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CHAPTER: NATIONAL INCOME AND INCOME DISTRIBUTION
1. Pattern of income distribution and magnitude of poverty in Bangladesh
Income inequality is extreme concentration of wealth or income in the hands of a small section of
the population. It is often described as the gap between the richest and the rest of the community.
The Urban Institute of the United States in an analysis based on 53 years (1963-2016) of economic
data reflected that the poorest have become poorer while the richest much richer during this time.
According to the report, the poorest 10 percent of Americans moved from zero assets to $1,000 in
debt. Families at the middle income level more than doubled their prior average wealth, families
in the top 10 per cent obtained more than five times their prior wealth, and families in the top 1
per cent amassed more than seven times their prior wealth. According to a 2017 Federal Reserve
report, the richest 1 per cent of the U.S. population possessed 38.6 per cent of the nation's wealth
in 2016,
Bangladesh has remained a country with substantial income inequality with all its manifestations
even 48 years after independence. A small section of the society enjoys most of the country's
wealth depriving the larger sections. Amidst many positive achievements, an important area of
concern for Bangladesh economy is the rise in inequality in income distribution. After all, the
dream of economic emancipation through alleviation of economic inequality was one of the
driving forces of our liberation war.
Regrettably, there has been an increase in the degree of inequality in income distribution from the
mid-1980s. As per the latest Household Income and Expenditure Survey (HIES) of Bangladesh
Bureau of Statistics (BBS), the economic measure of equality is 33% in 2016.
At the time of independence, over 90 per cent of Bangladeshis were villagers, a share that has now
come down to nearly 70 per cent. Historical experience suggests that if our economy grows faster,
more and more people would flock to the cities. So, Dhaka is now home to 10 per cent of the
population. Lack of decentralization is also causing a growing spatial inequality in income
earnings. People living in Dhaka and Chottogram are earning way more than those living
elsewhere.
GDP growth and rising economic development: Bangladesh had a plan to reduce the rich-poor
gap by 2015 as part of the Millennium Development Goals. It's the one of the MDGs that was
overachieved and before time. Macroeconomic and social indicators show that Bangladesh has
been better off as an independent nation though it is far behind in achieving its primary goal of
alleviating economic and political inequality. Macroeconomic growth contributed to higher
national income, but growing income inequality needs to be addressed. Geographically centralized
industrialization has contributed to a higher flow of domestic migration, and the added workforce
helped the national economy set the trend of growth over the past years.
The trend raises questions about the quality of Bangladesh's GDP growth. Official statistics show
that the country experienced accelerated GDP growth rate since 2013. GDP growth in recent years
has been the highest in the country's history. However, inequality rose significantly during this
period -- this is a big concern. One reason is the disconnection among economic growth, wage
growth and job creation. Though figures show that GDP growth has accelerated in recent years,
job growth has slowed and real wage growth has been sluggish. The high GDP growth over the
past few years has been unable to create sufficient jobs. In other words, the country is witnessing
a phase of jobless growth as the poor people are not getting enough scope for productive income
generating employment activities.
This has resulted in slow progress in poverty reduction and rising inequality. The public
expenditure on education and health as a share of GDP is very low and has declined in recent years.
Such low expenditure does not help improve productivity of workers and is not consistent with the
effort to reduce poverty and inequality. There is also an increasing inequality of opportunities,
particularly to access healthcare, education, financial services and social protection. Nor are the
poor in a position to access privileges that the government gives to particular businesses and
interest groups in the form of bailouts, loan rescheduling, tax exemptions, subsidies, licences and
so on. The social protection programmes are too inadequate to reduce poverty and regional
disparity. Expenditure programmes that are targeted to the poor suffer from serious leakages. A
stronger focus keeping these in mind is crucial for devising plans for inequality reduction.
Inequality is not an inevitable consequence of economic growth. In fact, long-term growth and
social stability are the two important factors to make space for social and economic equality.
2. Per capita income (Definition, formula and limitations)
2.1: Definition: Per capita income is a measure of the amount of money earned per person in a
nation or geographic region. Per capita income can be used to determine the average per-person
income for an area and to evaluate the standard of living and quality of life of the population. Per
capita income for a nation is calculated by dividing the country's national income by its population.
2.2: Per capita income formula:
This provides a more comparable measurement as it allows for more accurate analysis between
nations. It is not only used for economic statistics such as GDP but can be used in other social
sciences. For example, you can use per capita to calculate the number of car accidents. You
could do this using the following calculation:
If we go back to economics – per capita is generally used to measure GDP. This allows us to
compare countries whereby the size of their population varies dramatically. Let us now take an
example:
In 2019, the US population was 328 million, whilst its economic output was valued at $21.43
trillion. To calculate GDP per capita, we get the total GDP and divide by the total population. In
this case it is:
So in 2019, the GDP per capita of the US was $65,335. If we now compare that to India, where
the population was around 1.36 trillion, with a GDP of $2.72 trillion. We divide the total GDP by
the population:
In 2019, the GDP per capita for India was $2,000 – significantly less than that of the US.
2.3: Limitations of Per capita income:
1. Livings Standards
Since per capita income uses the overall income of a population and divides it by the total number
of people, it doesn't always provide an accurate representation of the standard of living. In other
words, the data can be skewed, whereby it doesn't account for income inequality.
For example, let's say a town has a total population of 50 people who are earning $500,000 per
year, and 1,000 people earning $25,000 per year. We calculate the per capita income as ($500,000
* 50) + (1,000 * $25,000) to arrive at $50,000,000 in total income. When we divide $50,000,000
/ 1,050 (total population), the per capita income is $47,619 for the town.
However, the per capita income doesn't give us a true picture of the living conditions for all of
those living in the town. Imagine if federal aid or public assistance was provided to towns based
on per capita income. The town, in our example, might not receive the necessary aid such as
housing and food assistance if the income threshold for aid was $47,000 or less.
2. Savings and Wealth
Per capita income doesn't include individual’s savings or wealth. For example, a wealthy person
might have a low annual income from not working but draws from savings to maintain a high-
quality standard of living. The per capita metric would reflect the wealthy person as a low-income
earner.
3. Children
Per capita includes children in the total population, but children don't earn any income. Countries
with many children would have a skewed result since they would have more people dividing up
the income versus countries with fewer children.
