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The interim government that has assumed control after Prime Minister Hasina’s departure needs to unite various political parties and state bodies, revitalise the economy, and most importantly – restore public trust.
Review of the economy chapters in ‘Fifty years of Bangladesh: Economy, Politics, Society and Culture’, edited by Rounaq Jahan and Rehman Sobhan (Rutledge Press, 2024).
When I used to work for the World Bank, many newcomers at the Dhaka office, usually from the headquarters, would ask for reference books to read up on Bangladesh. They would look for a publication covering the body of research on social science, which I often struggled to find even though there are many brilliant writings on the subject by some of the most eminent social scientists, Bangladeshis and non-Bangladeshis alike.
The recently published Fifty Years of Bangladesh: Economy, Politics, Society and Culture, edited by Professors Rounaq Jahan and Rehman Sobhan, is exactly the intellectual feed needed not only by those seeking to dive deep into Bangladesh’s socio-economic landscape, but also by those who already know it but want contemporary perspectives on how the nation evolved in its 50 years since inception.
The book embodies 50 years of learning. Read it folder to folder to acquire confidence and competence in explaining the story of Bangladesh. It ought to be in the core reading list of any course on Bangladesh studies.
This review covers the narrative on Bangladesh’s economic development gleaned from the seven chapters of the book on the economy. A headline lesson from the book that I found salient is—using Barack Obama’s 2008 election slogan—”Yes, we can.” However, there is a subtext that can be added as a suffix to Obama’s slogan: both rise and slip.
Progress was engineered by a confluence of individual and collective efforts
The story of Bangladesh’s rise comes in numerous versions with a common denominator. The initial conditions were abysmal: post-independence disorder, natural calamities, famine, and widely shared pessimism nationally and internationally. The lay of the land looks remarkably different 50 years down the road.
The economy managed to increase real income per capita manifold to edge close to the big neighbour India, a nation born 24 years before Bangladesh. It reduced the incidence of poverty to a level that no reality grounded observer thought ever possible. Human development spread to impress Nobel Laureate Amartya Sen, who has spent his lifetime researching it. Industry and trade transformed to the extent that starting an essay on the Bangladesh economy with the sentence “Bangladesh is an agrarian economy” has become a nonstarter. Bangladesh’s development performance has gained global recognition through entry into the World Bank’s Low Middle Income Country classification from Low Income Country, as well as qualification of all three criteria for graduation from the LDC (Least Developed Countries) status.
What turned around?
Rizwanul Islam’s chapter “Fifty years of development experience of Bangladesh: An employment and labour perspective” draws attention to both the agricultural and industrial economies intensively utilising Bangladesh’s most abundant resource—labour. Such an expansion underpinned the movement of employment, labour productivity and (less often) real wage growth in the same direction over time. The rise of employment overseas beefed and spiced the expansion through its demand and labour market effects. “The economy of Bangladesh was able to reap growth dividend by utilising the surplus labour that was available in the country,” concludes Islam.
How did Bangladesh manage to get such textbook results?
Fifty Years of Bangladesh: Economy, Politics, Society and Culture
Edited by Rounaq Jahan, Rehman Sobhan
Routledge, 2023
Syed Akhter Mahmood’s chapter “Policy Actions, market responses and economic growth in Bangladesh” says incremental and synergetic innovations ignited change slowly, but surely. Reforms in the agricultural input market, rural infrastructure and electricity (1980s), and trade, investment and finance (1990 onwards) came together to spark innovations whose impacts were easy to scale because of high population density. These innovations accelerated in numerous domains such as farming practices, irrigation, rural roads, garments, mobile phones, and financial services through “repeated playing out of synergies.” An incremental model of “testing-the-market” emerged, by design or default, to shape the course of policy actions. The chapter surmises that Bangladesh’s ascent “is neither a paradox nor a miracle, rather the result of an entrepreneurial spirit” in markets and public policy.
What tipped these spirits?
Aspirations and contestability, says Hossain Zillur Rahman’s chapter “Democratising the ‘Middle-Income’ dream.” Aspirations were “engendered by the war of liberation in 1971 and subsequent attainment of Independence on the psyche of the common citizen.” These aspirations transcended social and economic boundaries. An agile private sector in agriculture, garments, SMEs, banking, trade, telecommunication, migration, and media blossomed. They comprised many levels, ranging from the “bottom of the pyramid” to the “headline hugging.” A “contingent coalition of development entrepreneurship” around disaster management, poverty reduction, MDGs, rural extension, female empowerment, and social protection galvanised collective action for collective goals almost in parallel. Political contestability at the national and local level “ensured a degree of political renewal that arguably has been the primary source of accountability in a system where formal accountability processes are yet to prove their worth.”
A dualistic development process that left many behind and mortgaged the future
The rise is one side of the coin. MM Akash’s chapter “Inequality and human development” locates the elephant at the centre of the other side: the unfulfilled constitutional promise to ensure equal opportunities for all. Economic inequalities have risen at all levels, notwithstanding significant reduction in the headcount ratios below what Akash metaphorically describes as “livestock” poverty lines. Contrasting movements in absolute poverty and inequality indicate limited room for moving up after mounting the initial rungs in the economic ladder.
Rizwanul Islam, in his chapter, notes the broken linkage between labour productivity growth and real wage growth. Poor pay, subsistence living, disregard for basic safety and lives of workers have persisted despite rapid industrial growth.
MM Akash explains: “…due to the unequal bargaining power of workers in relation to their employers their share in the benefits of growth has tended to decline. Imbalance in bargaining power has been tilted in favour of the owners due to the repressive labour policies of successive governments in Bangladesh.” Labour market surveys and GDP growth data covering recent years confirm that the broken labour productivity-real wage bandwagon has seen no repairs. Shared prosperity has morphed into shared illusion.
Inequality is compounded by mortgaging the future. Iftikhar Iqbal’s chapter “Bangladesh between world system and green growth” is a call to smell the coffee for those slumbering in the yachts of “overfishing.” Our natural capital base is diminishing rapidly with a breakdown of the natural processes of soil nutrient regeneration, biodiversity loss, coastal and riverbank erosion, ground and surface water depletion, and air pollution. Environmentally induced vulnerabilities precipitate outmigration, leading to disruption in livelihoods and disorderly urbanisation.
Climate change “seems to have surpassed or encompassed all other environmental policy issues in Bangladesh,” laments Iqbal. For instance, “waterlogging due to illegal canal fillings is conveniently projected as an index of climate change.”
We are hubristically living through our ecological implosion. How can you not be fretful when you learn: “In the last five decades of independent Bangladesh, ecological injustice in the form of displacing poor populations from access to resources has surpassed both the colonial and Pakistan experience?” We risk leaving the future generations high and dry, quite literally.
The mutation of the Bangladesh paradox
Understanding these mega slips is possible only through understanding how the rules of the game have played out in society. You cannot fathom deep seated intra and intergenerational inequality by disregarding the quality of institutions that define the choice architecture of individuals and organisations. Selim Raihan digs this out in his chapter, titled “Institutional Challenges in Bangladesh’s economic transformations.”
Bangladesh’s institutions, as measured by the country’s global ranking on democracy, rule of law, business environment, land management and human rights, have consistently been in the lowest quintile. Modernisation theories stressing reverse causation from development to political institutions in particular do not seem to pass the Bangladesh test. Improvements in social and economic outcomes have not propelled institutional development. “Bangladesh has been successful in creating some efficient pockets of ‘growth-enhancing’ informal institutions, against an overall distressing picture as regards its formal institutions,” Selim Raihan figures.
There is no Bangladeshi exceptionalism in development. Selim Raihan provides econometric evidence showing Bangladesh is no outlier. It “represents rather a typical country in the cross-country regressions of the institutions and per capita GDP.” The “Bangladesh paradox” has mutated. The question is not how Bangladesh progressed with weak institutions, but why institutions failed to keep up with economic transformation leaving a vast majority behind, and the environment devoured.
Is the present ready for the future?
Mustafizur Rahman’s chapter “Bangladesh in dual transition” flags the trade and financing turbulence in the middle income lane. Several Asian and Latin American giants have struggled to keep up the development momentum with arguably more functional institutions. Bangladesh is showing omens of sleepwalking into the Middle Income Trap.
The aftermath of LDC graduation is a known unknown. Mustafizur Rahman highlights the gaps in social and physical infrastructure, technological upgradation, export diversification and so on. A reset of International Support Measures and the World Trade Organisation’s Special and Differential Treatment, higher interest rates, and tighter financing terms are in the offing. The unknown part comes from very limited prior relevant knowledge on post-graduation experiences of Botswana, Maldives, Bhutan, Cape Verde, Samoa, Equatorial Guinea, and Vanuatu. Based on population and GDP size, Bangladesh is in fact the first “large” country test case of LDC graduation.
