In news:

• India, the fastest-growing major economy, is seen as the powerhouse of South Asia, but this may soon change. Having already stolen a march over India on key social indices, small neighbour Bangladesh is now on the verge of establishing a lead on the economic front too.
• The recent debate in India-Bangladesh relations has erupted since the GDP projections by the International Monetary Fund this year.

 

 

• It has suddenly dawned upon the critics; media and expert commentators that Bangladesh has managed to build a thriving economy primarily dependent on export markets.
• Their economic success is being contrasted with the economic contraction in India due to the pandemic and lockdowns.

 

 

Some Facts about the Relationship

• India was one of the first countries to recognize Bangladesh and establish diplomatic relations immediately after its independence in December 1971.
• Defence Cooperation: India and Bangladesh share the historical legacy of cooperation and support during the Liberation War of 1971.Various Joint exercises of Army (Exercise Sampriti) and Navy (Exercise Milan) take place between the two countries.
• Border Management: India and Bangladesh share 4096.7 km. of border, which is the longest land boundary that India shares with any of its neighbours. The India-Bangladesh Land Boundary Agreement (LBA) came into force following the exchange of instruments of ratification in June 2015.
• Cooperation over Rivers: India and Bangladesh share 54 common rivers. A bilateral Joint Rivers Commission (JRC) is working since June 1972 to maintain liaison between the two countries to maximize benefits from common river systems.
• Economic Relations: Bangladesh is India’s biggest trade partner in South Asia. India’s exports to Bangladesh for financial year 2018-19 (April-March) stood at US $ 9.21 bn and imports from Bangladesh for the same period stood at US $ 1.22 bn.
• Cooperation in Power Sector: This has become one of the hallmarks of India- Bangladesh relations. Bangladesh is currently importing 1160 MW of power from India.

 

Centrestage of the debate: The economic comparison

• According to the IMF’s medium-term forecasts, Bangladesh’s per capita GDP is expected to overtake India’s this year.
• Over the five-year period ending in 2025, Bangladesh’s per capita GDP is expected to grow at a slightly higher pace.
• It implies that in 2025, it’s per capita income would be $2,756, marginally higher than that of India’s at $2,729.

 

Why it matters?

• Typically, countries are compared on the basis of GDP growth rate, or on absolute GDP.
• For the most part since Independence, on both these counts, India’s economy has been better than Bangladesh’s.
• However, per capita income also involves another variable — the overall population — and is arrived at by dividing the total GDP by the total population.

 

Why does India lag behind?

• There are three reasons why India’s per capita income has fallen below Bangladesh this year:

1. The first thing to note is that Bangladesh’s economy has been clocking rapid GDP growth rates since 2004.
2. Secondly, over the same 15-year period, India’s population grew faster (around 21%) than Bangladesh’s population (just under 18%).
3. Lastly, the most immediate factor was the relative impact of Covid-19 on the two economies in 2020.

 

How has Bangladesh managed to grow so fast and so robustly?

• Formed from the poorest regions of Pakistan, Bangladesh has come a long way since its independence in 1971. However, moving away from Pakistan also gave the country a chance to start afresh on its economic and political identity.

(1) Low wages

• With wages in China rising, it has vacated about $140 billion in exports of unskilled labour-intensive sectors, including apparel, clothing, leather and footwear.
• Bangladesh being the low on wages successfully managed to harness the situation.

(2) Garment industry

• A key driver of growth was the garment industry where women workers gave Bangladesh the edge to corner the global export markets from which China retreated.
• It also helps its economy such that its GDP is led by the industrial sector, followed by the services sector. Both of these sectors create a lot of jobs and are more remunerative than agriculture.

(3) Diversification of labour

• Its labour laws were not as stringent and its economy increasingly involved women in its labour force.
• This can be seen in higher female participation in the labour force.

(4) Focus on developmental metrics

• Beyond economics, a big reason for Bangladesh’s progressively faster growth rate is that especially over the past two decades it improved on several social and political metrics.
• It included parameters such as health, sanitation, financial inclusion, and women’s political representation.

