Friday, October 17, 2008

Don’t Ignore Poverty Data

Latest figures show an urgent need for inclusive growth
Vinod Thomas
Robust economic growth in the first few years of the 21st century has helped reduce poverty worldwide. But new numbers show that the actual extent of deprivation in India and elsewhere is far greater than previously thought. This insight does not question the role of growth in improving livelihoods, but it spotlights the need for much greater inclusiveness in the growth process in the face of the scale of poverty. Sustained growth remains a high priority. But it is not just how fast a country grows; crucially, it is also how it grows. Widening gaps between the rich and the poor dampen the impact of growth on poverty. Countries such as Brazil or Mexico have historically had a much higher income inequality than India or Indonesia. But disparities have been rising in recent years in the large Asian countries, while they have been falling in major Latin American nations. The new poverty estimates from the World Bank incorporate the finding that living costs are actually higher than estimated before, reflected in a global poverty line of $1.25 a day. These calculations suggest that as of 2005 there were 1.4 billion people worldwide living in extreme poverty. One-third of them would be in India, signifying the largest number of poor compared to other countries — and even relative to the country’s own past by these measures. Rapid growth has helped reduce India’s percentage of people in poverty, though far slower than in East Asia. And when coupled with high population growth, the numbers of the poor, which is what matters, show an increase. What’s striking is how close to the poverty line tens of millions live in India, making for a large change in the poverty numbers from a small shift in the chosen threshold. Even modest shocks can push millions below the poverty line. How well do these poverty measures mirror deprivation and its changes? For one thing, they do not adequately reflect access to schooling, health care, water and sanitation, or other public services that mark people’s well-being. Nor do they capture crime and violence or environmental destruction, which are especially serious in low-income localities. Across countries, some of these attributes — especially those affecting the underprivileged — have improved in recent years, but others have taken a turn for the worse. But regardless of the precise numbers, the urgency is clear in India for achieving more inclusive growth. Experience across countries tells us that it is important to get at inequalities, but in ways that do not derail growth. In this respect, generating opportunities and jobs for the poorer segments of the population would seem to be the best way forward. Policy leaders and policy documents in India recognise the directions needed: the key would be to spur actions and achieve results. High on the agenda for greater inclusiveness would be actions to address disparities in education that contribute to large earning differentials. Compared to Korea or Russia, education inequalities are large in India or Indonesia. What matters, of course, are not only greater access to schooling, but also the relevance and quality of the education — and learning outcomes that determine its usefulness in the workplace and contribution to growth. Narrowing earning gaps also calls for efforts to address the growing skill differentials, worker mobility and the functioning of labour markets. A second issue concerns rural-urban and regional differences in incomes. Expansion of agricultural productivity, complemented by the construction of all-weather rural roads and rural electrification, would have important impacts on rural poverty. Systematic differences in income levels across states and sub-regions also merit attention. In China and India, the poorer states or provinces have, in general, grown slower than the richer ones, while it has been the other way around in some other middle- and high-income countries. A third policy area for inclusion involves improved ways to provide income support to the poor. Many countries have relied on the provision of subsidies for consumer items, but the programmes have seldom been well targeted or effective.On the other hand, conditional cash transfer programmes have looked promising. Mexico and Brazil provide cash support to poor families conditional on children attending school and going to clinics for check-ups. These approaches have shown encouraging results in reducing poverty today, and improving education and health that help sustain future growth. And then there is the new danger that is affecting all: climate change and natural disasters wreaking havoc in the lives of people, especially the poor who are most likely to be in harm’s way. The Indian Ocean tsunami left more than 10,000 people dead and about 5,600 missing in India alone. The fury of the Kosi river affected 2.5 million people in 1,600 villages in Bihar, and 70,000 people in the immediate shock in Nepal. If combating damages to the environment was once considered a diversion from growth, its neglect now represents a central threat to growth. The poverty data reminds us that it is not enough to grow, it is also vital that increasing numbers of people benefit from the growth. India can generate high growth with a far greater impact on poverty through policy actions. As it turns out, inclusive growth is not only key to social progress, it is indispensable to sustaining growth itself.
The writer is director-general, Independent Evaluation Group, World Bank. Views expressed are personal.