4. Economic Welfare
The welfare of the people isn't necessarily captured with per capita income. For example, the
quality of work conditions, the number of hours worked, education level, and health benefits are
not included in per capita income calculations. As a result, the overall welfare of the community
may not be accurately reflected.
3. Standard of living (Definition, factors, quality of life)
3.1: Definition: The standard of living is a term used to describe the level of income, necessities,
luxury, and other goods and services that are generally readily available to a designated population.
It is basically a metric that evaluates the amount of material goods that are produced and sold
within a specified geographic area – such as a community, province, state, or country.
3.2: Factors commonly associated with the standard of living include: Two of the most
commonly used indicators of standard of living in a country are the gross domestic product
(GDP) – the total production of goods and services within a calendar year – and GDP per capita.
However, in its evaluation of the standard of living, the World Bank uses Gross National Income
(GNI) per capita – the average per-person income that a country’s total population receives each
year. One measure of standard of living is the Human Development Index (HDI), which has been
used by the United Nations since 1990. It considers life expectancy at birth, adult literacy rates,
and per capita GDP to measure a country's level of development.
3.3: Standard of living versus quality of life: The concept of standard of living is closely related
to, but considered distinct from, an evaluation of the quality of life in an area. The standard of
living and quality of life are frequently evaluated using several factors considered common to both
metrics.
The primary difference between the two metrics is that standard of living is a more readily
quantifiable term, focused more on purely material factors, while the quality of life is typically a
more subjective evaluation of how contented, satisfied, or fulfilled people feel with the nature of
their lives. It measures happiness.
3.4: Factors used in evaluating the standard of living:
In addition to GDP or GDP per capita, the main factors that are usually used in any calculation of
the standard of living are other readily quantifiable economic factors – such as average income,
consumer spending, housing prices, the poverty rate in an area, available goods and services, the
rate of inflation, and employment levels.
Other factors that may be included in examining the standard of living in an area are things such
as access to medical care, educational opportunities, infrastructure, housing affordability, climate,
crime rate, and the level of economic stability in the area. The relative health of the population –
frequently measured using the metric of life expectancy – is also a factor considered when
evaluating the standard of living.
The level of private business investment in an area can substantially improve the area’s standard
of living – for example, if a major corporation such as FedEx opens a regional hub in a city that
will provide numerous, well-paying jobs. Conversely, if a major retailer such as Walmart should
close its store in a city, that would likely lower the standard of living due to the loss of jobs and
access to goods.
Access to basic utilities is also a common consideration when measuring the standard of living. A
region or country where few people with indoor plumbing or electricity experience a notably lower
standard of living compared to an area where virtually all of the residents are able to access such
basic necessities of life.
Factors such as environmental aspects, access to leisure and cultural activities, and political
freedom may also be included in evaluating the standard of living, but such kinds of factors are
more often looked at when evaluating the quality of life.
4. Measures to increase per capita income
Recently, Bangladesh, once considered one of the world’s poorest countries, has surpassed India
in GDP per capita. This news has caused outrage among Indian citizens, but the government will
not be able to mimic Bangladesh in creating a more prominent low-wage manufacturing export
sector. Instead, India needs reforms that will create higher incomes for everyday workers, who are
the backbone and foundation of the country’s economy.
GDP per capita measures the average income earned per person in a country during a given year.
In 2019, India’s GDP per capita was $2,104. However, in 2020, this figure dropped to $1,876,
placing the country one spot below Bangladesh, which currently has a GDP per capita of $1,887.
Unlike India, Bangladesh has experienced consistent economic growth over the past three years.
Indian citizens are demanding that Narendra Modi, the country’s prime minister, enact reforms
and policies that will boost GDP per capita by improving wages for India’s working class. Here
are four ways that India could potentially boost its GDP per capita. Four ways Indian government
can improve GDP in following way:
1. Increasing income for farmers. In India, 40% of the population works in agriculture and
small-scale farming supports many poverty-level communities. However, the Indian
government has historically kept prices for agricultural products low in favor of the consumer,
despite the lower profits for farmers. The recently introduced 2020 Farm Acts will allow
farmers to sell their products to the highest bidder, allowing them to seek higher incomes.
When farmers are prospering, they support other sectors of India’s economy through their
own consumption. Products like fertilizer, working attire and tools are necessary for farmers,
especially as they expand their business. This increase in expenditure directly creates jobs for
others.
2. Through government expenditure and investment in infrastructure. The government
controls the amount the nation spends on public matters each year. However, government
spending is necessary to increase the overall GDP per capita. This year, incomes have
declined for Indian citizens, meaning private consumption has also decreased. By spending
money on building and repairing roads and bridges, the government will provide citizens with
greater ease and efficiency in their work and create jobs in construction. Furthermore, by
using more funds to pay higher salaries, private consumption will once again increase,
promoting higher business investment and improving the market for imports and exports. By
spending a certain amount of money, the government would benefit from the economic boost
created as a result.
3. Urbanizing India’s rural populations. Urbanization drives economic growth, and
because India’s farming population is so prominent, moving some of these farmers to cities
would allow them to get jobs in manufacturing. Not only would this increase agricultural
productivity by decreasing the number of farmers using the same amount of land, but it would
help grow some of India’s medium-sized cities into more prominent urban landscapes. The
government can promote migration to city areas by providing incentives to rural populations,
including investing in better infrastructure and urban services, such as transportation and
water management. In addition, new urban populations would create a resurgence of the
housing market and give banks more lending opportunities. Inevitably, more development
and urbanization would create new opportunities for international investments and
manufacturing exports.
4. Becoming competitive in high-potential sectors. India has the opportunity to create as
much as $1 trillion in economic value by establishing itself as a competitive manufacturer of
electronics, chemicals, textiles, auto goods and pharmaceuticals. These sectors accounted for
56% of global trade in 2018, while India only contributed to 1.5% of global exports in these
areas. Greater urbanization and an increase in the manufacturing labor force would allow
India’s government to make this a reality. Currently, the country’s imports constitute a greater
percentage of global trade than its exports. By increasing competitiveness in these sectors,
India would not only increase its potential for exports but also decrease its reliance on imports,
curbing the amount of money spent by citizens on foreign products.
5. Poverty Reduction Strategy Paper
5.1: What is PRSP: Poverty Reduction Strategy Papers (PRSPs) are documents required by
the International Monetary Fund (IMF) and World Bank before low-income countries can receive
aid from most major donors and lenders.
