Growth giants hurt by poverty failures

India and China’s phenomenal economic growth has excluded large parts of the population and failed to tackle poverty, according to a World Bank report.
Growth giants hurt by poverty failures
By Alexandra Dubsky
Sun 14 Jan 2007 12:00 AM

India and China’s phenomenal economic growth has excluded large parts of the population and failed to tackle poverty, according to a World Bank report.

China and India, with annual GDP growth rates of 9% and 4% respectively, have not reduced poverty significantly due to uneven growth patterns in various sectors, regions and households, the bank’s report “Partially awakened giants: uneven growth in China and India”, said.

“Growth was uneven across states in India and provinces in China and this has meant uneven progress against poverty. Growth has also been sectorally uneven, with primary sector growth rates lagging behind growth rates in the secondary and tertiary sectors in both China and India, and with rural incomes growing more slowly than urban incomes,” the report said.

“There has also been uneven growth at the household level. In particular, incomes at the top of the distribution increased much faster than those at the bottom in both countries. That has meant rising inequality — dramatically so in the case of China,” it added.

The research also discovered that growth in Chinese primary agriculture did more to reduce poverty and inequality than growth in either the secondary and tertiary sectors. In India growth in the agricultural sector was found to be less significant than in the tertiary sector. In both countries, there has been a marked geographic unevenness in the growth process, with numerous regions lagging behind major cities.

India’s poorer states however, are still experiencing positive growth with faster post reform growth rates in more affluent areas. In China, provinces that were initially poorer were found to have managed to keep pace with wealthier provinces in terms of aggregate growth rates, however there have been signs of regional divergence between the coastal and inland areas of China. Persistent inequalities in human resource development and essential infrastructure within both countries, more so in India, was also found to impede the prospects for those earning a lower income. The report said that the geographic dimensions of their inequalities, along with the associated disparities in fiscal resources and governmental capabilities, “appeared large as policy concerns for the future in both countries”.

“Poverty in both countries is not becoming any more responsive to aggregate economic growth and is becoming more responsive to rising inequality. 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,” it added.

The poverty line is the World Bank’s dollar-a-day global standard of US$32.74 a month. China started this year with the higher poverty rate of the two countries, but soon overtook India. Shubham Chaudhuri and Martin Ravallion, the authors of the study, also suggested that these issues demand urgent global attention.

“Whether or not the problem of rising inequality is successfully addressed, there are likely to be implications for the rest of the world. If the problem is not addressed, then there is a risk that the high growth rates will become much harder to maintain, with spill over effects for trade and growth elsewhere,” they said.

“If they are addressed, and depending on exactly how this is done, there may be some short-term costs to growth,” they said, “But maintaining sufficient growth will require even greater efficacy of the policy levers used to promote growth.”

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