On road to inclusive growth: An assessment

Dhaka,  Wed,  23 August 2017
Published : 16 Jun 2017, 20:54:06
Budget for 2017-'18

On road to inclusive growth: An assessment

Dipok Kumar Roy
Gross Domestic Product (GDP), the monetary measurement of the market value of final goods and services produced in an economy for a particular period, generally one year, has not been a very good scale of measurement of economic growth and development of an economy because of the lack of inclusiveness of rational growth at all levels and the lack of measuring social and economic welfare of society. So, the growth of a big chunk of GDP means growth of production, i.e., wealth including war equipment as well, and does not mean the improvement of social and economic welfare of society. Bangladesh achieved a consistent 6.0 per cent growth rate of GDP over the last ten years, which does not mean the broad-based growth across sectors and inclusiveness of the large part of the country's labour force. Inclusive growth allows people to contribute to and benefit from economic growth, and shows rational improvements of micro determinants in addition to growth of macro indicators. Despite the debate the data available from the Bangladesh Bureau of Statistics, General Economic Division, suggest that Bangladesh achieved the following socio-economic progress over the years:

On road to inclusive growth: An assessment

It is clear that the country is making socio-economic progress from year to year despite the arguments about effective budget implementation and good governance. With a view to marching on the development highway aided by inclusive growth, the budget 2017-18 estimated a total expense of Tk 4.0 trillion-plus, which is 26 per cent higher than the revised budget of Tk 3.0 trillion-plus for the current fiscal year (FY). The growth of GDP has been provisionally estimated at 7.24 per cent for the FY 2016-17 and the projection for the FY 2017-18 has been made at 7.4 per cent. In terms of growth it is highly remarkable for a nation. But how will it impact the micro-level economic well-being?  

Some of the basic determinants of inclusive growth have been achieved from the budget implementation effectively and efficiently especially in the following areas: (1) Education - Access to, Quality and Equity of Education, (2) Infrastructure Facility- Physical Infrastructure and Digital Infrastructure, (3) Public Services and Welfare, (4) Financial Inclusion, (5) Agriculture and Rural Development, and (6) Programmes for removing Income Inequality. We need to review the allocations and plans for the above six categories in the budget for 2017-18 in order to assess its effect on inclusive growth.

Education: We need to measure the budgetary allocation on and performance of the education sector in view of three basic points: (a) Access to Education, (b) Quality of Education and (c) Equity of Education. Bangladesh has a total of 26,193 nationalised primary schools and almost every village of the country now has a public primary school offering free schooling with free text books. Free books are also being provided to all students at the secondary level at all government and non-government schools. Female students are paid stipend. This has been a very appreciable model of female schooling, protection of dropout and prevention of child marriage to some extent. A World Bank report says, 'Bangladesh has made remarkable gains over the past two decades by ensuring access to education, especially at the primary level and for girls. The country's net enrollment rate at the primary school level increased from 80 per cent in 2000 to 98 per cent in 2015, and secondary school net enrollment is now around 54 per cent, up from 45 per cent in 2000. Furthermore, the percentage of children completing primary school is close to 80 per cent, and Bangladesh has achieved gender parity in access to education in addition to dramatic decreases in disparities between the highest and lowest consumption quintiles at both primary and secondary levels.' The findings may not be quite impressive but good.

Then comes the quality of education. In order to ensure quality of education we should reform the existing education systems to match the international quality. What does the budget 2017-18 say about this? In order to ensure quality of education, the pay package for teachers has been gradually increased. The process of nationalising 120 non-government secondary schools and 285 non-government colleges are progressing faster as well. A five-year project titled 'Secondary Education Development Programme' is being undertaken at an estimated cost of US$ 18.2 billion. Setting up computer labs and multimedia class rooms at educational institutions and construction of non-government school, colleges and madrasas are underway. At the end of 2016-17, Upazila ICT Training and Resource Centres have been established and 295 non-government schools have been transformed into model schools in 315 upazilas having no government schools.

In terms of equity of education, all irrespective of race, religion and gender are given equal access to education. The government has adopted a special female stipend facility to prevent dropout and child marriage. In spite of having equitable access to education, only 50 per cent of the students the 10th grade level as per report of the World Bank. Children between the age of six and thirteen from poor families, urban slums and hard-to-reach areas remain out of school and women continue to lag behind men in higher secondary and tertiary education. Student enrolment is progressively lower for the poor at the secondary to tertiary levels.

