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The next China-India must first beat Bangladesh

Mumbai: Indian economic gloom of Covid-19 turned into despair this week, with news that gross domestic product per capita for 2020 could be lower than in neighboring Bangladesh.

“Any emerging economy that is doing well is good news,” tweeted Kaushik Basu, a former World Bank chief economist, after updating the International Monetary Fund’s world economic outlook. “But it is shocking that India, which had a 25% lead five years ago, is now lagging behind.”

Since the opening of the economy in the 1990s, India’s dream has been to emulate China’s rapid expansion. After three decades of persistence with the campaign, it is taking a toll on the global image of Bangladesh. The West wants a meaningful counterweight to China, but the partnership will focus on ensuring that India does not fall into a trap of lower middle incomes.

The relative underperformance can also boost self-confidence. If a country with a great ambition of power is beaten in its own backyard ‘by a smaller nation, it helped to liberate in 1971 by waging war with Pakistan’, its influence in South Asia and the Indian Ocean could diminish .

What went wrong?

Where did things go wrong? The coronavirus pandemic is definitely to blame. Bangladesh’s new infections peaked in mid-June, while daily numbers in India are only now beginning to decline, after reaching a record high for any country. With 165 million people, Bangladesh recorded less than 5,600 deaths in Covid-19. Although India has eight times the population, it has 20 times the deaths. What’s worse: the severe exclusion that India has put in place to stop the spread of the disease will wipe out 10.3% of actual production, according to the IMF. This is almost 2.5 times the loss that the world economy is expected to suffer.

Fiscal setbacks, an undercapitalized financial system and a multi-year investment function slow India’s recovery in demand for Covid. Worse, even without the pandemic, India would have finally lost the race to Bangladesh. The reason lies in a new article by economist Shoumitro Chatterjee of Pennsylvania State University and Arvind Subramanian, formerly India’s chief economic adviser, entitled “India’s Export-Led Growth: Exemplar and Exception.”

Consider first the exceptionality of the growth in India. Bangladesh is doing well because it is following in the footsteps of previous Asian tigers. Its share of exports of low-skilled goods is commensurate with its share of the poor-country working-age population. Vietnam beats slightly above its weight. But basically, both take a leaf out of China’s playbook. The People’s Republic has sustained high GDP growth for decades by achieving for itself a much greater dominance of the production of well-skilled goods than justifies the size of its labor pool.

Production is missing

India, however, went the other way and chose not to produce in the factory work the things that would take up its 1 billion population in working age. “India’s lack of production in the major low-skilled textile and clothing industry is $ 140 billion, which is about 5% of India’s GDP,” the authors say.

If half of the computer software exports in India ceased to exist in 2019, there would be a rage. But the loss of $ 60 billion would have been the same as the previous year’s exports from low-skilled production. It really is, and yet no one wants to talk about it. Policymakers do not want to admit that the shoes and clothing factories that were never born – or forced to close – could also earn dollars and create mass employment. They would have provided a path for permanent rural-to-urban migration in a way that jobs that require higher levels of training and education could never. Bangladesh has two out of five women of working age in the labor force, doubling the Indian percentage by 21%.

A greater danger is that politicians, instead of taking corrective action, could double down on mistakes of the past and seek salvation in outarchy: ‘Poorer than Bangladesh? Toemaar. We can create barriers to imports and make things good for the domestic economy. Let’s create jobs like that. Suddenly, the slogan of independence in the 1960s and ’70s made a return to economic policy.

It is in dispelling this pessimism that the Chatterjee-Subramanian study comes in handy again: Contrary to popular belief, India was an example of export-led growth and outperformed all countries except China and Vietnam. The glass is more than half full.

Trade worked for the country. It’s the composition that is wrong because of an extraordinary “comparative advantage” “that defies specialization,” the researchers show. India exports many well-skilled manufacturing goods and services, such as computer software. But as the world’s factory, China now gives space to others at the bottom of the spectrum. This is where India’s opportunity “and the competitive advantage of its cheap and not particularly healthy or well-educated labor” – really lies.

Given the urgent challenge of creating at least 8 million jobs year after year, it is also the country’s biggest headache after the pandemic.

Source: Gulf News

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