India's Per Capita GDP To Fall Below Bangladesh, Reverse Next Year

The International Monetary Fund has estimated Bangladeshi per capita GDP to exceed that of India marginally this year, but will reverse next year. India's per capita income this year is expected to be $1,876.53, while that of Bangladesh will be approximately $1,888. This decline is due on the Indian economy contracting 10.3% in the ongoing financial year 2020 - 2021 (FY21). The International Monetary Fund made these observations in the October edition of the World Economic Outlook titled 'A Long And Difficult Ascent'. This makes the IMF the third major institution to predict a close to double-digit contraction for FY21.

What Is GDP per capita?

An economy's GDP per capita is a metric to measure what each person in an economy earns on average, and is obtained by dividing the annual or periodic GDP by the population. (read)

Earlier, the World Bank had estimated that India's GDP will contract by 9.6%, and back home, the Reserve Bank of India predicted a 9.5% slump.

Also Read: India's GDP To Contract 9.6% In FY21, Estimates World Bank

Bangladesh's Per Capita Income To Exceed India This Year

If India's economy will contract in FY21, so will its GDP per capita income.

In US dollars, a person in India earned $2097.78 in 2019 (FY20), but the overall contraction in GDP this FY will reduce that income to $1876.53, according to the IMF database. Meanwhile, Bangladesh's economy is expected to grow 3.2% in its FY21 (which runs from July to June).

While Bangladesh's per capita income in US dollar was $1816.04 in 2019 (FY20), it is expected to surpass India's per capita income this year by $11.44 at $1887.97 (FY21).

Maldives', Sri Lanka's and Bhutan's per capita GDP will continue to remain higher than India's, while Nepal's will continue to be lower. Pakistan's per capita GDP for 2020 and beyond is not available in this edition with the IMF; standing at $1,349 in 2019.

The data show that this overshoot will be fleeting.

In FY22, the IMF expects India, at 8.8%, to outgrow Bangladesh at 4.4%. India's per capita income will reach FY20 level north of $2030, and it will marginally exceed that of Bangladesh, at $1990.

Economy to Contract 10.3% in FY21

Since April, this is the third estimate put out by the IMF. In its April WEO, the IMF estimated that India would grow slowly by 1.9%, revised downward to show a contraction of 4.5% in June. This edition's estimates is a 5.8 percentage-point downward revision since June, and 12.2 percentage point revision since April. "Revisions to the forecast are particularly large for India, where GDP contracted much more severely than expected in the second quarter [calendar year]", it says. In the first quarter of FY21, which is the second quarter of the calendar year, the Indian economy contracted 23.9%, measured year-on-year.

Also Read: BJP Tweets IMF's April GDP Estimate Which Was Lowered In June

Among significant economic parameters, the IMF has outlined a "sharp compression in consumption and a collapse in investment" due to the COVID-19 pandemic induced nationwide lockdown, confirmed cases still rising in India and inflation picking up in India, particularly through food prices due to a supply disruption.

The world economy is expected to contract 4.4%, and that of the United States of America will shrink 4.3%.

The IMF's estimates also come as many research houses and rating houses have put out their own independent estimates of the scale of the contraction of the Indian economy. The upper end of spectrum has Goldman Sachs estimate a contraction of 14.8%.

The IMF's latest WEO can be read here.

Also Read: India's FY21 GDP Could Shrink As Much As 15%, Research Suggests

Watch BOOM's Govindraj Ethiraj interview Madan Sabnavis of CARE Ratings on this prediction.