Greater inclusion key to sustain growth, says World Bank official

A top World Bank official has said growth cannot be sustained in the coming years without greater inclusion.

“It still turns out that if the world were a single country, it would be the most unequal country,” said Dr Vinod Thomas, a Director-General and Senior Vice-President, World Bank, Washington.

Less equal

Giving his keynote address at the annual convention of the Trivandrum Management Association (TRIMA 2011) here on Friday, Dr Thomas said the world has indeed been growing less equally.

Social protection loans have a special focus in supporting inclusive growth. Inclusion can help sharply reduce poverty.

Rapid economic growth in India as well as in Brazil and China, has significantly reduced poverty in those countries.

Inclusion can also help social stability and peace. Lack of inclusion hurts growth prospects and creates high transaction costs and an unstable environment for business.

Rising inequality

During 1980-2000, the three most populous Asian countries — China, India, and Indonesia — showed rising inequality within country across regions.

China has seen the greatest increase in inequality from modest levels, India next, while Brazil has seen an improvement in equality from extremely unequal levels.

In all three, sustaining growth requires paying attention to inequality. The rate of poverty on the other hand has declined (even where absolute numbers have not).

In Brazil, inclusive growth makes a striking difference in poverty reduction. In China, poverty reduction would have been even more impressive if not for the worsening of inequality.

Wealth creation

The bulk of wealth accretion in India has been concentrated within a very small segment of the population, Dr Thomas said.

For instance, the networth of local Indian billionaires relative to GDP has surpassed that of Mexico and the US, both of which are known to have an abundance of billionaires.

The equality gap is not just rich and poor, or urban and rural, it is increasingly between States and between regions within States, Dr Thomas observed. Divergence between Indian States is rising in contrast to Brazil where it is the opposite trend.

Richer Indian States seem to have benefited more from the economic liberalisation. The ratio of income of rich States, such as Gujarat and Tamil Nadu, to poor States, such as Bihar, increased from two in the 1970s to four in recent years.

Sustaining growth

The crucial question, however, is not whether India's high growth will continue this year or in the next three, but how India might bring about transformational changes that will benefit all, while also sustaining the pace of economic growth.

It is well known that Brazil and much of Latin America was not inclusive in its growth process during much of the 20th century, yet in the past decade, the trajectory has turned distinctly inclusive.

“You could almost tell the opposite story about Asia, where China and India featured more equality in the past century, but growth has not been inclusive in the past decade,” Dr Thomas said.

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