Robust growth in South Asia, averaging six percent over the last two decades, has lifted hundreds of millions of people out of poverty. Most countries in the region have already crossed the threshold to middle income status and aggregate trends show a significant reduction in the share of people living below USD 1.25 per day. Yet, growth has been accompanied by rising inequality in most countries in the region. This is concerning because lower levels of inequality are robustly correlated with faster and more durable growth.
In addition to dynamic growth and rising inequality, South Asia has also seen a proliferation social protection programs over the last two decades. These include both social insurance and social assistance schemes. In the region, social insurance remains targeted primarily at formal sector workers, while social assistance is increasingly being delivered in the form of cash and in-kind transfers to address poverty and inequality. Recent evidenceby the International Monetary Fund highlights that redistribution – through mechanisms such as social protection – appears to be generally benign in terms of its impact on growth (see IMF 2014).
Yet this rapid expansion of social protection has important ramifications for public finances. One the one hand, the proliferation of schemes and entitlements implies more expenditure, potentially creating fiscal pressure. The Asian Development Bank’s recent Asian Development Outlook notes that widening income gaps strengthen the case for greater use of fiscal policy to foster equality of opportunity. It recommends boosting public spending on equity-enhancing programs without undermining fiscal sustainability.
While each country context is different, the issue of creating effective social protection systems is common to all eight SAARC countries. Furthermore, the SAARC Social Charter provides a strong regional vision, making the case for social protection for all. Exploring these issues is particularly relevant given the demographics of the region. With almost 40 percent of South Asians being under the age of 18, getting social protection and investment in children right is a pressing concern.