Is Bangladesh’s prevailing political-economic nexus compatible with renewing the processes of innovations and investments to mitigate the risks? The current state of play does not inspire hope. Mustafizur Rahman cautions, “Bangladesh’s political economy stimulus, generated in the 1990s, following the decade-long rule by the military may have already run its course.” Oligarchic powers are deeply entrenched in the political and economic domains (à la Selim Raihan) seeking legitimacy through a “narrowly elitist, self-serving framing of ‘middle-income'” (à la Hossain Zillur Rahman).
Free riding on the “cost of development” is rampant (a la Iftikhar Iqbal). The association between destruction (cost) and creation (development) is rarely automatic, symmetric or inevitable. Public policies do not internalise externalities, as is evident from the indiscriminate annihilation of our natural capital, the floras and the faunas. The question of who pays the cost for whose development is central to socially guard-railing creative destruction.
Investment in access to political power buys handsome profit and (survival) insurance. The evolution of these processes provide no assurance that this privileged stratum will extend to embrace the whole population by gradual expansion. Even faced with secular underinvestment, privileged elites are reluctant to relinquish their power fearing it would undermine their ability to extract rents from the rest of society. They are happier with a larger slice of even a smaller aggregate pie.
Hossain Zillur Rahman spots a new normal of two interlocked opposites—uncertainty and stability. He conjectures the nature of political governance maintaining stability could itself be fuelling uncertainty. Perhaps so. Alternatively, management by, rather than of, uncertainty may be a dominant strategy because uncertainty is handy in politicking. Be that as it may, which way Bangladesh turns from the current juncture will depend on the interplay between economics and politics, with politics leading the charge for better or worse.
Dr Zahid Hussain is former lead economist of the World Bank’s Dhaka office.
This article was originally published on The Daily Star.
With the enduring absence of a credible opposition party, a free press and an independent judiciary, prospects of economic recovery from further shocks look grim.
Some had hoped Bangladesh would be Asia’s next tiger economy. Instead, it may be heading for a deep economic crisis, reversing years of gains.
Bangladesh, one of Asia’s most promising cases of growth under democracy, will head to the polls on January 7.
The country has become a test case for electoral democracy, with the election marked by descriptions of being “staged” and a “farce” even before the actual voting begins.
With tens of thousands of opposition leaders and activists arrested in a crackdown ahead of the election, Sheikh Hasina – leader of the Awami League political party – is all set to serve as Bangladesh’s Prime Minister for the fourth consecutive time.
Bangladesh already has a long legacy of election controversies.
Two consecutive rigged national elections since 2014 have been sustained by a hidden alliance of power elites that cuts across all key institutions – civil and military bureaucracy as well as the judiciary and business elites.
Each of these key power groups has become highly partisan and stands to benefit from political continuity.
In the aftermath of the last election in 2018, the Bangladesh Nationalist Party waited out Sheikh Hasina’s new government, hoping they would bring about their own downfall as cronies crippled financial and other market-enabling institutions, pushing the economy on the edge.
Despite decades of sustained GDP growth and improvements in social indicators, Bangladesh’s economy is now on a fragile footing.
The incumbent government faces a moderate risk of running out of reserves.
A series of negotiated loans from international financial institutions such as the World Bank, International Monetary Fund, and the Asian Development Bank recently helped avoid a Sri Lanka-like fate. Despite those multilateral concessional loans, Bangladesh’s financial crisis is not over; the structural fault lines remain clear.
The International Monetary Fund has expressed concerns over risks of capital flight. In September 2023, the US government also intensified external pressure by issuing a visa embargo on those engaged in suppressing opposition and labour leaders.
Further foreign sanctions could lead to costly fallouts. In 2013, the US government punished Bangladesh for its failure to protect worker rights by leaving it out of the generalised system of preference list of countries.
This subsequently hurt Bangladesh’s export diversification efforts. That legacy remains: Bangladesh’s sole reliance on readymade garments exports leaves it extremely vulnerable to external shocks.
The gravity of new sanctions must not be ignored – especially considering that Bangladesh’s economy is at a crossroads.
As the country is set to graduate out of Least Developed Country status, it will lose the duty-free benefits under preferential tariffs.
At the same time, it has to phase out the existing export subsidies for readymade garment factory owners while reducing protection afforded to import-substituting businesses.
The latter is owing to unusually high nominal tariffs on the import of raw materials. This means a potential double negative shock to export earnings and import duty revenue.
With every branch of the government already deeply politicised and led by individuals loyal to the prime minister, there is little political accountability left. Another sham election will further weaken bureaucracy, judiciary and financial institutions. All these also will mean reduced state capacity.
On the domestic front, the unholy alliance with oligarchs will further constrain the government’s ability to implement tariff and subsidy reform as well as restore fiscal discipline.
As the repayment schedule for many of the costly loans to finance controversial mega projects begins, the tax-to-GDP ratio will need to increase while local banks need to recover bad loans. Fighting tax evasion and bringing loan defaulters to book will only become harder.
On the external front, the risk of external debt distress remains low given the high share of concessional loans. Yet prominent Bangladeshi think tank Centre for Policy Dialogue warns that Bangladesh’s external debt situation may soon slip into the yellow zone in 2024-2025.
According to one projection, the debt-to-GDP ratio will cross the 100% mark in 2024. By lowering export receipts, a trade sanction may further add to popular concerns over debt sustainability.
Other related risks involve increase in speculative behaviour by foreign traders in anticipation of further depreciation of Bangladeshi currency. This may worsen the ongoing dollar crisis.
Ultimately, another election without choice in Bangladesh is likely to come at a hefty cost. What some had hoped would be Asia’s next tiger economy may be soon heading for a deeper economic crisis, reversing years of gains.
After 15 years of continuous rule by Awami League, Bangladesh’s culture of election engineering has coincided with cronyism and institutionalised corruption.
Most worryingly, this has polarised Bangladeshi society and weakened all key institutions including the parliament.
With the enduring absence of a credible opposition party, a free press and an independent judiciary, prospects of economic recovery from further shocks look grim as critical reforms will become increasingly challenging.
It will be something of a miracle if Bangladesh’s economy continues to thrive within a democratic autocracy without experiencing a major social and economic collapse by 2025.
M Niaz Asadullah is a Professor of Development Economics at Monash University Malaysia and Global Labour Organization Southeast Asia Lead.
Originally published under Creative Commons by 360info™.
Despite facing many challenges at the time of independence, the political leaders and economic managers of Bangladesh had started to think about long-term development imperatives.
There is an interesting anecdote about Bangladesh’s first prime minister, Sheikh Mujibur Rahman. In the early days of independent Bangladesh, a foreign journalist asked Rahman what the country’s number one problem was. Without blinking his eye, the leader replied, “We actually have two number one problems: food shortage and huge population.”
This witty but profound response highlighted the need to work on several fronts at once. Even in the trying times just after independence, when much of their attention was on the urgent need for relief and rehabilitation, the political leaders and economic managers of Bangladesh had started to think about long-term development imperatives.
Bangladesh’s first decade, the 1970s, was largely a period of recovery from the dislocations of the 1971 War of Independence. Economic growth was poor and unstable. But the foundations of long-term growth were being laid. The results were soon evident. The economy started growing at a steady rate from the early 1980s onwards, and has accelerated in more recent years. During the COVID-19 pandemic, Bangladesh registered one of the most resilient growth performances in the world. According to the IMF, Bangladesh’s economy is expected to grow by 5.5% in the current fiscal year and by 6.5% in the next.
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Bangladesh’s remarkable economic transformation has attracted widespread attention. The many disadvantages the country faced at its birth have prompted many observers to call this transformation a paradox or even a miracle.
In this article, I argue that this is neither a paradox nor a miracle, but rather the result of an entrepreneurial spirit, and the creation of a space where such a spirit could be unleashed. Going beyond conventional narratives, the article offers a fresh interpretation of Bangladesh’s growth trajectory. It focuses on the interplay of markets and policymaking, two important, yet under-appreciated drivers of Bangladesh’s unexpected success.
The relevance of this narrative goes beyond Bangladesh. It provides rich insights into the processes of economic growth in a natural-resource poor country, and the dynamics of policy formulation and evolution in a context of relatively poor governance.
