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In 2013, Nobel Laureate Amartya Sen and his co-author Jean Dreze published their treatise on India’s ‘uncertain glory’. They acknowledged that the ‘…picture of a new and dramatically changed India is both accurate and important’. Yet, they are keen to ensure that one is not seduced by the ‘…increasingly used rhetoric which suggests that India is well on its way to becoming an economic power’. This, they claim, ‘…is far from the real picture’. They then proceed to devote a section of their book in documenting ‘India’s decline in South Asia’.

Well, where does one begin? The authors believe that ‘…the comparison between Bangladesh and India is a good place to start’. There is a certain irony in making such a comparison because of the nature of the Bangladesh-India relationship. As London School of Economics Professor David Lewis puts it:

‘Since the Liberation War of 1971, when India’s intervention made Bangladesh’s secession from Pakistan possible, relations have been characterised by periodic tension and distrust. Bangladeshis have developed something of a love-hate relationship with India: grateful for its support in 1971 and mindful of a common culture and shared history, but resentful of the ways that India throws its weight around as the regional superpower.’

Sen and Dreze note that, although in terms of per capita income, India is significantly richer than Bangladesh, ‘…(it) has overtaken India in terms of a wide range of basic social indicators’ (italics in original). For example, in 1990, India’s per capita GDP (in purchasing power parity terms) was 1.3 times that of Bangladesh. By 2010 that gap has widen to 1.6.

Has the Sen-Dreze thesis withstood the test of time? Has the really rapid growth of the mid-2000s in India reversed its unflattering comparison with Bangladesh? Sen and Dreze derive their conclusions by drawing on data from the World Bank’s ‘world development indicators’. Their latest data is of 2011 vintage. I use information from the latest available year (2016).  To start with, the income gap persists, with India’s per capita now 1.7 times higher than Bangladesh. Yet, it still remains true that Bangladesh does better than India in terms of a broad array of social indictors as recorded in 2016. Indian life expectancy was recorded as 68 years, while in Bangladesh, it turned out to be 72 years. Infant mortality (in terms of 1000 live births) was 38 in Bangladesh vis-à-vis 48 in India. Access to improved sanitation facilities (% of the population) was 61 in Bangladesh, while it was a strikingly low 40 in India.

There is one specific indicator of lack of sanitation facilities that has attracted attention in recent years and has been the source of much anguish and embarrassment in India. This pertains to the act of ‘open defecation’ where men and women, both and young old, respond to the call of nature in open spaces. It is well known that open defecation poses a major public health risk. India has the unenviable distinction of being way behind Bangladesh in this regard. While the latter is poised to eliminate open defecation entirely  – an achievement that has occurred within the space of ten years – more than 500 million (or about 38 per cent of the population) still engages in open defecation in India.  Not surprisingly, eliminating open defecation by 2019, the year that coincides with the 150th anniversary of Gandhi’s birth, is one of the primary goals of the current government’s Swachh Bharat Abhiyan movement in India. The latter, it seems, has a lot to learn from Bangladesh in this particular sphere of public health, so claims both a leading global periodical and a leading Indian daily. The Sen-Dreze thesis of India’s ‘uncertain glory’ appears to be vindicated, at least in terms of an aspiring economic power being a laggard in terms of social indicators, despite rapid growth and rising income. Certainly, ‘growth matters’, but it is not the only thing that matters.

The September (2017) issue of Finance and Development provides new evidence to substantiate the well-known trend of the declining labour share of income ‘…around the world’. It notes that in 19 of 35 advanced economies, and 32 of 54 emerging economies, labour share declined between 1991 and 2014. It rightly notes that …’capital ownership is concentrated among the wealthiest households’. This means that ‘…an increase in the capital share of income tends to worsen income inequality.’

The author points out that about 50 per cent of the decline in labour’s share of income in advanced economies is due to technological change, while the key driver of rising inequality (in terms of changes in labour share) in emerging economies is globalisation (or global integration in the form of participation in global value chains). In the case of advanced economies, the author recommends multi-faceted policy interventions – investment in education, skill upgrades and various forms of active labour market policies – but none at all for emerging economies. Why?

The answer is remarkably complacent: ‘…the effects of global integration has been largely beneficial’ on emerging economies. Hence, no policy intervention is needed. But…the evidence suggests that globalisation has led to rising inequality by engendering ‘labour’s losses’ across a swathe of emerging economies. That, in and of itself, is a cost because it threatens social cohesion and future growth. One could argue that this calls for corrective policy action. The author is silent about the need to enhance the bargaining power of workers to cope with declining labour share and for strengthening social protection systems to reduce the vulnerability of those who are affected both by technological change and globalisation.

In a report released a few days ago by multiple UN agencies, the reader is confronted with a distressing piece of evidence: world hunger, after decreasing steadily over the 2000s, might be rising again. Using statistics on ‘prevalence of undernourishment (PoU)’, the report shows that

‘…the share of undernourished people in the world decreased from 14.7 per cent in 2000 to 10.8 per cent in 2013. However…FAO estimates for 2016 indicate that the global prevalence of undernourishment in 2016 may have actually risen to 11 per cent, implying a return to the level reached in 2012 and suggesting a possible reversal of the downward sustained over recent decades’.

