?Hard Truth? over GDP

I.M.F.’s recent projection that Bangladesh’s nominal GDP per capita is expected to exceed India’s in 2020, creating a furore. First and foremost, comparing India to Bangladesh is like comparing apples with oranges. India’s nominal GDP is $2.94 trillion, while in purchasing power parity (PPP) terms, it is $10.51 trillion. India, under the Modi government, became the 6th largest economy in 2019, overtaking France and 5th largest, after surpassing the UK, in February 2020. Comparable figures for Bangladesh are merely a GDP of $348bn and $861 billion, in nominal and PPP terms, respectively. Moody’s has projected 10.6% real GDP growth and a 4% retail inflation for India for FY22, in a massive thumbs up, to Modinomics. Goldman Sachs predicts real GDP growth of 15.7%, while Fitch predicts a 9.9% growth for India, in FY22. Modi’s wily critics fail to recognise that, while IMF predicts an increase of 8.8% for FY22 for India, it estimates the Bangladesh GDP to grow by a mere 4.4%.

With COVID-19 pandemic derailing all large economies, IMF has predicted a fall in India’s nominal GDP per capita from $2100, in 2019 to $1880, in 2020, while forecasting Bangladesh’s to rise to $1890, in 2020. However, what Modi’s critics do not mention is the fact that India’s GDP in PPP terms in 2019, was 11 times greater than that of Bangladesh. IMF’s GDP per capita (in PPP terms) for India in 2020, is pegged at $6,284 compared to Bangladesh’s at $5,139. In effect, in terms of PPP per capita, despite the Covid-19 pandemic, India’s number will be 22.28% higher than Bangladesh!

India’s exports last year stood at $322bn, in terms of FOB, while imports stood at $617 billion, on CIF basis. What this implies is, India’s overall annual trade (exports + imports) at $939 billion, is 2.7 times higher than the entire economy of Bangladesh, in nominal terms. India’s apparel exports are expected to touch $300 billion by 2024-25, resulting in a tripling of the country’s market share globally from 5% to 15% cent. The lion’s share (71.27%), of Bangladesh’s total exports of just $40.53 billion, on the contrary, is limited to only 10 countries, leaving it highly vulnerable. Again, of this $40.53billion, $25.53 billion came from apparel goods, which means Bangladesh is in a highly precarious situation, given its disproportionate reliance on textiles apparel. India exports approximately 7500 commodities to about 192 countries. Again,81% of exports of Bangladesh come from the RMG sector, and the textile and Apparel sector contributes around 20% to Bangladesh’s GDP. It employs around 20 million people in the country and needless to add, the country’s textile sector is not in very good shape.

Before proceeding any further on the India versus Bangladesh debate, let us compare how these two countries have fared in recent times, with respect to handling the Covid-19 pandemic, the worst global pandemic to affect humankind in 102 years. It needs to be mentioned here that while the Bangladesh government believes that its economy is on track to achieve 8.2% growth rate in 2020-21 (FY21), not everybody shares that enthusiasm. The World Bank predicts only a meagre 1.6% growth and the ADB forecasts only a 4.5% growth, in FY21, for Bangladesh. Experts opine that there is an implicit message that the Bangladesh government is desperately trying to convey that not only is the economy trekking back to pre-pandemic levels, but will also surpass that, in FY22 (2021-22). However, the IMF projections for FY22, which put the Bangladesh GDP growth at only 4.4%, completely debunk the Bangladeshi government’s tall claims. So basically, both for FY21 and FY22, global bodies do not endorse the supremely enthusiastic claims by the Bangladeshi government. What is, therefore, both surprising and embarrassing is the fact that, the leftist cabal in India, including stray academicians, who know nothing about how the laws of economy work, have been jumping in glee, at Bangladesh’s supposedly superior numbers, driven by nothing but their visceral dislike for Prime Minister Modi, who has completely vanquished the opposition and the Left, electorally, repeatedly, in one election after another. Available data on macroeconomic aggregates such as household consumption, trade and private investment does not support that the Bangladeshi economy is anywhere close to achieving the projected 8.2% growth rate in FY21. One thing is for sure; there will be ongoing costs to the Bangladeshi economy both due to the impact of shutdowns as well as the fear of pandemic preventing people from resuming normal economic activity. The combined effect will result in a significant contraction of the economy. Economic stalwarts in Bangladesh have categorically dismissed their government’s projections as unrealistic and an overestimation, with lack of adequate quarterly data, only adding to the existential problems.

