A two-prong strategy to reduce income inequality

Growth in employment, labour productivity and real wages are the most important factors for sustainable reduction in extreme poverty. Rapid GDP (gross domestic product)  growth, expanding by around 6.0 per cent per annum during 2005-2015 period, provided the main backbone for the remarkable reduction in total and extreme poverty. The GDP growth was associated with noticeable structural transformation that saw a rapid growth in the share of industry and manufacturing and a commensurate reduction in the share of agriculture. The employment structure also changed as the employment share of industry and services expanded while the employment share of agriculture fell.   
Figure 8 shows that real wage started to increase fast since 2000, with a dip in the period of international food price hike in 2007/08. After this shock, the real wage just doubled in a span of five years or so. Now an agricultural labourer can buy about 10 kg of coarse rice with his daily wage, which was below six kg of rice just about five years ago. Though the sharp increase occurred after 2010, the increase in real wage in the period 2000-10 explains why the rate of reduction in poverty has been faster in the 2000s than the previous decade.
MIGRATION: Creation of additional non-farm employment opportunities, via non-farm diversification in rural areas and rapid urban growth sustained by robust flows of overseas remittance and manufacturing export growth, led to increased out-migration (seasonal and permanent) of labour. Migration contributed to the rise in agricultural/rural wages for workers who remained behind in agriculture/rural areas. Evidence suggests that domestic migration for seasonal or temporary work helps the poorest and poorer groups. In case of international migration, some positive recent trends are discernible. The share of the two lowest land-owning groups in rural areas (owning up to 0.40 ha) in the pool of rural households reporting international migrants has increased considerably during 2000-2008. Thus, in 2000, the combined share of these two landowning groups constituted 38 per cent; this has increased to 54 per cent in 2008.
REMITTANCES: Remittance inflows from migrant workers grew rapidly between 2000 and 2015 and have continued to perform outstandingly throughout the Sixth Plan period. The government has supported this through a range of policies. To facilitate remittance, 27 microfinance institutions, along with 28 banks, have been authorised, to use mobile banking. The number of jobs created in the Sixth Plan (2.0 million) yearly substantially exceeded the projected employment (1.2 million).)This has been a major contributory factor to the growth of remittances that swelled from US$ 10 billion in FY2010 to US$ 15 billion in FY2015. Some 60 per cent of these remittances accrue to the rural economy. Several researches have indicated the highly positive impact of remittances on poverty reduction: supporting the growth of real wages, increasing income and consumption of the rural poor, expansion of housing, construction, trade and other services.
EXPANSION OF MICROCREDIT:  Access to credit is an important determinant of income opportunities for self-employed rural and urban poor. In the area of micro-credit, rules were developed for the Microcredit Regulatory Authority (MRA) in 2010 to properly supervise MFIs and protect both the borrowers and the lenders. In 2012, some 135 new MFIs were registered with the MRA, and in 2011, the savings per borrowers had increased by 19 per cent. As of 2013, about 8.0 million borrowers have received microcredit through the Palli Karma-Sahayak Foundation (PKSF), of which 91 per cent are women.  Policies and programmes for small and medium enterprises were also formulated in 2010 to enhance financing services for the small and medium enterprises (SME) entrepreneurs. According to the Bangladesh Bank data, as of December 2014, some Taka 644 billion has been disbursed to small enterprises.
TARGETED HUMAN CAPITAL DEVELOPMENT: Human capital development is crucial, not only to attack poverty and extreme poverty now, but also inter-generationally. There are some human capital development programmes in operation in the country. An evaluation of primary education stipend programme shows that the stipend ensured education for all and increased the coverage. The stipends have created larger interest in education among the rural population. It has increased both enrolment and attendance of the children. There are also some spill-over effects of stipends such as  empowerment of mothers, improvement of child rights, increased accountability of schools, increased competitiveness among students, etc. Likewise, studies show that female secondary school stipend programme has been quite successful in increasing the enrolment of girls in secondary education and reducing gender gap at secondary level.
