Improving competitiveness of the economy

Bangladesh, geographically, has its border with India on three sides - west, north and east - and a narrow strip of land of Myanmar in the east. On the south lies the Bay of Bengal with its warm blue water. The hills at its head  on the north and eastern parts, an extension of the Himalayan range, keeps the country safe from cold waves from the Siberian belt and at the feet, the Bay of Bengal balances the hot temperatures being on the tropical cancer line.  

Bangladesh is a deltaic plain of three major river systems of South Asia - the Ganges (in Bangladesh, it is the Padma), the Brahmaputra and the Meghna. Its land is formed with the alluvial soil of these rivers. Green paddy fields and vegetation are found all around. The most significant characteristic of the landscape of Bangladesh is its extensive network of rivers and magnificently moving monsoons, contributing a great deal to shape the socio-economic life of the country.
The population of Bangladesh now stands at over 149 million (2011 census) with its growth rate now being 1.37 per cent. The country is one of the most densely populated ones (1,015 per sq. km.) with 76 per cent of the population living in the rural areas. According to the Labour Force Survey (2010), of the total 54 million labour force, 38 million male (70 per cent) and 16 million female (30 per cent). Per capita gross national income (PCGNI) is US$1,044 in 2013. In terms of Human Development Index, Bangladesh ranks 146 out of 182 countries (Human Development Index, HDI, UNDP 2013).
Bangladesh was a prosperous region of South Asia until modern times. It had the advantages of a mild, almost tropical climate, fertile soil, ample water, and an abundance of fish, wildlife, and fruit that provided a favourable standard of living compared to that in other parts of South Asia. As early as the 13th century, the region was developing as an agrarian economy. It was not entirely without commercial centres and Dhaka in particular grew into an important entrepôt during the Mughal Empire. The British, however, on their arrival in the early 17th Century, chose to develop Kolkata as their commercial and administrative centre in South Asia.
Development drive of the land, now forming Bangladesh, was thereafter based on agriculture. The colonial infrastructure of the 18th and the 19th centuries marked this land as the primary producer -- chiefly of rice and jute - for processors and traders in Kolkata and beyond. Some of the same factors that had made Bangladesh a prosperous region turned out to be disadvantages during the 19th and the 20th centuries. As life expectancy increased, the limitation of lands and the annual floods increasingly became constraints to economic growth. Traditional agricultural methods became obstacles to modernisation of agriculture. Geographical location severely limited development and maintenance of a modern transportation and communication system.
The partition of British India and the emergence of India and Pakistan in 1947 severely disrupted the former colonial economic system that had ranked Bangladesh (then East Pakistan) as a producer of jute and rice for the urban industrial economy around Kolkata. East Pakistan had to build a new industrial base and modernise agriculture in the midst of a population explosion. The central government of Pakistan expanded the cultivated area and some irrigation facilities, but the rural population generally became poorer between 1947 and 1971 because improvements did not keep pace with the increase of the rural population.
Pakistan's five-year plans opted for a development strategy based on industrialisation, but the major share of the development budget went to the then West Pakistan. The lack of natural resources meant that East Pakistan was heavily dependent on imports, creating a balance of payment problem. Without a substantial industrialisation programme or adequate agrarian expansion, the economy of East Pakistan steadily declined. Blame was put on the West Pakistani leaders, who not only dominated the government but also most of the fledgling industries in East Pakistan.
The economic situation in Bangladesh as it emerged from the liberation war in 1971 reflected the highest rural population density, chronic malnutrition for majority of the people and the dislocation of between 8 and 10 million people who had fled to India and returned home by 1972. The new nation state had few experienced entrepreneurs, managers, administrators, engineers, or technicians.
There were critical shortages of essential food grains and other staples because of wartime disruptions. External markets for jute had been lost because of the instability of supply and the increasing popularity of synthetic substitutes. Foreign exchange resources were minuscule. Commercially exploitable industrial resources, except for natural gas, were lacking. The liberation war had crippled the transportation system. Hundreds of road and railroad bridges had been destroyed or damaged and rolling stock was inadequate and in poor repair.
Through the decades, the Bangladesh economy has experienced mixed developments in both macro-economic stability and robust economic growth. At the backdrop of the deep macro-economic crisis until late 1980s, a series of stabilisation measures were introduced in the economy which largely saw macro-economic stability in the early 1990s. Subsequently, the economy registered an average GDP (gross domestic product) growth rate of 5.0 per cent in the 1990s. Despite such an impressive growth, the per capita income continued to be the lowest among the South Asian countries and also below the average per capita income of the least developed countries (LDCs).  
The Bangladesh economy was facing the most severe exigency after the macroeconomic crisis since 1970s. However, the achievements of the 1990s were under threat because of the twin shocks emanating from large fiscal deficit and deteriorating balance of payment position which exposed the vulnerabilities of Bangladesh. The pressure was accentuated by a benign neglect in undertaking necessary reform measures to improve the competitiveness of the economy. The real economic sectors such as industry demonstrated stronger growth during the first half of the 1990s as against the continuous impressive performance of agriculture. In fact, in the 1990s both agriculture and industry emerged as the major sources of GDP growth in comparison to more pronounced role of the service sector earlier. Later, the service sector dominated as the major source of GDP growth and accounted for a significant share.  
In spite of improved growth, the evolution of the Bangladesh economy still remains biased against modern and industrial transformation having concomitant implications for sustained growth and equitable income distribution. Weaknesses in domestic resource mobilisation efforts have emerged as a major structural constraint facing the economy.
Though the share of revenue (tax and non-tax together) in the GDP increased from 7.5 per cent in FY1978 to 11.34 per cent in FY2012-13, nonetheless one observes a 'plateauing' of the revenue-GDP ratio. The revenue receipts in Bangladesh, as a share of GDP, are still lower than that in many developing countries. The success of revenue earnings since the early 1990s has greatly been triggered by the introduction of VAT. The VAT has been providing a bigger source of revenue compared to the taxes it replaced, mainly in respect of taxation of domestic production. Such a feat has been possible, thanks to spectacular success in meeting the revenue collection target by the NBR (National Board of Revenue) in recent years. The largest part of the non-tax revenue -- making up 15-20 per cent of the revenue budget is also coming from the nationalised sector of the economy, including industrial enterprises, banks, and insurance companies.
Even by the standards of developing countries, Bangladesh's ratio of taxes to GDP and of direct tax revenue to total tax revenue has been very low. In 1984, taxes amounted to only 8.1 per cent of GDP, just half the percentage for India, less than half the average for 82 other developing countries, and far below the average of 29.7 per cent for the developed countries. Similarly, the 20.1 per cent of tax revenue coming from direct taxation was one of the lowest in the world (the average for developing countries was 29.3 per cent, for industrialised countries 34.2 per cent).
The writer is retired Secretary and former Chairman, NBR. [email protected]