As I mentioned at the outset, the priorities were set right at the beginning. First came the efforts to encourage the widespread adoption of high-yield varieties (HYV) of rice. Then came programmes to encourage family planning and the adoption of birth control. Agricultural extension workers, almost all men, and family planning workers, almost all women, crisscrossed the villages of Bangladesh to spread the messages. The compactness of the country and the density of its population helped. Since then, the power of the demonstration effect has repeatedly manifested in Bangladesh.
Entrepreneurial spirit
At the heart of Bangladesh’s remarkable growth is entrepreneurship. Bengalis were long known for their interest in poetry, music, and culture. They also had a reputation for being resilient. Post-independence Bangladesh has shown that they can be entrepreneurial too. An entrepreneurial spirit has been unleashed across the board in the country, from small rice farmers diversifying into other crops to large conglomerates with interests as varied as IT and steel, from rural non-farm activities selling products in nearby villages to garment manufacturers operating in the global marketplace.
The latent entrepreneurial resources were harnessed in a succession of waves following the country’s independence in 1971. One set of activities led to another. The first driver was growth in rice production, aided by an extensive supply of irrigation facilities and fertiliser. By 1991, rice production was 80% higher than in 1972; now it is three and a half times higher.
As rural incomes grew due to increased rice production, demand increased for a variety of agricultural products. Enterprising farmers responded by going into the production of vegetables, potatoes, fruits, dairy and fish. This helped diversify agricultural production and put the rural economy on a strong footing.
A rice field in Bangladesh. Representative image. Photo: Sam Cavanagh/Flickr, CC BY NC 2.0
Meanwhile, a new class of traders emerged in the rural areas, engaged in selling or renting irrigation equipment and distributing fertiliser. As mechanisation increased in agriculture, initially in the form of mechanised irrigation and then expanding into other types of equipment, a domestic manufacturing industry developed to make some of this equipment and their spare parts. Moreover, as farmers diversified beyond rice into other crops, as well as fisheries and poultry, a value chain developed around these activities. New players entered the scene. These included owners of cold storages for potato, and hatcheries for aquaculture.
As rural incomes increased due to a confluence of factors – agricultural growth, remittance inflows, and wage earnings of rural women employed in the garment industry – a vibrant rural non-farm sector emerged. The significant expansion in the rural road network starting from the late 1980s also helped. By the late 1990s, the notion of subsistence-oriented, isolated Bangladeshi villages had given way to that of market-oriented rural settlements, well connected to the rest of the country, and increasingly to distant lands.
In recent years, the rapid spread of mobile telephony and mobile financial services has added dramatic, new dimensions to this phenomenon. Mobile cellular subscriptions rose from 0.15 million in 2000 to 166 million in 2020, while mobile financial transactions, introduced in 2011, rose almost nine times, in Taka value terms, between 2013 and 2020. Today, farmers in a remote village in Bangladesh can use their mobile phones to monitor prices in Karwan Bazar, a major wholesale market in Dhaka. And if they do decide to supply this market, they can expect to be paid swiftly through one of the mobile finance providers.
As the rural economy was becoming vibrant, things were also brewing in urban Bangladesh. The role of remittances and garment exports, two factors linked to the global economy, is well recognised in the literature on Bangladesh’s growth experience. What is lost in such narratives is the role of the domestic economy, also an important arena for Bangladeshi entrepreneurs.
Independence led to an exodus of non-Bengali businessmen who had dominated the business scene in pre-independence Bangladesh. This created opportunities for Bangladeshis, but with the sweeping nationalisation of industry in 1972, these were limited in the manufacturing sector. The political and economic uncertainty of the time also discouraged long-term investment in industrial activities, even on a small scale. Entrepreneurial energies were thus directed towards trading, including importing, where much money was to be made by those privileged to receive import licenses. Money was also to be made by distributing products made by public sector enterprises. The origins of some of the large conglomerates of Bangladesh can be traced to such business ventures of the 1970s.
Over time, the substantial growth in consumer demand resulting from a rising middle class has generated a paradigm shift in entrepreneurial ambitions. The large size of the economy (Bangladesh currently is among the top 40 economies of the world in terms of GDP size) is allowing enterprises to exploit economies of scale and compete with imported goods. After serving the domestic market for many years, some are now thinking of going global. An example is the large firms in the pharmaceutical industry.
The story of Bangladesh’s growth is thus a story of linkages – across sectors, between small and large companies, and between rural and urban enterprises – interlinkages that have helped create a dynamic enterprise sector.
Government’s role
But all this would not have happened without the helping hand of government, which conventional narratives on Bangladesh tend to downplay. In some writings, government is the villain – the impressive performance of Bangladesh is said to have happened “despite the government.” Those who do mention government say it helped development by staying out of the way, i.e., by granting NGOs the space to deliver social services, long considered the responsibility of government.
In fact, the government has been a major player in the development journey of Bangladesh. By ignoring this perspective, most narratives on Bangladesh have missed an opportunity to demonstrate how a government, weak in many respects, can nonetheless make strategic contributions to development over a prolonged period.
Government actions, including policies and public investment projects, helped create the space for the unleashing of an entrepreneurial spirit. While Bangladesh has had a few episodes of dramatic policy change and some cases of reversals, the latter mostly in the financial sector and in trade policy, the dominant approach has been experimental, incremental, and adaptive.
Representative image. Photo: mahmud.rassel/Flickr CC BY SA 2.0
Successive administrations have observed market developments and responded by undertaking appropriate policy actions and public investment programmes. They have done so cautiously by testing the market. When such incremental policy actions generated market response, demand was created for additional policy actions. The government responded to such demand with follow-on actions.
Policymaking has also been influenced by analysis and debates. From the very early days of its existence, Bangladesh has witnessed several important debates underpinning policy decisions. These debates have often been triggered and/or informed by economic analysis. Such analysis came from local economists, development partners such as the World Bank and IMF, and global think tanks such as the International Food Policy Research Institute. Political considerations, administrative feasibility, and views of other professionals have also shaped the debates.
Often the pace of government responses to market developments was slower than desired by market players and policy advocates. And yes, the government in Bangladesh does not score well on conventional indicators of transparency or effectiveness. Yet it managed to sustain such market-policy interactions for at least four decades, across several administrations and amid political turbulence. The cumulative effect of such incremental actions is reflected in the remarkable economic transformation of the country.
At the end of the day, it is often the tortoise that wins the race.
Does all this mean there aren’t any areas of concern? Of course not. There is no scope for complacency.
Rapid growth has created its own problems. Environmental degradation is common as is corruption. The banking sector suffers from a huge stock of non-performing loans. Some business houses have become powerful, not just economically but politically too. The rise of crony capitalism could be the single largest factor derailing Bangladesh from its remarkable growth trajectory. Meanwhile, the education sector has failed to produce the critical mass of skills required to sustain the growth of the past.
These issues need to be addressed. But to do that, one must first understand how Bangladesh came to where it is now.
The future is important. But so is history.
Syed Akhtar Mahmood is an economist, previously with an international development agency.
To delve deeper into the impact of market-oriented reforms on the economy, we undertake a comparative evaluation of India’s long-term macroeconomic performance and human development record, over the past four decades.
Former finance minister Manmohan Singh’s landmark budget speech made on July 24, 1991 had come amidst a serious balance of payments crisis and double-digit inflation engulfing the Indian economy that year. That single speech made 30 years ago, introduced a gamut of structural changes, along with short-term macroeconomic stabilisation, which completely changed the direction of economic policies and set a new trajectory for the following decades.
The marketist U-turn in India’s economic policymaking came against the backdrop of sweeping changes within the advanced economies, inaugurated by the Thatcher and Reagan regimes in the 1980s. The post-war consensus around Keynesian demand management was abandoned in favour of supply-side economics and neoliberal policies. By the end of the 1980s, the collapse of the socialist bloc had also commenced with the disintegration of the USSR and the Dengist reforms gathering momentum in China. In this milieu, economic planning and import-substitution under ‘Nehruvian socialism’ in India gave way to market-oriented reforms. Liberalisation, privatisation and globalisation became the new mantras.
The economic reforms initiated in 1991 were hailed as a liberation of the Indian private sector from the fetters imposed by the ‘license-permit-quota raj’ of the Nehruvian era. Now, after three decades, success is being claimed by the key architects of those reforms, on the basis of India’s evolution as “one of the fastest-growing emerging markets” and decline in poverty.
How robust are such claims? To delve deeper into the impact of market-oriented reforms on the economy, we undertake an evaluation of India’s long-term macroeconomic performance and human development record, including trends in income distribution, over the past four decades, in comparison with two of India’s neighbours, China and Bangladesh.