'Sustainable and inclusive development is our motto'- is a slogan of the government. There is no alternative to human resource development and as such, the government has attached priority to investing in the education sector. Our education sees the largest allocation of Tk 656.44 billion, which is 16.4 per cent of the total budget and approximately 2.43 per cent of GDP. Still this is not adequate for quality education. As per UNESCO, the education allocation of a nation should be 20 per cent of the budget and 6.0 per cent of GDP. The budget allocation is far below than the UNESCO threshold. Compared to the past, access to education has been widened and opened for all and equity of education has been ensured irrespective of race, religion and gender. Only the quality of education is a big question. We are experiencing so many education systems like Bangla medium, English medium, English Version of Bangla curriculum and Madrasa curriculum. With so many systems, the unique quality could not be focused. The education systems could be reformed to make it a uniform version. Profession as teaching should be dignified in terms of payment and social position so that most of brilliant students want to be teachers.

Infrastructure: Infrastructure development is very essential for inclusive growth, because people need opportunities to access and infrastructure for (a) connecting cities, towns and all places of the country, (b) producing and supplying agricultural and industrial products from one place to another by establishing agricultural firms and industrial units in different locations of the country. The people generally use the infrastructure facility of two types, like (a) Physical Infrastructure and (b) Digital Infrastructure. Under Physical Infrastructure, the budget's 5.3 per cent or Tk 212.14 billion and 12.5 per cent or Tk 500.33 billion have been allocated for (a) Power and Energy and (b) Transport and Communication infrastructure respectively. In line with the vision 2021, all people will be brought under electricity coverage by 2021 instead of the 80 per cent at present. The related action plan targets construction of mega power plants to be fuelled by nuclear energy, coal and gas and installation of more transmission and distribution lines in the FY 2017-18 and immediate years. The government has a plan to import LNG and install terminals to increase electricity generation capacity. In order to ensure efficient use of electricity, the government has already introduced prepaid meter systems and has a plan to install additional 20 million (2.0 crore) prepaid meters for reducing system loss, ensuring load management and saving energy. Increase of gas production by BAPEX and distribution by using prepaid meters are in the process for meeting the increasing demand and ensuring efficient use.

For transport and communication, the government allocated the third largest amount of money, which is 12.5 per cent or Tk 500.33 billion. One of the most important prerequisite for faster economic development after power and energy is better communication infrastructure. In order to build quality communication infrastructure and develop the road transport system, zone-based cluster projects to upgrade around 1,179 km regional highways have been undertaken. Besides, cluster projects for construction of 1,855 km highways in Bandarban, Rangamati and Khagrachhari have also been undertaken. Upgradation of 3,813 km national highways to four-lane routes across the country is also underway. In continuation of this, in FY 2017-18, 373 km national highways will be upgraded to four-lane ones.

Digital infrastructure is also another common platform supporting people's employment and improvement of living standard. In order to ensure overall development in the IT sector in line with the Vision 2021 and the 7th Five Year Plan, 12 IT parks in Gopalganj, Mymensingh, Jamalpur, Rangpur, Barisal, Keraniganj in Dhaka, Comilla Sadar (South), Chittagong Port, Ramu in Cox?s Bazaar, Singra in Natore, Companyganj in Sylhet and KUET Campus in Khulna will be set up. Apart from them, seven IT training and incubation centres will also be set up at seven locations across the country to expand high-speed optical fibre cable connectivity up to the union level.

Public services and welfare: Public services and welfare are core services to be provided to people by the government because of having no capacity to generate or buy such services by the people. Under Public Services and Welfare, the people get services for health and family welfare, public welfare especially on food management, disaster management and relief, social safety net programmes, special social protection for Haor areas, women and children's development, welfare of freedom fighters and upholding the spirit of the Liberation War, manpower export and expatriates' welfare and public discipline and security. The budget 2017-18 provides 5.2 per cent or Tk 208.10 billion for health, 5.7 per cent or Tk 228.15 billion for law and order and public security and 6.0 per cent or Tk 240.16 billion for social security and safety. In addition to all other public welfare facilities, Social Safety Net Programmes (SSNP) are effective much to connect the socially-disadvantaged people to the growth of national economy. The budget under SSNP could increase more for betterment of the beneficiaries subject to effective and efficient implementation with good governance. The initiatives for Special Social Protection Scheme for Haor Areas are appreciable, especially providing 30 kg rice per month to each of 330 thousand (3.30 lakh) bonafide destitute and flood-affected families. A special allocation of Tk  570 million has been made to provide cash-assistance on a monthly basis. An amount of Tk 820.7 million has been allocated for 91,447 beneficiaries under the Employment Generation Programme for the Poorest (EGPP).