Principles: The IMF specifies that the PRSP should be formulated according to five core
principles. The PRSP should be country-driven, result-oriented, comprehensive, partnership-
oriented, and based on a long-term perspective.
Purpose of PRSP and Bangladesh: The Poverty Reduction Strategy Process encourages
countries to develop a more poverty-focused government. A comprehensive poverty analysis and
wide-ranging participation are vital parts of the PRSP formulation process. Updated with annual
progress reports, they describe the countries macroeconomic, structural, and social policies in
support of growth and poverty reduction, as well as associated with external financing needs and
major sources of financing.
For the first time in the history of economic planning in Bangladesh, the Sixth Five Year Plan
introduced the concept of results-based monitoring and evaluation (RBME). This was done to be
consistent with the spirit of indicative planning whereby the Sixth Plan was conceived as a living
document that would be monitored for results, and changed and adapted in light of changing global
and domestic economic environment.
5.1: Progress with Economic Growth, Employment and Poverty Reduction:
The broad picture of performance of the Sixth Plan during the first three years in terms of achieving
major development targets relating to economic growth, employment and poverty reduction is
generally positive. The economy has made further solid progress in these areas, which is
reassuring.
Progress and shortfall:
1. Progress has also been made in transforming the economy from a rural-based agrarian economy
towards a more modern urban-based manufacturing and services based economy.
2. Export performance is on track, which has provided the impetus for the expansion of the
manufacturing sector.
3. Compared to Sixth Plan targets, there is a shortfall in GDP targets because of persistent global
economic down turn and shortfall in private sector investment. Some shortfall in domestic
employment has been offset by better-than-expected performance in overseas employment. Recent
evidence suggests that the pace of expansion of overseas employment likely to slow down
considerably owing to difficulties in several Middle Eastern markets. So, for the future the
employment impetus needs to come from domestic manufacturing and services sector.
4. Recent political turmoil over the October-December 2013 periods slowed down domestic
economic activity. While political stability has returned and there is likely to be a recovery in
private investment, on the whole it is clear that the investment targets for the Sixth Plan may not
be achieved. The public investment rate is significantly lower than planned. The export
performance is likely to remain on track. But export will remain concentrated on RMG. On the
whole, the significant slowdown in the rate of investment may reduce average GDP growth rate to
below 7 percent over the remaining two years of the Plan.
The Government can take several steps for improving the investment climate for private
investment, increasing public investment and diversifying exports from RMG in order to create
a better platform for higher growth in the Seventh Plan. The main priorities are:
1. Improving the investment climate by removing the constraints identified by investors.
These include easing land acquisition system for investment and introducing land zoning,
deregulation, overcoming power and gas shortage, improving trade logistics and contract
enforcement.
2. The shortfall in public investment needs to be addressed speedily with a range of measures
including more focused and steady implementation of the Tax Modernization Plan, proper
pricing of electricity and energy, and rationalization of subsidies.
3. Revamping the public-private investment partnership by creating a special implementation
agency staffed with professionals that have adequate experience in mobilizing funds and
developing PPP-type projects.
4. Learning from the positive experience of RMG, improving the incentive framework for
non-RMG exports as well as encouraging export diversification. Trade policy should be
revisited to make it more private sector friendly.
5.2: Progress with Infrastructure Development:
Power sector: The Sixth Plan rightly prioritized the need for improved power, energy, transport
and other infrastructure for achieving its growth strategy. The implementation review suggests that
the most impressive performance has been the achievement of 9598 Mega-Watt of electricity
generation capacity by FY13, which is a 65% increase over the FY10. The population‘s access to
electricity increased from 47% to 62% in FY13.
Transport sector: Unlike the power sector, the transport sector has not been up to speed and runs
the risk of substantially falling short of achieving the Sixth Plan targets. Performance is lagging in
all areas of transport: roads, bridges, railways and ports. Transport infrastructure needs are
substantial and the Sixth Plan developed a strong programs. While a number of significant projects
in the roads and bridges areas have been completed, overall expansion is much lower than
envisaged in the Sixth Plan. The Government needs to be much more strategic in managing the
implementation of the large list of transport projects. The budgetary resources appear to be
adequate but implementation needs to be much more efficient and associated agencies.
For example, in the Roads Division alone, there are 156 projects under implementation. It is hardly
surprising that it is facing a major capacity constraint. Instead of spreading resources thinly on too
many projects, the Government needs to identify the priority projects that will have a major impact
on the economy and complete those first. To reduce the traffic congestion in Dhaka city, a laudable
step has been taken to construct Dhaka Elevated Expressway from Hazrat Shahjalal International
Airport to Kutubkhali of Dhaka-Chittagong Highway on PPP (Private Public Partnership) basis.
At the same time slow moving project and problematic projects needs to be identified and
completed.
While there are a number of reasons for the lackluster performance of the PPP initiative, the
main constraints are the inadequate institutional capacity and lack of technical capacity in
negotiation as well as in the bidding and contracting process. Urgent policy attention is needed to
do a full diagnostics of the constraints that are hindering the implementation of this high priority
initiative and suggest remedial measures based on this diagnostics.
5.3: Progress with Human Resource Development:
Many of the quantitative targets in education and HPN (Health Population and Nutrition) sector
have shown promising progress and will likely reach the desired value by 2015. But in some areas
such as nutrition, family planning and internal efficiency of education may fall short of the
objectives. In addition, other goals such as strengthening the management and governance capacity
of these sectors and improving the quality of the services have made limited progress. Based on
the lessons of the implementation record so far, a number of recommendations can be made:
First, stronger efforts are needed to implement the Sixth Plan‘s recommendation to decentralize
service responsibilities in health and education to the local governments. This agenda is high on
the Government‘s list but actual implementation is slow.
Second, the coordination within the Government (between ministries, directorates and other
levels) needs to be improved. Greater decentralization, with responsibilities and budgets actually
divided between the different institutions and levels will help this coordination process
considerably. This will avoid overlaps of projects and programs and ensure that the objectives and
targets are aligned.
Third, a re-examination of budgetary priorities is needed to allocate more resources for health and
education. The target should be to scale up resources by at least 1% of GDP to these sectors by the
end of the Plan period. The implementation of the Government‘s health insurance programs may
be considered. This will ease up pressure on public resources and promote private investments in
these vital areas of HRD (Human Resource Development).
