 "indian economy")
Projection-wise India may have regained in 2021-22 its lead over Bangladesh in per capita income after Dhaka beat New Delhi on this parameter in recent years, showed the latest data by the International Monetary Fund (IMF).
But staying ahead would be short-lived. India is not likely to retain this position in each of the next six years beginning 2022-23, the data revealed.
While Bangladesh had a higher per capita income of $1,962 in 2020-21 against India’s $1,935, the situation is projected to change in 2021-22. That year, India’s per capita income is projected to be higher by $38 over Bangladesh’s.
The data is based on gross domestic product per capita at current prices expressed in dollars at market exchange rates.
However, this is not likely to sustain in any of the next six years. India is likely to lose to Bangladesh by over $200 in 2027-28, according to projections made by the IMF.
“We should be happy Bangladesh is doing well,” former chief statistician Pronab Sen said. “Bangladesh was the poor part of Pakistan (until 1971). Now, Bangladesh’s per capita income is around 37 per cent higher than Pakistan’s.”
India Ratings Chief Economist Devendra Pant said Bangladesh’s performance reminded him of new industrialised economies of the 1980s and 1990s such as Taiwan, which took advantage of global demand and drove their economies through export.
“Bangladesh is doing it through higher exports of textiles. Textiles are a labour-intensive industry. You are able to provide employment to a large number of people and because of that your domestic demand is increasing and so are your global supplies,” he said.
Textiles play a major part in the Bangladesh economy, but it is not only textiles. Bangladesh is a well-diversified economy, said Sen. Textiles’ contribution to GDP hovers around 20 per cent there, but textile exports account for over 80 per cent of the merchandise outbound shipments from the country.
Purchasing power parity: One may argue that per capita income calculation by the IMF on the basis of market exchange rates is guided by the movements of national currencies against the dollar.
For instance, Bangladesh’s currency, taka, was shown to appreciate from 85.6 during 2021-22 to 84.1 the next year, while the Indian rupee was shown to depreciate from Rs 74.1 to Rs 77.8 during the same period.
To address this issue, the IMF gave data on a purchasing power parity (PPP) basis.
PPP takes into account the cost of living in a country while converting a currency into dollars. On this basis, India’s per capita income has been and is likely to be always higher than Bangladesh’s by a wide margin.
The PPP value of the taka against one dollar was taken as 31.49 during 2020-21, which appreciated to 30.91 in 2021-22. The Indian rupee was Rs 22 against the dollar during 2020-21 and it depreciated to 23.1 during 2021-22.
Sen said PPP was a better measure because it took into account both the exchange rate and the cost of living.
However, there is a catch.
“The PPP you are getting for Bangladesh is pretty much applicable to all the country rpt country because it is more homogeneous than India. The PPP that you are getting for India is thoroughly biased because the IMF uses data essentially for Mumbai and Delhi. It is not representative of prices in the country on average,” Sen said.
Sen further said in terms of per capita income Bangladesh was a much more homogeneous country than India.
“Parts of India are comparable to Europe and some parts are comparable to sub-saharan Africa. Bangladesh does not have that kind of heterogeneity. Bangladesh’s distribution of income is just as bad as India’s, maybe marginally worse than India’s, but regional disparities are much less in terms of per capita income,” he said.
The data on Sri Lanka triggers doubts on the reliability of figures: The IMF data shows that per capita income in Sri Lanka has been way ahead of India and is also likely to be so for the next six years on both the nominal exchange rate and PPP basis.
India’s per capita income was just $1,935 during 2020-21, that of Sri Lanka $3,681 in 2020. The gap narrowed in the following year, but it was still higher by 71 per cent. The gap is further projected to shrink but it would still remain elevated at 41 per cent during 2027-28. The story is more or less the same on a PPP basis too.
Sources said the IMF’s World Economic Outlook had not captured the “lag effect” of the economic mess in the country and may do so in the next outlook.