Financial Inclusion: Financial inclusion is financial services and products at affordable cost to the financially excluded, unbanked and under-banked people. In the financial system of Bangladesh, banks, financial institutions, insurance companies, micro-finance institutions and capital market are formal financial institutions and provide financial products and services to individuals and businesses.

The initiatives taken by the government for opening accounts by students, farmers and social safety net beneficiaries, bank-led mobile banking and special target-based financing for SMEs and agriculture and sustainable financing mainly in the form of green banking, Corporate Social Responsibility (CSR) and climate resilience fund are good steps towards financial inclusion. Most of the accounts of millions of students and farmers may not be active but they have been bankable. The budget for 2017-18 has allotted Tk 20 billion (2,000 crore) in capital subsidy for state-owned banks, when a big question remains over good corporate governance in state-owned banks. They should work continuously and more efficiently in enhancing financial inclusion.

In order to ensure financial support to small businesses an initiative has been taken to establish a Small Cap Platform so that capital formation can take place in small and medium enterprises. In addition to initiatives on reform of the insurance law, efforts to enhance capacity of the insurance sector will be continued along with launch of health insurance, social insurance and 'weather Index-Based Crop Insurance' for agricultural products.

The budget for the FY 2017-18 could focus on the national savings strategy by ensuring financial inclusion of students and farmers and other disadvantaged groups instead of charging any excise duty on bank accounts. Charging excise duty on a bank account is really a contradictory approach to the national savings strategy. It should be withdrawn totally instead of any increase. Private equity and Venture Capital should be focused on for financial inclusion in the area of SME financing. This has been the demand of the time as SMEs fail to get financing from banks being smaller for banks, and are located in remote areas and do not have any security. Such SMEs also fail to get financing from micro-finance institutions being larger in size for them. As such, SMEs have been the missing middle where private equity and venture capital fund could work efficiently to boost the sector by financing and providing technical support they need to expand.

The Bangladesh Securities and Exchange Commission (BSEC) issued the 'Bangladesh Securities and Exchange Commission (Alternative Investment) Rules, 2015 to encourage private fund and venture capital fund with a view to supporting SMEs financially in the form of equity. The Initial Public Offering (IPO) process in a small capital market as imitated by the government could be a good exit process of private equity and venture capital fund. Primarily, the government could form a fund and attract different foreign investors to invest and create such fund for supporting emerging SMEs.

Financial inclusion can play a pivot role for inclusive growth by the way of savings and investment and as such, the government and regulators of the financial sectors like Bangladesh Bank, BSEC, Insurance Development and Regulatory Authority (IDRA) etc. should ensure effective corporate governance systems for betterment of financial inclusion.

Agriculture and rural development: About 45 per cent of people of the country depend on agriculture for their livelihood. So, the government should provide technical support, policy assistance and subsidy and ensure reasonable price of their produce with a view to keeping the above 45 per cent labour force in a safe zone. In the budget a total of 6.1 per cent or Tk 244.16 billion has been allocated for agriculture including Tk 90.0 billion set aside in agricultural subsidy. The government has a plan to strengthen the ongoing programmes for increasing agricultural production and improving the state of farmers. Notable among them are innovation of rice varieties tolerant to adverse climate, reduction of post-harvest damage to crops, establishment of agricultural industries, supply of quality seeds, irrigation extension, establishment of quarantine centres to ensure safe and risk-free imports, introduction of genetically-modified organism (GMO) technology, innovation of adversity-tolerant varieties of jute, research for innovation of diversified jute products, increasing the use of environment-friendly agriculture technology, increasing the use of renewable energy in the agriculture sector and modernisation of the value chain system in this sector. In addition, 235 Farmer Service Centres will be set up all over the country to take the outcomes of agricultural research, agricultural information and technology and agricultural services to the doorsteps of farmers.