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Macroeconomic performance
It is difficult to find many countries with which India’s long-term economic performance can be justifiably compared over multiple dimensions, given the size of its economy and population, as well as its political-economic history. China becomes an obvious benchmark, given its similarities with India in terms of population size and economic history as well as its emergence as the second largest economy in the world (by nominal GDP) over the past few decades.
Among India’s large South Asian neighbours, Bangladesh, since its independence in 1971, has pursued an economic policy course much similar to India’s. All the three labour surplus economies started off with dirigiste, post-colonial regimes. They changed course later – China and Bangladesh in the late-1970s and India in 1991, after following a gradualist approach to economic transition in the 1980s. Since then, all the three countries have increasingly integrated with the global economy, uninterruptedly, through the past three decades.
China experienced remarkable growth acceleration since the 1980s, with annual real GDP growth remaining over 10% on average for two decades between 1991 and 2010, before falling to 6.8% during 2011-2020 (See Chart 1a). China’s unique growth story has enabled its economy to expand phenomenally, from 4% of the world GDP in 1990 to over 18% of the world GDP in 2020. The Indian economy’s share in global output has expanded too, but far less remarkably; from 3.5% to 6.8% of the world GDP between 1990 and 2020. Bangladesh’s share in the world GDP has doubled, from 0.3% to 0.7% in three decades (See Chart 1b).
Chart 1a: Annual Growth of Real GDP (%) — Decadal Averages. Source: Source: International Monetary Fund
Chart 1b: GDP (PPP) as a Share of World GDP (%). Source: International Monetary Fund
After remaining at the same level of 5.6% in the 1980s as well as 1990s, the decadal average of India’s annual real GDP growth accelerated to 7.6% in the 2000s, only to fall again to 5.2% between 2011-2020. Excluding the sharp contraction in 2020, India’s average GDP growth between 2011 and 2019 was around 6.6%, similar to the average annual real GDP growth rate of Bangladesh in the same decade. While Bangladesh has caught up with India in terms of real GDP growth, in terms of GDP adjusted for purchasing power parity (PPP), Bangladesh’s average growth rate between 1990 and 2020 has been faster than India’s.
In contrast, the growth experiences of China and India have been quite divergent. Rather than India being able to catch up with China in three decades, the Chinese economy, which was only slightly larger than India in 1990, has grown to 2.5 times the size of the Indian economy by 2020.
This has been possible because the investment rate in China has gradually risen from around 35% of GDP in the 1980s to 44% in the last decade, and the savings rate has risen even faster from 35% to 46%. India’s investment and savings rates, as shares of GDP, have grown from a much lower base than that of China’s and have not yet been able to surpass the levels, which prevailed in China even in the 1980s (See Charts 2a and 2b).
Chart 2a: Investment (% of GDP) — Decadal Averages. Source: International Monetary Fund
Chart 2b: Savings (% of GDP) — Decadal Averages. Source: International Monetary Fund
Moreover, it is noteworthy that despite a deceleration in the economic growth rate in China between 2011-2020, in the aftermath of the global financial crisis and the Great Recession, the investment rate has continued to grow, which has laid a stronger foundation for growth in the next decade. The savings rate in China has also remained over the investment rate since 1991, which reflects massive mobilisation of domestic resources for investment, which could not be achieved without active interventions of the state, like the belt and road initiative. Bangladesh has also witnessed growth acceleration between 2011-2020, accompanied by significant improvements in its investment and savings rates.
As far as India is concerned, the investment rate did improve from the decadal average of 24% in 1991-00 to 32% in 2001-10 (See Chart 2a). This was driven by significant increases in private investments financed by credit from the public sector banks, particularly in infrastructure projects under public-private partnerships. While this continued for a while after the global financial crisis and recession of 2008-09, it could not be sustained for long. After the credit bubble burst in 2011-12, massive amounts of bad debts accumulated in the banking system, which continues to hang like an albatross around the neck of public sector banks and delinquent corporates.
Therefore, stagnation in the investment and savings rate has accompanied India’s growth deceleration between 2011-2020. Policy actions undertaken in the past few years like demonetisation, introduction of the goods and services tax (GST) and the recent lockdowns imposed after the outbreak of COVID-19 pandemic have also delivered successive supply and demand side shocks, contributing to the slowdown in private investment activity. The savings rate in India has also remained below the investment rate, pointing towards dependence on foreign savings, which cast a shadow over the possibility of significant growth acceleration in future.
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Fiscal and external balances
Despite the marketist turn in their economic policies, fiscal support has continued to play vital roles in the growth processes of China and India in the last few decades. While public debt as a share of GDP ratio has declined in Bangladesh from 55.2% in 1995 to 38.9% in 2020, it has increased over the decades both in China and India (Chart 3c).
In China’s case, government revenues and expenditure first fell as a proportion of GDP in the 1990s, then rose in the 2000s decade and increased even more sharply in the 2010s (Charts 3a and b). In India, neither was the fall in government revenues and expenditure in the 1990s decade very significant, nor was there any sharp rise in government revenues and expenditure in the subsequent decades.
Chart 3a: Government Revenue (% of GDP) — Decadal Averages. Source: International Monetary Fund.
Note: India’s Revenue and Expenditure data for 1981-90 is sourced from the RBI’s Database on Indian Economy.
Chart 3b: Government Total Expenditure as Share of GDP (%) — Decadal Averages. Source: International Monetary Fund.
Note: India’s Revenue and Expenditure data for 1981-90 is sourced from the RBI’s Database on Indian Economy.
Chart 3c: General Government Gross Debt as Share of GDP (%). Source: International Monetary Fund
Note: Bangladesh’s Public Debt and GDP data for 1995 and 2000 are sourced from Bangladesh Bank.
India’s fiscal balance has remained in a considerably worse state than China’s over three decades. Following the fiscal stimulus amidst the pandemic-induced recession, the public debt to GDP ratio is projected by the IMF to increase to almost 90% for India and around 67% for China, in 2020. India’s inability to increase revenue mobilisation has been a key factor behind its ballooning public debt, which has also constrained the interventionist capacity of its state.
Alongside a prolonged slowdown culminating into a deep recession, sharp cuts in the corporate tax rates, inability to plug tax evasion and retrieve illicit wealth, as well as a shift towards greater revenue mobilisation through indirect taxes on items like fuel under the present regime, have all contributed to sluggish revenue growth in the recent years.
The trajectory of external balances further reveals the divergences between the growth stories of China and India (See Chart 4a). China has run trade and current account surpluses for three decades since the 1990s, with the current account surplus peaking at over 5% of GDP between 2001-2010. This reflects a successful export-oriented strategy, which has also enabled China to attract high levels of foreign direct investments (See Chart 4b).
Chart 4a: Trade & Current Account Balances (% of GDP) — Decadal Averages. Source: World Bank Open Data
Chart 4b: Net FDI and Private Remittances (% of GDP) — Decadal Averages. Source: World Bank Open Data
Note: Net FDI Inflows data available till 2019 only.
India, in contrast, has experienced chronic trade and current account deficits over the past three decades, with the trade balance worsening over time (Chart 4a). Bangladesh’s trade balance has improved since the 1980s, but the trade deficit as a proportion of GDP has remained higher than India. While exports in specific sectors, like IT services, gems and jewellery, pharmaceuticals and minerals in India or textiles and leather in Bangladesh, have registered significant successes, a multi-sector export boom has evaded both India and Bangladesh in the past three decades.
In India’s case, the import intensity of output growth has also increased in the post-reform period, on account of the growing dependence on imports of oil as well as capital goods. Such weaknesses in domestic industrial development have not been reversed despite the ‘Make in India’ initiative. Thus external imbalances have persisted, which in turn has driven up external indebtedness and brought downward pressure on the rupee.
The last two years have seen some improvement in India’s external balances and indebtedness, but only because of the collapse in imports owing to the negative demand shocks inflicted by the pandemic and lockdown. In the absence of any structural change, external imbalances would reappear along with economic recovery.
Inflows of foreign direct investments (FDI) have risen in India and Bangladesh since the 2000s, but the levels have remained significantly below that of China’s. Rather, inflows of private remittances have played a much larger role (as a share of GDP) than FDI in India and even more so in Bangladesh (Chart 4b). It can thus be said that while China has benefitted more because of capital mobility under globalisation, India and Bangladesh have benefitted more out of the international migration of labour.
In sum, market-oriented reforms have brought about a massive transformation in the Chinese economy in the last four decades. This is reflected in accelerated economic growth, rising investment and savings rates, increased government revenues and public expenditures, export surpluses and FDI.
India’s macroeconomic performance has lagged way behind that of China in all those relevant indices. Considering China as a benchmark, India’s growth acceleration has been both delayed and short-lived, with investment and savings rates as well as government revenues and public expenditures stagnating in the last decade.
