Enlightened states can help alleviate inequality

Kathmandu, September 6:

Dr Ifzal Ali, chief economist at the Asian Development Bank (ADB) today stressed on

an enlightened and active state to alleviate inequalities, while policymakers must be made accountable for an inclusive growth.

Rising inequalities in South Asia, particularly in Nepal, pose a clear hurdle impeding growth, said Dr Ali, while making a presentation at a programme organised by the South Asian Institute of Management (SAIM), on Thursday.

Referring to Nepal’s Gini coefficient which is among the highest in the region, he further said that although Nepal has achieved a lot in terms of reducing poverty, it has failed to address the gap between the poor and the rich.

Among South Asian countries, Nepal and Sri Lanka have the Gini coefficient of above 40 points, which is one the highest in the whole of Asia.

Nepal’s inequality is characterised by high inequality in access to education and basic health services, which is a strong impediment for upward mobility, Dr Ali said, adding that access to infrastructure is another crucial factor that constrains access to productive economic opportunities.

“As a result, the rich are getting richer faster than the poor,” he added.

Contemplating the recent findings of ADB, he said that poorer households have benefited less from growth than richer households.

This has, in many cases, hindered the growth prospects, resulting in redistribution and eventually to distortions of wealth and opportunities, Dr Ali added.

“In many cases, a high level of inequality may hinder social cohesion causing political instability. This is quite evident in Nepal,” he said, adding that high concentration of income may enable the wealthy to steer economic outcomes and policies in their favour.

The main drivers behind inequalities in Nepal are unevenness in growth, particularly between the rural and urban areas.

Real per capita income/expenditures increased by 42 per cent in urban areas between 1995-96 and 2003-04 compared to 27 per cent in rural areas, he said. “This phenomenon has led to a widening rural-urban gap.”

Regional inequalities and structural transformation and outward orientation are other two main factors for the rising inequality in Nepal. Slowdown of public investment in rural infrastructure, breakdown of extension services to disseminate modern technology and depletion of natural resources have also resulted in fuelling inequalities in Nepal, he said.

Inclusive growth could be an answer to rising inequalities, but it needs to be well defined with a proper approach that role of public policy is to circumvent the disadvantages of circumstance-based inequalities, Dr Ali suggested.

While, states should be enlightened and active, its policymakers need to be ready to be accountable for ensuring outcomes and impacts of such practice.