For the first time in its long history, the people of South Asia have the chance of sharing in a thriving environment on fair terms. The countries of the region are enjoying unprecedented economic growth, in most cases exceeding 5 per cent a year for over a decade. Today, South Asia is the world's second fastest growing region, with economic growth contributing to an impressive reduction in poverty. During the 1990s, India, Bangladesh and Nepal lowered their poverty rates by 7, 9 and 11 percentage points, respectively; Pakistan's rate declined by 5 per cent in the first half of this decade; and the poverty rate in Sri Lanka's western province, where growth has been concentrated, declined by half.
The unprecedented economic growth and poverty reduction raise the possibility of ending poverty within a generation in the region with the world's largest concentration of poor people. This means a reduction in poverty rates to single digits and the attainment of the Millennium Development Goals (MDGs) in health and education -- universal primary education, gender parity in primary and secondary education, two-thirds reduction in child mortality and three-quarters reduction in maternal mortality. With 400 million people in abject poverty and violent conflicts in Afghanistan, Sri Lanka and until recently Nepal, as well as widespread ill-health and illiteracy, especially in northern India and Pakistan -- the challenge is daunting.
How then do we dare to suggest this possibility? We do so because growth is creating the political space for much needed policy and institutional reforms to accelerate growth further and tackle South Asia's long-standing problems of social and economic exclusion, illiteracy, ill-health, conflict, corruption and confrontational politics. Some of these problems persist because of political resistance to reforms, even those that benefit the poor, who lack political voice. South Asia is seeing an increase in information and advocacy campaigns to raise the political voice of the poor. At the same time, economic growth is catalyzing the political will to redistribute gains and compensate fairly those who lose out in the reform process.
In some countries, growth is generating the fiscal resources to address these problems -- not just new money but also the will to render existing public expenditures more effectively. Having tasted the fruits of economic reforms, South Asians are lobbying for a strong but deft policy hand that can accelerate growth and human development -- and do it in partnership with the private sector and civil society. And there is growing demand to address the challenge of inclusion, be it for women and girls, marginalized minorities or political factions in deep conflict. These developments, partly contributing to growth and partly its consequence, suggest the potential that lies ahead.
What will it take to reach these ambitious goals? South Asian countries will face and certainly need to tackle a number of fundamental challenges.
Growth. To begin with, the region will need to accelerate and sustain growth. At annual growth rates of 8 per cent, the poverty income level in the subcontinent could fall to single digits in two decades. This will not be easy. For one thing, South Asia faces severe infrastructure deficits -- power cuts, blocked ports, congested roads, inefficient railways -- which may make it difficult to even maintain current growth rates. Services-led growth that bypasses physical infrastructure cannot be the answer, as it would also bypass the labour-intensive manufacturing growth needed for creating millions of new jobs. For another, saving and investment rates in South Asia are much lower than those in East Asia -- the only other region to sustain such high growth rates in recent times.
Inclusion. Accompanying South Asia's recent economic growth has been a rise in inequality (see Figure 1). In Sri Lanka during the 1990s, per capita consumption of the richest quintile increased by 50 per cent, and that of the poorest quintile only by 2 per cent. The richer southern states of India are growing 3 percentage points faster than the poorer, more populous northern states. Unless growth is widely shared, South Asia risks having large pockets of persistent poverty. Worse, rising social and ethnic tensions from increasing inequality could exacerbate existing conflicts and trigger new ones.
Human development. South Asia has some of the worst levels of human deprivation in the world. India's child malnutrition levels nearly double those of sub-Saharan Africa; one in ten Pakistani children die before their fifth birthday. The gap between enrolment and completion in primary schools remains large (see Figure 2). Without a healthy and educated workforce, South Asia will not be able to sustain current levels of economic growth. Without substantial reductions in child mortality and the number of out-of-school children, the region will not end poverty.
