Why Bangladesh is ahead of India in terms of economy: read this report


Bangladesh’s IMF report overtaking India in per capita gross domestic product (GDP) continues to make headlines, but the neighboring country has been leading in key social indicators for years.

Apparel Industries in Bangladesh (image credit: textilelearner )

When the International Monetary Fund’s (IMF) biennial World Economic Outlook report was published last week , Shamsul Alam, a senior member of the Bangladesh Planning Commission, was busy watching the progress of the crucial irrigation project hours from his office in Dhaka.

“Travelling during a pandemic is risky but I had to come here [personally] because it is important to monitor it at this time. It has rained a lot this year,” Alam told The Telegraph over a phone call, referring to the Teesta Barrage, the biggest irrigation project in Bangladesh.

In its report, the IMF projected that Bangladesh’s GDP per capita will overtake India this year, and that India’s economy will contract by more than 10%, the sharpest slide among all emerging economies. In contrast, the IMF said Bangladesh would grow its economy by 4% at the same time, becoming one of only a handful of countries globally to avoid a contraction.

Congress leader Rahul Gandhi fired on the Narendra Modi government in Bangladesh over India’s shutdown in terms of per capita gross domestic product (GDP) and criticized its handling of the economy, with many economists pointing out an anomaly in the IMF’s projection. Former Chief Economic Adviser Arvind Subramanian said GDP per capita is merely an estimate for an indicator of the average standard of welfare in a country and “more appropriate” economic metrics such as GDP constant, purchasing power parity (PPP) exchange rate,” According to the IMF, India has not been surpassed and is unlikely to be in the near future.

Alam, who is the longest-serving member of Bangladesh’s Planning Commission and one of the early architects of the country’s development policy under Prime Minister Sheikh Hasina, said he does not see Bangladesh too much in numbers to overtake India. are. He said, “It’s all right.”

Alam said, “Forget GDP per capita for a moment and see how we have overtaken India in women empowerment. Less than 112 out of 153 countries, while Bangladesh ranks 50, South Asia tops gender equality.

Over the past decade, Bangladesh has outperformed India in most social indicators such as child mortality, life expectancy at birth, and female literacy and labor force participation, and this trend, according to Alam, is the reason for continued economic growth. .

Once dismissed as a “test case for development” after its independence in 1971, at a time when the country had high levels of poverty, a dense population from natural disasters, and political turmoil, Bangladesh It is now being called a miracle of development. Since 2009, its economy has seen a growth rate of over 6% and the size of its economy has nearly tripled to $302 billion.

One of the strongest factors behind this is prioritizing early synergies among the country’s economic policy makers and pushing for a boom in low-skill manufacturing. “We had to come up with an economic model that could absorb the labor force coming from rural households,” Alam told The Telegraph. “We needed development before anything else. We needed development for employment generation. And we needed jobs to reduce poverty. “

This is evident in the country’s rapidly growing export-driven readymade garment sector, which accounts for over 80% of its exports and contributes to nearly 20% of its national economic output. Textile manufacturing factories employ more than 4 million people, about 80% of them women.

“It is not just the readymade garment sector but also a range of allied industries and allied service sectors, thereby increasing employment and wages. So it has created a manifold effect, which has created a positive impact in the economy,” Selim Ryan, professor of economics at the University of Dhaka and executive director at the Dhaka-based South Asian Network on Economic Modeling (SANEM), told The Telegraph.


For emerging economies like India, there is an important lesson to be learned from Bangladesh’s apparel sector: the benefits of larger female labor force participation and making women central to the development process. This is something Bangladesh’s economic planners learned early on, while India’s policymakers still haven’t.

In a 2014 study on Bangladesh’s apparel sector, Rachel Heath of Washington and A. Mushfiq Mobarak of the Yale School of Management found that access to factory jobs for women produced notable welfare effects. The two found that “the rise of the apparel industry led to a decline in fertility rates, and increasing age at marriage, and a rapid increase in girls’ educational attainment during this period,” adding that “the clothing industry probably played a large role.” Bangladesh has made remarkable progress in improving the lives of women in the last 40 years. “

According to the World Bank data, Bangladesh’s female labour force participation rate has increased to around 37%, while India has decreased from 30.3% in 1990 to 20.5% in 2019. Even when India was experiencing high GDP growth, the economy could not create enough factory employment as much of the growth was driven by the relatively small and highly skill-based service sector, while most of the labour force worked in India’s vast informal economy.

