Gross domestic pain on rise of Bangladesh
There was a time when mothers across India told children to eat up all on the plate with a terse ‘don’t waste food, people in Bangladesh are starving’. Even though two- thirds of Indians were not born when the sentiments were expressed, the image of Bangladesh as a poor neighbour has persisted, thanks to the electorally efficient usage of the effigy called ‘Bangladeshi influx’.
Given the poll setting, the lament about Bangladesh overtaking India on per capita income — $ 1,888 vs $ 1,877 — is unsurprising. The bump up for Bangladesh is explained by deploying traditional theories of the Cobb-Douglas kind and/or plain arithmetic facts, that incomes in Bangladesh have risen as the growth in its population has declined over the past decade. The phenomenon in itself is transitory. Indeed, as per International Monetary Fund (IMF), India would overtake Bangladesh by next year. Even so, there is no denying that the episode has touched a raw nerve among aspiring Indians.
What is surprising is the level of contextual amnesia about the history of the India Story. Bangladesh is scarcely the first country cousin in the developing world to overtake India in per capita income. In the sixties, Korean officials visited India to know how we made steel. In 1960, as per the World Bank data, India’s per capita income was $82 and that of South Korea roughly twice at $158. By 1980, Korea’s per capita income was six times that of India — and at over $ 30,000 is 15 times in 2020. Thailand, which had a per capita income of $101 in 1960, now boasts of a per capita income of $7,300.
Consider Indonesia which has often been projected as the ‘I’ which could replace India in the BRICS group. In 1966, Indira Gandhi ascended to power in India and Suharto a year later in Indonesia. Both were strong, even authoritarian leaders. In 1970, Indonesia had a per capita income of roughly $80 and India was at $112. Half a century later, Indonesia boasts of a per capita income which is twice that of India at over $4,000. Take the case of war-ravaged Vietnam. Its per capita income in 1990 was less than a third of India at $95. In 2020, it boasts of a per capita income of $3,500.
A parade of poor policy choices through the decades, ranging from the persistence with state-led industrialisation to subscription to import substitution, stalled India’s growth. If India had accepted the focus on competitive advantages listed by Sir Arthur Lewis, it would have been the steel maker of the world, an idea T T Krishnamachari had campaigned for. It could have been the hardware hub of the world if the Homi Bhabha Report of 1964 had not been buried under bureaucratic babel.
You could argue India suffered low growth in its first four decades, primarily due to the adoption of the ‘government knows best’ model of economic planning. Equally, India struggled to adapt and adopt pro-growth policies even after liberalisation. The China-India comparison has been narrated by this column often but bears repetition. In 1991, China’s per capita income was at $333 and that of India was $303. Both countries were in the throes of opening up their economies. Nearly three decades later, in 2020, China’s per capita income is five times that of India.
Arguably, China is the exception to the general theory of economic growth - propelled by the use of scale and complex financial matrix of costs and pricing. What about the Asian Tigers? Their exceptional growth stems from success in catalysing the factors of productivity to achieve global competitiveness and market share. South Korea leveraged technology, Thailand low-cost labour and Vietnam wooed investors from both capital intensive and labour intensive sectors to house production.
India was one of the leaders in the field of textiles and garments - the sector employed over 25 million directly and indirectly - with backward and forward linkages.
At the beginning of the new millennium, the multi-fibre quota-based agreement was recast, opening it up. The opportunities and implications for India were enunciated in a number of studies, but it balked at making the necessary enabling changes. Bangladesh opened up to investments and eased conditions to capitalise on low labour costs. Such was the lure that many of the Indian star exporters shifted base to Bangladesh. By 2007, its exports in the sector were higher than India and continues to be so.
The gross domestic pain is less about the rise of Bangladesh and more about the inadequacies holding India back. India’s economic growth is stalled by the politics of convenient conviction which affords parties to promote pro-growth policies when in power and railroad the very same when in opposition. As a result, meaningful generation next reforms arrive a generation later - whether it is the opening up of telecom, insurance, retail and, most recently, agri markets.
What distinguishes the successful is exceptional focus on catalysing policies to capitalise on opportunities. As the Bard said, “Who seeks, and will not take when once ‘tis offered, shall never find it more.” At the core of the per capita grief is an aspiration for a national consensus on economic growth, recognition of prosperity as the nucleus of national pride and security.