World Bank report: stop NREGA, promote migration and clustered growth
1. World Bank roots for urbanisation, migration - March 13, 2009
2. Migration to urban areas is good, says World Bank - March 13, 2009
3. Encourage clustered economic growth, World Bank tells India - March 13, 2009
4. NREGA is a barrier to economic development: World Bank - March 15, 2009
5. World Bank to clear $2.6 bn loan for India soon - March 15, 2009
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World Bank roots for urbanisation, migration
March 13, 2009. The Hindu
Turning on its head tenets favouring dispersal of economic activities geographically to benefit the poor, the World Bank has in its latest report called for shifting populations from villages to cities. “Growing cities, ever more mobile people and increasingly specialised products are integral to development.”
That is the prescription of the ‘World Development Report 2009: Reshaping Economic Geography’ that was released on Thursday.
Director of the the World Development Report (WDR) and Chief Economist, Europe and Central Asia Indermit S. Gill sought to justify the change in its policy recommendation in a historical perspective that production concentrated in big cities, leading provinces and wealthy nations. Half the world’s production fitted into 1.5 per cent of its land.
The report “welcomed and encouraged” the process of migration saying that “globally as well nationally people move in order to improve their prospects in life. It pointed out that about 30 million people had moved from the lagging States of Bihar and Uttar Pradesh to leading States such as Maharashtra and Punjab in the second half of 1990.
Mr. Singh regarded as short-term constraints the recent opposition in Maharashtra to such migration.
In the context of the financial crisis gripping the world, the WDR feared that protectionist tendencies in both developing and developed countries could seriously jeopardise both the recovery and longer term progress.
The report contended that markets favoured some places over others and countering the tendency would amount to fighting prosperity. It expected governments to facilitate such geographic concentration and initiate policies to provide for basic needs such as schools, security, streets and sanitation.
“Instead of worrying about the size of metropolises, cities and towns,” the WDR called upon policy makers “to worry about making sure these places work well.” It highlighted the case of Mumbai, which continued to attract people, and had twice the number of residents today than in 1980 when its population was 7.5 million.
World Bank Senior Economist Somik V.Lall argued that spreading out economic activity could hinder growth and did little to fight poverty underlining the WDR’s approach challenging the assumption that economic activities must be spread geographically to benefit the world’s most poor and vulnerable.
Referring to India, the WDR called for infrastructure development and reduction in transport costs because distance was a challenge and the problem was compounded by concentration of poor people in the rural areas.
The report called for blending of policies so that developing nations could reshape their economic geography the way high income economies died in the past. “If they do this well, their growth will still be unbalanced but their development will be inclusive.”
Mr. Gill was against establishment of heavy industries in rural areas on account of their density and to preserve agricultural activity.
The report examined the Special Economic Zones (SEZ) in India and China, underlining the differing approaches in the two countries. China’s approach reflected a strategy of exploiting the best locations to access external markets, while in India these had been developed by the private sector and targeted the large domestic market. But it felt that these were not as well located.
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Migration to urban areas is good, says World Bank
March 13, 2009. Business Standard
Taking a dig at India and other countries that believe economic activities must be spread geographically to benefit the poor, a new World Bank report has called for concentration of production, mobility of people and economic integration to lift rural people out of poverty. Population shift from villages to cities is natural and should be encouraged, it said.
This contradicts India’s policy of countering migration by setting up industries in backward areas and offering temporary employment through schemes like the National Rural Employment Guarantee Programme.
“The world’s most geographically disadvantaged people know all too well that growth does not come to every place at once,” said Indermit S Gill, director of the World Development Report (WDR) and chief economist, Europe and Central Asia. “Markets favour some places over others. To fight this concentration is tantamount to fighting prosperity,” Gill added.
Giving India’s example, where more than 60 per cent of the nation’s poor live in the economically backward states, the report calls for policies that promote mobility of people, products and ideas. Instead of worrying about the size of metropolises, the report calls for policymakers to focus on improving the basic infrastructure to make sure these places work well like Tokyo or New York.