“India has clearly failed on its manufacturing front. Services became a major distraction for a long time. Apart from this, the industry also keeps getting distracted,” Mahesh Vyas, managing director and CEO of the Center for Monitoring Indian Economy told The Telegraph. “In recent years [the industry is distracted] with infrastructure contracts [there has been] a greater focus on creating global competitiveness in manufacturing.”

Little support of government in India

According to Vyas, for Bangladesh, apparels have been the engine of growth. “It has provided employment to women and the country has gone from providing informal employment in very poor conditions to better jobs with focus on exports.”

The apparel sector in Bangladesh has benefited from lower costs of production and looser labor regulations, market dominance by large companies hurting economies of scale and duty-free access to European markets, making it a major import hub. On the other hand, around 80% of India’s apparel sector is comprised of small firms and industry associations say that unlike Bangladesh, the Indian government’s support is lacking.

Strong criticism of Bangladesh’s apparel sector has centred around factory working conditions and the safety of workers, most of whom are women. Even though safety protocols were improved after the 2013 Rana Plaza collapse, which killed more than 1,100 workers and called for action in the fast fashion industry, women continue to face workplace violence in factories. The constant pressure and withholding of payments result from physical and verbal abuse.

“The entire economy of Bangladesh has been dependent on this one sector, so their government will lean back to meet all the requirements of the industry. Beyond a certain point, the Indian government could not do this here as garments constitute a small part of our total exports,” Rahul Mehta, chief patron and former president of the Cloth Manufacturers Association of India (CMAI), told The Telegraph.

Another major reason for Bangladesh’s continued success in the apparel sector, according to Rehan, is the political economy, which has fueled the region’s growth over the years. “One thing is that successive governments – and we have seen governments change every five years in Bangladesh – did it help the apparel sector: they continued with the policies of the previous government and made it through instead of tinkering with it. ” .

When the first tranche of fiscal stimulus in Bangladesh was announced this year in response to the pandemic, much of it went to the apparel sector.

In India, Mehta says 20-30% of apparel manufacturing firms were shut down due to lack of working capital, even as CMAI repeatedly requested the government for incentives.

For example, in June this year, the CMAI issued a press note that sounded more like a desperate plea for survival than an industry requesting government aid. It added that as of May 15, only 26% of the total firms had applied for working capital loans under the RBI’s covid-line credit guarantee. It warned the government that while the apparel industry in India was “rising for an unauthorized disaster” and “millions of jobs were at stake”, the rest of the companies had their applications with banks under the “processing stage”.

Earlier this month, when Finance Minister Nirmala Sitharaman announced a $10 billion stimulus package for the upcoming festive season , Mehta was hopeful and to boost demand, the government raised taxes on goods and services to millions of its employees. Allowed to spend free traveling allowance. “I thought it was a great plan because these people didn’t travel anyway and it would have been better if someone could afford them,” Mehta said, adding that he eventually expected an increase in demand for clothing and apparel. Was doing.

But as the finer details of the package began to emerge, Mehta was surprised to learn that employees could spend only 12% or more of their travel allowance on tax (GST), which would completely exempt the textile industry as Mehta’s According to, “Over 95% of the textile industry is taxed at 5%.”

“I mean… I don’t know anything… sometimes… it just doesn’t make sense,” Mehta said.

Growth in agriculture, dependence on remittances

For more than a decade, the boom in the apparel sector has led to massive migration from rural to urban areas in Bangladesh, and has fueled inbound remittances into the rural economy. But Bangladesh is also one of the highest earners of outward remittances – mostly from West Asia – which is the second largest foreign exchange earner for the country, after the apparel sector.

However, the pandemic has hit global remittances, and according to the Bangladesh Bank, the country’s central bank , remittances will drop by 25% this year to $14 billion, affecting millions of households in the country. But experts have pointed out that it will be the rural people who will be most badly affected.

In 2019, more than 10 million migrant workers sent home $18 billion, accounting for 7% of Bangladesh’s GDP.

According to Rihan, the cash crunch from both internal and external remittances due to strong growth in agricultural production has not only led to poverty reduction, but has also helped create demand in the rural non-farm economy. But more importantly, migration to factories has created labor shortages in rural areas, creating pressure on wages in the crop sector, which dominates the country’s staple diet, paddy.