The report attributes the likely rise in global hunger attributes to various types of conflicts in different parts of the world that attenuates food security, to climate change and to economic downturns that sap the capacity of governments in developing countries to look after the poor and the needy. The report suggests that the evidence on the latest trends in PoU pose a challenge to the Sustainable Development Goals which is committed to end hunger and prevent all forms malnutrition by 2030. The case, it contends, for collective and corrective action is strong.

The more cynical observer might conclude that, given typical margins of error that accompany global estimates of material deprivation, the suggestion of a rise in global hunger is premature and that trends in income poverty as compiled by the World Bank are a lot more positive. The response to this cynicism is that world hunger might not have increased, but there are multiple observations (2013 to 2016) to suggest that at least that progress in reducing global hunger has stalled. Furthermore, positive trends on income poverty between 2012 and 2015 are based on forecasts rather than actual estimates.

The Armenian government has had various lending arrangements with the IMF for 10 years (2009 to 2017). Over this period, IMF was rather quiet about Armenia’s law on public debt – enacted in 2008 – that drove the country’s fiscal consolidation exercise. The World Bank called it ‘one of the most ambitious’ in the region and documented its pernicious impact on public investment and growth. The IMF agreed, but did not explicitly point out the need for revising the 2008 public debt law – until now.

In its July 2017 review of Armenian macroeconomic policy, the IMF notes that:

‘…the authorities agree with staff that the implementation of the fiscal rule is overly contractionary at this conjunction. From a legislative perspective, the current fiscal framework is quite unique in the international landscape…such a framework does not provide a useful anchor when debt is sufficiently below the ceiling and…is likely to bind when economic activity is weak, resulting in a pro-cyclical bias…This may, therefore aggravate the economic downturn and thereby undermine the credibility of the fiscal framework. The authorities are currently being assisted by (the) IMF to revise and modernize their fiscal rule…’

The draft of a new fiscal rule is expected to be debated by the National Assembly in October 2017.

This current approach by the Fund represents a sharp change from previous positions. Indeed, in its December 2016 review, the IMF accepted the fact that:

‘…the authorities remain committed to fiscal consolidation and debt sustainability, as embodied in their fiscal rule, which aims to ensure that debt remains below 60 percent of GDP over the medium term. In this context, they have developed a fiscal consolidation plan for 2017 and beyond’.

One wonders why it took the IMF – a body with vast expertise on fiscal affairs – ten years to urge the Armenian government to revise its now discredited fiscal rule. Such a rule – and its manifest inadequacies – was  public knowledge by the time the IMF entered into a lending arrangement with Armenia in 2009 and acquiesced in the unveiling and implementation of a fiscal consolidation programme that has turned to be damaging to growth and employment. Indeed, I do not feel flattered at all that I drew attention to the Armenian government (and more specifically the Ministry of Labour) to the problems that were embedded in its fiscal rule when I wrote a report on behalf of the Moscow office of ILO in May 2017 (see blog entries for June 2017).

In one of its latest reports, The  Independent Evaluation Office (IEO), examined IMF’s changing role in providing advice and assistance to member states in strengthening social protection systems. While being mildly critical, the IEO commended the Fund for the role that it played since the 1990s in placing social protection as a ‘macro-critical’ issue when engaging with member states, both operationally through its various lending arrangements and through its advisory and surveillance roles.  The IEO then suggested various recommendations  to strengthen the IMF’s capacity in offering advice and support to member states in enacting and implementing social protection policies. There is, however, one area where the IEO frankly acknowledges the IMF faces a major challenge, namely, institutional collaboration with UN agencies, most notably UNICEF and ILO.

The challenge of developing  productive collaboration between the IMF and UN agencies stems from different approaches to social protection. The IMF generally favours a ‘targeted’ approach to social protection in which means-testing is used to allocate scarce public funds to help the poor and the needy. Given its mandate, the IMF is understandably concerned about the fiscal sustainability of social protection policies. The UN agencies, on the other hand, subscribe to a ‘rights-based’ approach which ‘…emphasizes universal benefits and targeting by category (e.g. demographic groups) rather than income’. Combining the two different approaches into a unified position has proven to be rather difficult.

The IEO also notes that ‘IMF-World Bank cooperation on social protection generally worked well’ but worries that this might not necessarily be the case in the future. This is because in 2015 the World Bank decided to ‘…adopt the goal of universal social protection’.  How that proclamation will manifest itself in practice remains to be seen, but at least there is a formal change in approach. As the World Bank group President puts it, ‘…universal coverage and access to social protection are central to the World Bank Group’s twin goals, to end extreme poverty by 2030 and boost shared prosperity’.

There is in addition the Sustainable Development Goals (SDGs) endorsed by 193 member states of the UN system which supports universal social protection. For example, under goal 1 (ending extreme poverty in all its forms) the SDGs proclaim: ‘Implement nationally appropriate social protection systems and measures for all, including floors, and by 2030 achieve substantial coverage of the poor and the vulnerable’. The IMF has, as a good citizen of the international community, subscribed to the SDGs. Yet, at the same time, it adheres to a fiscal-centric and targeted approach to social protection.  Resolving this tension, especially in light of the World Bank moving in the direction of the UN agencies in the area of social protection, will remain a major challenge for the Fund. Unless it does so, it will be unable to appease its critics that it really is serious about social protection beyond helping the poor and the needy through means-tested programmes.