While Bangladesh has been able to reduce its public debt to GDP ratio over the decades, India’s public debt has also grown, particularly against the backdrop of the COVID-19 pandemic and recession. Neither has India been able to match China’s export successes nor attract comparable quantum of FDI, especially of the greenfield variety. Like in the case of Bangladesh, private remittances have surpassed FDI inflows in India in the post-reform decades.
Human development and income distribution
While India’s macroeconomic performance in the post-reform period looks quite modest in comparison with China’s, the record vis-à-vis human development reveals further weaknesses (Table 1). Real per capita income in China (2017 PPP dollars) was below that of India and Bangladesh in 1990. Between 1990 and 2019, China’s per capita income has increased over ten times, while the increase was only around 3.2 times in Bangladesh and 3.7 times in India.
| Table 1. Selected Human Development Indicators | ||||||||
| Gross National Income (GNI) per capita (constant 2017 PPP $) | ||||||||
| Country | 1990 | 1995 | 2000 | 2005 | 2010 | 2015 | 2018 | 2019 |
| Bangladesh | 1554 | 1752 | 2002 | 2383 | 3117 | 3936 | 4643 | 4976 |
| China | 1469 | 2361 | 3417 | 5299 | 8847 | 12644 | 15187 | 16057 |
| India | 1787 | 2078 | 2548 | 3217 | 4182 | 5391 | 6427 | 6681 |
| Life Expectancy at Birth (years) | ||||||||
| Bangladesh | 58.2 | 62 | 65.4 | 67.8 | 69.9 | 71.5 | 72.3 | 72.6 |
| China | 69.1 | 69.9 | 71.4 | 73 | 74.4 | 75.9 | 76.7 | 76.9 |
| India | 57.9 | 60.3 | 62.5 | 64.5 | 66.7 | 68.6 | 69.4 | 69.7 |
| Infant Mortality Rate (per 1000 live births) | ||||||||
| Bangladesh | 99.6 | 80.8 | 63.9 | 50.4 | 38.9 | 29.6 | 25.1 | n.a. |
| China | 42.1 | 37.7 | 30.1 | 20.3 | 13.6 | 9.2 | 7.4 | n.a. |
| India | 88.6 | 78 | 66.6 | 55.7 | 45.1 | 35 | 29.9 | n.a. |
| Mean Years of Schooling (Years) | ||||||||
| Bangladesh | 2.8 | 3.3 | 4.1 | 4.5 | 5.3 | 5.8 | 6.1 | 6.2 |
| China | 4.8 | 5.7 | 6.5 | 6.9 | 7.3 | 7.7 | 7.9 | 8.1 |
| India | 3 | 3.5 | 4.4 | 4.8 | 5.4 | 6.2 | 6.5 | 6.5 |
| Total Internet Users (% of Population) | ||||||||
| Bangladesh | n.a. | n.a. | 0.1 | 0.2 | 3.7 | 14.4 | 15 | n.a. |
| China | n.a. | n.a. | 1.8 | 8.5 | 34.3 | 50.3 | 54.3 | n.a. |
| India | n.a. | n.a. | 0.5 | 2.4 | 7.5 | 17 | 34.5 | n.a. |
| Unemployment (% of Labour Force) | ||||||||
| Bangladesh | 2.2 | 2.5 | 3.3 | 4.3 | 3.4 | 4.4 | 4.3 | 4.2 |
| China | 2.4 | 3 | 3.3 | 4.5 | 4.5 | 4.6 | 4.3 | 4.3 |
| India | 5.5 | 5.6 | 5.7 | 5.6 | 5.6 | 5.6 | 5.3 | 5.4 |
| Source: Human Development Data Center | ||||||||
| Note: Data on unemployment sourced from ILOSTAT database | ||||||||
The manifold increase in per capita income in China in the last three decades has also been accompanied by improvements in other indices of well-being like increasing life expectancy, declining infant mortality and rising mean years of schooling, which remain much above those of India or Bangladesh. Despite having a higher per capita income, India has lagged Bangladesh in indices like life expectancy and infant mortality. While 35% of India’s total population used the internet in 2018, much higher than Bangladesh’s 15%, the proportion in China was even higher at over 54%.
The International Labour Organization (ILO) estimates suggest that open unemployment in India has remained at over 5% through the past three decades, which has been much higher than the unemployment rates of China or Bangladesh (Table 1). India’s unemployment rate has remained remarkably stable though, while unemployment has risen both in Bangladesh as well as in China in the past three decades.
The high proportion of informal labour within the labour surplus economies like India, Bangladesh or China makes accurate estimates of unemployment quite difficult. ILO estimates suggest that around 80% of the total workforce in India and over 90% in Bangladesh comprised informal workers. Comparable estimates for China are unavailable but informal sources suggest that it is not less than 50% of the existing workforce.
Also read: India Needs Employment Generation, Not Population Control
The persistence of huge reserves of informal labour in these economies reflects an inherent weakness of the post-reform growth process, across these economies. Higher rates of economic growth in the post-reform period have not led to enhanced rates of labour absorption, especially in the formal sector, a phenomenon characterised as ‘jobless growth’.
The most unambiguous outcome of the post-reform growth process over the past three decades, common across all the three countries that we examine, is the steady rise in income inequalities. Data from the world inequality index show that the shares of pre-tax national income of the top 1% as well as the top 10% of the population has risen in Bangladesh, China and India between 1989 and 2019, while the shares of the bottom 50% has declined (Table 2). The widening of inequalities, however, has been the least in Bangladesh where income shares have not undergone very significant changes in the past three decades.
| Table 2. Changes in Income Distribution: 1989 – 2019 | ||||
| Bangladesh – Pre-tax National Income Shares (%) | ||||
| Top 1% share | Top 10% share | Middle 40% share | Bottom 50% share | |
| 1989 | 13 | 40 | 41 | 19 |
| 1999 | 16 | 44 | 39 | 17 |
| 2009 | 15 | 43 | 40 | 17 |
| 2019 | 16 | 43 | 40 | 17 |
| China – Pre-tax National Income Shares (%) | ||||
| Top 1% share | Top 10% share | Middle 40% share | Bottom 50% share | |
| 1989 | 8 | 31 | 48 | 21 |
| 1999 | 10 | 35 | 47 | 19 |
| 2009 | 16 | 43 | 43 | 14 |
| 2019 | 14 | 42 | 44 | 14 |
| India – Pre-tax National Income Shares (%) | ||||
| Top 1% share | Top 10% share | Middle 40% share | Bottom 50% share | |
| 1989 | 11 | 36 | 44 | 20 |
| 1999 | 15 | 41 | 41 | 19 |
| 2009 | 21 | 52 | 33 | 15 |
| 2019 | 22 | 57 | 30 | 13 |
| Source: World Inequality Database | ||||
While the share of the bottom 50% has declined in tandem in China and India in the past three decades, the income share of the middle 40% has declined by a much lesser extent in China than in India. The top 10% population in India has gained a much greater share in national income than the same cohort in China, with the Indian top 1% doubling its income share in the past three decades. Thus, while both India and China have seen increasing inequalities in the post-reform period, incomes have been distributed in a more skewed manner in India than in China.
Conclusions
Although the early, alarmist prognoses about economic reforms, which anticipated economic disaster in developing countries, have not actualised, the economic performances of China, India and Bangladesh in the post-reform decades bust several economic myths. First, the way China has been able to comprehensively outrun India, Bangladesh and all other developing countries shows that mere implementation of market-oriented policies were not enough to achieve macroeconomic success. Rather, geo-strategic factors, industrial policies and state interventions, seem to have played a larger role in ensuring access to markets, capital and technologies for economic development than what the laissez faire prescriptions would suggest. Initial conditions shaped by the dirigiste regime also mattered.
Second, there is mounting evidence to indicate that while improved macroeconomic performance may be necessary, it is certainly not sufficient to ensure better human development outcomes, especially in the sphere of education and health. This is also true in the context of unemployment and underemployment. The weakening link between economic growth and employment implies that faster economic growth would also not solve the core problems of under-development and informality within the labour surplus economies.
Finally, the incidence of growing income inequalities, coupled with crony capitalism and elite-consumerism, raises serious questions regarding sustainability of the growth processes in the emerging economies, both political and environmental. This is as much true of China, as it is vis-à-vis the other developing countries. Even as millions of people lost their jobs and sunk into poverty amidst the pandemic-induced recession, the number of dollar billionaires in 2021 rose across most countries in the Forbes Billionaires list from 2020.
