NEW YORK — World Bank president Jim Yong Kim, speaking at the Vibrant Gujarat Summit in India on Jan. 11, reaffirmed World Bank’s commitment to helping to create a “vibrant” India. Kim said that shared prosperity in India is essential to ending extreme poverty by 2030.
Why is a thriving India so important?
As of 2013, 33 percent of the world’s poorest 1.2 billion people lived in India. Thus, eradicating extreme poverty in India is the key to pulling a large percentage of the world’s poor toward prosperity.
According to Kim, India has an opportunity to follow in China’s footsteps as the world’s heavy lifter in the fight against poverty.
In 1981, China accounted for a similar percentage of the world’s poor, with 43 percent of the world’s extreme poor living in China. From 1981 to 2010, China succeeded in pulling roughly 680 million of its people out of poverty. China alone accounts for nearly 75 percent of the world’s decline in poverty over the last thirty years.
From 1981 to 2010, the number of Indians living in poverty dropped by 29 million, and India’s extreme poverty rate fell precipitously from 60 percent to 33 percent. Still, as the world’s poverty rate declines, India’s share of the world’s poor is growing.
In order for India to reduce its share of the world’s poor, Indian policymakers will need to figure out how to make India’s 10th ranked GDP go further for the average Indian—according to World Bank’s chief economist Kaushik Basu, declining oil prices offer India a window of opportunity to do just that.
Basu said that low oil prices present a unique opportunity for India to cut down on oil subsidies. Typically, cutting oil subsidies would precipitate a dramatic spike in oil prices—however, such a spike would be unlikely to occur in the current climate.
“Today is a great opportunity to cut down on these subsidies. This would cause price to rise only a little bit and in some case may be not even rise at all given that global prices are very low,” said Basu.
The fiscal space allowed by cutting oil subsidies could be used to boost investment in infrastructure.
According to Basu, such an investment would pay dividends even after oil prices normalize, “Let’s say if it stays (low) for two years, if we are able to put in place some structural fiscal reforms, then even when the opportunity is gone, then there are other drivers – our productivity has gone up, built up better ports, better roads and transport and we are growing faster. That is what we should try to do. I am hopeful that the government will do it.”
Basu, who recently visited India, said that he was optimistic that the Indian government is aware of the present opportunity—it remains to be seen whether they will capitalize on it.
– Parker Carroll