Bangladesh Is Doing Good, India Will Do Better By Tapping The Value Chain

Generally, Indian media has the least interest in the neighbourhood beyond the usual realms of conflict, security etc. From Pakistan’s Dawn to Dhaka’s The Daily Star, every reputed newspaper in the region carries a wide range of economic and business news on India. In comparison, the bulk of the Indian writing is event-specific, seasonal and political, in nature.

The recent headlines on Bangladesh’s economic performance are from the same genre. Some edit writers are finding fault with India’s Narendra Modi government’s policies for Bangladesh’s per capita gross domestic product or GDP (at current US dollar) overtaking India’s in the Covid year of 2020.

The rise in per capita income stems from 5.2 per cent GDP growth (provisional) reported by Dhaka in the Bangladeshi financial year (July-June). This is a globally remarkable performance. World Bank pegged Bangladesh’s growth in 2020 (calendar) at 2.35 per cent against 7.9 per cent contraction of the Indian economy and 3.5 per cent contraction of the world economy.

“Don’t hold your breath expecting India to acknowledge Bangladesh’s success,” says an Indian opinion writer. He is unaware that the nationalist government in power in Delhi since 2014, did the most to facilitate bilateral trade and investment, which is testimony to its appreciation of the growth paradigm in Bangladesh.

It is in the Indian interest to ride the growth in the neighbourhood and cushion political ups and downs, which are bound to come in a dynamic global scenario. The wide array of energy cooperation and quantum improvement in trade logistics is here to stay, and decide the course of Bangladesh’s future engagements with India.

A Country Of Surprises

Incidentally, this is not the first time Bangladesh came out with surprises. In 1975, just after the then US secretary of state, Henry Kissinger, referred to it as a “basket case”, Bangladesh’s per capita GDP (at current US dollar) overtook India’s. Since then, it equalled India’s figures a couple of times, the latest being during the coalition years (in Delhi) of 1996-98.

At constant prices (US dollar) or on purchasing power parity (PPP) basis, the gap in per capita GDP between the two kept widening since 1991 and narrowed down in 2020. PPPs are price relatives, which show the ratio of the prices in national currencies of the same good or service in different countries.

Statistics are always debatable. Bangladesh’s growth data of the last two years faced criticism within. The growth figures for 2019-20 (July-June) are not finalised as yet and the supporting data (quantum index) is available only for a quarter.

Bangladesh announces only annual growth numbers. Provisional data for 2020-21 (July-June) was announced a quarter in advance. There was no sectoral data to know how it was achieved, despite an anticipated decline in activity in all three sectors.

Agriculture suffered in the 2020 kharif season due to floods. According to ITC Trade Map, exports were down by 12 per cent, in 2020 (calendar), due to an identical fall in export of readymade garments (RMG). RMG contributes 86 per cent of Bangladesh’s export revenue, 45 per cent of manufacturing GDP and 7 per cent of employment. Services contribute 51 per cent of GDP.

Growth Attributes

Having said this, there is little doubt that Bangladesh did better than most or many economies in the pandemic year.

First and foremost, Dhaka reports one of the lowest testing rates and distinctly low incidence of Covid in the entire region. This was achieved without as strict lockdown measures as was imposed by India and many other economies.

Barring seven days, the RMG production in Bangladesh was not affected. In comparison, India's textile production was hampered for nearly two months in April-May 2020. India’s RMG (HS code 61 and 62) exports fell by a sharper 24 per cent.

Apart from RMG, Bangladesh has three other major economic drivers: inward remittances, public investment in infrastructure and growth in microfinance. World Bank previously predicted that the job cut in the Middle East will hit remittances.

Total remittances worldwide did go down substantially in 2020 (calendar). But, Bangladesh reported an 18 per cent jump ($21.8 billion) in inflows. (Other countries that witnessed significant jump are Mexico, Egypt, Pakistan, Nigeria etc). There is no logical explanation for this phenomenon yet.

Construction is grouped under industry/manufacturing in Bangladesh and has a bigger impact on GDP numbers due to abnormally high costs. The per kilometre cost of the overhead metro line in Dhaka is three to four times of India. Leaving corruption angle aside, the price of land and land-filling are two major cost attributes.

Bangladesh is receiving huge funds from India, China and multilateral agencies in various infrastructure projects. The slow pace of progress notwithstanding, construction did impact GDP in 2020 and would continue to impact in the coming years.

The buoyancy of the Bangladeshi economy was felt on the property market. Unlike India or many major economies, where real estate prices tumbled due to a lack of buyers during the pandemic, prices were either stable or moving northwards in Dhaka over the last year.

One apparent reason behind this was the amnesty scheme that offered an opportunity to convert black money into white at 10 per cent income tax. The scheme was launched in 2019 and was made more lucrative in 2020. Bangladeshi commentators believe the scheme worked.

According to the Corruption Perceptions Index 2020 of Transparency International, Bangladesh ranks 146 (out of 180 countries), arguably the lowest in South and South-East Asia; India ranks 86 and China 78.

Tap The Value Chain

It is questionable if India can match Bangladesh in incentivising textiles. With 175 of 300 members in Parliament having an interest in the sector, RMG rules policy space in Dhaka. From flexible labour laws to abundant bank credit or a larger share of the stimulus package — they get the best of all deals.

There is minimal information on the profitability of the sector. Unofficial information suggests the sector is undergoing major consolidation. From 4,500 the number of RMG enterprises was down to 2,500 before Covid, and is now around 1,800.

It is receiving foreign direct investment (FDI) through both official and unofficial channels. Many RMG factories have reportedly been controlled by the Chinese, without a change in official ownership. Indians may also be owning a part of the capacities through similar arrangements.

The synergies between China and Bangladesh are understandable as they are the world’s top two garments exporters. India’s opportunity lies in tapping the value chain.

India is a significant supplier of cotton fabric and yarn to Bangladesh but the manmade fibre segment is dominated by China. Encouraging Indian entrepreneurs to take bigger positions in the Bangladeshi RMG sector is also important.