Vietnam And Bangladesh Are Not Outpacing India — Here Are The Facts

On 11 March 2024, author and economist Sanjeev Sanyal posted a thread on X (formerly Twitter), in which he made a factual analysis of two big accusations on the Indian economy. 

India behind Vietnam and Bangladesh?

One of them is that Vietnam is offering better economic opportunities for companies. Often it is said that the Southeast Asian nation gets more foreign direct investment (FDI) than India. The narrative has been repeated so often that in January 2024, Eric Garcetti, US Ambassador to India, also said the same - blaming India’s ‘poor business environments’ and ‘opaque lives.’

Secondly, Bangladesh’s higher nominal per capita income has also emerged as a bone of contention for many. This one fact gains utility in the political domain as well.

Both these accusations are often hurled by detractors trying to establish that India is performing worse than Bangladesh and Vietnam.

Let’s look at why these parameters do not sustain ground.

Claim 1: Vietnam gaining more FDI than India

Sanyal, a member of the Economic Advisory Council to the Prime Minister, analysed the historical trend of FDI in India and Vietnam from the figures given by World Bank.

From 1970 to around 2005, FDI in both countries remained by and large the same. From 2005, the gap between both countries started to become visible. It became wider and wider, reaching its peak between 2015 and 2020. 

However, the gap between both countries is not always a linear progression with some ups and downs in between. Referring to this phenomenon, Sanyal put it in a broader perspective and stated that the macro trends are indicative of how India has performed better in securing investor’s attention and wealth in its economy.

He expressed his agreement on the fact that Vietnam has done better when we take into account relative sizes of both economies. But using it to prove that India is losing the battle is not something Sanyal agrees with.

"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)," Sanyal says.

"India's economy is US$4110 bn and Vietnam’s is US$469 bn (i.e. almost 10 times). If we get the same % GDP as Vietnam, it would require us to suck up a very large share of the world's FDI, unlikely," he adds in another tweet.

Claim 2: Bangladesh has higher per capita income than India

In 2020, Bangladesh’s per capita income surpassed that of India, making global headlines. The trend has sustained for the last 4 years though. It is a nominal figure without considering other factors like exchange rates, forex reserves, and the cost of purchasing in different currencies.

Sanjeev Sanyal highlighted it. Taking lessons from the 1991 balance of payments crisis, India has become more protective of its forex reserves. India’s current forex reserve is $625 billion. The corresponding figure for Bangladesh is $25 billion, which is 3.98 per cent of India’s reserves. Bangladesh’s reserves hovers dangerously close to the minimum target set by the International Monetary Fund (IMF).

Sanyal says that Bangladesh’s low reserves give it a perceptual advantage over India in the currency market. Despite fundamentals being on the Rupee (INR) side, the Bangladeshi Taka (BDT) is perceived as stronger.

That is why an equalising landscape is needed to judge both countries. Purchasing Power Parity (PPP) does offer it. It eliminates the difference in price levels of both countries.

On the PPP per capita income index, India has always maintained a significant lead over Bangladesh. According to the latest values provided by the World Bank, India’s PPP per capita income is $8,400.4, 13.56 per cent more than Bangladesh’s figure of $7,397.5. India has maintained this lead from 1990 till now and is expected to do so. Sanyal explained that higher per capita income is the reason why there is such a huge influx of Bangladeshis in India. 

But when we look at data for absolute per capita income, both countries seem to be in a neck-to-neck fight over dominance. If that was true, reverse migration would be a trend, which is not.

Macroeconomic fundamentals are different

Vietnam’s growth is excessively dependent on trade. In 2023, global demand slowed down, leading to a decrease in Vietnam’s export revenues. Sanyal highlighted that the decline in exports led to Vietnam’s growth declining to 5.05 per cent, 297 basis points less than that of 2022 and 1.45 per cent less than the government's target.

Similarly, Bangladesh’s success has not resulted in stronger economic fundamentals for the country. The cash-strapped economy often has to run towards the IMF. In 2023, IMF did provide Bangladesh with a $689 million loan advising it to be wary of inflationary trends.

India holds much better control over its economy. It has strived towards minimising reliance on global trade. The demographic dividend (first such since the 1970s) along with proper policies has provided it with such an opportunity. Surely, the country does have its deficiencies, but the broader picture is much better than what detractors try to present.