Giving example of Mumbai, the report says despite its attempts to discourage inflows of people, who were attracted to economic opportunities, Mumbai has twice as many people as in 1980s. Half of the city’s population lives in slums as the government has not created the requisite infrastructure.
The standard practice in cities with limited land is to raise the permitted Floor Space Index (FSI) over time to accommodate urban growth, as in Manhattan, Singapore, Hong Kong and Shanghai. However, the Municipal Corporation of Greater Mumbai went the other way by lowering the permitted FSI, which has resulted in a vicious circle of supply shortages and high land prices.
The report lays special importance on 3Ds – density (of population closer to economic activity), distance (reducing transport cost) and divisions (less divisions or barriers to trade) — to make economic hubs.
In India, new economic activity in the industry and services is now concentrated along India’s metropolises and coastal cities, increasing the central region’s economic distance from density. While people want to move closer to opportunities, mobility has not been helped by ethnic and linguistic divisions, coupled with policies that seek to revive growth in lagging areas through subsidised finance and preferential industrial licensing.
Instead, the government should provide improved education, health and other social services across the country to prepare quality human resource which can migrate to economic hubs for better opportunities, Gill said.
The report criticised India’s special economic zones (SEZs), which are not as well located as in China. China has located its SEZs in coastal areas and has promoted migration of its people to these areas as well as foreign investment, and leading to greater connectivity to foreign markets.
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Encourage clustered economic growth, World Bank tells India
March 13 2009. Livemint
New Delhi: The World Bank has in a new report questioned one of the most fondly held beliefs of Indian economic policy—promoting balanced regional development.
India’s policy of providing incentives such as tax breaks to the private sector to start industries in economically backward regions is flawed, and the money would be better spent providing uniform basic needs, it said in a report.
“Relying mainly on targeted incentives for industry—as India did for decades—will not help the lagging states improve living standards to levels in leading states,” said the World Development Report 2009: Reshaping Economic Geography.
According to the report, economic activity tends to be concentrated in a few regions, and state intervention to spread it geographically is not the best way to fight poverty. Instead, it is “far better for markets to pick the place (and) far better for government to push the pace,” Indermit S. Gill, director, World Development Report 2009, said at a media briefing on the report.
The broad premise of the World Bank’s suggestion found support among some economists. “The way they (government) have been intervening is not optimal. It hasn’t paid dividends in the past,” D.K. Joshi, principal economist and director, Crisil Ltd, said.
Both the World Development Report and Joshi also pointed out that governments continue to have an important role to play in guiding an economy towards prosperity. The report said governments should provide basic and social services everywhere, and lay the foundation of a sound land development market.
The challenge for the government is to encourage “unbalanced” economic growth, while ensuring inclusive development, the report said.
The underlying logic of the report’s conclusion is that a generation of economic research has showed as countries develop, economic activity becomes more concentrated. This, in turn, leads to tighter concentration of people around clusters of high economic activity.
“Concentration is a natural tendency,” Somik V. Lall, senior economist at World Bank who worked on the report, said.
Incidentally, Paul Krugman of Princeton University won the 2008 Nobel Prize in Economics for his explanation of why economic activity gets concentrated in certain parts of a country.
When governments try to stem the move towards concentration, and provide incentives to companies to spread geographically, it does not make economic sense, the World Bank report said.
India’s economic policies have long tried to design fiscal and other economic incentives to evenly spread industrial activity in all regions of the country. According to the Union government’s Receipts Budget 2008-09, about 2.25% of the gross tax revenue of Rs5.93 trillion in 2007-08 was “foregone” to encourage the private sector to start industries in Jammu and Kashmir, the north-eastern states, Uttarakhand, Himachal Pradesh and Gujarat’s Kutch district.
The new World Development Report said it would make more economic sense to replace this kind of incentivization with policies to create social and physical infrastructure to facilitate migration. Targeted incentives for India should be designed to work in tandem with institutional reform and investments in infrastructure, it added.