“Ultimately this prompted a shift from the crop sector to the [high value] non-crop sector such as poultry, vegetables, livestock and fisheries,” Rahan said. As of 2019, the country was the fifth and fourth largest producer of vegetables and inland fisheries respectively.

Even though agriculture accounts for only 14% of Bangladesh’s economic output, it accounts for over 40% of the total workforce. According to a World Bank report, according to a pattern in generally changing economies around the world, “Bangladesh’s share of agriculture in total employment has fallen sharply from the share of agriculture in GDP” compared to most other developing countries. Used to be”.

Over the past five years, Bangladesh’s annual per capita has grown by 9.1% on a year-on-year basis, while India has grown by only 3.1%. During this period, export growth in India has stalled, while Bangladesh has grown. While agriculture in India has been under stress since 2012, many have said it has worsened under the Modi government: it has kept farm prices too inflation-targeted with a lot of focus, leading to a drop in farm gate prices. which had a knock-on effect on the rural economy; And in 2016, enduring tensions arose in the region.

In 2019, according to the National Crime Records Bureau, 10,281 farmers and agricultural workers died by suicide in India.

Although Bangladesh’s agriculture sector is also facing issues such as land degradation due to climate change, adequate credit support to farmers and unfair producer pricing, Alam of Bangladesh Planning Commission says that agricultural wages are increasing continuously and There is a seasonal shortage of agricultural labor, especially in the crop sector. “I think that’s a good sign.”


India will take a long time to recover

The IMF, in its report, said the Indian economy has contracted more than 10% this year, the worst slide among emerging economies, because of the nature and size of India’s fiscal stimulus, it said, adding that this liquidity infusion The real fiscal expenditure is more than 2% of GDP.

Since then, there has been a clamor for another round of strong fiscal stimulus but the government has left no sign that it is working for one.

“It is not often around the world that the most conservative entities—be it the IMF or the Financial Times or The Economist —make a plea for more government spending. “With a separate political controversy, the long-lasting economic setbacks of economic policy due to the pandemic could have been addressed,” said Ritika Khera, associate professor of economics at the Indian Institute of Technology (IIT) Delhi.

Khera says, the government was completely shut down (lockdown) very quickly. “This was a disastrous move as a substantial proportion of Indian workers are casual workers or self-employed. This group’s earnings evaporated overnight. More than simply borrowing, had to look for ways to put the money back in their hands. “

Josh Feldman, a senior economist and director of JH Consulting, said the Indian economy will take a long time to recover.

“If you shut down the economy and tell all businesses to stop and keep people at home, you will suppress economic activity. And once you allow businesses to open and people go back to work, the economy will improve. it’s clear. It is not clear that in the meantime you have done much damage to the economy,” Feldman told The Telegraph.

“It may take years for India to fully recover from this.”

Bangladesh Vision 2021

“You can ask me ‘What’s the plan, how did we do it? Alam said, referring to Bangladesh’s impressive track record on social indicators and strong economic growth. He said one of the first things Sheikh Hasina did after coming to power was to draft an economic vision for the future. It was called Vision 2021.

Alam said that for the first time in the history of the nation, the government had announced a vision for economic progress. “I was hired by his government and made responsible for the preparation and drafting of the next two five-year plans. Later, we also did a mid-term evaluation of these schemes to make some improvements. “

Alam pointed out with astonishment that when India abandoned the Five Year Plans, they were emphasizing it more. He said that over time, political discourse in Bangladesh has become rife with economic growth to such an extent that it has become a political issue.

In recent years, the country has been plagued by issues such as Islamic fundamentalism, political corruption and bureaucratic red tape that can arrest its plans for economic development, but the worst is that these are issues the government is dealing with.

“There are no internal conflicts or even prolonged external conflicts in our country. For example, India has to focus on issues like Kashmir and external threats from Pakistan and China, so there is little time to focus on development. So your national issues are not fully linked with economic development,” Alam said.

IIT Delhi’s Khera agrees that India lacks a long-term economic vision.

Alam, and the next challenge for Bangladesh is a daunting one. “We want to prepare for the losses during the pandemic as quickly as possible and then move toward the goal of becoming an upper middle-income country by 2031.”

Selim Ryan of Dhaka University says it’s not an easy task—”these economic goals are very difficult”—but Alam says that even though it is a challenging goal, his government’s commitment and intention to make it happen.

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