Fourth, the aspects of education spending can be improved by providing additional resources for
scholarships for the children of the poor and vulnerable families as proposed under the National
Social Security Strategy (NSSS). Partnership with NGOs could be strengthened to deliver health
and education services in the hard-to-reach areas as well as to reach out the socially-excluded
groups.
Fifth, the nutrition programs need substantial efforts and quality control oversight capacity of
public institutions strengthened. Stronger partnership with international institutions/agencies such
as UNICEF/FAO/WHO and with NGOs can provide greater push and visibility to this effort.
Sixth, the upgrading of skills for the workforce needs renewed attention. Greater efforts are needed
to learn from the East Asian experiences with training, including stronger partnership with private
sector in the design and implementation of training programs including support for on-the-job
training. Consultations with the various chambers of business and commerce on a training strategy
and associated policies can be a useful first step.
5.4: Progress with Gender Empowerment and Social Inclusion:
Gender empowerment: Bangladesh continues to perform especially well in gender parity in
education. Areas which need more attention are in the following:
1. Increasing female labor force participation
2. Stronger implementation of CEDAW
3. Other gender related laws to prevent social violence and eliminate discriminations against
female in social and economic spheres such as reducing wage discrimination and improve
the work environment to encourage female labor force participation.
Social inclusion: Regarding social inclusion, the Sixth Plan‘s strategy and programs are broadly
on track such as:
1. In the area of child protection, adoption of legislation, Children Act of 2013, based on the
Convention of the Rights of the Child. It provides legal instruments to protect children with regards
to a wide range of potential exploitation and abuse such as child marriage, work, and issues with
the justice system.
2. In social protection, the government has prepared a new National Social Security Strategy
(NSSS) to make the social projection system as an effective tool for protecting the poor and
vulnerable. The NSSS is inclusive of all population irrespective of race, religion, profession,
location or ethnicity.
Purpose of NSSS:
• To modernize the Bangladesh social security by combining tax-funded safety net
programmes with social insurance and employment regulations to protect the workers.
• To improve the administrative arrangements for social protection programmes by
strengthening staffing and institutions, by instituting a modern MIS system and by
replacing food-based transfer payments with cash-based payments using the financial
sector based G2P (government to people) system,
5.5: Progress with Environment, Climate Change and Disaster Management:
The ability to sharply reduce the loss of lives and injuries based on a combination of early warning
system, construction and availability of shelters and timely provision of relief and support
measures, government has earned success in disaster management. However, Long-term planning
and substantial public investment will be necessary. For this, The Bangladesh Delta Plan-2100,
being implemented by GED (General Economics Division) of Planning Commission will likely
make a major impact in this regard.
5.6: Progress with Governance and Institutions:
The Sixth Plan‘s culture of introducing results based monitoring and evaluation is itself a major
step forward in instituting better governance. Progress in areas relating to e-governance, the
Right to Information (RTI), elected local governments, and the MTBF (Medium Term Budgetary
Framework) are all indicators of the Government‘s commitment to improve governance over the
longer term. Progress in terms of the governance indicators for future are:
1. Further strengthening of the democratic governance process to ensure participation of all
citizens and the sound functioning of all democratic institutions.
2. Strengthening of the local government institutions based on a well-defined legal framework
that assigns responsibilities along with commensurate financial autonomy.
3. Strengthening of civil services with the institution of merit based promotion and improved
incentives in terms of remuneration and training facilities with a view to attracting skills in
a number of areas that are deficient.
4. Financial and legal support to the judiciary to strengthen its capacity to ensure faster
disposal of civil and criminal cases.
5. Urgent reform of public sector banks to reduce non-performing loans and bad lending
decisions.
6. Stronger implementation of the Tax Modernization Project with a special focus on
strengthening income tax collections and overall domestic resource mobilization.
7. Strengthening the Anti-Corruption Commission, in having more judicial outcomes.
6. Millennium Development Goals (MDGs) and Bangladesh’s achievement
6.1: What is MDGs: In September 2000, 189 countries attending the UN Millennium Summit,
signed the UN Millennium Declaration, a manifesto to eradicate extreme poverty, hunger and
disease among the one billion people in the world who subsist on barely anything. The project set
a deadline of 2015 to achieve eight goals, called Millennium Development Goals (MDGs).
6.2: Eight goals of MDGs:
1. Eradicate extreme
poverty and hunger
5. Improve maternal
health
2. Achieve universal
primary education
6. Combat HIV/AIDS,
malaria and other
diseases
3. Promote gender equality
and empower women
7. Ensure environmental
sustainability
4. Reduce child mortality 8. Develop a global
partnership for
development
The first seven goals are to be pursued by the developing countries for sharp cuts in poverty,
disease, and environmental degradation, while the eighth goal is essentially a commitment of
global partnership, a compact of rich and poor countries, to work together to achieve the first seven
goals. It calls for actions by developing countries to adopt sound economic policies and further
develop an open trading and financial system, including commitments to have good governance,
development and poverty reduction. It also calls upon the developed countries to extend necessary
assistance to developing countries for achieving these goals.
The MDGs are a set of numerical and time-bound targets to be achieved by 2015. For example,
the targets are to reduce the proportion of extremely poor people to half by 2015, and also hunger
by the same proportion; achieve universal primary education and gender equality; reduce child
mortality by two-thirds and maternal mortality by three quarters; reverse the spread of HIV/AIDS
and other communicable diseases; and halve the proportion of people without access to safe water.
6.3: Bangladesh MDGs achievements: International recognition:
1. Hon‟ble Prime Minister of Bangladesh was awarded with ‘UN MDG Awards 2010’ for
reducing under five child mortality rate (MDG-4).
2. Bangladesh received South-South Award 'Digital Health For Digital Development' for
success on attainment of MDG- 4 & MDG-5.
3. Bangladesh received ‘Diploma Award’ from Food and Agriculture Organization (FAO)
for achieving the MDG-1.
4. Bangladesh was honoured with the ‘special recognition’ for outstanding progress in
fighting hunger and poverty.
5. Bangladesh was awarded ‘South-South Award’ for achievements in alleviating poverty.
6. Hon‟ble Prime Minister was awarded ‘UNESCO Peace Tree Award’ for her commitment
to women‟s empowerment and girls‟ education.
7. Bangladesh received „Women in Parliaments Global Forum Award’, as Bangladesh ranked
10th out of 142 countries in the political sphere.
8. Hon‟ble Prime Minister was awarded “Champions of the Earth” by UNEP for Policy
Leadership.