According to the report, in the second half of the 1990s, about three million people moved from economically laggard states of Bihar and Uttar Pradesh to states such as Maharashtra and Punjab, where the level of economic activity was higher.
Migration within India has led to social tensions, particularly in Mumbai, in the recent past. Gill pointed out that as education was an aspiration which cut across all regions, migration towards centres of economic concentration would follow. “You can’t be for more education and against more migration,” he said in response to a question on the social fallout of large-scale internal migration.
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NREGA is a barrier to economic development: World Bank
This report should be read in the context of the following one, because the Bank is about to issue a $2.6 Billion infrastructure loan to India as part of a “contribution” to tackle the deepening recession.
March 15 2009, msn news
The World Bank has described the much-acclaimed National Rural Employment Guarantee (NREGA) scheme of the UPA government as a policy barrier hurting economic development and poverty alleviation.
Various schemes of the Indian government like NREGA, watershed programmes and schemes for development of small and medium towns are acting as “policy barriers to internal mobility”, the bank said in its ‘World Development Report’ 2009.
The internal mobility, the report argued, is necessary as “lifting people out of poverty requires shifting populations from villages to cities”. The process of migration should be encouraged, the bank said.
“Negative attitudes held by (the) government and ignorance of the benefits of population mobility have caused migration to be overlooked as a force in economic development,” it said.
The report said economic benefits of migration are not always recognised by policy makers and, in fact, two forms of policy have been attempted in India to counter migration.
“The first response has been to increase rural employment, in an attempt to stem movement out of rural areas … These measures include the recently introduced National Rural Employment Guarantee Programme,” it said.
The World Bank cited other programmes such as watershed development to improve agricultural productivity and development of small and medium towns, which the Indian government has taken up to reduce migration.
“The second policy response is implicit. Because of the perceived negative effects, local governments remain hostile toward migrants, while employers routinely disregard laws to protect their rights and needs,” the report said.
In many cases, welfare policies and social services are designed for a sedentary population, the bank said.
“This is best exemplified by location-specific entitlements to social services, housing subsidies, food rations, and other public amenities especially important to working poor people,” it said.
The report, which recommends concentration of production and mobility of people, said, “Current policies do not allow communities to fully capture the benefits of labour mobility.
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World Bank to clear $2.6 bn loan for India soon
March 15, 2009. Livemint
World Bank, which has decided to step up its exposure to India to $14 billion in the next three years, will soon clear a $2.6 billion special loan package.
Under the package, India Infrastructure Finance Company is expected to get $1.2 billion, Sidbi $400 million and Power Grid Corporation $1 billion.
The Bank is in advanced stages of approving this special package, World Bank’s economic adviser (India) Giovanna Prennushi told reporters.
World Bank is also working on a $3 billion loan for recapitalisation of public sector banks.
In December last, the World Bank had decided to step up its exposure to India beginning 2009 to $14 billion from about $8.1 billion during the previous three years.
Till February this year, World Bank has approved five projects in India with a total commitment of $1.34 billion.
World Bank had sanctioned a $400 million loan earlier this year to Power Grid Corporation, the third largest transmission utility in the world.
World Bank’s increasing exposure to the Indian infrastructure sector is in line with its thinking that such investments would help developing nations to tide over the global recession.
“The only mantra now is to remove infrastructure bottlenecks so that the economy is ready for a high growth path when global revival takes place,” World Bank’s chief economist Justin Yifu Lin had said recently.
“Investment in infrastructure could revitalise manufacturing in India, which accounts for only 16% of the country’s total output and contribute significantly to job creation,” he said.
The potential impact on productivity and growth could be a strong contribution to India’s development, he said, adding that India could both kick-start demand in the face of current crisis as well as pave way for longer-term growth.
Lin proposed that developed countries invest a share of their stimulus plans into infrastructure projects in developing countries.
World Bank’s Group President Robert B Zoellick has proposed an umbrella ‘Vulnerability Fund’ to which developed countries could dedicate 0.7% cent of their planned economic stimulus.
