Bangladesh could top India’s per capita income by 2020

Also, over the past 3 years, GDP in dollar terms has grown 12.9%, more than twice our rate

After trailing its big neighbour for four decades, Bangladesh has gone ahead of India in economic growth and on social development indicators.

In the three years ending 2016, Bangladesh’s gross domestic pro duct (at current prices) in dollar terms grew at a compounded annual rate (CAGR) of 12.9 per cent, more than twice India's 5.6 per cent.

Over the same period, Pakistan grew faster than India too, at a CAGR of 8.6 per cent, driven by a surge in investment and export. The Chinese economy expanded at an annualised 5.2 per cent.

As a result, per capita income (in dollar terms) in Bangladesh is now growing at nearly thrice the pace of income growth in India. At $1,355 in 2016, Bangladesh’s per capita income was up 40 per cent in three years against 14 per cent growth in India and 21 per cent growth in Pakistan. At this rate, Bangladesh’s per capita income would top India’s by the year 2020. Currently, a typical Indian has 25 per cent higher income than her eastern neighbour; in 2011, Indians earned 87 per cent more.

India was the top performing economy in South Asia for the 40 years between 1970 and 2010. Annualised GDP growth of 8.7 per cent in dollar terms at current prices against Bangladesh's 7.6 per cent and Pakistan's 6.7 per cent. ( see charts)

Bangladesh is also ahead of India in the human or social development indicators of infant mortality rate and life expectancy at birth.

A newborn in Bangladesh is more likely to see her fifth birthday than her Indian or Pakistani counterpart. She is also likely to live longer in Bangladesh (72.5 years) than India (68.6 years) and Pakistan (66.5 years).

Bangladesh’s economic success lies in its ability to plug itself into the gap created by the slowing in Chinese export engine as policymakers in Beijing shift focus to pushing domestic demand and investment, away from export. Total export from China declined to $2.2 trillion in 2016 from a record high of $2.35 trillion three years ago. This creates space for others in the global market for labour-intensive consumer goods.

India missed this bus as evidenced by a contraction in export during the period. Instead the country’s growth is being largely driven by consumption even as savings, investment and exports reduce.

India's total export of goods & services declined to $433 billion in 2016 from record high of $488 billion during 2013 calendar year.

The contrast shows in Bangladesh's headline statistics. In past three years, the country’s exports of goods & services grew at a CAGR of 7 per cent in dollar terms against 3.9 per cent annualised contraction in India's export during the period. In the same period, capital formation or investment in Bangladesh grew at a CAGR of 14.5 per cent against investment stagnation in India.

Economic growth in Pakistan is largely driven by capital formation and consumption demand financed by a surge in foreign investments mostly from China as the latter invests close to $60 billion in upgrading Pakistan’s power and transport infrastructure.