Poverty reduction is not merely a matter of raising economic growth, says Francois Bourguignon, senior vice president and chief economist at the World Bank, in an interview with Business Standard.
"The real solution to the problem lies in the relation between growth and income distribution in the economy and each country has to find its own unique policy prescriptions," he said.
According to the bank, Bourguignon explained that the redistribution of credit from the top to the bottom could increase the rate of return on investment and accelerate economic growth. But this could also reduce the level of savings in the economy.
In order to redistribute credit to people who can use it more effectively, the government could subsidise banks and financial intermediaries or NGOs undertaking micro-finance programs.
They have to pick those that can channel the money most effectively, he remarked.
In such a situation, he said it pays to remember that non-performing assets are more likely to be on account of big companies than on account of small borrowers.
The World Bank chief economist also said that subsidies should target the poor.
International experience shows that food subsidies are difficult to target. There is a lot of leakage and associated corruption.
Public employment programs are an efficient way of transferring income to the people below the poverty line. Such programs entail self-selection, in that only the genuinely needy come forward to seek such employment, he said.
Mexico and Brazil are successfully following conditional cash transfer programs. They identify people and give them cards, very often smart cards. They are then given cash transfers conditionally on sending their children to school, or for sending them for medical tests twice a year and the like.
Asked whether the governments should focus on provision of social sector services or focus on areas like infrastructure, the Bank official said that the level of the budget deficit is a constraint and the government needs to prioritise.
"If the lack of infrastructure is a binding constraint, you have to invest there because the resulting economic growth will benefit all sectors," he remarked.
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