Development in India and Bangladesh

In recent decades, India has been championed as an economic powerhouse and an economy on the rise. Indeed, it is one of the original BRIC countries and in the six-year period of 2005–2011 grew at an annualized rate of 8.2%. Predicted to be the world’s most populous country in the next 15 years—making it the home for nearly 20% of the earth’s total population—the status and trajectory of India ’s development is hugely important for global prosperity. It is notable, therefore, that India ’s progress has slowed recently. A closer look at India and its South Asia neighbours provides an interesting case study in progress and development, one which suggests that development can occur in the absence of rapid economic growth.
India , Bangladesh and Pakistan are three countries united by geography, divided by history, and on very different paths to prosperity. At first glance the comparison may seem unusual. India is a giant (encompassing 3.2 million square kilometres and with a total GDP of $1.8 trillion) relative to Bangladesh , which covers only 147,000 square kilometres and has a GDP of $116 billion. Pakistan sits between the two, covering 796,000 square kilometres with a total GDP of $231 billion. Throughout their shared histories, India ’s economy has, on more than one occasion, been enthusiastically promoted, while Bangladesh has been viewed in a less positive light. However, the country once referred to as a “basket case” by Henry Kissinger is now a “development star” according to Rob Vos, Director of UN Department of Economy and Social Affairs.
This year, for the first time, Bangladesh has overtaken India on the Prosperity Index. The country is now ranked 103rd (and rising), while India is 106th (and falling) (see graph 1). Over the past five years, India has slid down the rankings in seven of the eight sub-indices and in overall Prosperity, while Bangladesh ’s performance over this period is the complete opposite—rising in seven sub-indices and overall Prosperity. While comparing Bangladesh and India , it is also worth reflecting on Pakistan . In many respects Pakistan is distinct from Bangladesh and India . Pakistan (132nd) is ranked nearly 30 places lower than India on the Prosperity Index and faces distinct security challenges that affect “all aspects of life… and impede development”. As a result, Pakistan ’s rank in the Prosperity Index has remained relatively unchanged over the last five years, showing neither a big increase nor a decline. Given this, close comparisons with India and Bangladesh —two countries heading in opposite directions—could be misleading, and as such this piece does not compare Pakistan with its two neighbours.

