Bangladesh: Model or miracle?

Fifty years after the Liberation War left it devastated, why is Bangladesh South Asia's standout growth and development story?

In the half century since the Bangladesh Liberation War — which ended with the surrender of West Pakistani forces on December 16, 1971, after the fall of Dhaka — the young country has, to put it mildly, defied expectations. The United States administration, which under Richard Nixon had taken a strong pro-Pakistan line during the war, famously dismissed the new nation (behind closed doors) as an “international basket case” because of the possibility of famine after the war; Henry Kissinger, then secretary of state, famously responded to this possibility by washing the US’ hands of responsibility, by saying “not necessarily our basket case”.

The fact that, five decades later, Bangladesh has become the standout story in South Asia when it comes to growth and human development is so well known that it does not need repeating. The question, really, is simpler: What has been achieved in Bangladesh, particularly since the end of General Ershad’s military rule in 1991, replicable? Is it, in other words, miraculous, beyond straightforward explanation — or is it a model, with elements that might be replicable elsewhere?

In a recent opinion piece for the Karachi-based newspaper Dawn, the eminent Pakistani economist Ishrat Husain — one of the rare members of the Pakistani establishment who spoke Bengali as a second language, and who till July was economic advisor to Prime Minister Imran Khan — identified multiple reasons for Bangladesh’s success. First: Cultural homogeneity. Second, and perhaps consequently: A unitary government, without competition between federal and provincial governments. Third: Policy continuity, in spite of bitter political divides. Dr Husain’s analysis does not whitewash Bangladesh’s administration. “Politicians received money from businesses for their election campaigns,” he says, “bureaucrats supplemented their low salaries with gifts and payoffs, while businessmen expanded their businesses at the expense of labour and the environment.” But, he adds, in a knock to the Pakistani establishment in particular, “they did not take their money abroad”. More broadly, he argues that this “symbiotic relationship between the private sector, politicians, and bureaucrats”, represents a growth-enhancing “stable equilibrium”. Without taking a call on the ethics of what Dr Husain suggests is the model, it is nevertheless possible to see that in the decade since the anti-corruption “movement” in India, we have seen an unstable equilibrium, in which policy continuity has collapsed alongside most real indicators of growth and investment.

Dr Husain’s remaining points perhaps deserve closer scrutiny. The human development story entailed enlisting the active support of civil society and non-governmental organisations (NGOs) to meet the governance deficit. The “basic anchors” of policy continuity included macro-economic stability and fiscal prudence. Openness to trade and investment has become central to the country’s growth model. And finally, domestic savings and investment rates are high (especially as compared to Pakistan), while tax-to-gross domestic product (GDP) ratios remained low alongside a fiscal deficit that, till recently, stayed close to four per cent of GDP.

 Let us examine each of these with a bit of data. Consider, for example, the effect of focusing on primary education and female empowerment. In India, female labour force participation peaked at 32 per cent of the working-age population in 2005, and has since come down to 21 per cent. (Pre-Taliban Afghanistan had a higher ratio of women to men working than India.) In Bangladesh, the past three decades have seen female labour force participation steadily increase, to its current level of 36 per cent. This is perhaps the biggest difference between India and Bangladesh, just as it is the biggest difference within India between states such as Tamil Nadu, Kerala and Maharashtra, and others, such as Uttar Pradesh, according to the Periodic Labour Force Survey.

Illustration: Ajay Mohanty

What of macro-economic stability and fiscal prudence? Bangladesh and India now have about the same savings and investment rates, at 30 per cent. The difference is the size of the general government deficit. Even pre-pandemic, India’s general government deficit was about twice Bangladesh’s (which has no state deficits to add on to its federal deficit). The Indian state takes the lion’s share of financial savings, unlike in Bangladesh. As a consequence, since 2016 private investment has been higher as a proportion of GDP in Bangladesh than in India. Even if Dhaka decides — as it may have since the pandemic — to structurally increase borrowing in order to fund not just recovery but infrastructure, it has a lot more room than India. Its debt-to-GDP ratio has hit a 13-year high as a consequence of the pandemic — but that high is still just 38 per cent. India, as is well known, will escape the pandemic with a debt-to-GDP ratio of 90 per cent, which the Fifteenth Finance Commission hopes will come down to 86 per cent by March 2026. Interest payments in India account for over 52 per cent of Union government tax revenues in the ongoing financial year, while the equivalent number for Bangladesh is 20 per cent.

So there are clear elements of a “model” in Bangladesh’s recent growth story, rather than a “miracle”. But we have to be realistic as well and return to questions of whether aspects of these models are achievable in India. It is entirely possible that Bangladesh’s tragic origin story is in itself partly responsible for these choices. For example, fiscal prudence may have been imposed on a country without resources, before it became a habit. A less hierarchical and more inclusive economy may be a consequence of the multiple calamities inflicted on the country’s elite in the 1940s, 1960s, and 1970s. Openness to trade and investment — indeed, the outward orientation of the entire country — may be related to the fact that, for the first decade after independence, it had few internal resources and had to depend upon external assistance from multilateral agencies and Japan, which even in the 1970s was the country’s largest bilateral donor. The Bangladeshi-British economist Mushtaq H Khan, studying the difference in aid patterns between Pakistan and Bangladesh, has argued that the assistance to Bangladesh in the 1970s did not allow the concentration of political or economic power, aiding the emergence of a new middle class that “was drawn into the garment industry”. Openness to mechanisms for grassroots aid delivery also helped in the creation of the NGOs that have played such an important role in inclusion and development subsequently.

Yet the Bangladesh government’s relative willingness to co-exist with civil society organisations (crackdown on Muhammad Yunus notwithstanding) is hard to imagine in India, for example. The simple fact underlying this openness, as well as the country’s outward orientation and its fiscal restraint, is that the Bangladeshi state has been, for decades, less sure of itself and more conscious of its limitations than India’s. Why is that? Perhaps there is a single data point that best explains Bangladesh’s miracle, and it dates back to 1947 and not 1971. It is the number of Bengali Muslim ICS/IPS officers at independence: One.

The writer is head of the Economy and Growth Programme at the Observer Research Foundation, New Delhi