SOCIAL SAFETY NET PROGRAMMES: According to the 2010 Household Income and Expenditure Survey (HIES), the government has brought 24.57 per cent of households under the benefits of social safety net programmes (SSNPs) - rural: 30.1 per cent, urban: 25.3 per cent; it was 13.02 in 2005 -rural: 15.64 per cent, urban: 5.45 per cent. It is estimated that the contribution of SSNPs alone in reducing poverty in 2010 was 1.5 percentage points. The strong commitment from the government to SSNP is revealed by the fact that in 2008-09, the allocation for social safety net was Tk. 121.98 billion which was 1.98 per cent of GDP. The allocation for SSNP in 2014-15 is Tk 307.51 billion, which is 2.30 per cent of GDP.
POLICIES AND STRATEGIES OF POVERTY REDUCTION:
1. Strategies of the Sixth Five-Year Plan to reduce poverty: Acceleration of economic growth and creation of sufficient employment have been identified as important tools for poverty reduction in the country. It is targeted that share of manufacturing sector to GDP would cross 20 per cent and its employment share would be 15 per cent in 2015. Focus was on to enhance the income-earning opportunities of workers remaining in agriculture by raising land productivity and increasing diversification of agriculture production. It is hoped that agriculture diversification in both crop and non-crop sectors will help promote commercialisation of agriculture and raise farm incomes. The Sixth Plan has focused on export of well-trained skilled and semi-skilled manpower to existing as well as new destinations. Accelerated growth in manufacturing, construction and services sectors projected under the Plan would help create 10.4 million new jobs in these sectors of the economy.  
2. Reducing income inequality: The Sixth Plan's strategy to reduce income inequality has been following a two-prong strategy. First, it has included efforts to increase the access of the poor to assets and means of production. Second, it has strengthened the delivery of human development services to the poor. The strategy for enhancing the poor group's factor endowment in the Sixth Plan has been focused on ensuring better access by the poor to irrigated water, fertiliser, electricity, rural roads and institutional finance.
3. Social safety net programmes (SSNPs): Notwithstanding past progress, out of 155.80 million population, some 38.12 million people were still living below the upper poverty line (UPL) and 16.58 million people below the international poverty line (LPL) in 2014. A 'shock' such as a major illness, a natural calamity or other external events could cause a substantial part of vulnerable population to fall back into poverty. Hence, the combined group of poor and vulnerable population reaching out to those who are most needy ought to be a major focus of the social security programmes.
4. Improving voice and access to information: The poor are often excluded from markets in remote areas, undermining their economic activities. Increasing information and voice can address exclusion at household, community and national level. Realising the fact the government of Bangladesh along with its development partners are undertaking programmes to remove the information access barriers. Establishing UISC (Union Information and Service Centre), DESCs (District e-Service Centres), developing market enterprise programmes to improve access for the products of individuals and collectives to local and national markets are some noteworthy undertakings.
The record of progress with poverty reduction, human development and living conditions of the poor constitutes a major achievement and has made Bangladesh proud. It is also a reaffirmation that the development strategy is appropriate and on track. Nevertheless, the poverty challenge moving ahead remains enormous. The disaggregation of the poverty profile by location in rural and urban terms and by divisions show substantial variations. This geographic variation in the distribution of poverty underscores the need to further refine the poverty profile by other characteristics including gender, age, education, asset and employment in order to design an appropriate poverty reduction strategy and associated interventions. By implication, the social security strategy also needs to be aligned to the poverty profile and proper assessment of related risks.
Professor Shamsul Alam is Member (Senior Secretary), General Economics Division (GED), Bangladesh Planning Commission. He led the preparation of the Sixth Five-Year Plan (2011-15) and is leading the preparation of the Seventh Five-Year Plan (2016-20) which is at the final stage now. The article is adapted from a paper prepared for the participants of National Defence Course (NDC), Dhaka and  presented on May 18, 2015 at Defence College, Mirpur. In preparing the paper research support was provided by Mohd. Monirul Islam, Deputy Chief, GED, Planning Commission.
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