With liquidity-driven equity market bubbles raising the net worth of big business owners everywhere, India overtook Germany to claim the third spot in the Forbes list with 140 dollar billionaires in 2021 and China finished second with 626 just behind the United States’ 724. Bangladesh did not figure in the Forbes list yet.
Three decades after the inauguration of market-oriented reforms in India, this hideous spectacle of the super-rich growing even richer amidst large-scale socio-economic distress caused by the pandemic and economic recession should lead to deeper introspection and soul-searching, rather than inane celebrations.
Prasenjit Bose is an economist and political activist.
Bangladesh’s success story holds lessons for India when it comes to macro-economic stability, prudent fiscal management and support policies.
Tickled by a gift of mangoes from Prime Minister Sheikh Hasina to the heads of state in neighbouring countries, the Indian media dubbed the move as Bangladesh’s ‘Mango diplomacy‘. But Dhaka said that it was simply sharing its ‘happiness’ with friends during a historic year.
The Golden Jubilee year of its independence, Bangladesh indeed has several reasons to celebrate. The country’s economic performance during the pandemic years was recently recognised in Bloomberg’s COVID-19 resilience ranking, where it ranked 24th out of 53 economies in the world that are worth over $200 billion.
According to a World Bank report ‘Bangladesh Development Update – Moving Forward: Connectivity and Logistics to strengthen Competitiveness‘, released in April 2021, “Despite the uncertainty created by COVID-19, the outlook for Bangladesh’s economy is positive.” It assessed that Bangladesh did extremely well when the pandemic hit and it had also launched a good number of stimulus packages to keep people employed despite the shocks.
From ‘basket case’ to ‘Asian Tiger’
The last few years has seen a sea change in the global image of Bangladesh. Once visualised as the epitome of poverty and hunger, its steady success of gross domestic product (GDP) growth is conspicuous as a symbol of assiduous enterprise. It is gratifying to see a South Asian nation once labelled a ‘basket case’ by Henry Kissinger being projected as a future ‘Asian tiger’ – that too, in his lifetime.
Indians were dazed by IMF projections that Bangladesh’s per capita GDP in dollar terms is expected to grow 4% in 2020 to $1,888, and India’s per capita GDP is expected to decline 10.5% to $1,877. This should not have come as a surprise at all. Even prior to the COVID-19 pandemic, India’s GDP has been consistently sliding from 6.8% in 2017, to 6.53% in 2018 and to 4.04% in 2019, crashing at -7% in 2020. On the other side, in 2019, Bangladesh’s was the world’s seventh fastest growing economy, with a GDP growth that was rising steadily surpassing an 8% mark. This, in spite of fiscal pressures because of factors like donor fatigue in response to the Rohingya crisis and revenue shortfall from an outdated tax administration.
Also read: As Bangladesh Rises, Sri Lanka Finds India is Not the Only Neighbour With Deep Pockets
The real marvel lies in the fact that even in FY’20, when economies around the world contracted as a result of pandemic lockdowns, Bangladesh managed a 5.24% growth. In FY’2021, its average per capita income stood at $2,227, higher than India’s $1,947.
Prudent economic governance
With macro-economic stability as its cornerstone, Bangladesh’s economy has increased by 271 times over 50 years. Concentrating on its traditional labour-intensive light manufacturing industry, Bangladesh is today the world’s second-largest clothing exporter behind China. It powered ahead with a traditional development strategy of simple export-oriented industrialisation (EOI), the economic policy that was implemented with great success by the Asian Tigers. The bulk of Bangladesh’s exports pertain to the textiles, apparel and footwear industry – which are highly labour-intensive and employ unskilled and semi-skilled labour.
Bangladesh’s economic performance is also a reflection of its prudent fiscal management. The budget deficit has been restricted to 5.0% of GDP or less. Limiting public spending left space for the private sector to borrow from the financial system and invest. Fiscal prudence and export performance have been key to reducing poverty in Bangladesh.
Cottage sized creative undertakings have been included in the MSME category making it cottage, micro, small, and medium sized enterprises (CMSMEs). They create 7.8 million direct employment and contribute 25% to Bangladesh’s GDP. Each category is treated differently since they each have unique characteristics. Bangladesh’s confidence in managing CMSMEs is reflected in its recent decision to finance the UNESCO approved ‘Bangabandhu Sheikh Mujibur Rahman International Prize for the Creative Economy” for outstanding initiatives that promote the engagement of young people in the creative economy.
Besides MSME management, Bangladesh holds lessons for India to build specialisation in competitive exports. India’s top five export commodities jointly contribute around 40% of total exports, and are capital and technology-intensive. Micro and small industries are hurt due to inadequate access to bank credit. There has been massive deceleration in India’s labour-intensive industries, affecting export-oriented industries such as textiles, garments, leather, and gem cutting. For the majority of the micro and small enterprises, access to formal debt channels like the Emergency Credit Line Guarantee Scheme (ECLGS) remains out of reach as they rely on informal sources. For new businesses, loans and project clearances take a long time.
Garments account for more than 80% of Bangladesh’s exports. Photo: Andrew Biraj/Reuters
Beyond the pandemic, for India, the economic slowdown “is almost homegrown” with disruptive initiatives like demonetisation, Goods and Services Tax (GST), tightening of e-commerce rules, to assist Indian businesses that compete with companies like Amazon and Walmart. The Confederation of All India Traders (CAIT) estimates a business loss of approximately Rs 15 lakh crore in the last two months because of localised lockdowns imposed by various states during the second COVID-19 wave. The traders’ body has appealed to PM Narendra Modi to come to the rescue of small businesses by announcing a “substantial financial package to restore business activities” hit by recurring monthly expenses, with no income to bear such cost.
“We are not asking for any loan waiver but the support policies from both Central and state governments, temporary relaxations in statutory compliances, and ease of restoring business,” CAIT said in a statement.
Also read: Bangladesh: Much More to Do to Tackle Inequality
Relatively, Bangladesh’s stimulus package, in proportion to its GDP, has been much higher than that of India. Even with a preference for fiscal prudence, through the pandemic, Sheikh Hasina’s government doled out generous stimulus packages and social protection schemes with utmost importance to the agriculture sector. To the SMEs, heavy industries, ready-made garment (RMG) sector and other industries, incentives were given in a phased manner.
‘Digital Bangladesh’, which aims to create a digital ecosystem through its platforms like Shujog.xyz, supports new entrepreneurs and includes them in digital finance management. With nearly two dozen COVID-19 stimulus packages the country has an overall outlay of 1.24 trillion taka, which is 4.44% of GDP. This included steps like 50 billion taka for export-oriented industries to pay the wage bill for three months, two-year loans to factory owners at 2% interest, 200 billion taka for banks to provide working capital loan facilities to CMSMEs at an interest rate of 9%; 4% to be borne by the borrower, and 5% by the government as a subsidy. The success of the stimulus package was also due to its effective management, in simultaneously assisting affected industries and in addressing the food security problem of the poor and vulnerable people.
The coronavirus pandemic affected all national economies and saw per capita incomes slip, but Bangladesh’s credit lies in applying its disaster experience of floods, cyclones etc, to handle the COVID-19 crisis. Our eastern neighbour, a nation of 168 million people, was able to fare better because of timely economic stimulus packages, judicious cash incentives, rebound in exports and strong remittance inflows. Despite its huge population, the Bangladesh model is a positive example that has aided it in becoming an outperformer in the Asian region.
Vaishali Basu Sharma is a consultant on strategic and economic affairs. She has worked with the National Security Council Secretariat (NSCS) for nearly a decade. She is presently associated with the New Delhi-based think tank Policy Perspectives Foundation.
While Bangladesh’s progress on socio-economic fronts is very impressive, ‘income inequality’ is one area where its performance remains poor.
Bangladesh recently completed 50 years as an independent country. A remarkable story of struggle and resilience, Bangladesh is often held up as a ‘development miracle’. Bangladesh’s flourishing readymade garments industry, a robust pharmaceutical industry and other assorted manufacturing sectors have fully embraced an exports-led growth model. Indeed, Bangladesh’s success with manufacturing is an enviable achievement of the rest of South Asia.
Alongside, Bangladesh has taken big strides forward in its development journey. A decade of consistently recording over 7% GDP growth rate that has allowed it to make impressive gains in the reduction of absolute poverty levels, increase in life expectancy and adult literacy and reductions in maternal and infant mortality rates. Over a decade, extreme poverty rate fell from 18% to 10.5% in Bangladesh. The development story here has been helmed by a productive partnership between the state, private sector and non-governmental agencies. This is a remarkable story of political sagacity by successive governments who recognised their own limitations and fostered this long-standing partnership.