For Bangladesh , surpassing India is quite an accomplishment considering that the country’s GNI per capita—at purchasing power parity—amounts to just half that of its larger neighbour. The Prosperity Index reveals that despite this Bangladesh is not only live 3.4 years longer than their India n counterparts, but fewer are undernourished, a lower number die in infancy, and more have access to sanitation. Furthermore, the average Bangladesh i worker has more secondary years of education (1.8 years) than his or her India n counterpart (1.2 years). Perhaps as a result, more respondents in Bangladesh reported being satisfied with the quality of education they receive and more felt that children were learning in their society (see graph 2). Such achievements explain why Bangladesh ’s success in improving the lives of its people has begun to generate substantial public interest.
These impressive achievements suggest that development and progress are not solely reliant on rapid economic growth. India ’s experience suggests that GDP growth, in itself, is not enough. Between 1995 and 2012, India ’s economy grew each year, on average, by 1.2% more than Bangladesh ’s (5.6% compared to 6.8%) and this occurred despite India ’s recent slowdown. As a result, Bangladesh spends roughly four times less per person than India on employment programmes and yet had an employment to population ratio over 10% higher than India in 2007.
While Bangladesh ’s economic growth has not attracted the same attention as India ’s, its work on microfinance—the provision of small loans to poor recipients without access to financial services—certainly has. Microfinance originated in Bangladesh in the 1970s and is now viewed as an important way of tackling poverty. One study of households in Bangladesh i villages over time found that, on average, an increase in borrowing of 100 Bangladesh i Taka (Tk) increased future household consumption by 15Tk, or 15%. Furthermore, the study found that borrowing had a particularly positive effect when targeted at women and that female borrowers were more likely to invest in schooling and healthcare for their families. Microfinance in India has not had the same effect on poverty as in Bangladesh . Among other factors, this is partly the result of the shock to microfinance that occurred in 2010 when the state of Andhra Pradesh effectively outlawed private microfinance institutions. The result was that overall loan portfolios for microfinance institutions across India shrank by 33%, from $5.25 billion to $3.52 billion, between March and December 2011. Since then, the India n government has taken steps to regulate microfinance institutions on a national basis, providing the sector with a clearer regulatory framework. This has helped the health of the sector, although its future success is far from assured. Although microfinance in Bangladesh is no panacea, it would appear that in this area too India has been outperformed by its neighbour. Despite all these successes Bangladesh still has acute problems, particularly in terms of governance: the country has been under military rule three times in the past three decades.
While Bangladesh ’s performance in many respects is encouraging, by contrast India ’s development progress has slowed considerably over the last five years, particularly in terms of the economy and governance. The slowdown in India ’s economic growth in 2012, to 3.2%, is surprising when compared to the 8.2% average annual growth that the country recorded between 2005 and 2011. Even more worrying is the fact that this fall has been mirrored by declines in other economic indicators. Since 2009, un-repaid (or ‘non-performing’) loans in India ’s banks have increased to a reported 4.4% in mid-2013 , the rupee has fallen, and foreign direct investment has shrunk (see graphs 4 and 5).
In addition, inflation remains worryingly high at 6.1%. The deterioration in all these indicators mirrors the decline in the country’s score on our Economy sub-index, which has caused India to fall from 43rd to 62nd in ranking since 2009.
India ’s democratic system of governance has always been highlighted as fundamental to its future success. Despite any failings, it is, at least, a democracy. It would appear, however, that India ’s economic problems have been compounded by governance failures. Since 2009, India has fallen 18 places on the Governance sub-index to 54th. Over this period, faith in the country’s political class has been shaken by high-profile corruption scandals, including the selling of mobile phone spectrum at below market rates and the numerous instances of bribery and incompetence associated with the 2010 Commonwealth Games. Events like these—and the fact that 14% of the current India n parliament is accused of criminal activity, including murder, kidnapping, extortion and rape—may have contributed to declining standards of governance as well as the largest anti-government protests on record, led by India ’s middle class.
Such discontent is reflected in the Prosperity Index. India ’s slide down the Governance rankings has been, in part, the result of falling confidence in the national government (down from 75% in 2009 to 59% by 2012) and in approval of the country’s leadership. This decline has been accompanied by a fall in support for the governing coalition, which is currently predicted to lose 111 (42%) of its seats in the election scheduled for 2014.
India ’s economic and political problems are far from unresolvable and the country has prospered over the course of the last two decades. However, the recent malaise seems to have lingered and observers are unconvinced that many of these difficulties will be resolved in the near future. These problems threaten to stall the country’s progress in the Prosperity Index.
Although Bangladesh continues to rise in the Index—in part a reflection of successful development policies—we should not forget that the country has significant problems of its own. However, at present, the grand South-Asian leader might learn a trick or two from its more nimble regional compatriot.

  1. The Financial Express, “Bangladesh as 'Rising Star' of Economic Growth: UN-DESA”, Feb 16 2012.
  2. Rankings are those for 110 countries. If the rankings for 142 countries were used, India’s and Bangladesh’s specific ranks would change, however this would not change the relative performance of the two countries.
  3. World Bank, Pakistan: Achieving Results in a Challenging Environment, 2013
  4. UNDP Human Development Report 2013 India, 2013
  5. The Economist, “The Path Through the Fields”, Nov 3 2012
  6. World Bank, GDP growth (annual %)
  7. H. Zaman, “Assessing the Impact of Employment Generation Programs in Challenging Rural Poverty: A Comparative Study on Bangladesh and India”, Journal of Poverty 15 (3) pp. 259 - 276
  8. D. Hulme & T. Arun, “What’s wrong and right with microfinance – missing an angle on responsible finance?” BWPI Working paper 155, July 2011.
  9. S. R. Khandker, “Microfinance and Poverty: Evidence Using Panel Data from Bangladesh”, The World Bank Economic Review, Sept 8 2005
  10. N. Srinivasan, Microfinance India: State of the Sector Report 2010, ACCESS Development Services 2010.
  11. Legatum Ventures, Indian Microfinance: Looking Beyond the AP Act and its Devastating Impact on the Poor, 2012.
  12. The Economist, “Microfinance in India: Road to Redemption”, Jan 12 2013.
  13. International Crisis Group, Restoring Democracy in Bangladesh, 2008
  14. Reuters, “Indian Banks Teeter on Asset-quality Abyss”, Aug 13 2013.
  15. World Bank, Foreign direct investment, net inflows (US$)
  16. A. Khandekar and D. S. Reddy, “An Indian Summer: Corruption, Class and the Lokpal Protests”, Journal of Consumer Culture 0 (0) pp. 1-27
  17. Average form 5 polls: CV Voter Jan-March 2013, April-May 2013, July 2013, Hansa Research, July 2013 and CSDA, July 2013.