Has Bangladesh Really Left India and Pakistan Behind in Per Capita Income?
Is Bangladesh's officially reported GDP figure credible? Do consumption figures support Bangladesh's claim of higher per capita income tha...
Is Bangladesh's officially reported GDP figure credible? Do consumption figures support Bangladesh's claim of higher per capita income than India and Pakistan? If Bangladesh has higher GDP per capita, why is its per capita consumption of energy, cement and steel so much lower than India's and Pakistan's? Does Pakistan really have a much larger informal economy than Bangladesh or India? Is there a lot more currency in circulation in Pakistan than in Bangladesh and India? Let us try and answer these questions!
Energy consumption:
Life in modern times is heavily dependent on energy. Per capita energy consumption, a key barometer of economic activity, is significantly lower in Bangladesh than in India and Pakistan. Use of electricity per capita in Bangladesh is significantly less than in India and Pakistan.
Commercial energy use (kg of oil equivalent per capita) above refers to apparent consumption, which is equal to indigenous production plus imports and stock changes, minus exports and fuels supplied to ships and aircraft engaged in international transport. It's only 142 Kg of oil per capita in Bangladesh, much lower than 463 Kg in Pakistan and 494 Kg in India.
Cement Consumption:
Use of cement is another important indicator of economic and development activities, particularly in the infrastructure and housing construction sector. China and the United States, the world's biggest economies, also have the highest consumption of cement.
Steel Consumption:
Per capita steel consumption is another important indicator of economic activity in both construction and manufacturing sectors. It goes into building housing and infrastructure as well manufacturing vehicles and home appliances. The United States and China, the world's biggest economies, are the largest consumers of steel.
Bangladesh is among the lowest consumers of steel products in the world. Per capita consumption of finished steel in Bangladesh (41 Kg) is lower than the regional peer Myanmar (40.5), India (75.3), Pakistan (45.7), Sri Lanka (53.5), according to the World Steel Association (WSA).
Pakistan's Informal Economy:
Dr. Lalarukh Ejaz, an assistant professor at the Institute of Business Administration in Karachi, has estimated that the size of Pakistan’s informal economy at 56% of the country’s GDP (as of 2019). This means that it’s worth around $180 billion a year, and that is a massive amount by any yardstick.
Vehicles and home appliance ownership data analyzed by Dr. Jawaid Abdul Ghani of Karachi School of Business Leadership suggests that the officially reported GDP significantly understates Pakistan's actual GDP. Indeed, many economists believe that Pakistan’s economy is at least double the size that is officially reported in the government's Economic Surveys. Pakistan's GDP has not been rebased in more than a decade. It was last rebased in 2005-6 while India’s was rebased in 2011 and Bangladesh’s in 2013. Just rebasing the Pakistani economy will result in at least 50% increase in official GDP.
A research paper by economists Ali Kemal and Ahmad Waqar Qasim of PIDE (Pakistan Institute of Development Economics) estimated in 2012 that the Pakistani economy’s size then was around $400 billion. All they did was look at the consumption data to reach their conclusion. They used the data reported in regular PSLM (Pakistan Social and Living Standard Measurements) surveys on actual living standards. They found that a huge chunk of the country's economy is undocumented.
Pakistan's Service Sector:
Pakistan's service sector which contributes more than 50% of the country's GDP is mostly cash-based and least documented. Compared to Bangladesh and India, there is a lot of currency in circulation in Pakistan. According to the State Bank of Pakistan (SBP), the currency in circulation has increased to Rs. 7.4 trillion by the end of the financial year 2020-21, up from Rs 6.7 trillion in the last financial year, a double-digit growth of 10.4% year-on-year. Currency in circulation (CIC), as percent of M2 money supply and currency-to-deposit ratio, has been increasing over the last few years. The CIC/M2 ratio is now close to 30%, according to the State Bank of Pakistan. The average CIC/M2 ratio in FY18-21 was measured at 28%, up from 22% in FY10-15. This 1.2 trillion rupee increase could have generated undocumented GDP of Rs 3.1 trillion at the historic velocity of 2.6, according to a report in The Business Recorder. In comparison to Bangladesh (CIC/M2 at 13%), Pakistan’s cash economy is double the size. Even a casual observer can see that the living standards in Pakistan are higher than those in Bangladesh and India.
Summary:
Based on published data on energy, cement and steel consumption, Bangladesh's claim of having a per capita GDP than India and Pakistan does not seem credible. In this age of growing energy-intensive industrialization, it does not make sense to have significantly lower use of key inputs like energy to produce higher gross domestic product. For Pakistan, it is important for policymakers to promote ways of documenting more of the economy. It's also important for finance officials to rebase the country's to a more recent year than the year 2006 when it was last done.
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Has Bangladesh Really Left India and Pakistan Behind in Per Capita Income?
Is Bangladesh's officially reported GDP figure credible? Do consumption figures support Bangladesh's claim of higher per capita income tha...
