'Nobody has a monopoly on knowledge'

Q&A/ Geert van der Linden

Governments in south Asia need to focus on rural sectors to combat poverty. Raising productivity in agriculture is important since most of the poor depend on agriculture, says Geert van der Linden, vice president, knowledge management and sustainable development, at the Asian Development Bank.

He spoke to Mamata Singh on the importance of focusing on inequalities, of sharing knowledge and using reserves for development. Excerpts:

How far has Asia progressed in achieving the Millennium Development Goals (MDGs) and on the issue of poverty reduction in particular?

Encouraging progress has been made in terms of reduction of income poverty. In Asia, the percentage of population living on less than a dollar a day has gone down from 32 per cent in 1990 to 22 per cent now.

If the region continues to grow at the same rate as it has in the past five years, with no worsening of income distribution, the objective of halving income poverty by 2015 is achievable.

On the other MDGs on health, education, water supply and nutrition, the picture is less positive and it is unlikely that these goals will be achieved by 2015.

The position in south Asia is particularly bad. Part of the problem is money. Large countries of south Asia spend about $ 50 to $ 75 per capita on health.

This is much less than per capita health expenditures of other countries in the region, such as Malaysia, which spends more than $ 300, and Thailand, which puts in more than $ 200. Inefficient service delivery is a problem, as is discrimination against women in distribution of food and healthcare within households.

What factors have contributed to the fall in income poverty in the region?

Economic growth is the most important factor in poverty reduction. High rates of growth generate economic opportunities for the poor and also increase the resources that governments have at their disposal to invest directly in the poor.

Empirical studies have shown that an additional percentage point of economic growth produces a 2 percentage point decline in poverty. In fact, growth has ensured that despite worsening income distribution, poverty levels have gone down.

However, if income distribution worsens, a country achieves much less poverty reduction than it would have otherwise. One instance is rural China. Despite healthy economic growth, income distribution has worsened, so much so that poverty has, in fact, increased slightly.

Both China and the Philippines have seen worsening income distribution over the past few years, while India has, by and large, remained the same in terms of income distribution.

What are the policy prescriptions for governments?

For the future, it is clear that economic growth needs to continue being high because it is the most important factor contributing to poverty reduction. The focus on income distribution is also important. For this, you need a dynamic rural economy because most of the poor depend on agriculture.

In China's case, rapid reduction in poverty was achieved in periods of rapid rise in agricultural incomes, both in the late 1980s and mid-1990s. China has an impressive record in poverty reduction and has been outperformed only by Vietnam, which was focused on the rural sector.

The rural economy in India is far less dynamic. There is a need for investment in, among other things, rural infrastructure, electrification, and access to health and education, to provide a boost to the segment.

Education is extremely important, too. A study of Indian states shows that a one percentage point increase in growth will yield 1.2 per cent reduction in poverty in Kerala, but only 0.3 per cent poverty reduction in Bihar because of lower literacy. Less literate people are able to benefit less from economic growth.

How would you rate the pace of India's poverty reduction as compared to those in south-east Asian countries?

A 10 percentage point decline over the past 10 to 12 years is a good performance. Steady but slow, and better compared to Bangladesh and Pakistan. But set against some east Asian countries, the dip in poverty has been slow and there is a need to step up efforts to improve the rate of decline in poverty.

The government should focus on industrial growth that is employment intensive and focus on agricultural incomes; education and health programmes needs to be intensified, too. The finance minister will have to find room in the Budget for these programmes.

Comparing industrial growth in east Asia and India, we see that in east Asia, industrial development has been much more labour-intensive and has, therefore, had a greater impact on poverty than in India. Indian industrial growth has been capital intensive "" jobless growth.

The government in India, therefore, needs to change focus and re-examine the incentive structure in the industrial sector to identify factors that make it difficult to create employment.

But India's economy has been more dynamic in the past 10 years than ever before and given the proportion of people with tertiary education, is placed to do well.

How likely is India to achieve the MDG on income poverty?

If India maintains its current economic growth rate and the income distribution does not worsen, it should achieve its $1-a-day poverty reduction goals.

But at the same time, it must be kept in mind that the $1-a-day poverty line was formulated in the late 1980s and is also more suited to very low income countries. Targeting a $2-a-day poverty line, which is not a particularly generous standard of living, indicates a different picture.

In Indonesia, on the basis of the $1-a-day poverty line, only 7 per cent of the population is poor, while the figure goes up to over 50 per cent on the basis of the higher poverty line. This indicates that a large number of people are just above the $1-a-day line, so there is no cause for complacency.

There has been some controversy over the drop in poverty as reported in the official figures. The current government has also taken the stand that growth had bypassed the poor. How do you estimate the Indian economy's performance over the 1990s?

There is no superior way of defining poverty. A number of judgements come in when defining the issue. India has a better record than other countries in estimating poverty.

In India's case, whatever yardstick you use, there is a significant decline in poverty over the 1990s. The official estimates state that poverty went down from around 36 per cent in 1993 to around 27 per cent in 1999.

Using the international yardstick of $1-a-day, poverty estimates show declines of a similar magnitude, from 50 per cent to 41.87 per cent.

Comparatively, it is difficult to say what has happened in Pakistan over the past 10 years. On China, there is a consensus that the quality of economic statistics has greatly improved over the years. So, there is no reason to believe that the actual position is very different from what the official statistics claim.

The government in India is considering using forex reserves for investment in infrastructure-related projects. What is your view on the issue, given that Asia has a huge kitty of such reserves?

Asia has forex reserves of $ 1.3 trillion. China alone has $ 450 billion. The level of reserves is excessive and has huge carrying costs.

A lot of this money is invested in the US treasury bonds. Even a 10 per cent reduction in the dollar would mean huge losses to these countries. Money invested in the US treasury is not used for development.

Governments have to decide on an adequate level of reserves and invest the rest. An adequate level of reserves is needed in case of situations such as the high international oil prices, currently prevailing.

What is your view on the inclusion of experts from multilateral agencies, including the Asian Development Bank, in the consultative process of Indian plans?

There is enormous gain to be made by sharing knowledge, accessing it where it is available.

At the company level, government agency level and international organisations level, those that have good systems for sharing knowledge, both within and outside, do better. Nobody has a monopoly on knowledge. As someone who is in charge of policy formulation, I would say it is wise to consult as widely as possible.

The Indian government has to take responsibility for whatever policy stance it takes, but before taking that final stance, it would be wise to consider advice from within the government, outside the government, within the country and outside the country.