An embryonic Bangladesh

Bangladesh is bordered by India on three sides — North, East and West. A short strip of Myanmar's land also borders the nation to the East, while on the south lies the Bay of Bengal with its warm blue water. 

The hills on the North and Eastern parts, an extension of the Himalayan ranges, keeps away the cold waves from the Siberian belt and in the South, the Bay of Bengal balances the hot temperatures from the Tropic of Cancer. 

Bangladesh is a deltaic plain of the three major river systems of South Asia — the Ganges (the Padma), the Brahmaputra and the Meghna; the 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 shaping the socioeconomic life of the country. 

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 — forming a more favourable standard of living compared to 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. The development of Bangladesh was thereafter limited to agriculture. The colonial infrastructure of the 18th and 19th centuries reinforced this land's function 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 became disadvantages during the 19th and 20th centuries. As life expectancy increased, the limitations of land and the annual floods increasingly became constraints to economic growth. Traditional agricultural methods became obstacles to the modernisation of agriculture. Geography severely limited the 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 preserved 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 federal 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 rural population growth. 

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 payments problem. Without a substantial industrialisation program or adequate agrarian expansion, the economy of East Pakistan steadily declined. Blame was on the West Pakistani leaders who not only dominated the government but also most of the fledgling industries in East Pakistan.

The economic situation faced by Bangladesh as it emerged from the Liberation War in 1971 included the highest rural population density, chronic malnutrition for the majority of the people, and the dislocation of between eight and 10 million people who had fled to India and returned to independent Bangladesh 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. 

Throughout the decades, Bangladesh's economy has experienced mixed developments in  both macroeconomic stability and robust economic growth. Against the backdrop of the deep macroeconomic crisis until the late 1980s, a series of stabilisation measures were introduced in the Bangladesh economy which largely restored macroeconomic stability in the early 1990s. 

Subsequently, the Bangladesh economy registered an average GDP growth rate of 5% in the 1990s. Despite such 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). Bangladesh's economy was facing the most severe exigency after the macroeconomic crisis since the 1970s, however, the  achievements of the 1990s fell under threat because of the twin shocks emanating from large fiscal deficit and deteriorating balance of payment position. which exposed the entrenched vulnerabilities of Bangladesh. 

The pressure was accentuated by a benign neglect in undertaking necessary reform measures to improve the competitiveness of the economy. Real economy sectors such as industry demonstrated stronger growth during the first half of the 1990s, as against the impressive performance of agriculture all throughout. In fact, in the 1990s, both agriculture and industry emerged as the major source of GDP growth in comparison to the more pronounced role of the service sector in the earlier years. Later, the service sector came to dominate as the major source of GDP growth and accounted for a significant share.  

In spite of improved growth, the evolution of Bangladesh's economy still remains biased against modern, industrial transformation having concomitant implications for sustained growth and equitable income distribution. Weaknesses in the domestic resource mobilisation effort have emerged as one of the major structural constraints facing the Bangladesh economy.

Though the share of revenue (tax and non-tax together) in the GDP has increased from 7.5% in FY1978 to 11.34% in FY12-13, nonetheless one observes a plateauing of the revenue-GDP ratio — still lower than many developing countries. 

The success of revenue earnings since the early 1990s has been  greatly 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 to taxation of domestic production. Such a feat has been possible thanks to spectacular success in meeting the revenue collection target by the NBR in recent years. 

The largest part of the non-tax revenue — making up 15-20% of the revenue budget — is also coming from the nationalised sector of the economy, including industrial enterprises, banks, and insurance companies. 

Dr Muhammad Abdul Mazid is a retired Secretary and former Chairman of NBR. He is currently an adviser to the International Business Forum of Bangladesh (IBFB).