9. The UN-Women recognised our Hon‟ble Prime Minister as "Planet 50-50 Champion"
10. The Global Partnership Forum awarded Hon‟ble Prime Minister "Agent of Change Award"
for her outstanding contributions to women empowerment.

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National Income Inequality and Poverty in Bangladesh

  • 1. CHAPTER: NATIONAL INCOME AND INCOME DISTRIBUTION 1. Pattern of income distribution and magnitude of poverty in Bangladesh Income inequality is extreme concentration of wealth or income in the hands of a small section of the population. It is often described as the gap between the richest and the rest of the community. The Urban Institute of the United States in an analysis based on 53 years (1963-2016) of economic data reflected that the poorest have become poorer while the richest much richer during this time. According to the report, the poorest 10 percent of Americans moved from zero assets to $1,000 in debt. Families at the middle income level more than doubled their prior average wealth, families in the top 10 per cent obtained more than five times their prior wealth, and families in the top 1 per cent amassed more than seven times their prior wealth. According to a 2017 Federal Reserve report, the richest 1 per cent of the U.S. population possessed 38.6 per cent of the nation's wealth in 2016, Bangladesh has remained a country with substantial income inequality with all its manifestations even 48 years after independence. A small section of the society enjoys most of the country's wealth depriving the larger sections. Amidst many positive achievements, an important area of concern for Bangladesh economy is the rise in inequality in income distribution. After all, the dream of economic emancipation through alleviation of economic inequality was one of the driving forces of our liberation war. Regrettably, there has been an increase in the degree of inequality in income distribution from the mid-1980s. As per the latest Household Income and Expenditure Survey (HIES) of Bangladesh Bureau of Statistics (BBS), the economic measure of equality is 33% in 2016. At the time of independence, over 90 per cent of Bangladeshis were villagers, a share that has now come down to nearly 70 per cent. Historical experience suggests that if our economy grows faster, more and more people would flock to the cities. So, Dhaka is now home to 10 per cent of the
  • 2. population. Lack of decentralization is also causing a growing spatial inequality in income earnings. People living in Dhaka and Chottogram are earning way more than those living elsewhere. GDP growth and rising economic development: Bangladesh had a plan to reduce the rich-poor gap by 2015 as part of the Millennium Development Goals. It's the one of the MDGs that was overachieved and before time. Macroeconomic and social indicators show that Bangladesh has been better off as an independent nation though it is far behind in achieving its primary goal of alleviating economic and political inequality. Macroeconomic growth contributed to higher national income, but growing income inequality needs to be addressed. Geographically centralized industrialization has contributed to a higher flow of domestic migration, and the added workforce helped the national economy set the trend of growth over the past years. The trend raises questions about the quality of Bangladesh's GDP growth. Official statistics show that the country experienced accelerated GDP growth rate since 2013. GDP growth in recent years has been the highest in the country's history. However, inequality rose significantly during this period -- this is a big concern. One reason is the disconnection among economic growth, wage growth and job creation. Though figures show that GDP growth has accelerated in recent years, job growth has slowed and real wage growth has been sluggish. The high GDP growth over the past few years has been unable to create sufficient jobs. In other words, the country is witnessing a phase of jobless growth as the poor people are not getting enough scope for productive income generating employment activities. This has resulted in slow progress in poverty reduction and rising inequality. The public expenditure on education and health as a share of GDP is very low and has declined in recent years. Such low expenditure does not help improve productivity of workers and is not consistent with the effort to reduce poverty and inequality. There is also an increasing inequality of opportunities, particularly to access healthcare, education, financial services and social protection. Nor are the poor in a position to access privileges that the government gives to particular businesses and interest groups in the form of bailouts, loan rescheduling, tax exemptions, subsidies, licences and so on. The social protection programmes are too inadequate to reduce poverty and regional
  • 3. disparity. Expenditure programmes that are targeted to the poor suffer from serious leakages. A stronger focus keeping these in mind is crucial for devising plans for inequality reduction. Inequality is not an inevitable consequence of economic growth. In fact, long-term growth and social stability are the two important factors to make space for social and economic equality. 2. Per capita income (Definition, formula and limitations) 2.1: Definition: Per capita income is a measure of the amount of money earned per person in a nation or geographic region. Per capita income can be used to determine the average per-person income for an area and to evaluate the standard of living and quality of life of the population. Per capita income for a nation is calculated by dividing the country's national income by its population. 2.2: Per capita income formula: This provides a more comparable measurement as it allows for more accurate analysis between nations. It is not only used for economic statistics such as GDP but can be used in other social sciences. For example, you can use per capita to calculate the number of car accidents. You could do this using the following calculation: If we go back to economics – per capita is generally used to measure GDP. This allows us to compare countries whereby the size of their population varies dramatically. Let us now take an example: In 2019, the US population was 328 million, whilst its economic output was valued at $21.43 trillion. To calculate GDP per capita, we get the total GDP and divide by the total population. In this case it is:
  • 4. So in 2019, the GDP per capita of the US was $65,335. If we now compare that to India, where the population was around 1.36 trillion, with a GDP of $2.72 trillion. We divide the total GDP by the population: In 2019, the GDP per capita for India was $2,000 – significantly less than that of the US. 2.3: Limitations of Per capita income: 1. Livings Standards Since per capita income uses the overall income of a population and divides it by the total number of people, it doesn't always provide an accurate representation of the standard of living. In other words, the data can be skewed, whereby it doesn't account for income inequality. For example, let's say a town has a total population of 50 people who are earning $500,000 per year, and 1,000 people earning $25,000 per year. We calculate the per capita income as ($500,000 * 50) + (1,000 * $25,000) to arrive at $50,000,000 in total income. When we divide $50,000,000 / 1,050 (total population), the per capita income is $47,619 for the town. However, the per capita income doesn't give us a true picture of the living conditions for all of those living in the town. Imagine if federal aid or public assistance was provided to towns based on per capita income. The town, in our example, might not receive the necessary aid such as housing and food assistance if the income threshold for aid was $47,000 or less.