While Bangladesh’s progress on socio-economic fronts is very impressive, ‘income inequality’ is one area where its performance remains poor. Pervasive inequality destroys societies, and this could prove to be a major threat to the Bangladesh story in the decades to come. The 2016 Household Income and Expenditure Survey (HIES) showed that the Gini coefficient of income stands at 0.48, which is actually worse off than the previously computed index. This may seem surprising when juxtaposed against the significant government and non-governmental spending in Bangladesh in sectors such as infant and maternal health, food security, provision of basic health services, and availability of credit. Tackling structural causes for inequality is not easy. In this column, I list some key areas of concern.
The 8th Five Year Plan (FYP) candidly points out several areas where policies have failed which has resulted in the persistence of inequality levels in the country. In particular, it refers to the failure of policies that should have ensured a more equitable distribution of wealth created in the country. For instance, Bangladesh’s Tax to GDP ratio stands at an abysmal 9%. The direct taxation system is hardly progressive, and tax evasion is rampant. As Dr Fahmida Khatun, Director, Centre for Policy Development, points out in an article, much of the wealth of the richer sections of the population is neither taxed and nor is it currently a matter of public scrutiny. The Chairman of National Board of Revenue (NBR) is on record saying that only less than one-third of potentially eligible taxpayers in the country pay taxes. For a country with significant absolute numbers of poor people, and with the kind of shortfall it faces in developmental expenditure on public infrastructure, service delivery and social protection schemes, this should be a very high priority.
A telling example of the lack of public scrutiny and the resulting government action is the story of Non-Performing Loans (NPL) in the banking sector in Bangladesh. Data for June 2020 showed that 9.16% of disbursed loans are currently classified as NPLs. It is widely acknowledged that the NPL levels in Bangladeshi banks are under-reported, and officially too, the reduction achieved from the 2019 levels is through the rescheduling of loans and changes in definition by the Bangladesh Bank to what classifies as an NPL. The concentration of NPLs in a handful of banks also speaks volumes about the problems of poor governance that has led to this crippling problem. As in other countries like India, NPLs are a fair indicator of the pervasiveness of political interference in the banking sector, and more broadly, a system of cronyism and patronage between the political leadership and business houses.
Also read: IMF Says Bangladesh Is Set to Overtake India in Per Capita GDP. Here’s Why
Another area of serious neglect that threatens Bangladesh’s ability to grow towards a more equal society is the state of its environment. Bangladesh ranks 162 out of 180 countries on the Yale Environment Protection Index (EPI). The impacts of environmental degradation are starkly visible in day-to-day life. The polluted air and rivers, coastal degradation, destruction of mangroves etc affect the poorest section of the population – who are usually the most dependant on the quality of natural resources and the most vulnerable to deleterious impacts of natural disasters – the worst. This is a particularly vexatious issue since it is the very path of wealth creation and industrial growth that has fuelled the country’s GPD growth that has also led to unchecked extraction of scarce natural resources and environmental degradation.
Bangladesh’s Perspective Plan 2041 outlined four institutional pillars to drive growth and transformation – governance; democratisation; decentralisation; and capacity building. Pursued systematically, this could help the country narrow the gap between the rich and poor over time. In the last few years, the growing political centralisation and the decimation of a credible democratic opposition has led to much criticism of the current political leadership and the governance arrangements in Bangladesh. This could be an enabling factor in bringing in bold reforms, but the overall degradation of Bangladesh’s democratic credentials is a serious risk. Democracies with a free press do better in tackling inequality in society. A noisy opposition keeps the political leadership and government agencies on their toes. Again, I would put my hopes on the Bangladeshi people that they will develop a broad consensus that urgent reforms are required to improve the quality of democracy in the country.
One of the avenues to achieve this is to seriously pursue decentralisation. The government recognises that this is as a priority. The 8th FYP points out that the central government raises 98% of all revenues and is responsible for over 90% of all public expenditure. This is a clear indicator that Bangladesh, a country of 165 million people, is far too centralised than it should be. Decentralisation of funds, functions and functionaries is urgently required to strengthen local governments (at least at the district level) in Bangladesh. Far-reaching investments in political and administrative decentralisation will be required to strengthen local governments. Reforms in this area will not be quick, but the government must make an earnest effort in this direction.
Tackling inequality through promoting inclusive development is on the forefront of development policies in Bangladesh, often reaffirmed by political leaders and senior policymakers in the country. But as evident from the issues described above, the compact between the state and private sector that has delivered growth for Bangladesh in the last two decades itself threatens its future growth and development. A collapse of the financial system and continued damage to the environment will undo many of the gains that Bangladesh has registered in its recent past. The limited ability to fund development spend by domestic taxation will further the marginalisation of those who are already poor and vulnerable.
One would expect covid19 to have exacerbated these issues. So far however, Bangladesh seems to have escaped relatively unhurt on the economic front, as exports rebounded in late-2020, and the country announced a projected GDP growth rate of 5.2% for 2019-20. One worries that this resilience may also make policymakers complacent to the challenges facing the country and delay the implementation of reforms required for a course correction. Bangladeshi policymakers must be alert to this and act fast.
Suvojit Chattopadhyay is currently based in Nairobi, and works on issues of public sector governance and development management in East Africa and South Asia. You can find his blog here. He tweets @suvojitc.
Bangladesh has over the years managed to grow its exports, leading to a rise in its per capita GDP growth, and is now set to overtake India which had a significant lead over it a few years ago.
New Delhi: India is set to drop below Bangladesh in terms of per capita gross domestic product (GDP) this year, according to the International Monetary Fund (IMF), owing to the nationwide lockdown imposed to contain the spread of the COVID-19 pandemic.
According to IMF-World Economic Outlook (WEO), Bangladesh’s per capita GDP in dollar terms is expected to grow 4% in 2020 to $1,888. On the other hand, India’s per capita GDP is expected to decline 10.5% to $1,877 – the lowest in the last four years. The GDP figure for both countries is at current prices.
However, India’s per capita GDP in dollar terms is expected to grow 8.2% at $2,030 in 2021, compared with an expected 5.4% growth for Bangladesh at $1,990.
Nepal and Bhutan are expected to grow their economies this year, while the IMF has not divulged Pakistan’s data for 2020 and beyond.
Global growth would contract by 4.4% this year and bounce back to 5.2% in 2021, the report said.
Also read: Decoding India’s Economic Playbook in the Times of COVID-19
Dismal projection
The de-growth projection comes after India reported a contraction in its GDP for the June quarter at 23.9%, making it the worst performer among G20 economies. The Reserve Bank of India last week admitted that the economy will contract 9.5% in FY21, with a mild recovery in economic activity in the March quarter.
What makes this situation even worse is that till five years ago, India’s per capita GDP was nearly 40% higher than Bangladesh’s. In the last five years, Bangladesh’s per capita GDP has grown at a compound annual growth rate of 9.1%, compared with 3.2% growth reported by India during the same period.
With the ongoing US-China trade war, apart from other global tensions, Bangladesh has over the years adapted to the changing landscape and has managed to grow its exports, leading to a rise in its per capita GDP growth. The country is now set to overtake India which had a significant lead over it a few years ago.
Bangladesh’s GDP growth in last few years has averaged around 8%, according to reports, at a time when economic growth in rest of the world was slowing down. HSBC Bank had predicted that Bangladesh would be the 26th largest economy in the world by 2030.
GDP PPP comparison
However, according to the government, in terms of purchasing power parity, India’s per capita GDP in 2020 is estimated by IMF at $6,284 compared with $5,139 for Bangladesh.
In 2019, India’s GDP was 11 times more of Bangladesh while population was eight times more, said the government, in a reply to Congress leader Rahul Gandhi’s tweet comments on the IMF’s projections.
In 2019, India’s GDP in purchasing parity terms was 11 times more of Bangladesh while population was 8 times more. In purchasing power parity terms, India’s per capita GDP in 2020 is estimated by IMF at $6284 compared to $5139 for Bangladesh: Govt sources on Rahul Gandhi's tweet pic.twitter.com/WOd7R1ONrd
— ANI (@ANI) October 14, 2020
Also read: COVID-19 Has Pushed the Indian Economy Into a Tailspin. but There’s a Way Out.
A fast-growing export sector
China is Bangladesh’s largest trading partner, with annual bilateral trade valued at approximately $15 billion. Trade with India is only slightly more than a third of that amount.
According to economists who spoke to Business Standard, Bangladesh’s economic growth has been underpinned by its fast-growing export sector and a steady rise in rate of savings and investment in the country.