As Dr Muhammad Mahmood, the noted Bangladeshi economist and intellectual writes, “To understand the intensity of the impacts from the Covid-19 pandemic on the Bangladesh economy, we must have to have a clear grasp in identifying the mechanism through which shocks through individual markets to the economy are transmitted. The most widely reported measure throughout the world of a nation’s economic performance is the gross domestic product (GDP) or the aggregate output of the economy which is composed of household consumption (C), private investment (I), government expenditure (G) and net exports (X-M). Therefore, the equilibrium growth path of the economy can only be understood as the sum of the growth of each of these components. Now we can easily work out what is happening to the economy by just looking at Covid-19 induced economic shocks that are transmitted through individual components to the aggregate economy. The striking feature is the short-run reduction in the supply of labour which leads to declining spending on consumer goods and services, in particular durables, health and personal care services, travel, recreation and entertainment etc. This is due to social isolation, illness, concerns for their income and savings. Also, there is a perceived fall in the value of capital assets or what is known as the ”wealth effect” which also has to be taken into account.”

He further adds that “It is estimated that Bangladeshi RMG workers lost US$500 million in wages in four months from March to June. The Institute of Labour Studies also estimated that 1,915 garments factories were closed down, rendering 324,684 workers unemployed due to the pandemic. Many of these workers were not paid their outstanding wages and salaries. It is most likely that many of these workers will never work again. According to the Bangladesh Institute of Development Studies (BIDS), 164 million have joined as new poor in the country due to Covid-19. A recent survey conducted by the International Centre for Diarrheal Disease Research (ICDDR) in Bangladesh found that during the lockdown (March-May, 2000), 91% of sample families considered themselves to be financially unstable. 47% saw their earnings drop below the international poverty line of Tk160 (US$1.90) per person per day, 70% experienced food insecurity and 15% either ran out of food or remained hungry, or missed meals.”

Opposition leaders from India like a clueless Rahul Gandhi and the out on bail, ex-Finance Minister of India, P. Chidambaram, who even went to jail on damning corruption charges, have been delirious with joy, based on the wrong premise that Bangladesh has overtaken India, on the GDP front. As the hard data in this piece showcases, the truth is quite different. India is 11 times bigger in terms of GDP, compared to Bangladesh, despite having a huge population that is 8 times larger, than our neighbouring country. An estimated 80% of workers in the informal sector have become unemployed in Bangladesh. As many businesses are closing, a very large number of workers are not able to go back to their jobs. That is clearly reflected in a very large number of people migrating from urban to rural areas. It is suggested that a large segment of these unemployed workers face the prospect of permanent job loss. As a consequence of very high levels of unemployment, a very large number of people are already finding it hard to make ends meet, in Bangladesh, with the economy also currently facing the additional prospect of plummeting remittances. It is estimated that migrant remittances have declined by over 25%, during the pandemic. Migrant remittances constitute about 9% of Bangladesh’s GDP, so the adverse impact is indeed very steep. A large number of expatriate workers are returning home, further adding to the worsening unemployment situation.

All these factors clearly suggest that households, in particular in rural areas where the bulk of the people reside, are experiencing serious financial stress causing a sharp decline in household consumption, in Bangladesh. A large number of households are also debt-laden, and that will negatively impact consumption expenditure, too. Household consumption accounts for two-thirds of GDP. Therefore, it can be reasonably assumed two-thirds of lost output due to Covid-19, can be attributed to the decline in household consumption expenditure.

Dr Mahmood further says, “Reduced household consumption expenditure causes a decline in business confidence which leads to a decline in private investment. The country also faces very low levels of foreign direct investment (FDI), accounting for about 4% of total private investment. The drop in investment means that the country will be less wealthy in the future, and this will impact negatively on future productivity and income. Also, economy-wide reduced productivity of capital represents idle capacity in the economy resulting from reduced consumer demand as well as the disruptions in global supply chains caused by Covid-19”. He adds, “there have been some net changes in government expenditure to mitigate the effects of the pandemic. While there has not been any reduction in government expenditure, additional outlays were made for taking increased health response measures and expanding existing transfer programs, including subsidised food grain supply measures.

However, the government largely relied on monetary policy measures, in particular interest rates for providing assistance to the private sector to tide over the current difficult situation including the provision of subsidy for interest payments. Monetary ease to counter fiscal stringency postpones and aggravates private debt problems. Such measures will also cause distortions in financial markets with a consequent impact on the economy. The budget for 2020-21 stipulated some reduction in expenditure, putting on hold low priority development projects while increasing expenditures on health care, agriculture and social safety. Overall, it appears there has been little net change in government expenditures in real terms”.