  • 5. 2. Savings and Wealth Per capita income doesn't include individual’s savings or wealth. For example, a wealthy person might have a low annual income from not working but draws from savings to maintain a high- quality standard of living. The per capita metric would reflect the wealthy person as a low-income earner. 3. Children Per capita includes children in the total population, but children don't earn any income. Countries with many children would have a skewed result since they would have more people dividing up the income versus countries with fewer children. 4. Economic Welfare The welfare of the people isn't necessarily captured with per capita income. For example, the quality of work conditions, the number of hours worked, education level, and health benefits are not included in per capita income calculations. As a result, the overall welfare of the community may not be accurately reflected. 3. Standard of living (Definition, factors, quality of life) 3.1: Definition: The standard of living is a term used to describe the level of income, necessities, luxury, and other goods and services that are generally readily available to a designated population. It is basically a metric that evaluates the amount of material goods that are produced and sold within a specified geographic area – such as a community, province, state, or country. 3.2: Factors commonly associated with the standard of living include: Two of the most commonly used indicators of standard of living in a country are the gross domestic product (GDP) – the total production of goods and services within a calendar year – and GDP per capita. However, in its evaluation of the standard of living, the World Bank uses Gross National Income (GNI) per capita – the average per-person income that a country’s total population receives each year. One measure of standard of living is the Human Development Index (HDI), which has been used by the United Nations since 1990. It considers life expectancy at birth, adult literacy rates, and per capita GDP to measure a country's level of development.
  • 6. 3.3: Standard of living versus quality of life: The concept of standard of living is closely related to, but considered distinct from, an evaluation of the quality of life in an area. The standard of living and quality of life are frequently evaluated using several factors considered common to both metrics. The primary difference between the two metrics is that standard of living is a more readily quantifiable term, focused more on purely material factors, while the quality of life is typically a more subjective evaluation of how contented, satisfied, or fulfilled people feel with the nature of their lives. It measures happiness. 3.4: Factors used in evaluating the standard of living: In addition to GDP or GDP per capita, the main factors that are usually used in any calculation of the standard of living are other readily quantifiable economic factors – such as average income, consumer spending, housing prices, the poverty rate in an area, available goods and services, the rate of inflation, and employment levels. Other factors that may be included in examining the standard of living in an area are things such as access to medical care, educational opportunities, infrastructure, housing affordability, climate, crime rate, and the level of economic stability in the area. The relative health of the population – frequently measured using the metric of life expectancy – is also a factor considered when evaluating the standard of living. The level of private business investment in an area can substantially improve the area’s standard of living – for example, if a major corporation such as FedEx opens a regional hub in a city that will provide numerous, well-paying jobs. Conversely, if a major retailer such as Walmart should close its store in a city, that would likely lower the standard of living due to the loss of jobs and access to goods. Access to basic utilities is also a common consideration when measuring the standard of living. A region or country where few people with indoor plumbing or electricity experience a notably lower standard of living compared to an area where virtually all of the residents are able to access such basic necessities of life.
  • 7. Factors such as environmental aspects, access to leisure and cultural activities, and political freedom may also be included in evaluating the standard of living, but such kinds of factors are more often looked at when evaluating the quality of life. 4. Measures to increase per capita income Recently, Bangladesh, once considered one of the world’s poorest countries, has surpassed India in GDP per capita. This news has caused outrage among Indian citizens, but the government will not be able to mimic Bangladesh in creating a more prominent low-wage manufacturing export sector. Instead, India needs reforms that will create higher incomes for everyday workers, who are the backbone and foundation of the country’s economy. GDP per capita measures the average income earned per person in a country during a given year. In 2019, India’s GDP per capita was $2,104. However, in 2020, this figure dropped to $1,876, placing the country one spot below Bangladesh, which currently has a GDP per capita of $1,887. Unlike India, Bangladesh has experienced consistent economic growth over the past three years. Indian citizens are demanding that Narendra Modi, the country’s prime minister, enact reforms and policies that will boost GDP per capita by improving wages for India’s working class. Here are four ways that India could potentially boost its GDP per capita. Four ways Indian government can improve GDP in following way: 1. Increasing income for farmers. In India, 40% of the population works in agriculture and small-scale farming supports many poverty-level communities. However, the Indian government has historically kept prices for agricultural products low in favor of the consumer, despite the lower profits for farmers. The recently introduced 2020 Farm Acts will allow farmers to sell their products to the highest bidder, allowing them to seek higher incomes. When farmers are prospering, they support other sectors of India’s economy through their own consumption. Products like fertilizer, working attire and tools are necessary for farmers, especially as they expand their business. This increase in expenditure directly creates jobs for others.
  • 8. 2. Through government expenditure and investment in infrastructure. The government controls the amount the nation spends on public matters each year. However, government spending is necessary to increase the overall GDP per capita. This year, incomes have declined for Indian citizens, meaning private consumption has also decreased. By spending money on building and repairing roads and bridges, the government will provide citizens with greater ease and efficiency in their work and create jobs in construction. Furthermore, by using more funds to pay higher salaries, private consumption will once again increase, promoting higher business investment and improving the market for imports and exports. By spending a certain amount of money, the government would benefit from the economic boost created as a result. 3. Urbanizing India’s rural populations. Urbanization drives economic growth, and because India’s farming population is so prominent, moving some of these farmers to cities would allow them to get jobs in manufacturing. Not only would this increase agricultural productivity by decreasing the number of farmers using the same amount of land, but it would help grow some of India’s medium-sized cities into more prominent urban landscapes. The government can promote migration to city areas by providing incentives to rural populations, including investing in better infrastructure and urban services, such as transportation and water management. In addition, new urban populations would create a resurgence of the housing market and give banks more lending opportunities. Inevitably, more development and urbanization would create new opportunities for international investments and manufacturing exports. 4. Becoming competitive in high-potential sectors. India has the opportunity to create as much as $1 trillion in economic value by establishing itself as a competitive manufacturer of electronics, chemicals, textiles, auto goods and pharmaceuticals. These sectors accounted for 56% of global trade in 2018, while India only contributed to 1.5% of global exports in these areas. Greater urbanization and an increase in the manufacturing labor force would allow India’s government to make this a reality. Currently, the country’s imports constitute a greater percentage of global trade than its exports. By increasing competitiveness in these sectors, India would not only increase its potential for exports but also decrease its reliance on imports, curbing the amount of money spent by citizens on foreign products.
