Inequalities hindering South Asian growth: World Bank

NEW DELHI — Deepening income inequalities in South Asian countries may impede the recent strong economic growth witnessed in the region, a new World Bank report cautioned yesterday.


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Published: Tue 27 Jun 2006, 10:58 AM

Last updated: Sat 4 Apr 2015, 1:13 PM

"While countries in the region are growing rapidly, evidence shows that expansion, due to its uneven nature, is deepening income inequality and may be hard to sustain in the longer term if the key constraints are not addressed," states the new report, 'Economic Growth in South Asia'.

With nearly 400 million poor people, poverty in South Asia is not just endemic, but increasingly concentrated in lagging regions, the report states.

"Not only are these regions poorer, but their growth rates are substantially slower than the better-off regions," the report states.

"The phrase 'two Indias' that describes the great divide between those who benefit from Indian economic growth and the 300 million poor people being left further behind is a vivid example of the current challenge, repeated across South Asian countries."

Building on recent strong growth, countries in South Asia can dramatically reduce poverty by embracing policies aimed at increasing investment and productivity, and improving the quality of labour, while addressing pervasive income inequalities and poor service delivery, says the report.

"South Asia's decade-long economic expansion has raised the possibility that the subcontinent could eliminate poverty in our lifetime," says Shantayanan Devarajan, co-author of the report and World Bank chief economist for the South Asia region.

"But to realise this dream, South Asians must create the conditions and incentives necessary to sustain and accelerate growth that benefits all. The economic well-being of several hundred millions of people depends on it."

The World Bank envisages an annual investment requirement of around $25 billion for new rural and urban infrastructure in the region to reach higher growth targets.

The report cites country-specific challenges that policy-makers would need to address to accelerate growth. These include reducing fiscal deficits and public debt in India, strengthening governance in Bangladesh, deepening human capital in Pakistan, and addressing civil conflict in Sri Lanka and Nepal.

Giving an optimistic projection, the report shows that South Asian countries could see single-digit poverty rates in a decade if economic growth accelerated to 10 per cent a year until 2015.

This means the number of people living in poverty could go down by two-thirds in less than a decade.

Looking back at the economic performance of the past decade, the report suggests that South Asian countries should aspire to this goal and emulate the East Asian growth rates of seven to 10 per cent that lifted millions of people out of poverty in relatively few years.

"Bangladesh, India, and Pakistan have all grown at over 5.0 per cent per year on

average during the last five years. Growth in both Pakistan and India topped 8.0 per cent last year. Forecasts put South Asian economies on a steady path of expansion this year," the report points out.

Economic growth has already contributed to an impressive reduction in poverty.

In the last decade, poverty in Bangladesh, India, and Nepal fell by 9.0, 10 and 11 per cent respectively; in Sri Lanka it fell by 6.0 per cent.

Only in Pakistan poverty increased by 8 percentage points due to economic stagnation throughout the 1990s, the report highlights.

The most recent evidence (2004-5 survey), however, suggests that with the resumption of high growth, poverty is again declining rapidly in Pakistan.

"But much remains to be done to achieve accelerated growth rates that increase economic prosperity across the board," the report says. "Faster growth must also be more equitably shared."

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