3 lost years of India’s economy: Arvind Subramanian tells why India is not behind Bangladesh

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October 17, 2020 2:59 PM

Arvind Subramanian said that the market exchange rates are not appropriate for welfare comparisons across time and countries because they may not adequately reflect domestic inflation or productivity growth.

india, india bangadesh, per capita gdp, gdp, economy, economic developmentArvind Subramanian said that a more appropriate basis is GDP at constant prices and purchasing power parity (PPP) exchange rates, which shows India ahead. (Bloomberg image)

Former Chief Economic Adviser Arvind Subramanian said that 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. Arvind Subramanian added that IMF’s conclusion about Bangladesh eclipsing India has made been on comparisons based on GDP measured at current prices and market exchange rates. However, the market exchange rates are not appropriate for welfare comparisons across time and countries because they may not adequately reflect domestic inflation or productivity growth, he further said. 

The noted economist underlined that a more appropriate basis is GDP at constant prices and purchasing power parity (PPP) exchange rates, which shows India ahead, and despite Covid’s adverse impact in 2020, likely to remain so. It is to be noted that the recent comparative analysis showed that Bangladesh is set to beat India in terms of per capita gross domestic product (GDP) this calendar year. 

Also Read: India won’t be next China if it can’t even out-export Bangladesh; misses this real comparative advantage

Arvind Subramanian also said that wrong numbers are being compared and further GDP per capita is an estimate for one indicator of the average standard of living in a country while there are many others such as human development index. He highlighted that IMF’s historical numbers are based on countries’ local currency GDP estimates which are subject to uncertainty for both India and Bangladesh.

However, the former Chief Economic Adviser pointed out that Covid impact has fared severely on the Indian economy and India will return to the pre-covid level of real per capita GDP only in 2022, which means the country has lost 3 years of growth. Meanwhile, appreciating the economic performance of Bangladesh, Arvind Subramanian said that Bangladesh’s performance over the last two decades on growth, manufacturing exports, and a range of social indicators such as fertility, female labour participation, financial inclusion has been remarkable and the country is a miracle-in-the-making, offering development lessons for all.

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