Follow China, Bangladesh's cue or try something new? Here's a budget idea to settle the growth debate


Economic comparisons between India and its bordering countries have generally yielded a fixed hierarchy of the top three rankings in the last couple of years with China taking the lead, Bangladesh at the bottom and India in between.

However, the pandemic-induced shock has resulted in a unique situation in terms of growth figures for the current fiscal, with the International Monetary Fund (IMF) projecting Bangladesh’s per capita gross domestic product (GDP) to overtake that of India’s, albeit marginally.

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Experts saw the development as an outlier event occurring due to exceptional circumstances which would be rectified within a year.

“Bangladesh exceeding India’s in per capita income is an aberration caused by the higher contraction of the Indian economy due to the lockdown. Next year, as growth recovers, this will be reversed,” said M Govinda Rao, former member of the 14th Finance Commission.

In terms of targets, they felt China would be more suitable for India’s growth aspirations while Bangladesh’s growth story held some key lessons.

The October 2020 edition of the IMF’s World Economic Outlook pegged India’s FY21 per capita GDP, or the GDP divided by the total population, at $1,877 in nominal terms, recording a 10.5% annual drop versus a 4% growth to $1,888 for Bangladesh.

In comparison, China’s per capita GDP was estimated at $10,839 in 2020, as per the IMF report. The same report penciled in China and Bangladesh’s growth figures at 2.1% and 3.8%, respectively, while it projected the Indian economy to see a 10.3% contraction in FY21.

According to official data, the Chinese economy grew 2.3% in 2020 and was close to being back on its pre-pandemic trajectory.

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Experts felt that growth figures expressed in purchasing power parity (PPP) terms would be a better indicator of the relative performance of the three countries, and would put India far above Bangladesh and closer to China.

However, the run-up to the latest IMF figures highlight the steps and policies India could have taken along with lessons for the way ahead.

While China’s economy surged ahead during the nineties, quickly scaling up its manufacturing sector through export-oriented foreign direct investment (FDI) policies, Bangladesh’s sharp focus on its textiles sector gave it a strong competitive advantage in terms of exports.

During the time, while India too benefited from export-driven growth, its policy orientation was more inward-focused towards the domestic market. Instead of the labour-intensive manufacturing sector, which is associated with a high growth multiplier effect, a large part of India’s gains came from the services sector.

Bangladesh found its key competitive advantage in the textile sector and turned it into the nation’s engine of growth. Similarly, India needs to identify its specific drivers of growth and focus on making those sectors competitive, according to experts.

China’s growth model points to the importance of industrial infrastructure, said Abheek Barua, chief economist at HDFC Bank. India could emulate the coastal Special Economic Zones (SEZs) that facilitated exports in China, Barua said.

However, taking a cue from what has worked for other countries in the past may not always be the best way forward considering the ever-changing external situation. Along with the protectionist wave washing across economies in the backdrop of the pandemic, China too has begun focusing on its domestic market, Barua added.

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This could leave a window for India to focus on improving its exports through a policy shift in the upcoming budget. India could signal a shift in its trade policy from import tariffs to more export promotion and facilitation through the extension of export incentives, broadening the Production Linked Incentive scheme with a clear export push and better trade infrastructure, said Radhika Rao, India economist at DBS Bank.

According to Madan Sabnavis, chief economist at CARE Ratings, India could boost its exports by focusing on small and medium enterprises (SMEs). Support to improving the capacity and quality standards of SMEs could help India exports move up in the global value chain, Sabnavis said.





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