06 Nov 2020 20:29 IST

Booming Bangladesh puts India on backfoot

The country has emerged as an economic powerhouse in South Asia in recent times

When the Covid-19 pandemic broke out, it exposed the fragility of the global supply chains and their vulnerability in relying on China. As a result governments world over started giving incentives to businesses to move their manufacturing units out of China.

India made an earnest pitch, too, to attract investments and position itself as an alternative to China. Some State governments too took the lead and the Chief Minister of Tamil Nadu, Edappadi Palaniswami, even took the trouble of writing to the heads of several multinational companies showcasing Tamil Nadu’s congenial business atmosphere.

Though the numbers haven’t been crunched, anecdotal evidence so far points to Vietnam and Bangladesh being the preferred destinations for businesses wanting to relocate from China. That Bangladesh was preferred over India has led to a lot of hand wringing among the policy circles in the country. But this wouldn’t come as a surprise for analysts who have been observing Bangladesh’s quiet strides — first in social and human development — then in economic growth in recent years.

The IMF in its recent report said that India’s GDP growth is likely to contract by 10.3-10.6 per cent this fiscal while Bangladesh is likely to post a growth of 4 per cent. According to IMF’s assessment, Bangladesh’s per capita GDP at $1,888 is expected to surpass India’s $1,877. Though some economists, most notably former Chief Economic Advisor Arvind Subramanian, have advised against reading too much into these numbers, the trend is still revealing and depressing from the Indian point of view.

Export powerhouse

In fact, today Bangladesh has become an export powerhouse and a major player in the global textiles and garment sector. Bangladesh seems to have emulated the East Asian labour-intensive export growth model much better than India. India’s industrial development has had a unique trajectory since independence.

Rathin Roy, former member of the PM’s Economic Advisory Council, said in a recent talk, that soon after Independence the Nehru government and the planners in the country wanted to radically transform the industrial structure of the country. The consensus, both among the political class and among the dominant section of the economists, was to create an industrial and economic structure that would safeguard the hard-won independence.

Which is why, Roy says, that India despite being a labour abundant country, invested in capital-intensive, heavy industry such as iron and steel, chemicals, cement and so on. Safeguarding the country’s economic sovereignty was seen as prime importance. As Roy says, India was making investments in areas that were “above its pay grade”.

Interestingly, according to Roy, the word poverty entered the economic lexicon only in 1969.

East Asian model

Also, columnist Andy Mukherjee said in his recent column that Bangladesh is reaping the benefits of having followed the China-East-Asian model of export-led growth. So emulating the ‘East Asian Tiger’ model has stood Bangladesh in good stead.

Things for India, however, did change after 1991, and exports did grow at a fast clip. Indian exports in the post-1991 period did notch up impressive growth and according to a study by Arvind Subramanian and Shoumitro Chatterjee, Indian exports, between 1995 and 2018, grew at an annual average rate of 13.4 per cent, which is “not far behind China’s growth of over 15 per cent”.

But the crucial difference between India and Bangladesh, Vietnam and the “East Asian Tigers” was the composition of exports. Bangladesh and Vietnam focused on creating low-cost, labour-intensive manufacturing units — mostly in the textiles and shoes sectors. These units not only created jobs and increased labour participation of women in these countries but also earned valuable foreign exchange and raised living standards.

Mukherjee cheekily remarks in his column that India must first beat Bangladesh before taking on the economic might of China.

It is the unique structure of industrial development that India has pursued since Independence, which focused on heavy industry instead of labour-intensive manufacturing, has prevented people from migrating from the agriculture sector to better paying manufacturing jobs. Though the share of agriculture in the country’s GDP has shrunk massively, the number of people still working in this sector remains stubbornly high.

Make in India

The UPA government’s National Manufacturing Policy as well as the present Modi government’s ‘Make in India’ policy aims to increase the share of manufacturing from 16 per cent to 25 per cent in the total GDP. But the results so far have, at best, been mixed.

 

 

 

 

 

In terms of most social indices too — health, education and nutrition — Bangladesh scores better than India. Even from the gender point of view, Bangladesh seems to be outscoring India as women there enjoy better health, mortality and education status. There is also greater women’s labour participation in Bangladesh than in India.

In the recently released Global Hunger Index, India has been ranked at 107, while Bangladesh is much ahead at 75. Bangladesh has for long been derided as a country which exports poor immigrants into India. Its recent ascent should lead to a moment of quiet reflection in India.

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