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      India To Fall Behind Bangladesh In Per Capita GDP: What It Means

      CARE Ratings Chief Economist Madan Sabnavis explains the real impact of the pandemic on the Indian economy

      By - Govindraj Ethiraj |
      Published -  16 Oct 2020 1:00 PM IST
    • Boomlive

      The International Monetary Fund (IMF) has stated that India's GDP per capita is set to fall below that of its neighbour Bangladesh as a result of the COVID-19 induced lockdown. In the October edition of the World Economic Outlook titled, the IMF has predicted that India's GDP per capita will fall to $1,876.53 from $2097.78 due an estimated 9.5% percent contraction of its economy. In contrast, Bangladesh is estimated to witness a GDP growth of 3.2% in the 2020-21 financial year which will see its GDP per capita marginally surpass India's to $1887.97.

      The IMF has reported that India has been the worst-hit economy due to the pandemic after Spain and Italy due to a "sharp compression in consumption and a collapse in investment" due to the pandemic coupled with rising COVID-19 cases and inflation due to a supply disruption to agricultural products.

      While Bangladesh may have been able to overtake India, CARE Ratings Chief Economist Madan Sabnavis believes that India should be able to recover to it's lost GDP by the next FY and will see its GDP per capita income return to FY 2019-20 levels.

      What do you read from the IMF's estimate?

      Madan Sabnavis: So actually, the basic message from the IMF World Economic Outlook, is that India is one of the worst performing countries in terms of a fall in GDP growth. I think today when you're making this comparison of per capita income of India with that of Bangladesh, that probably makes it look a bit scarier. But the fact is that when my GDP is falling very sharply by around 10.3%, which is slightly more than what the RBI said. Yesterday, we heard the chief economic adviser saying that even the government's view will be more or less in line with what the RBI are saying. So, it means that the pandemic induced lockdown which was imposed in India has had a very negative impact overall on the growth prospects of the economy which gets reflected in these numbers.

      There are two parts to this. One is that India is slowing down. And it's also slowing down because of the impact of lockdown. But it's also about other economies. Now, why is it that other economies have not been hit so badly? For instance, the same report says that India's fall is the sharpest in the world after Spain and Italy. So that's one and secondly, how come a country like Bangladesh is showing growth in the same period?

      MS: It all depends upon the extent of the pandemic, and the way in which countries and different governments have reacted to it. So, if we look at the way in which India went into lockdown, it was right in the month of March, when apparently there were very few cases in India. So, in retrospect, one could be a bit wise and say that we should not have gone for a lockdown at that particular point of time. So in the month of March, it looked, it was the most logical thing to do, since all countries are going in for it. And the logical thought was that if all of us remained locked up for 21 days, and given the fact that the virus spreads in 14 days' time, it would virtually banish the virus from the country. So probably that was a very simplistic way of looking at it. And what we saw was that, as the cases kept escalating, the government kept having a further lockdown for further periods of time. But until we decided to unlock, it was probably a case of saying that the government actually threw up their hands and said, that 'look there is very little that we can do."

      The economy was getting ruined, and it was not possible for the government to support the economy. Because what was done earlier in the form of giving free food to the poor people, trying to make the migrants go back. It's not something that's really sustainable. And even today, we're seeing that lots of the measures are announced, even on the monetary side, something like a moratorium, you realise that the system has gone barren. And after all that you say that, okay, let's look at ways of working away from it. Because it's just not sustainable. Apart from the Reserve Bank, we have heard from banks and I think it's also an admission from the government that we need to get the economy back. And you need to learn to live in the pandemic. So, I think that's what's really affects India more than not.

      What is the figure of $1877 mean? Let's say it's 10% down, which means per capita GDP was about $2,100 earlier. This has more significance and ramifications and just comparing ourselves with Bangladesh, am I right?

      MS: What happens is that today, when we are saying that our economy is falling, that is we are actually talking in terms of my GDP falling. What was projected to be something in the region of around 220 lakh crores in rupee terms for 2021 is now going to come somewhere closer towards 195 lakh crores, it means 40 divided by the same amount of population, that there would be less available income for on a per capita basis. And that's what we're seeing in terms of per capita income falling. We should also remember that when we're talking in terms of the GDP coming down, it's also been associated with production coming down, investment coming down, incomes coming down because of job losses. I think all these things encapsulated that particular number and I think it's very significant because if I'm saying per capita income is down in this year, in this entire story, which we have about consumption revival, is something which is to be punctuated with a lot of doubt as we go ahead.

      If you were to look forward, it is going to take equal or more effort to get back to where we were earlier and then perhaps grow further. What is that going to take? Secondly, what is the impact of a lower per capita income on other multiplier factors. In a way can we infer whether jobs are safe or not safe are companies continuing to expand or not expand?

      MS: I would tend to think that the per capita income is a result of what's happening in economy. The very fact that we have seen job losses taking place, we're seeing that companies are cutting back on costs, we're seeing that investment is not going to take off anytime soon, especially in the private sector. All this results in lower multiplier effects on the GDP even in future. And that is going to get reflected in terms of lower growth numbers and that's coming back into your per capita income numbers. Now, one should remember that when we are going about de-growth in this particular year, even though next year, as the IMF is talking in terms of growth rate of something like eight and a half or 9% happening in our GDP, we may just about come back to the level of what we were in 2019-20, which means that a per capita income will probably at best go back to what it was before it came down to the number you spoke of it above $2,000 is what we made just about reach, which means that the overall prospects in terms of demand is not really going to increase even in the next year, when we have numerically better number.

      When we compare with other economies, is this something that we should be concerned about at all this sort of comparison?

      MS: Yeah, I think we should be concerned because we have always taken pride in being one of the fastest growing economies. We've also said that we're going to reach that 5 trillion magic number in terms of size of GDP. And we always felt that we were much superior to all the countries in our neighborhood, and that we were the ones who were actually driving this Central South Asia region. And today, we get this picture that when the economy has slowed down, or it's going to fall by around 10% and even the revival is not going to be very strong next year, we just not get back to the 19-20 levels, I think it is going to be a major area of concern for the country, both in terms of education, as well as overall standards of living.

      This is an average. It means that while the average is $1,877, for many people, in many parts of the country, it's obviously much higher. And there are other people in some parts of the country where it's much lower. What does that mean, in terms of where we stand today in the ranks of developing countries?

      MS: Actually, I think this pandemic or this lockdown has been a kind of an equalizer. Because if you look at it, I think incomes across all income strata has actually come down. We're talking even for the richest people to the poorest people, I think everybody is gotten affected, everybody's incomes have gotten affected. I think that is what it's a major concern. It's not just a case of saying that it's the migrant laborers who have been affected. Even people like you and I working in the organized sector, we've also been affected in terms of our incomes being affected, because our companies are not doing well, our business is not doing well. And that's the kind of a story which is going through, which I think is the major concern for us today.

      Tags

      international monetary fundBangladeshIndia-BangladeshPer Capita IncomeGDPIndian EconomyIndian Economic SlowdownWorld BankReserve Bank of IndiaWorld Economic OutlookIndiaCOVID-19COVID-19IMF
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