(5) Inclusive growth

• On financial inclusion, according to the World Bank’s Global Findex database, while a smaller proportion of its population has bank accounts, the proportion of dormant bank accounts is quite small when compared to India.
• This is the same reflected by the per capita GDP comparison which has triggered this BI.

(6) Gendered development

• Bangladesh is also far ahead of India in the latest gender parity rankings. This measures differences in the political and economic opportunities as well as the educational attainment and health of men and women.  
• Out of 154 countries mapped for it, Bangladesh is in the top 50 while India languishes at 112.

 

India-Bangladesh Bilateral Institutional Mechanisms

• Sharing of River Waters: India and Bangladesh share 54 common rivers. A bilateral Joint Rivers Commission (JRC) signed in June 1972 to maintain liaison between the two countries to maximize benefits from common river systems is working well for the two nations. The Ganga Waters Treaty signed in 1996 for the sharing of waters of river Ganga during the lean season (January 1-May 31) has enhanced the peaceful neighborly relations between India and Bangladesh. Regular meetings of the Joint Committee on Sharing of Ganga Waters are held to take stock of the implementation of the provisions of the treaty.
• Security & Border Management: India and Bangladesh share 4096.7 km. of the border, which is the longest land boundary that India shares with any of its neighbors. It shares the borders with the Indian states of Assam, West Bengal, Tripura, Meghalaya, and Mizoram. The India-Bangladesh Land Boundary Agreement (LBA) came into force following the exchange of instruments of ratification in June 2015. As per the agreement, the enclaves of India and Bangladesh in each other’s countries were exchanged and strip maps were signed. Residents of these erstwhile enclaves, who opted to retain their Indian citizenship made a final movement to India by November 30, 2015. 
• Bilateral Trade and Investment: The first Trade Agreement between India and Bangladesh was signed in 1972. The India-Bangladesh Trade Agreement is signed for a period of 5 years with a provision for auto-renewal. There are a number of other trade-related agreements that have been signed between both countries.
• India’s exports to Bangladesh for the financial year 2018-19 (April-March) stood at the US $9.21 BN and imports from Bangladesh for the same period stood at the US $ 1.22 BN.
• Power and Energy Sector Cooperation: Cooperation in the power sector has become one of the hallmarks of India Bangladesh relations. Bangladesh is currently importing about 660 MW of power from India. The 1320 MW coal-fired Maitree thermal power plant, a 50:50 JV between National Thermal Power Corporation (NTPC) of India and Bangladesh Power Development Board (BPDB), is being developed at Rampal. Many Indian public sector units such as Indian Oil Corporation, Numaligarh Refinery Limited, Petronet LNG Ltd are working with their Bangladeshi counterparts in the oil and gas sector of Bangladesh.
•  Connectivity: India-Bangladesh is a good example of connectivity through all modes of transport. The movement of goods by road is operationalized through 36 functional Land Customs Stations (LCSs) and 2 Integrated Check Posts (ICPs) along the border. 
•  Cultural Exchanges: The Indira Gandhi Cultural Centre (IGCC), High Commission of India, is a Cultural Centre of the Indian Council for Cultural Relations of India in Bangladesh. Inaugurated in 2010, IGCC regularly organizes programmes covering a wide-gamut of cultural activities. The IGCC also holds regular training courses in Yoga, Hindi, Hindustani Classical Music, Manipuri Dance, Kathak and Painting. The courses are very popular with Bangladeshi students. IGCC Hindi teacher also teaches Hindi at the Institute of Modern Languages in University. 

 

A way forward

• In part, Bangladesh’s recent economic performance, and differences between the two countries can be traced to the former’s stellar export performance, especially in garments and apparel.
• In comparison, India’s exports have remained sluggish, as export pessimism has taken hold.
• In the current context, with three of the four drivers of growth struggling, exports could provide the much-needed fillip to India’s economy.
• However, this would require India to reverse its recent stance on trade — lower rather than raise tariffs, embrace free trade agreements, and seek greater integration with global supply chains.
• This will provide India yet another opportunity. However, this will require the government to pivot away from protectionism.