  • 9. 5. Poverty Reduction Strategy Paper 5.1: What is PRSP: Poverty Reduction Strategy Papers (PRSPs) are documents required by the International Monetary Fund (IMF) and World Bank before low-income countries can receive aid from most major donors and lenders. Principles: The IMF specifies that the PRSP should be formulated according to five core principles. The PRSP should be country-driven, result-oriented, comprehensive, partnership- oriented, and based on a long-term perspective. Purpose of PRSP and Bangladesh: The Poverty Reduction Strategy Process encourages countries to develop a more poverty-focused government. A comprehensive poverty analysis and wide-ranging participation are vital parts of the PRSP formulation process. Updated with annual progress reports, they describe the countries macroeconomic, structural, and social policies in support of growth and poverty reduction, as well as associated with external financing needs and major sources of financing. For the first time in the history of economic planning in Bangladesh, the Sixth Five Year Plan introduced the concept of results-based monitoring and evaluation (RBME). This was done to be consistent with the spirit of indicative planning whereby the Sixth Plan was conceived as a living document that would be monitored for results, and changed and adapted in light of changing global and domestic economic environment.
  • 10. 5.1: Progress with Economic Growth, Employment and Poverty Reduction: The broad picture of performance of the Sixth Plan during the first three years in terms of achieving major development targets relating to economic growth, employment and poverty reduction is generally positive. The economy has made further solid progress in these areas, which is reassuring. Progress and shortfall: 1. Progress has also been made in transforming the economy from a rural-based agrarian economy towards a more modern urban-based manufacturing and services based economy. 2. Export performance is on track, which has provided the impetus for the expansion of the manufacturing sector. 3. Compared to Sixth Plan targets, there is a shortfall in GDP targets because of persistent global economic down turn and shortfall in private sector investment. Some shortfall in domestic employment has been offset by better-than-expected performance in overseas employment. Recent evidence suggests that the pace of expansion of overseas employment likely to slow down considerably owing to difficulties in several Middle Eastern markets. So, for the future the employment impetus needs to come from domestic manufacturing and services sector. 4. Recent political turmoil over the October-December 2013 periods slowed down domestic economic activity. While political stability has returned and there is likely to be a recovery in private investment, on the whole it is clear that the investment targets for the Sixth Plan may not be achieved. The public investment rate is significantly lower than planned. The export performance is likely to remain on track. But export will remain concentrated on RMG. On the whole, the significant slowdown in the rate of investment may reduce average GDP growth rate to below 7 percent over the remaining two years of the Plan.
  • 11. The Government can take several steps for improving the investment climate for private investment, increasing public investment and diversifying exports from RMG in order to create a better platform for higher growth in the Seventh Plan. The main priorities are: 1. Improving the investment climate by removing the constraints identified by investors. These include easing land acquisition system for investment and introducing land zoning, deregulation, overcoming power and gas shortage, improving trade logistics and contract enforcement. 2. The shortfall in public investment needs to be addressed speedily with a range of measures including more focused and steady implementation of the Tax Modernization Plan, proper pricing of electricity and energy, and rationalization of subsidies. 3. Revamping the public-private investment partnership by creating a special implementation agency staffed with professionals that have adequate experience in mobilizing funds and developing PPP-type projects. 4. Learning from the positive experience of RMG, improving the incentive framework for non-RMG exports as well as encouraging export diversification. Trade policy should be revisited to make it more private sector friendly.
  • 12. 5.2: Progress with Infrastructure Development: Power sector: The Sixth Plan rightly prioritized the need for improved power, energy, transport and other infrastructure for achieving its growth strategy. The implementation review suggests that the most impressive performance has been the achievement of 9598 Mega-Watt of electricity generation capacity by FY13, which is a 65% increase over the FY10. The population‘s access to electricity increased from 47% to 62% in FY13. Transport sector: Unlike the power sector, the transport sector has not been up to speed and runs the risk of substantially falling short of achieving the Sixth Plan targets. Performance is lagging in all areas of transport: roads, bridges, railways and ports. Transport infrastructure needs are substantial and the Sixth Plan developed a strong programs. While a number of significant projects in the roads and bridges areas have been completed, overall expansion is much lower than envisaged in the Sixth Plan. The Government needs to be much more strategic in managing the implementation of the large list of transport projects. The budgetary resources appear to be adequate but implementation needs to be much more efficient and associated agencies. For example, in the Roads Division alone, there are 156 projects under implementation. It is hardly surprising that it is facing a major capacity constraint. Instead of spreading resources thinly on too many projects, the Government needs to identify the priority projects that will have a major impact on the economy and complete those first. To reduce the traffic congestion in Dhaka city, a laudable step has been taken to construct Dhaka Elevated Expressway from Hazrat Shahjalal International Airport to Kutubkhali of Dhaka-Chittagong Highway on PPP (Private Public Partnership) basis. At the same time slow moving project and problematic projects needs to be identified and completed. While there are a number of reasons for the lackluster performance of the PPP initiative, the main constraints are the inadequate institutional capacity and lack of technical capacity in negotiation as well as in the bidding and contracting process. Urgent policy attention is needed to do a full diagnostics of the constraints that are hindering the implementation of this high priority initiative and suggest remedial measures based on this diagnostics.
  • 13. 5.3: Progress with Human Resource Development: Many of the quantitative targets in education and HPN (Health Population and Nutrition) sector have shown promising progress and will likely reach the desired value by 2015. But in some areas such as nutrition, family planning and internal efficiency of education may fall short of the objectives. In addition, other goals such as strengthening the management and governance capacity of these sectors and improving the quality of the services have made limited progress. Based on the lessons of the implementation record so far, a number of recommendations can be made: First, stronger efforts are needed to implement the Sixth Plan‘s recommendation to decentralize service responsibilities in health and education to the local governments. This agenda is high on the Government‘s list but actual implementation is slow. Second, the coordination within the Government (between ministries, directorates and other levels) needs to be improved. Greater decentralization, with responsibilities and budgets actually divided between the different institutions and levels will help this coordination process considerably. This will avoid overlaps of projects and programs and ensure that the objectives and targets are aligned. Third, a re-examination of budgetary priorities is needed to allocate more resources for health and education. The target should be to scale up resources by at least 1% of GDP to these sectors by the end of the Plan period. The implementation of the Government‘s health insurance programs may be considered. This will ease up pressure on public resources and promote private investments in these vital areas of HRD (Human Resource Development). Fourth, the aspects of education spending can be improved by providing additional resources for scholarships for the children of the poor and vulnerable families as proposed under the National Social Security Strategy (NSSS). Partnership with NGOs could be strengthened to deliver health and education services in the hard-to-reach areas as well as to reach out the socially-excluded groups.
