Inclusive growth in question: A critical assessment of inequality in Bangladesh

Inequality has been a fundamental feature of Bangladesh's political economy. It has actively shaped the country's historical trajectory and development outcomes. From the colonial period to the Pakistan era and into the present, unequal distribution of income, resources, and opportunities has remained a critical concern, posing persistent challenges to the achievement of inclusive and sustainable economic growth.

The roots of structural inequality in Bangladesh can be traced to the East–West Pakistan divide that emerged after 1947. These two geographically and culturally diverse regions were separated by more than 1500 kilometers. East Pakistan which comprised of 56% of Pakistan's population contributed to 70% of its export earnings. 

However, West Pakistan had political and military dominance and the resource allocation was heavily skewed towards the western part. According to the Liberation War Museum document, East Pakistan received only around 30% of total government expenditure. Representation of East Pakistanis in the central govt. and military was only 15%, and 10%, respectively. 

A mere 20% of the foreign aid was allocated to the region. But the price of essentials was much higher in the eastern part. For instance, 1Mon rice priced at 25 taka in West Pakistan cost around 50 taka in the East. Income disparities were equally stark. While the per capita income increased by 59.64% in West Pakistan from 1949-50 to 1969-70 period, the increment was only 9.55% in East Pakistan. 

After gaining independence in 1971, Bangladesh has documented remarkable economic progress. From a war-torn "basket case", it has become one of the fastest growing economies in the world, consistently recording high economic growth over the recent decades. It achieved the lower middle-income status in 2015 through continued efforts to poverty reduction, significant increment in per capita income and robust export earnings, particularly led by RMG exports.

Despite these gains, inequality remains a grave and persistent concern for the country. Among various measures of inequality, the Gini coefficient and the Palma ratio are the most widely used. Higher values of these indicators imply greater inequality. Gini Coefficient is calculated for both income and consumption. 

The Gini Coefficient value of income was 0.36 in 1983-84 and 0.458 in 2010 which has increased to 0.499 in 2022 according to the latest HIES 2022 report. The Consumption Gini Coefficient value has also increased to 0.34 in 2022 from 0.321 in 2010. 

The consumption-based Gini Index generally shows lower inequality because it measures variations in spending, not earnings or wealth while Income inequality reflects broader disparities, as higher earners often save more, reducing their consumption gap with others.

The Palma Ratio measures ratio of the richest 10% of the population's share of national income divided by the poorest 40%'s share. This value was 2.62 in 2005, which has increased to 3.20 in 2022.  According to the most latest data of World Inequality database, the top 10% had an income share of 41.4% while the bottom 50%'s share was only 19.1%. All these inequality measures demonstrate that Bangladesh has not been able to really address the inequality issue. 

The 8^th Five-year Plan document of Bangladesh Govt. focused on two particular strategies for better income distribution- Strengthening Land Management, and Redistributive Fiscal Policies. 

The land management strategy emphasized computerization of land records; simplification of land transactions and land registration. Registration fees and property taxes were also said to be determined on the basis of market price of land/real estate. This was also supposed to increase revenue substantially and protect the poor from the powerful elite land grabbers. 

However, powerful groups have sustained their gains due to poor enforcement capacity, political influence, and elite capture. This has disproportionately increased the wealth concentration of wealthy households.  

According to the World Inequality Report 2026, the richest 1% of the population controls about a quarter of the nation's wealth while the bottom 50% hold only nearly 4.7% of the national wealth. In addition, there has been absence of an effective capital gains tax on real estate and land while the revenue generation mainly depends on indirect taxation which disproportionately burdens the poor.

As regards the Redistributive Fiscal Policies, the 8FYP document presented a simulation with 3 scenarios-poor tax compliance, high tax compliance, and effective cash transfers to the poor. The simulation results showed that Gini coefficient reduces dramatically when revenue gains through high tax compliance are effectively transferred to the poorest 50% of the population.

By FY25, Gini values should have been reduced to 0.38 based on such scenario. But the recent figures show stark differences. Hence, real work needs to be done to ensure high tax compliance and effective cash transfer to the poor. In addition, there should be increased spending on education, health, social protection, and rural infrastructure. 

Muhammad Nafis Shahriar is a lecturer of Economics at Bangladesh University of Professionals (BUP). He can be reached at nafis.shahriar@bup.edu.bd 

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