Home / Lead Story / Income gap widens in 11th Plan

Income gap widens in 11th Plan

Despite the progress the country achieved in reducing poverty, income inequality has not only widened but also remained stubborn since 2007.

In terms of the Gini coefficient, inequality declined from 0.42 in 2003 to 0.35 in 2007 but increased slightly to 0.36 in 2012. In 2017, it increased to 0.38.

Between 2012 and 2017, income poverty has reduced from 12 percent to 8.2 percent while multi-dimensional poverty dropped from 12.7 percent to 5.8 percent.

Gini coefficient, which represents the income or wealth distribution of a nation measures statistical dispersion between the rich and poor.  A Gini coefficient of zero expresses perfect equality, meaning every household has equal wealth possession.  A Gini coefficient of one (or 100%) expresses maximum inequality; meaning one household holds all the wealth.

According to the final 11th Plan final report, per capita consumption of the first three quintiles have decreased and the shares of the top two quintile have increased. In the top quintile, representing 20 percent of the richest population, per capita consumption increased by 1 percent compared to 2012, the highest. However, in the second quintile, consumption decreased by 0.6 percent.

The 11th Plan report clearly spells out the top 20 percent of national population consumes almost seven times more than a person in bottom 20.

While it is difficult to achieve perfect equality, there is a generally accepted principle of 20:20 ratio, which means that the top 20 percent consumes four times the bottom 20.

One of the key performance indicators (KPR) of the 11th Plan was to reduce income poverty from 12 percent in 2012 to less than five percent by the end of the Plan. This indicator of the 11th Plan remains unachieved.

Another KPR, to reduce the gini coefficient from 0.36 percent in 2012 to less than 0.3 percent also remains unachieved. This not only puts one of the national key result areas of the 11th Plan, to reduce poverty and achieve the MDG plus goals under threat but also questions the government’s initiative to achieve inclusive growth.

A World Bank report published in 2015 stated that the country has halved poverty between 2007 and 2012, which can be attributed to increasing commercialisation of agriculture, expanding rural road network, and spillover impacts from the hydropower projects. But two-third of poor identified in 2007 remained poor in 2012 also.

Another report by the Asian Development Bank published during the same time stated that distribution of income across quintile groups also deteriorated. The expenditure share of the richest quintile increased from 38.5 percent in 2007 to 43.7 percent in 2012. In contrast, the share of the poorest quintile declined from 9.6 percent to 7.1 percent during the same year. “This indicates that the recent economic growth seems to have benefited the rich more than the poor and needs to be made more inclusive,” it stated.

In 2012, average consumption expenditure of a Bhutanese was Nu 48,418 a year. The monthly per capita consumption expenditure (Nu 10,765) of the top 20 percent of the Bhutanese in 2012 was 7.3 times higher than the lowest 20 percent (Nu 1,471). The difference has not narrowed much since 2003.

The latest Bhutan living standard survey also pointed out that the mean monthly per capita household expenditure in Bhutan is Nu 7, 939. In the urban areas, it is Nu 11,452, which is about 85 percent higher than that in rural areas.

The mean household consumption among the richest 20 percent (Nu 73, 558) is seven times the mean household consumption among the bottom 20 percent (Nu 10, 574). This means that in absolute figures, the expenditure gap among the richest quintile and the poorest quintile has barely changed since 2012.

Moreover, average household sizes are larger among the poorer quintiles than among the richer quintiles. Household size tends to decline with increasing per capita household consumption quintile, from an average of 5.3 for the poorest quintile to 3.2 for the richest.

The Bhutan Living Standard Survey, 2017, stated that a majority (38.8%) of households reported that their main source of income is wages or salaries, followed by sale of vegetables (14.5%), and other (12.2%). Almost one percent of households reported that their main source of income is from inheritance.

Seven in every ten households in urban areas (70.4%) reported that their main source of income is from wages or salaries, against two in every ten households (21.4%) in rural areas.

On the flipside, 59 percent of urban households are landless, while 13 percent of rural households do not own land. There is an inverse relationship between landholding and per capita household consumption quintile.

About one-third of households (33.2%) of non-landholders are in the richest consumption quintile, while a little more than 7 percent of non-landholders are in the poorest consumption quintile.

Tshering Dorji

Check Also

Lyonpo Loknath Sharma with PHPA officials

Performance agreement signed to complete Punatsangchu projects on time

The economic affairs minister, for the first time, signed performance agreement with project authorities of …

Leave a Reply