  • 14. Fifth, the nutrition programs need substantial efforts and quality control oversight capacity of public institutions strengthened. Stronger partnership with international institutions/agencies such as UNICEF/FAO/WHO and with NGOs can provide greater push and visibility to this effort. Sixth, the upgrading of skills for the workforce needs renewed attention. Greater efforts are needed to learn from the East Asian experiences with training, including stronger partnership with private sector in the design and implementation of training programs including support for on-the-job training. Consultations with the various chambers of business and commerce on a training strategy and associated policies can be a useful first step. 5.4: Progress with Gender Empowerment and Social Inclusion: Gender empowerment: Bangladesh continues to perform especially well in gender parity in education. Areas which need more attention are in the following: 1. Increasing female labor force participation 2. Stronger implementation of CEDAW 3. Other gender related laws to prevent social violence and eliminate discriminations against female in social and economic spheres such as reducing wage discrimination and improve the work environment to encourage female labor force participation. Social inclusion: Regarding social inclusion, the Sixth Plan‘s strategy and programs are broadly on track such as: 1. In the area of child protection, adoption of legislation, Children Act of 2013, based on the Convention of the Rights of the Child. It provides legal instruments to protect children with regards to a wide range of potential exploitation and abuse such as child marriage, work, and issues with the justice system. 2. In social protection, the government has prepared a new National Social Security Strategy (NSSS) to make the social projection system as an effective tool for protecting the poor and vulnerable. The NSSS is inclusive of all population irrespective of race, religion, profession, location or ethnicity.
  • 15. Purpose of NSSS: • To modernize the Bangladesh social security by combining tax-funded safety net programmes with social insurance and employment regulations to protect the workers. • To improve the administrative arrangements for social protection programmes by strengthening staffing and institutions, by instituting a modern MIS system and by replacing food-based transfer payments with cash-based payments using the financial sector based G2P (government to people) system, 5.5: Progress with Environment, Climate Change and Disaster Management: The ability to sharply reduce the loss of lives and injuries based on a combination of early warning system, construction and availability of shelters and timely provision of relief and support measures, government has earned success in disaster management. However, Long-term planning and substantial public investment will be necessary. For this, The Bangladesh Delta Plan-2100, being implemented by GED (General Economics Division) of Planning Commission will likely make a major impact in this regard. 5.6: Progress with Governance and Institutions: The Sixth Plan‘s culture of introducing results based monitoring and evaluation is itself a major step forward in instituting better governance. Progress in areas relating to e-governance, the Right to Information (RTI), elected local governments, and the MTBF (Medium Term Budgetary Framework) are all indicators of the Government‘s commitment to improve governance over the longer term. Progress in terms of the governance indicators for future are: 1. Further strengthening of the democratic governance process to ensure participation of all citizens and the sound functioning of all democratic institutions. 2. Strengthening of the local government institutions based on a well-defined legal framework that assigns responsibilities along with commensurate financial autonomy.
  • 16. 3. Strengthening of civil services with the institution of merit based promotion and improved incentives in terms of remuneration and training facilities with a view to attracting skills in a number of areas that are deficient. 4. Financial and legal support to the judiciary to strengthen its capacity to ensure faster disposal of civil and criminal cases. 5. Urgent reform of public sector banks to reduce non-performing loans and bad lending decisions. 6. Stronger implementation of the Tax Modernization Project with a special focus on strengthening income tax collections and overall domestic resource mobilization. 7. Strengthening the Anti-Corruption Commission, in having more judicial outcomes.
  • 17. 6. Millennium Development Goals (MDGs) and Bangladesh’s achievement 6.1: What is MDGs: In September 2000, 189 countries attending the UN Millennium Summit, signed the UN Millennium Declaration, a manifesto to eradicate extreme poverty, hunger and disease among the one billion people in the world who subsist on barely anything. The project set a deadline of 2015 to achieve eight goals, called Millennium Development Goals (MDGs). 6.2: Eight goals of MDGs: 1. Eradicate extreme poverty and hunger 5. Improve maternal health 2. Achieve universal primary education 6. Combat HIV/AIDS, malaria and other diseases 3. Promote gender equality and empower women 7. Ensure environmental sustainability 4. Reduce child mortality 8. Develop a global partnership for development The first seven goals are to be pursued by the developing countries for sharp cuts in poverty, disease, and environmental degradation, while the eighth goal is essentially a commitment of global partnership, a compact of rich and poor countries, to work together to achieve the first seven goals. It calls for actions by developing countries to adopt sound economic policies and further develop an open trading and financial system, including commitments to have good governance, development and poverty reduction. It also calls upon the developed countries to extend necessary assistance to developing countries for achieving these goals. The MDGs are a set of numerical and time-bound targets to be achieved by 2015. For example, the targets are to reduce the proportion of extremely poor people to half by 2015, and also hunger by the same proportion; achieve universal primary education and gender equality; reduce child
  • 18. mortality by two-thirds and maternal mortality by three quarters; reverse the spread of HIV/AIDS and other communicable diseases; and halve the proportion of people without access to safe water. 6.3: Bangladesh MDGs achievements: International recognition: 1. Hon‟ble Prime Minister of Bangladesh was awarded with ‘UN MDG Awards 2010’ for reducing under five child mortality rate (MDG-4). 2. Bangladesh received South-South Award 'Digital Health For Digital Development' for success on attainment of MDG- 4 & MDG-5. 3. Bangladesh received ‘Diploma Award’ from Food and Agriculture Organization (FAO) for achieving the MDG-1. 4. Bangladesh was honoured with the ‘special recognition’ for outstanding progress in fighting hunger and poverty. 5. Bangladesh was awarded ‘South-South Award’ for achievements in alleviating poverty. 6. Hon‟ble Prime Minister was awarded ‘UNESCO Peace Tree Award’ for her commitment to women‟s empowerment and girls‟ education. 7. Bangladesh received „Women in Parliaments Global Forum Award’, as Bangladesh ranked 10th out of 142 countries in the political sphere. 8. Hon‟ble Prime Minister was awarded “Champions of the Earth” by UNEP for Policy Leadership. 9. The UN-Women recognised our Hon‟ble Prime Minister as "Planet 50-50 Champion" 10. The Global Partnership Forum awarded Hon‟ble Prime Minister "Agent of Change Award" for her outstanding contributions to women empowerment.