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'Wrong numbers compared; Bangladesh hasn't, unlikely to surpass India': Ex-CEA on GDP per capita comparison

Subramanian said GDP per capita is only an 'estimate' for one 'indicator' of the average standard of living in a country. He said that there are many other indicators that must be taken into account to grasp the bigger picture

Anwesha Madhukalya | October 17, 2020 | Updated 13:11 IST
‘Wrong numbers compared; Bangladesh hasn’t, unlikely to surpass India’: Ex-CEA on GDP per capita comparison
Arvind Subramanian on why India, Bangladesh GDP per capita comparison is wrong/PC: PIIE

Former Chief Economic Advisor Arvind Subramanian has said that wrong numbers are being compared from IMF's World Economic Outlook 2020 report. He said on a more appropriate metric India has not been surpassed and is unlikely to be surpassed in the future by Bangladesh. He elaborated that GDP per capita is only an 'estimate' for one 'indicator' of the average standard of living in a country. Subramanian said that there are many other indicators that must be taken into account to grasp the bigger picture.

"The India-vs.-Bangladesh GDP per capita comparison (post IMF WEO) has sparked anxiety and acrimony. But wrong numbers being compared. NO, on more appropriate metric, India has not been surpassed and, according to IMF, unlikely to be in near future," he said in a first of a series of tweets. He posted two graphs along with the tweet -- one that shows the two countries' GDP per capita growth in dollars from 1981-2025 based on the current market exchange rates and the one that shows the growth in the same period based on constant purchasing power parity exchange rates. Subramanian said that the former is the 'less appropriate comparison' and the latter a 'more appropriate comparison'. The first graph shows India and Bangladesh at equal standing but the second one shows India ahead.

"GDP per capita is an 'estimate' for one 'indicator' of the average standard of living/welfare in a country. Note the 2 caveats, it is only one indicator, there are many others (eg. human development index) and even as that indicator, GDP can be measured in many ways. We need to measure 'real' GDP in local currency after taking out effects of inflation and then, convert all local currency estimates of real GDP into comparable dollars, Many ways of doing this (IMF has 3, World Bank has 4)," he tweeted in a thread.

He said the focus has been on comparing the countries' GDP based on current, market exchange rates which yields the "conclusion" of Bangladesh eclipsing India. "But market exchange rates not appropriate for welfare comparisons across time and countries because they may not adequately reflect domestic inflation and/or productivity growth. More appropriate basis is GDP at constant, purchasing power parity (PPP) exchange rates. This shows India ahead and despite COVID's more adverse impact in 2020, likely to remain so," said the former CEA.

"BUT important caveats. IMF's historical numbers are themselves based on countries' local currency GDP estimates which are subject to uncertainty for both India and Bangladesh. And IMF forecasts can also be off," stated Subramanian.

While his statements might come as optimistic, he also said that India has a long fight ahead. Subramanian pointed out that India's growth was slowing down before COVID-19 came along to rampage. The impact of coronavirus has also been severe in India. "India will return to pre-covid 'LEVEL' of real per capita GDP only in 2022, 3 lost years," he warned. 

In the end he commended Bangladesh's remarkable growth in the last two decades. "Manufacturing exports, and range of social indicators such as fertility, female labour participation" have been remarkable, he said, adding, "Bangladesh is a miracle-in-the-making offering development lessons for all."

As per IMF's WEO report, per capita GDP of India will increase from $1,877 in 2020 to $2,729 in 2025, while Bangladesh's per capita GDP, $1,888 in 2020, will rise to $2,756 by 2025.

Also read: Why Bangladeshis will soon be richer than Indians

Also read: Bangladesh set to overtake India in per capita GDP, says IMF

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