What IMF data say about per capita GDP of India and Bangladesh

World Economic Outlook

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World Economic Outlook
World Economic Outlook

In News:

  • According to the IMF’s World Economic Outlook 2020 report, India will fall below Bangladesh in terms of per capita gross domestic product in 2020.
  • The IMF has projected the Indian economy to contract by 10.3% in 2020-21 and the global growth is projected to contract by 4.4 per cent.
  • India’s per capita GDP is expected to fall to $1,877 in 2020 from $2100 in 2019, a decline of 10.3 per cent.
  • However, per capita GDP of Bangladesh is projected to rise from $1,820 in 2019 to $1,890 in 2020, a rise of 4 per cent.
  • The last time Bangladesh’s per capita GDP was more than India’s per capita GDP was in the year 1991. At that point, India was undergoing a severe crisis and its GDP grew just above 1%.
Background:
  • Generally, countries are compared on the basis of GDP growth rate, or on absolute GDP (actual GDP numbers). Predominantly, India’s economy has been better than Bangladesh’s economy on both these parameters.
  • India’s economy has mostly been over 10 times the size of Bangladesh, and grown faster every year.
  • Bangladesh’s per capita GDP was only half of India’s per capita GDP in 2007 and was around 70% of India’s per capita GDP in 2014. However, this gap has closed quickly in the last few years.
  • Per capita GDP includes the overall population — and is calculated by dividing the total GDP by the total population.

Factors reducing the gap in per capita GDP:

  • Bangladesh’s GDP has been growing significantly since 2004. At the same time India has also been growing significantly between 2004 and 2016.
  • However, since 2017 India’s growth rate has reduced sharply while Bangladesh’s growth rate has become even faster.
  • Further, over the same 15-year period (2004-2016), India’s population grew faster (around 21%) than Bangladesh’s population (just under 18%).
  • The combined effect of the above two factors led to a significant reduction in the gap even before Covid-19.
  • The most recent 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 GDP is expected to grow by almost 4%. In other words, while India is one of the worst affected economies, Bangladesh is one of the strong performers.

Factors boosting Bangladesh’s growth:

  • A key contributor to Bangladesh’s growth is its garment industry where women workers have helped Bangladesh to grow in the global export markets.
  • Further, the structure of Bangladesh’s economy is such that its GDP is led by the industrial sector, followed by the services sector. Both these sectors create a lot of jobs and pay more than agriculture.
  • India, on the other hand, has struggled to boost its industrial sector and has a lot of people who are still dependent on agriculture.

Comparison between India and Bangladesh on other parameters:

  • A big reason for Bangladesh’s faster growth rate is that, it improved on several social and political parameters such as health, sanitation, financial inclusion, and women’s political representation.
  • For instance, despite a lower proportion of its population having access to basic sanitation, the death rate due to unsafe water and sanitation in Bangladesh is much lower than in India.
  • Bangladesh is far ahead of India in the latest gender parity rankings. Out of 154 countries, Bangladesh is in the top 50, while India is at 112. Moreover, India is behind Bangladesh on the Global Hunger Index as well.
  • However, Bangladesh’s level of poverty is still much higher than India’s poverty levels. In fact, according to the World Bank, poverty is expected to increase substantially in the short term.
  • Further, Bangladesh is still behind India in basic education parameters, due to which it has a lower rank in the Human Development Index.
Future Trends:
  • India’s per capita GDP is expected to overtake Bangladesh’s per capita GDP in 2021. For 2021, IMF’s projections for India and Bangladesh are $2030 and $1990, respectively.
  • However, the trend is not expected to sustain for long, as Bangladesh is projected to match India’s per capita GDP in 2024 at $2540.
  • Later in 2025, Bangladesh will again overtake India’s per capita GDP at $2756 against $2730 for India.
  • If IMF’s forecast come true, India’s GDP will only be ahead of Pakistan and Nepal in the region. It means others in South Asia — Bhutan, Sri Lanka, Maldives and Bangladesh — will be ahead of India.

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