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'India still lags on macroeconomic front'

February 05, 2004 11:24 IST

India's performance on the macroeconomic front, despite encouraging figures, has still a long way to go, said Francois Bourguignon, chief economist of the World Bank, while speaking at a lecture on 'The Poverty-Growth-Inequality Triangle, at the Indian Council for Research on International Economic Relations, here on Wednesday.

"Even though India is a relatively egalitarian economy, we need to look at policies which would enhance poverty reduction through redistribution of income," he said.

"Given the uncertainty in India about what is happening to distribution and poverty, it is difficult to say how exactly economic growth has resulted in poverty reduction," he noted.

However, since India is a relatively egalitarian economy, with a Gini coefficient of a little over 0.3, economic growth has a relatively larger impact on poverty reduction than in countries where the income distribution is more skewed, he added.

Given the uncertainty in India about what is happening to distribution and poverty, it is difficult to say how exactly economic growth has resulted in poverty reduction.

However, since India is a relatively egalitarian economy, with a Gini coefficient of a little over 0.3, economic growth has a relatively larger impact on poverty reduction than in countries where the income distribution is more skewed, he said.

If per capita incomes rise at 4 per cent per year over a 10-year period, poverty levels in the country could come down from around 25 per cent now to a little less than 10 per cent.

If the income distribution worsens, the impact would reduce. A Gini coefficient of 3.7 would mean that poverty would go down to only about 12 per cent, which means an additional 50 million poor people in the country, he said.

Even on economic growth, countries need to be careful in choosing their growth strategies. There is no systematic between growth and inequality across countries.

In East Asia, opening up of economies has resulted in fast growth which has increased inequality in wages. On the other hand, in Latin America, trade openness has increased wage inequality without any commensurate increase in economic growth. Poverty reduction is a function of growth, distribution and change in distribution, he said.

While rapid elimination of absolute poverty is a meaningful goal for development, there is a need for country-specific combinations of growth and distribution policies.

"The real challenge to establish a development strategy for reducing poverty lies in the interactions between the distribution and growth, and not in the relationship between poverty and the growth on one hand and poverty and inequality on the other," he said.

BS Economy Bureau in New Delhi