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World Bank says South Asian welfare programmes ill-suited to cut inequality

[NEW DELHI] Costly centralised welfare programmes are inefficient tools to reduce inequality in South Asia, the World Bank said on Tuesday, advising governments to transfer the money to local administrations instead.

"Social assistance programs are not very well targeted ... A disproportionately large fraction of resources is captured by the better-off," the global development lender said in a report.

"Some of them are regressive and can crowd out the provision of essential public goods."

The suggestion comes as debate rages in countries such as India on how to narrow a yawning gap between rich and poor, which threatens to lead to social conflict and economic stagnation.

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New Delhi spends billions of dollars every year on a job guarantee scheme and food, fuel and fertiliser subsidies to support those who have benefited least from an unprecedented economic boom in the past decade.

But the ever-increasing social welfare bill has left public finances in dire straits and depleted resources to fund critical infrastructure projects, making the government rely more on market borrowing for spending commitments.

In a report titled 'Addressing Inequality in South Asia', the World Bank found most countries in the region performed poorly on the Human Opportunity Index, which ranks access to services like clean water, electricity, vaccinations and schooling.

It said growing deprivation has the potential to worsen social conflicts and may provoke more violent attacks by insurgents and terrorists.

With the chasm between rich and poor widening, India enacted a national food security law two years ago that mandates selling subsidised wheat and rice to two out of three of its 1.2 billion people, but is projected to cost the exchequer nearly US$20 billion a year.

A similar programme in its western neighbour Pakistan costs the state over one per cent of gross domestic product.

The report, however, said such hand-outs are fraught with inefficiencies and prone to corruption. Instead, it encouraged governments to transfer resources to lower-level administrative units.

This could be "a more effective tool to reduce inequality than either taxes or transfers to individuals," it said.

The issue is expected to feature at the World Economic Forum starting on Wednesday in Davos, Switzerland, after anti-poverty charity Oxfam published a report saying more than half the world's wealth would be owned by just one per cent of the population by next year.