation of different programmes previously announced by the government to revive the economy, including incentive packages. It is worth noting that although the distribution of incentive packages announced for cottage, micro, small and medium entrepreneurs was supposed to be completed by this month, not even 20 per cent has been distributed so far.
Small businesses will need a lot of money to turn around, no matter where they stand.
Many have lost their jobs due to the pandemic and need to find employment to maintain their purchasing power. Preparations must also be made to handle the impending second wave of the pandemic
I don't think the government has a single moment to waste.
Dr Sayema Haque Bidisha, Professor of Economics, University of Dhaka
Country's economic capacity not much behind
Abul Kasem Khan
In consideration of the volume of GDP, India is much bigger than Bangladesh. Many big industries have developed in India. But in terms of economic capacity, Bangladesh is not much behind.
Bangladesh is being projected to become 28th economic power in the world by 2030, and 22nd by 2050.
Considering this situation, I would say that surpassing India in terms of per capita GDP is nothing unexpected. It was supposed to happen. This is the benefit of our continuous progress.
The government's role in dealing with the coronavirus pandemic is praiseworthy.
Being a large and overpopulated country, India could not successfully cope with the pandemic like Bangladesh, which cast a negative impact on its GDP growth.
Although Bangladesh is a small country in size, we are the second largest exporter of readymade garments in the world. We are ahead of India in social index and left Pakistan behind long ago. So, the international community has to recognise our achievement.
Singapore is a very small country, smaller in size than Bangladesh. But they are also economically stronger than many big countries in the world. With a smaller population than India, it won't take long for Bangladesh's economy to double.
If Bangladesh can successfully maintain the 8% GDP growth in the next 10 years overcoming all kinds of obstacles, it will no doubt surpass India. Because then our population growth rate would decrease more than that of India. Even if the total population becomes 20 crore, the benefit of having less growth will be enjoyed.
Moreover, our rate of GDP growth in per square kilometres of area is higher than India as India is a very large country. If we can increase the purchasing power of people, the economic progress will be much faster than that of India.
We have to increase the number of our middle class people to increase overall purchasing power. Because a large number of middle class people play a major role in the growth of the economy. Reducing inequality is necessary to increase the number of the middle class. Increasing the income of the poor should also be stressed. Tax evasion needs to stop to prevent capital accumulation in the hands of the rich.
Initiatives should be taken to increase CSR (corporate social responsibility) activities. In addition to expanding the government's social security programme, it is important to ensure that aid reaches the real beneficiaries.
Abul Kasem Khan is the chairman of Business Initiative Leading Development (BUILD)
