India needs ‘bold policy’, says former World Bank Chief Economist Kaushik Basu after IMF projects Bangladesh ahead of India in per capita GDP

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Kaushik Basu, the former Chief Economist of the World Bank, has raised alarm after the International Monetary Fund (IMF) projected that Bangladesh would overtake India in real gross domestic product (GDP) per capita in 2021.

Tweeting his concern that India “which had a lead of 25 percent five years back is now trailing”, Basu called for “bold fiscal or monetary policy”.

He said: “I've now checked the data. IMF's estimate shows Bangladesh will cross India in real GDP per capita in 2021. Any emerging economy doing well is good news. But it's shocking that India, which had a lead of 25% 5 years ago is now trailing. This calls for bold fiscal/monetary policy." (sic)

I've now checked the data. IMF's estimate shows Bangladesh will cross India in real GDP per capita in 2021. Any emerging economy doing well is good news. But it's shocking that India, which had a lead of 25% 5 years ago is now trailing. This calls for bold fiscal/monetary policy.

— Kaushik Basu (@kaushikcbasu) October 15, 2020

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Basu was referencing the IMF’s biannual World Economic Outlook report released on October 13, where it said it expects India’s GDP to decline by 10.3 percent in FY21 due to contraction in economic activities amid the country-wide lockdown for COVID-19.

This is a downward revision from its June forecast of a 4.5 percent drop and is grimmer than the Reserve Bank of India’s forecast of 9.5 percent contraction for FY21.

IMF's Chief Economist Gita Gopinath said all developing economies and emerging markets are expected to contract this year, adding that economies will “need to prioritise critical spending for health.”

Watch: Big Story | Severe contraction in India's GDP shown by IMF for FY21

As per the report, Bangladesh is set to beat India in terms of per capita GDP in CY20, expected to grow 4 percent in 2020 to $1,888. India’s per capita GDP, on the other hand, is expected to decline 10.5 percent to $1,877 – the lowest in the last four years, thanks to COVID-19 pandemic and lockdown.

This would make India the third-poorest country in South Asia, with only Pakistan and Nepal reporting lower per capita GDP. Notably, Bangladesh, Bhutan, Sri Lanka, and Maldives would be ahead of India.

The WEO database suggests that the Indian economy will be the worst hit from the pandemic in South Asia after Sri Lanka, whose per capita GDP is expected to shrink 4 percent in the current calendar year. In comparison, Nepal and Bhutan are expected to grow their economies this year, while the IMF has not divulged Pakistan’s data for 2020 and beyond.

On the other hand, government sources played down the IMF’s projection, stating that India’s GDP in terms of purchasing power parity (PPP) was 11 times more than Bangladesh in 2019.

These sources emphasised that under the Modi government, the per capita GDP has increased from Rs 83,091 in 2014-15 to Rs 108,620 in 2019-20, representing an increase of 30.7 per cent.

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