Now that India’s strong growth performance is no longer in doubt, let me deal with some common questions raised about India’s economic performance: “FDI is going to Vietnam and not coming to India”; “Bangladesh now has a higher per capita income” and so on.
At the onset,let it be clear that B’desh and Vietnam are friendly countries & we do not grudge them their good fortune. Nonetheless, as shown below, India consistently gets far more FDI than Vietnam and the gap, if anything, is widening in the long run. (World Bank data)
Of course, Vietnam is a much smaller economy and their FDI inflow is proportionately bigger for their size – but that is a wholly different point than saying that India is losing the battle for global investment (individual instances notwithstanding).
India & B’Desh had roughly same USD per capita income till 2005; then for a decade India was slightly higher, then BD was higher, now India is marginally higher (IMF data).
Both countries have sharply increased their per capita incomes since 2000 but .their relative level in nominal USD has lot to do with exchange rate regimes. India is more conservative & routinely accumulates reserves (now US$620bn) while BD does not (US$25bn).
This makes INR appear weaker & BDT stronger than what fundamentals suggest In order to correct for difference in forex regimes, it is better to compare India/BD in PPP terms. As shown below, India’s PPP per capita income has always been significantly higher than BD (explains why migrants move from BD to India & not vice versa).
Major difference between India and other two is the extent to which India’s performance has become resilient to external factors. Weak exports pulled down Vietnam’s GDP growth to 5% in 2023 while BD’s forex reserves may have dropped to US$20bn in March.
The point is that India’s recent economic performance is not just about hitting a 8% growth rate, it is underpinning by a wider array of factors – conservative forex management, internal growth generators etc. Others have also done well but are more vulnerable.
(This article has been compiled from the tweet thread posted by @sanjeevsanyal on March 10, 2024, with minor edits to improve readability and conform to HinduPost style guide)
