Reasons behind Economic rise of Bangladesh

In 2010, India’s per capita income was $1384 while Bangladesh’s was $763. So roughly it was double of Bangladesh. Now you can understand why Bangladeshis were illegally coming to India, of course for better livelihood.

 

But as they time never remains the same, today, exactly after 10 years, India's per capita income stands at $1,947 which is $280 less than that of Bangladesh’s $2,064.
Though COVID is one important factor contributing to contraction in Indian economy last year but even before COVID, many economists had forecasted that Bangladesh would surge ahead of India in coming years.

Now question arises, how Bangladesh which got independence in 1971 after sufferings brutal occupation and genocide by Pakistan came out of shadows of gloom and became a successful story of economic turnaround. 

The reason can be tracked back in same year of 1971 when United Nation announced special status to “Least Developed Country”. Out of 200 odd countries, approximately 47 countries fell under LDC countries list. The least developed countries (LDCs) are countries who exhibit the lowest indicators of socioeconomic development, with the lowest Human Development Index ratings. In 1975, Bangladesh was included in LDC and at least on paper, still is in the list.

To support LDCs, the developed countries don’t put any import tariffs from goods produced in these LDC countries. Just to give you a context, normally EU puts around 10% import duty on ready made Garments which is not applicable for LDCs means they are exempt of any import tariff.

These kind of import tariff relaxation helped low income countries to export good at relatively cheaper rate than developing countries like India, Brazil or Thailand.

To overcome acute poverty, Bangladesh focused on stitching clothes to produce ready-made garments. Back in early 1980s the economy of Bangladesh was so fragile that even shirt buttons were imported. But Multi Fibre Agreement (MFA) of 1974 which put stringent measures to control RMG market in United States impacted major global RMG manufacturers but on the other hand Bangladesh enjoyed an exemption due to its LDC status. This triggered quota hopping by industry leaders, South Korean company Daewoo’s RMG unit was the first entrant in Bangladesh and it revolutionized RMG sector there. Similarly lot of other companies made their production base in Bangladesh.

Bangladesh started becoming a serious player in garment business by early 2000s. In 2006-07, Bangladesh exported readymade garments worth $9.21 billion and Indian was just behind with $8.89 billion. In 2018-19, readymade garment export of Bangladesh reached approximately $31 billion, while that of India only $16 billion. 

Global factors helped Bangladesh as well because China which was producing almost half of world’s garment faced challenge of growing wages thanks to their booming economy. Higher wages led to shift of production to low wage countries like Bangladesh, Vietnam and Cambodia.

Bangladesh’s ability to export RMG resulted into exponential increase in economy. It’s GDP size was $103.5 billion in FY 2008-09, it has increased to $330.2 billion in FY 2019-20. In a single decade, exports have increased from $15.57 billion to $40.54 billion. Reserves have increased from $7 billion to $44 billion. The poverty rate has come down from 48.9 per cent to 20.5%. Remarkable achievement!

The textile sector contributes around 20 per cent of the country’s GDP now. The RMG (readymade garments) sector currently accounts for 80 per cent of Bangladesh’s net export. Every second T-shirt in the world is made in Bangladesh.

As per study done by Pankaj Vashisht and Nisha Rani of ICRIER in 2019: “The unit labour cost of producing a cotton shirt in the United States is around $7, India 50 cents, whereas in Bangladesh the unit labour cost is only 22 cents."

As per India economic survey 2021, It takes India 7-10 days from factory to export goods while in Bangladesh, Vietnam and China its less than a day. In last 10 years Bangladesh has become power surplus nation and at the same time Political stability is helping it. There are 4.5 million Bangladesh's citizen working abroad hence their remittance helps economy to great extent.

Not only in Ready made Garments but in Information Technology, Bangladesh is growing rapidly. Though still there is no match in IT export but let me share one data point which might signal about days to come. 

India is the largest supplier of online freelancers in the world with close to 24% while Bangladesh is at number 2 with world’s 16% online freelancers. ( just keep in mind the population is 8 times lesser than India).

 

Life expectancy is very good parameter to judge country’s economy. In 1971, life expectancy in Bangladesh was only 46.5 years, two years less than India. By 2018, life expectancy in Bangladesh had risen to 72 years, two years more than India’s.

When Bangladesh was preparing for golden jubilee of Independence in early 2021, they got news which made them happy as well as sad. Happy because due to their rapid growth, UN informed them they have been improved from LDC country to Developing country, it’s matter of proud for country which was in bad shape just few decades ago, in fact only 3 countries have progressed from LDC to developing country in last 50 years. Thus, it is brilliant achievement. 

The reason of sadness is that after 2024, developed countries would impose import duty on Bangladesh’s export items hence exporting won’t be easy to sustain the same growth story. 

Whether Bangladesh can compete in the open market with new tariffs or not, it will be interesting to watch. All I can say is 'Good-luck Bangladesh'!

But what about India, where did we lose momentum?

It is a fact that every country in the world has prospered due to their ability to export. But for last 9 years our exports have stagnated. We hardly have any Free trade agreement with developed countries to get access of their Market at competitive prices.

Our SEZs have failed, Make in India program couldn’t takeoff. I am hopeful that recently announced Production Linked Industry (PLI) scheme may be a game changer but it is in distant future.

How often you see our media talking about export growth, SEZ and Make in India challenges? I won’t blame media, “We are served what we order”. 

If we are not asking question to those who are responsible in Government, why they would be bothered to act or answer. We are not able to ask because of our unawareness about facts. If you want to see change, let's spread awareness.

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( Special thanks to my younger brother Vinod Tripathi for sharing inputs and editing this blog)