India, China growth not too pro-poor: WB
Washington, January 6:
The post-reform economic growth in Asia’s two ‘awakening giants’ India and China has not been balanced across regions or sectors, nor has it been particularly pro-poor in either country, according to a World Bank study. In both countries, there has been a marked geographic unevenness in the growth process, with numerous lagging regions, including some of those that started off among the poorest, say Bank’s Shubham Chaudhuri and Martin Ravallion in their paper on ‘Partially Awakened Giants: Uneven Growth in China and India’.
In China, growth in the primary sector (primarily agriculture) did more to reduce poverty and inequality than growth in either the secondary or tertiary secto-rs, say the authors in the paper written for a new World Bank report, ‘Dancing with Giants: China, India, and the Global Economy.’
On the other hand, in India, with higher initial inequality in access to land than China, agricultural growth was less important than tertiary sector growth. Income inequality is rising, although India has not yet experienced the same trend increase in inequality that China has seen. Poverty in both countries is not becoming any more responsive to aggregate economic growth and is becoming more responsive to rising inequality.
India’s poor did not start the reform period with the same advantages as China’s poor, in terms of access to land and education, Chaudhuri and Ravallion said.
Persistent inequalities in human resource development and access to essential infrastructure within both countries, but probably more so in India, are impeding the prospects for poor people to share in the aggregate economic gains spurred by reforms. The geographic dimensions of their inequalities and the associated disparities in fiscal resources and governmental capabilities loom large as policy concerns for the future in both countries, they said.
In the future, it will be harder for either country to maintain its past rate of progress against poverty without addressing the problem of high and rising inequality. However, it is not particularly useful to talk about ‘inequality’ as a homogeneous entity in this context, the authors said.
Policy needs to focus on the specific dimensions of inequality that create or preserve unequal opportunities for participating in the gains from future economic growth, they suggested. Arguably both countries are seeing a rise in these bad inequalities over time as the good inequalities (conducive to efficient growth) turn into bad ones, and the bad inequalities drive out the good ones.
“While both countries need to be concerned about the ‘bad inequalities’ we have pointed to, we suspect that it is China where the near-term risk that rising inequality will jeopardize growth is greater,” the authors said. Arguably, the Chinese authorities have been able to compensate for rising inequality by achieving high growth rates; by this view, it is the rising inequality that fuels growth in China, through the political economy of maintaining ‘social stability,’ they said.
The ‘Catch 22’ is that the emerging bad inequalities in China will make it harder to promote the growth that will be needed to compensate for those inequalities. Maintaining sufficient gro-wth will require even greater efficacy of the policy levers used to promote growth.
Whether or not the problem of rising inequality is successfully addressed, the-re are likely to be implications for the rest of the wo-rld. If the problem is not addressed, then there is a risk that the high growth rates will not be maintained, with spillover effects for trade and growth elsewhere.
“If it is addressed, and depending on exactly how this is done, there may be some short-term costs to growth, although (as we have argued) redressing the bad inequalities would actually be good for growth. There may also be consequences for the pattern of trade, such as through a change in the sectoral composition of growth,” the authors said.
For example, in both countries there appears to be potential for cash crop expansion, which would attenuate one important source of concern about rising inequality, and it can be expected that a non-negligible share of this expansion in domestic cash-crop output would be exported.