Both exports and imports have been declining and are expected to further decline due to decreases in consumption and investment demand both at home and abroad. The Bangladesh Taka is a proxy for the US dollar. As the US dollar appreciates against all major currencies, so also the Taka. But either way that is unlikely to help boost Bangladesh exports (Bangladesh exports are invoiced in the US dollar) as the domestic demand in the US has been declining as in other major destinations of Bangladesh exports in Europe. The US economy contracted by an annualised 32.9% in the second quarter of calendar year (CY) 2020. During the same quarter, GDP in the Eurozone declined by 12.1% and in the EU by 11.9%.

The International Monetary Fund (IMF) already pointed out that the global strengthening of the US dollar was likely to amplify in the short-run fall in global trade and economic activity. In fact, it further pointed out the strengthening of the US dollar and its dominance as the global currency could impact the way global trade worked and could make a global economic recovery from the Covid-19 pandemic even more difficult, which should be a big concern for Bangladesh, given its disproportionate reliance on the USA, for trade.

There are also increased costs of international trade now for countries like Bangladesh. According to the World Trade Organisation (WTO), global trade is expected to decline by anywhere between 13% to 32% in 2020. Even if countries get through the pandemic, there is the looming danger that the commitment to an open, rule-based trading system is on the retreat. As a result of that, the Bangladesh economy may face increased challenges to its growth prospects. Besides the country’s over-reliance on the export of RMG and overseas remittances, the introduction of an external shock to one or more components of GDP will have a discernible effect on economic growth, for Bangladesh. As the situation is unfolding in Bangladesh resulting from the spread of the virus, all the broad economic indicators suggest significant declines in household consumption, investment and exports without any significant counterbalancing government expenditures to restore the economy to equilibrium.

Therefore, the published GDP growth figures by the Bangladeshi government, do not look tenable. To overcome the challenges posed by the Coronavirus, India announced a massive Rs 20.97 lakh crore stimulus package in May 2020 and followed that up with another Rs 90,000 crore assistance under the Pradhan Mantri Garib Kalyan Yojana, taking the overall stimulus by the visionary Modi government, to an unprecedented Rs 21.87 lakh crore, amounting to almost 11% of India’s GDP Calls for a vigorous economic stimulus package in the form of financial support that is needed urgently in Bangladesh, have, however, fallen on deaf ears, as per experts. Speaking of the Wuhan virus, India, under Prime Minister Narendra Modi, has amongst the lowest fatality rates at less than 1.5%, and one of the highest recovery rates at 87%. Bangladesh, on the other hand, is tottering, with no clear direction on how to fight the Covid pandemic.

In sharp contrast to the lazy and apathetic attitude of the administration in Bangladesh, India, under Modi, is a textbook case of how adversities can be transformed into outstanding opportunities. Two of post-independent India’s biggest reforms about the farm legislation and the new labour codes have seen the light of the day, in the midst of a raging global pandemic that would have deterred a lesser leader. But Prime Minister Modi is made of sterner stuff. Around 42 crore beneficiaries have been directly given cash support through Direct Benefit Transfer (DBT) amounting to Rs 53,248 crore under the Pradhan Mantri Garib Kalyan Package (PMGKP) till June 2 2020.

The Rs 1.7 lakh crore PMGKP package was announced by the Modi government on March 26 this year, to protect weaker and most vulnerable sections of the society from the impact of the lockdown, due to Covid-19. Under the package, the government announced free food grains and cash payment to women and poor senior citizens and farmers. Its swift implementation is being continuously monitored by the Central government.

By June this year, the government had transferred Rs 8,488 crore into the bank accounts of PM Ujjwala Yojana beneficiaries. Also, 8.58 crore free Ujjwala cylinders have been delivered while a total of 9.25 crore cylinders have been booked. The Modi government has also released an amount of Rs 895 crore for the benefit of 59.23 lakh EPFO account holder employees, where the government has decided to make the entire 24% PF contribution of both employer and employees.for a specified period, to help people tide over the Covid crisis.

Again, the Modi government also released the first instalment of PM-KISAN (Rs 16,394 crore) and transferred it to 8.19 crore identified farmers who got Rs 2,000 directly in their account, during the pandemic, in the last few months. The government also disbursed Rs 20,344 crore to women Jan Dhan account holders till June 2. A sum of Rs 10,029 crore was disbursed as the first instalment to 20.05 crore Women Jan Dhan account holders. Another Rs 10,315 crore has also been credited to 20.63 crore women Jan Dhan account holders.

In addition, the government has also released Rs 2,814 crore to about 2.81 crore old age persons, widows and disabled persons, as of June this year. Each beneficiary received cash of Rs 500 under the scheme as the first instalment and another Rs 500 as the second instalment. For each instalment, the government disbursed Rs 1,407 crore to 100% identified beneficiaries. Also, 2.3 crore Building & Construction workers have so far received financial support amounting to Rs 4,313 crore.