Bangladesh shipped an estimated $45.7 billion worth of goods around the globe in 2019 – a 44% increase since 2015, show data. With a population of 166.6 million people, its total $45.7 billion in 2019 exports translated to roughly $275 for every resident in the South Asian country.
In contrast, India’s exports have stagnated in recent years. India’s merchandise trade has been weakening even before the pandemic hit the economy and external demand. According to a report, the country’s exports have been in negative territory since June 2019. Added to that, due to the COVID-19 pandemic, both exports and imports started declining since March, leading to a trade surplus in June for the first time in 18 years.
In terms of per capita GDP, Bangladesh has grown at a compound annual growth rate of 9.1% since 2015, against 3.2% growth reported by India during the period. This has allowed Bangladesh to close the economy gap with its giant neighbour.
Bangladesh’s gross savings rate was recorded at 30.1% in June 2020, and 29.5% in June 2019, against a record low of 27.4% in June 2018, data showed.
Reports show that the sales of savings certificates in Bangladesh have risen by leaps and bounds. The flow of credit to the private sector is growing as well. Apart from imports, the pandemic does not seem to have had too much of a detrimental effect on Bangladesh’s economy.
In India, savings rate touched a 15-year low as the slowing economy took a toll on that segment, weakening the country’s macro economic position. India’s gross savings fell to 30.1% of the GDP in fiscal 2019 from 34.6% in fiscal 2012, and 36% in 2007-08, data from the Central Statistical Organisation shows.
According to the WEO database, India’s economic contraction in 2020 will be its worst since the 1990-91 economic crisis when the per capita GDP had contracted 17.5% in 1991. India’s GDP per capita in dollar terms had last contracted 1% year-on-year in 2012 due to currency depreciation. In all, India’s per capita GDP in dollar terms contracted on eight occasions in 40 years, five of which occurred prior to 2000.
Understaffed inspectors, a delay in hiring process and pressure from factories have made it difficult for boiler rooms to be inspected. In the past four years, 62 persons have died in 12 boiler room explosions.
Dhaka: Bangladesh is shifting from an agrarian economy to an industrial one, with an average annual industrial growth rate of 6.8% (as per the CIA World Factbook) over the past decade. While this steady progress has garnered praise and bagged export deals for its economy, one problem steals its glory: boiler rooms.
In the last four years, a total of 62 persons have died in 12 separate incidents of boiler explosions in Bangladesh. On September 10, 2016, 24 people died in a single explosion at Tampaco Foils Ltd, a packaging factory in Tongi at the outskirts of the capital Dhaka. On July 3 last year, 13 people died after a boiler exploded at Multifabs Ltd, a textile factory in Gazipur district.
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Considered as the heart of an industrial set up, these boilers run on natural gas and need periodic inspections to ensure safety standards. But for a total of 5,039 active boilers across the country, Bangladesh has just eight government appointed inspectors!
These inspectors are tasked with several duties: approving new boilers and skilled boiler operators (to being one, training is needed, after which candidates must pass an exam conducted by the same inspectors), renewing old boilers by issuing fitness certificates and paper work to comply with the bureaucracy.
The fire ignited by boiler explosion in Tampaco. Credit: Mahmud Hossain Opu
For issuing fitness certificates, the inspectors need to visit industrial units scattered across the country, individually. The field visits are made by the inspectors. The chief inspector and deputy chief inspectors usually don’t go to the field but have to oversee them and go through the paper works prepared after a filed visit.
“In the last 48 hours, I needed to inspect and issue fitness certificates to 14 boilers,” said Hanif Hossain, an inspector with the office of the chief inspector of boilers under the industries ministry of Bangladesh. “And all of them are in Barishal (a coastal town some 290 kilometers away from the capital),” said Hossain.
To inspect a single boiler properly, three to four hours are needed, Hossain said. Before that, the boiler needs to be closed down for at least 32-48 hours, depending on the type, size and age.
“There was immense pressure from the factories who all want their boilers to be inspected,” said Hossain, “So I had to put in long hours.” Despite that, he said he was only able to inspect four-five boilers thoroughly. For the rest, mostly new boilers, he didn’t bother to go through the lengthy and tiresome process of hydraulic testing. He just went through their logbooks.
“I came back from Barishal at 1 am yesterday and now I am in the office by 9 pm,” Hossain said, while we met in his office. “I have to finish the paper work of all the boilers I checked,” he said pointing towards a pile of files on his table.
A near impossible task
Hossain is usually given the task of inspecting around 85-90 boilers every month. The four other inspectors also have the same task. Apart from the five inspectors, there are two deputy chief inspectors and a chief inspector in the office.
“I was asked to inspect 87 boilers last month,” said Pranab Kumar Sarkar, another inspector. “I could only properly inspect about half of those,” he said. Out of the ones that Sarkar inspected, fitness certificates were issued against 44. He has not been able to complete the paper work for the rest yet.
As per the Boilers Act of 1923, the 94 year old Act which sets the guideline for inspection, an inspector is entitled to issue fitness certificate for six months. But before it is issued, the deputy chief inspectors have to scrutinise the report. The chief inspector has the capacity to issue fitness certificate for one year after going through the field report.
Most of the factories which are obliged to get a fitness certificate apply and pay for the one-year certificate. Thus, the reports prepared after the field visits have to be tabled with the chief inspector.
“Every year, I need to sign over 70,000 inspection reports,” said Abdul Mannan, the incumbent chief inspector. “The reports are technical and reviewing them properly takes time. Nonetheless, I have to do it,” he said.
Mannan, who has been the chief inspector for the past two-and-half years, said only a mechanical engineer can inspect the boiler properly. An inspector has to be familiar with new models of boilers and must read technical manuals, know how to conduct hydraulic test, boiler shield test and safety valve test.
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“All the recruits in my office are mechanical engineers with at least an undergraduate degree. We are all severely overworked and it takes a toll on the tasks in our hands,” he said.
He said the Boilers Act makes it mandatory to have an annual fitness check of every factory with a boiler across the country. When the factory owners submit the applications for annual fitness certificates, each inspector is allocated a certain number of boilers for inspection. Since the office is severely understaffed, the deputy chief inspectors and the chief inspector also visit the field now.
“I now have to go to factories, which make it quite impossible for me to complete the intensive paper work,” said Mannan.
Negligence and stalled measures
Deputy chief inspector Zia Ul Haque told The Wire that to make the boiler inspectors task less hectic, the office of the chief inspectors of boilers conduct training and exam for boiler operators. After passing the exams and getting the certification, these operators get appointed in a factory with a boiler room.
In 2016-17 fiscal, the office conducted exam and issued certificates to 1,041 boiler operators. In 2015-16, 2014-15 and 2013-14, the numbers were 997, 1,233 and 409 respectively.
The exploded boiler room in Multifabs Ltd. Credit: Mahmud Hossain Opu
“They are trained to keep a log book of the boiler. This has all the necessary information about the boiler. By looking at it, we are supposed to get an understanding of the boiler of that factory instantly,” said Haque, “But unfortunately, we find many of those log books are being maintained on a piecemeal basis,” he added.
A boiler operator of a textile factory said on the condition of anonymity that the owners, in many cases, force them to run the boiler for a prolonged period. “If the boiler is stopped, the production unit must also be halted. The profit driven owners sometimes fail to understand the danger of an overworked boiler and force us to keep the boiler room operational for longer than it should be,” said the operator.
Talking with The Wire, Siddiqur Rahman, president of Bangladesh Garments Manufacturers and Exporters Association (BGMEA) said, boilers represent a significant capital investment for any industry and the owners are aware of the danger of an overworked and improperly checked boiler. “No factory owner would put the boiler in risk by overworking it,” said Rahman.
Rahman said the BGMEA asks all its member factories to get their boilers checked properly. “The association also held several awareness programmes on how to use boilers properly,” he said. “But the numbers of boiler inspectors make the whole practice of boiler checking a daunting task,” he said.
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Shafiul Islam Mohiuddin, president of Federation of Bangladesh Chambers of Commerce and Industry (FBCCI) – the apex body of all the business in the country – said the government needs to immediately appoint more boiler inspectors. “Improperly checked boilers are great risk for workers,” he said.
After the boiler explosion incident in Multifabs Ltd last year, two inter-ministry meetings were conducted to proceed on a stalled process of appointing over 200 new personnel –at least 100 of whom are boiler inspectors, and a proposal was finalised by the Ministry of Industries.
Mohammad Abdullah, the ministry’s secretary told The Wire that the process of recruiting new personnel has been stalled. “But now, we have finished the paper work for recruitment. We hope to issue a new circular for the positions in that office within the next few months,” he said.
Faisal Mahmud is a Dhaka-based journalist.
