Will Extreme Economic Inequality Lead to Problems? 
Economic inequality (or "wealth and income differences") comprises all disparities in the distribution of economic assets and income. The term typically refers to inequality among individuals and groups within a society, but can also refer to inequality among countries. Economic Inequality generally refers to equality of outcome, and is related to the idea of equality of opportunity. It is a contested issue whether economic inequality is a positive or negative phenomenon, both on utilitarian and moral grounds. A study published in 2009[1] has shown that negative social phenomena such as shorter life expectancy, higher disease rates, homicide, infant mortality, obesity, teenage pregnancies, emotional depression and prison population correlate with higher socioeconomic inequality.
There is a need for Asia to rebalance its growth
Asit Ranjan MishraRajat M. Nag, managing director general of the Asian Development Bank (ADB), said in an interview that the continent has fared well in tackling the economic crisis, although social indicators have been hit. Edited excerpts:
Have the downside risks to the Asian economies completely subsided?
No. As a matter of fact we believe economic recovery in Asia is still fragile. But on the whole we are very positive. We think that developing Asia will register a very healthy growth of about 7.9% in 2010, which is higher than what we had forecast as recently as April. We had forecast 7.5%. So the risks remain, but Asia is going to do well. We think the uptick has happened. We don’t think there is a risk of double-dip, but one can never be sure. So the economies are fragile. However, we also think the fiscal and monetary measures now should be gradually withdrawn. Otherwise you run the risk of another problem which is inflation.
But how do you see the European crisis affecting the Asian economies?
The European crisis is obviously one of the uncertainties. At the moment our reading is the European situation has stabilized. The recent stress tests (for banks) that have come out, even though the results were quite negative for many banks, the very fact that it was done removes a certain amount of uncertainty. The Greek situation again seems to be taking hold in response to the assistance from the International Monetary Fund (IMF) and the European Central Bank. So overall we expect the European situation to remain reasonably under control.
What are the real costs that Asia has borne while fighting the economic crisis?
The impacts were certainly very significant. Asia had to first of all put in the resources, both through fiscal and monetary stimulus, which were not insignificant. But the costs were much more on the human side.
Our estimates are that about 100 million people were kept under poverty because of the financial crisis than would have been the case. We believe the impact on poverty, on health indicators, on education, all of them, have been quite negative. Fortunately, Asia handled the crisis much better than one had feared.
In its April outlook, ADB had mentioned that there is a fear of asset price bubble in Asia. So how is the situation now?
I think we still have some concerns in China, particularly in the coastal areas of China. Authorities in China and elsewhere have recognized that. Therefore, in India for example, the authorities have taken quite an appropriate and aggressive stance on inflation. The recent rate increases by the Reserve Bank of India are steps in that direction. We do remain concerned about inflation though the risks are now starting to diminish.
What is your view on the exchange rate policy being followed by China? Do you think the yuan is excessively undervalued?
We have always maintained publicly that it is in the interest of all countries including China to let their exchange rates be market determined. We have therefore urged all countries including China to let exchange rates find their own equilibrium in the market. Having said that it is realistic not to expect dramatic adjustments in the currency revaluation of any country.
China recently did start to let the market forces have greater influence. The renminbi has appreciated, though not as much as one would have liked, but it has. So one would have to wait and watch how it works. But certainly the direction of the policy moves are appropriate.
China has also recently announced it will produce less and, therefore, export less. How do you see this impacting its growth and Asia?
The important thing is growth has to be sustainable. It has to be stable and sustainable and also has to be inclusive. So growth which has significant impact on the environment, for example, obviously is not sustainable.
China is beginning to recognize that its own growth story, it was certainly very positive, had some fairly negative impact on the environment. It also had some fairly severe impact on income distribution and China recognizes (this) as do India and many others, that rising inequality is a major concern. So China, I think, is making appropriate adjustment to its growth story.
Therefore, they are talking about moving towards the West of the country, moving towards the rural areas. In the long run, it is actually very positive. So I don’t think because China is going to produce less, that would have a detrimental effect on the rest of Asia. I would put it the positive way, the growth would be more inclusive and hopefully more environmentally sustainable which will be good for China and good for rest of Asia.
In your outlook you have maintained that Asia’s growth will now be less dependent on exports. Does that mean global trade will come down significantly from the pre-crisis period?
No, the point we were trying to make is the export-driven model for Asia’s growth was very appropriate for the last 40 years or so. But the time has come that Asia needs to become a consumer not just a producer. What we were saying is Asia needs to rebalance its growth. That does not mean the importance of exports will become less except that the destination of that export will not be only to G-3, but also within Asia itself.
But it is also important to recognize that Asia cannot afford to be protectionist, Asia cannot afford to be fortress Asia. It has to be open, but the openness now would mean the trade should happen within Asia more than it has (so far) and, therefore, the proportion would increase in favour of Asia. That does not mean global trade would diminish. As a matter of fact we would hope that global trade would increase, the composition of destination would change in favour of Asia.
ADB has projected India to grow at 8.2% in 2010. Don’t you think it is a bit conservative compared with what the Indian government expects (8.5%) and what IMF has forecast (9.5%)?
That is one number on which I would rather be proven wrong on the lower side. If we say 8.2% and it comes to 8.5%, so much the better; everybody would be happy including us. We think it is safer to be conservative on projections like this. I should add that we are reviewing all our numbers for India and Asia and will come up with new numbers in September. But at the moment, based on what we know and the external environment, 8.2% is a safe number to live with.
What should be the pace of reforms in India now that the economic crisis seems to have subsided?
I am impressed with the reforms that the government is undertaking. The removal of fuel subsidy is a case in point. I know that it was not an easy decision to take. It has got some fairly significant immediate impact, both on the inflation side and on the political side. But I am very encouraged that the government took that decision because the fiscal impact of continuing with that subsidy was unsustainable. If this is an indication then it bodes well and the reforms in India are gathering momentum and will continue.
Has the time now come to pursue financial sector reforms again?
I don’t think financial sector reforms were ever stopped. But one has to respond to the circumstances. When you are in a crisis, you have to take care of the crisis which, as you are saying, has started to work itself through. I think those will now continue with renewed
http://www.livemint.com/2010/07/29202118/There-is-a-need-for-Asia-to-re.html?atype=tp