Since it has been established with hard data that Bangladesh is no match for India when it comes to economic heft, the next question that arises is, whether PPP per capita is a good measure, don’t forget, in terms of this particular metric, India is far ahead of Bangladesh. In contemporary macroeconomics, gross domestic product (GDP) refers to the total monetary value of the goods and services produced within one country. Nominal GDP calculates the monetary value in current, absolute terms. Real GDP adjusts the nominal gross domestic product for inflation. PPP, on the other hand, attempts to convert nominal GDP into a number more easily comparable between countries with different currencies. PPP is a great yardstick to measure standards of living and productivity between the two countries.

To better understand how GDP paired with purchase power parity (PPP) works, suppose it costs $10 to buy a shirt in India, and it costs $12 to buy an identical shirt in Bangladesh. To make a like to like comparison, we have converted local currencies, the Indian Rupee and the Bangladeshi Taka, into a common unit, the US Dollar. The PPP would, therefore, be 12/10, or 1.2. In other words, for every $1.00 spent on the shirt in India, it takes $1.20 to obtain the same shirt in Bangladesh, which means for the same product, one needs to shell out more money in Bangladesh, than in India, as Bangladesh has a far weaker currency versus the US Dollar, compared to the Indian Rupee, which is better positioned and far stronger, versus the US Dollar.

Modi naysayers going ballistic, claiming Bangladesh has overtaken India in terms of Nominal GDP per capita, would do well to know that India is far better off, at least 22.28% richer than Bangladesh, in terms of PPP per capita, as India is far more competitive, has huge forex reserves, a stable Rupee and has a broadly diversified export basket, unlike Bangladesh which depends largely and disproportionately on its garment and apparel goods’ industries.

Amidst the brouhaha, one should not forget that in the next one year, projects like the Rampal Maitree Power Plant, India-Bangladesh Friendship Pipeline, rail links between Akhaura-Agartala and Chilahati-Haldibari and Khulna-Mongla rail line, are expected to be completed with assistance from India, in line with it’s “Neighbourhood First” policy. India and Bangladesh have decided to have a high-level monitoring mechanism on a regular basis which will monitor the progress of the ongoing projects. Several initiatives to boost connectivity and trade have been taken by both countries. And, this includes the movement of Indian cargo from Agartala to Kolkata via Chattogram and expansion of the scope of the Protocol that governs trade and transit, on inland waterways.

Also, parcel and container train services between the two countries have been started. India has recently gifted 10 locomotives to Bangladesh. Even in 2017, India had extended a credit line of a good $4.5 billion to Bangladesh and signed 22 pacts, to help the Muslim nation in various areas including strategic sectors. The Bangladesh liberation war turned into a full-scale India-Pakistan war, leading to the surrender of 93,000 Pakistani soldiers in Dacca (now Dhaka) on December 16, 1971. India was the first country to recognise Bangladesh as a sovereign nation. In 2021, Bangladesh plans to celebrate the golden jubilee of its independence on March 26 1971, in 16 countries, including India. The moot point is, India and Bangladesh share a very cordial and warm relationship, but the falsehoods surrounding GDP numbers needed to be addressed, and this is precisely what this piece has done, corroborated by hard data. Bangladesh, which has witnessed a healthy growth over the past decade owing to Sheikh Hasina’s policies, was among the first few countries to describe India’s move to withdraw the special status granted to Kashmir under Article 370, as an internal matter and supported India at the UN Human Rights Council session as one of the 47 members.

To cut a long story short, in light of ample proof provided above, comparing a behemoth like India which scores handsomely on a plethora of economic parameters, with a much smaller nation like Bangladesh, is pure harakiri. Under Prime Minister Narendra Modi, per capita GDP of India surged from Rs 83,091 in 2014-15 to Rs 1,08,620 in 2019-20, a substantial increase of 30.7%. Under Congress-led U.P.A. 2, it had risen by far smaller,19.8%. Hence the Congress should start serious introspection, rather than indulging in puerile theatrics, on this issue. The icing on the cake is the fact that the Modi government has used the Covid pandemic to unleash significant bang reforms, with no room for incrementalism, whatsoever. External stability has never looked better, with India’s foreign exchange reserves at a record high of over $551 billion, the 3rd highest in the world. While Bangladesh is in the throes of a food crisis, India’s robust agriculture sector grew by a healthy 5.9% and 3.4% in the March 2020 and June 2020 quarters, respectively, with food grain production likely to exceed 300 million metric tonnes in FY21. During the pandemic, the Modi government has given free ration to 81 crore people for months together, in one of the biggest socially inclusive initiatives, globally. In effect, the Modi government has fed a population, equal to 2.45 times, the size of the USA and that is certainly a tall achievement by any global yardstick, whatsoever!