Governance and public accountability. Several South Asian countries score poorly on measures of corruption. Well-intentioned government programmes are often driven by political patronage rather than universal service provision. South Asia has the world's largest conflict-affected population, about 71 million people. While it is impressive that the region has grown as fast as it has despite these constraints, it could have grown faster without them. Sri Lanka, for example, could have grown 2 to 3 percentage points faster without the civil conflict. The poor suffer the most since they are least able to cope with missing teachers, absent doctors or under-the-table payments. As South Asian countries seek to accelerate growth, these constraints could begin to bind. Bangladesh suffers from severe power shortages because governance problems have slowed the foreign direct investment needed to meet the country's infrastructure needs.
Each of these challenges is daunting. A subcontinent free of poverty can be attained by using the fiscal and political space created by economic growth to implement the necessary policy and institutional reforms. For instance, the pressure of growth has revealed how infrastructure has been allowed to deteriorate through inappropriate pricing, such as free power to farmers in some Indian states, and inadequate operations and maintenance. Growth has created a strong lobby for more efficient infrastructure pricing. Additional fiscal resources have allowed more spending on operations and maintenance. Growth has made it possible for countries to pursue "second-generation" reforms -- privatization of public enterprises, industry deregulation and financial-sector reform. While these reforms are politically more difficult, they are also more feasible when gross domestic product is growing at 6 per cent a year rather than at 3 per cent. First, growth is increasingly linked in the public mind to reforms. Pakistan, for example, has privatized most of its banking sector, with impressive early results. Second, growth makes it easier to compensate those who incur losses. Third, the gains from greater trade openness have increased the demand for integration among South Asian countries: energy-thirsty India and its energy-surplus neighbours, Bangladesh and Nepal, could mutually benefit.
Economic growth is contributing to more inclusion. South Asia has a sorry history of redistributive programmes that have been poorly targeted and frequently used as tools of political patronage. Sri Lanka's cash transfer programme, Samurdhi, excluded 40 per cent of the poor, while 44 per cent of its beneficiaries were not poor. Increasing inequality has created pressure to reform, and politicians are responding. Samurdhi is being revamped. In 2006, India introduced a massive programme that guarantees 100 days of work to any rural household that needs it. Though by no means perfect, this high-profile programme, unlike its predecessors, is being monitored and evaluated, increasing the chances that it will be effective.
Growth-induced additional fiscal resources have led South Asian countries to increase spending on health and education, but with a difference. Some are also strengthening accountability in the delivery of basic services so that the investment will be productive. In Nepal, the Government is devolving school management responsibilities to communities. Bangladesh and more recently Pakistan have been contracting out health services to non-governmental organizations. While most of these programmes have yet to be rigorously evaluated, preliminary results are encouraging. In addition, economic growth and some interventions, such as Bangladesh's scholarships for girls based on school attendance, are increasing the demand for health and education, putting more pressure on providers to deliver quality services.
Growth -- and the need for even faster growth -- has brought South Asia's governance problems to the fore, both revealing the fault lines of government failures and creating pressures to deal with them. With rising incomes, citizens are demanding better governance. In Bangalore, publication of citizen report cards that rate the quality of public services has focused attention on service delivery. New right-to-information laws can empower citizens in potentially powerful ways. Market-oriented policy reforms that have produced growth are laying the foundations of a more rational state that wields less discretion and is more accountable. Unbundling the relationship between governance and growth to solve the puzzle of good growth and seemingly poor governance, as in Bangladesh, can provide entry points for tackling governance. Much remains to be done, but if South Asian countries can increase the transparency and accountability of public decision-making, for example by fostering more informed public debate on the consequences of these decisions, the payoffs in improved governance would be considerable.
As it enters its second decade of rapid economic growth, South Asia is at a crossroads. Countries can be complacent and risk having the problems of inequality, human development and weak governance retard poverty reduction; or they can leverage their recent growth and end mass poverty in a generation. The welfare of hundreds of millions of poor people depends on which path they choose.
This article is based on the authors' recent report, Can South Asia end poverty in a generation? For more information, visit ndingpovertyinsouthasia.
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