In order to develop the rural communication system the new budget targets continuing with construction of roads, bridges and culverts, ensuring supply of safe drinking water and developing the sanitation system. Construction of 5,250 km new roads, maintenance of 11,500 km metalled roads, construction and maintenance of 32,350 metres of bridges and culverts and construction of 82 union council buildings, 55 upazila complex buildings and 95 cyclone centres are planned to be completed in FY 2017-18. Initiatives will be taken to increase diversified use of milk along with increasing milk production by means of extending cooperative activities to 50 upazilas having a deficit in milk production. All other ongoing activities will be carried on for betterment of the poor in rural and char areas.  Under the 'one house one farm' project there is a plan to form 60,515 more village development societies by involving 3.6 million poor families along with rehabilitation of 100,000 beggars within the next four years. It has been planned to involve the beneficiaries of this project in silk farming and to begin with, steps have been taken to extend this programme to 25 upazilas of 20 districts.

The budget could focus, especially on technical support to farmers, for high productivity and rotation of crops. The budget has adequate steps foragricultural and rural development but implementation of the steps should be in time adequately and appropriately.

Programmes for removing income inequality: The most common feature of a lower Middle Income Country (MIC) like Bangladesh is income inequality in different groups and classes of people in the country. If we review the income distribution in different levels of people under different criteria, we find that the gap of income between the top and bottom levels, i.e., the rich and poor, is widening gradually. The people may rise above the poverty line or extreme poverty line. But they remain far off the rational living standard. The government  has taken some initiatives and is continuing these to cut the gap of income of those disadvantaged people. Some of the actions are: social safety net programmes, raising minimum wages for garments workers, financial inclusion, development of Human Resources through education and training, raising awareness of women, building capability and income generation, youth training and employment, use of a significant portion of tax revenue for infrastructure including physical infrastructure, transport and communication, internet and public services and other welfare facilities.

More initiatives could be taken for removing income inequality of the people like higher tax on capital gain, asset and property, effective steps to (a) find tax-evading persons and property tax payers, (b) raise minimum wages at all levels of workers, (b) share profit for all long-term employees in the corporate sector, (c) ensure effective and expanded efforts with a larger budget on social safety net, (d) ensure better oversight of the financial sectors, (e) ensure youth development through quality education and training and full employment of the people, (f) ensure minimum price for agricultural goods for protection of farmers' interest, (g) provide subsidy on exports and imports with a tax incentive policy etc.  

The World Economic Forum (WEF) published "The Inclusive Growth and Development Report 2017" putting Bangladesh in the 36th position out of 79 developing countries, where India, Pakistan, Sri Lanka and the Philippines have been placed below our ranking-60th, 52nd, 39th and 40th respectively. Indonesia, Vietnam and Nepal have been placed above our ranking-22nd, 25th and 27th respectively. The WEF considered seven pillars in assessing such inclusive growth and development which are: Pillar-1: Education and Skills, Pillar-2: Basic Services and Infrastructure, Pillar-3: Corruption and Rents, Pillar-4: Financial Intermediation of Real Economy Investment, Pillar-5: Asset Building and Entrepreneurship, Pilar-6: Employment and Labour Compensation, and Pillar-7: Fiscal transfers. It has happened despite the question about efficiency in budget implementation. Our performance for inclusive growth and development could have been far better upon effective and efficient implementation of a budget as planned.

The budget for the FY 2017-18 may be larger in size, when it comes to the capacity of implementation and the previous one. But the size is still smaller compared to any of those in India, Pakistan, Nepal and Vietnam. The sizes of budgets compared to GDP in India, Pakistan, Nepal and Vietnam are 27 per cent, 20 per cent, 19 per cent and 31 per cent respectively. The budget size in Bangladesh for the FY 2017-18 is 16 per cent of GDP only. So, it is not a matter of size. We have enough scopes to increase our revenue by reforming the revenue administration with a view to increasing the tax-GDP ratio. As we have scopes to increase revenue, of course, we have ample scopes to focus on inclusive growth more for betterment of the people of this country with a larger budget.

The writer is a Fellow Member of ICAB. Email: roy_dipok@yahoo.com
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