Rising income inequality has been the subject of considerable debate in recent times. An Oxfam report presents that top 1 per cent of population possesses more wealth than the rest of the world. Research led by Thomas Piketty revealed that since 1980, the income growth of the bottom 50 per cent population has been virtually zero in the US. While in 1980, the average income of top 1 per cent was 27 times higher than that the bottom 50 per cent. In 2014, this gap widened 81 times.
Inequality is rising in Bangladesh. The main source for measuring inequality is the Household Income and Expenditure Survey which is usually conducted at five years' interval. Gini coefficient is generally used for estimating inequality. There are other methods of measuring inequality such as Palma ratio, quintile share. Gini coefficient is derived from Lorenz curve. The following two figures show Income Lorenz Curve and Consumption Lorenz curve. The line that divides the square is called the line of equality. The closer the curve gets to the line of equality, the better the distribution is and vice versa. It is clearly evident from Figure-1 that the distribution of consumption is more equal than the distribution of income.
World Bank Poverty and Equity data portal presents the inequality scenario based on international poverty line. The survey period used for estimating international poverty line covers the period between 2009 and 2013. From figure-2, it appears that Bangladesh is still comparatively in a better position than other South Asian countries.
Income inequality worsened both in rural and urban areas since 1995 although there had been a bouncing back in 2010 because of the fall of inequality in urban areas. The following table illustrates the change of income inequality over four decades.
When income inequality is compared with consumption inequality, the latter seems more stable than the former. In the 2016 survey, income inequality increased because of the rise of inequality in both rural and urban areas. However, urban inequality is more pronounced than rural. Rural income inequality has been rising occasionally having some pause between 2005 and 2010. Consumption inequality increased because of increased inequality in rural areas. This is presented in Figure-3.
Figure 3: Income inequality and consumption inequality; rural vs. urban
Another way to measure inequality is to compare the top 10 per-cent income share with the bottom 40 per cent because Gini coefficient is oversensitive to the change in the middle group and under-sensitive to change in the extremes. The Palma ratio is obtained by simply dividing income share of top 10 per cent by the share of bottom 40 per cent. The trend shows the ratio has been rising particularly in the last half decade. The other methods include quintile share of income.
The government's first Perspective Plan (2010-2021) provides the road map for accelerated growth and lays down broad approaches for eradication of poverty, inequality and human deprivation. The 7th Five Year Plan (2016-2020) emphasises on policies, institutions and programmes that will support lowering of income inequality and empowering the citizens. It marks the second phase in the attainment of our long-term vision for accelerated but inclusive growth, and eradication of poverty, inequality and human deprivation. The 7th plan articulates renewed commitment to reversing the pattern of long-term increase in income inequality in Bangladesh. Reduction of inequality through broad-based participation in productive employment is one of the pillars on which the growth strategy of the 7th Five Year Plan rests. The income inequality is targeted to reduce or maintain at 0.45 or below during the 7FYP period.
Taming inequality, a win-win situation for the economy and its citizens, will spur both empowerment and economic advancement. Supporting actions for this avenue of empowerment include policies to boost spending on health, education, gender equality, worker safety and wellbeing, as well as a broad range of social protection programmes.
The government has developed a new broad-based strategy for social protection known as the National Social Security Strategy (NSSS 2015). The NSSS is based on past experiences pertaining to Social Security in Bangladesh. There is a long history of formal Social Security in Bangladesh, which, in part, has shaped the nature of the current Social Security system. There are a wide range of social protection programmes, such as primary education stipend, school feeding programmes, allowances for widowed, deserted and destitute women, old age allowance, Vulnerable Group Feeding programme. The NSSS will strengthen the transformation towards a lifecycle system by consolidating programmes in a small number of priority schemes. The five core life cycle programmes suggested by NSSS (2015) are:
i) Programs for Children;
ii) Programs for the Working Age;
iii) Comprehensive Pension System for Elderly
iv) Programmes for People with Disabilities;
v) Other Special and Small Programmes.
Elimination of extreme poverty, reduction of vulnerability and inequality will all benefit from the implementation of the NSSS. NSSS will provide a strong basis for Bangladesh to extend proper social protection to its poor and vulnerable population. The Proposed reforms will be instrumental in eliminating leakages, improving targeting, increasing the average value of the transfers, lower the risks faced by the poor and vulnerable population, reduce poverty, help reduce income inequality and build social capital. Public spending on social protection is targeted to raise from 2.02 per cent of GDP in Fiscal 2015 to 2.3 per cent of GDP by Fiscal 2020. This is expected to rise in this year's budget (2018-19) also.
1) Reaping the benefit of demographic dividend
2) Employment enhancing growth
3) Auguring Favourable Business investment climate
4) Management of urbanisation bringing nature closer
5) Minimising climatic adverse impact
6) Ensuring more energy supply from renewable sources
7) Reaping benefits from LDC graduation
8) Trade/Product Diversification for job creation
9) Competitiveness and ease of doing business
10) Skill Development
12) Reducing underemployment (13 million youth not in education, employment and Training)
13) Progressive taxation
14) Strong institutions and accountable governance
15) Effectiveness of the use of natural resources
16) Block allocation of funds for development of lagged regions
Digital Bangladesh and Rural Focus to address inequality:
The income inequality problem will be addressed through a range of measures including
i. Creating better access to high productivity employments for youths
ii. Improving farm productivity and incomes
iii. Sharpening the focus on equity aspects of public spending on education, health, family planning; nutrition and water supply
iv. Reducing the regional disparity of growth by creating block fund allocation for lagged regions;
v. Improving the access of the poor to means of production (fertilizer, seeds, water, electricity and rural roads)
vi. Improving the access of the poor to institutional finance
viii. Allocating resource on Social Safety Net and introduction of social insurance, and Voluntary pension schemes as proposed in the NSSS (2015).
Dr Shamsul Alam is Member (Senior Secretary), General Economics Division, Bangladesh Planning Commission. In preparing this paper, research assistance was provided by Nepoleon Dewan, Assistant Chief, Poverty Wing, General Economics Division. [email protected]
