Growth in India

Growth in India: An Examination of Inclusiveness

By: Tulika Tripathi
It is difficult to conclude the degree of inclusiveness of growth in India as different scholars hold different opinions. Better governance and pro-poor policy, among the strategies, need to be adopted for inclusive growth.
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The eleventh five year plan of India emphasised the need for more inclusive growth. It stated that the plan provides “an opportunity to restructure policies to achieve a new vision based on faster, more broad based and inclusive growth—and is designed to reduce poverty and focus on bringing down various divides that continue to fragment our society” (Towards faster are more inclusive growth: An approach to the 11th five year plan, 2006, Planning Commission). The twelfth five year plan has also reiterated its commitment to inclusive growth, recognising that while faster growth remains the main goal, it is not an end in itself but the means to an end. And, the end would demand outcomes which yield benefits for all, but particularly require that the benefits of growth reach the poor, scheduled castes (SCs), scheduled tribes (STs), other backward classes (OBCs), minorities and women (S Thorat et al., 2012, ‘Has growth been society inclusive during 1993-94 and 2009-10, Economic and Political Weekly). The pronouncements are largely in nature of what it should be, without delineating how it should be different from earlier policy regimes. The government has sought to pursue a strategy without providing even a working definition, not to mention the nature and magnitude of the problem it seeks to address. However, there seems to be absence of clarity because of the fact that the term ‘inclusive growth’ in itself is vaguely and variously defined in literature.

The World Bank has stated that inclusive growth can be achieved by focusing on expanding the regional scope of economic growth, expanding access to assets and markets and expanding equity in the opportunities for the next generation of Indian citizens no matter who they are or where they live (‘India, inclusive growth and service delivery:  Building on India’s successes’, World Bank, 2006). The United Nations Development Programme (UNDP) has defined inclusive growth as “the process and the outcome where all groups of people have participated in the organisation of growth and have benefited equitably from it” (Uyanga Gankhuyag, 2008, ‘A million-dollar question: what is inclusive growth?’; Poverty Reduction News Update, UNDP Learning Centre).  According to T Besley et al., their 2007 paper ‘The policy origins of growth and poverty in India,’ Palgrave Macmillan, defines inclusive growth as the growth that has a high elasticity of poverty reduction, i. e. it should yield a higher reduction in poverty per unit of growth. There is now enough evidence to show that the extent to which economic growth translates into poverty reduction and to human development depends on what happens to inequality during the process of growth. Also, countries where initial inequality is higher, show a slower decline in poverty. Some researchers argue that inclusive growth is broad based and benefits everyone in society—the poor, middle income groups and even the rich (S Klasen, 2010, ‘Measuring and monitoring inclusive growth: Multiple definitions, open questions and some constructive proposals’, Asian Development Bank).

In this sense, pro-poor growth constitutes a subset of the broad concept of inclusive growth. For pro-poor growth, the pro-poorness is to be embedded in growth with a policy bias in favour of the poor, resulting into a relatively higher increase in the income of the poor. Inclusive growth, therefore, is also defined in terms of reduction in inequalities in income, assets as well as in vertical inequalities (individual inequalities) and horizontal inequalities (group inequalities). Thus, it is clear from the above discussion that inclusive growth means various things and often too many things in an umbrella term. Nevertheless, it is also a known experience from history that ‘trickle down’ has been too slow and meagre to wait for as, growth seems to have bypassed a large section of population as evident from the recent high growth phase of India and many other countries. Therefore, a clear cut operational definition of this term is warranted so that it can be estimated how far growth is inclusive or pro-poor.

Recently some attempts have been made to operationalise the definition of inclusive growth by various scholars like Gaurav Datt-Martin Ravallion (1992), Martin Ravallion-Shauhua Chen (2001), Manak Kakwani-Shahid Khandker-Hyun Son (2004), David Dollar-Aat Krray (2001), etc.

Indices of inclusive growth in India

Little is known about pro-poorness or inclusiveness in the recent growth story of the Indian economy. One does not know how much of the stated objectives of the 11th Five Year Plan have actually translated into reality. One also does not know how broad based growth has to be inclusive to be different from simple growth. S Thorat et al., in their 2012 paper cited above, have attempted to measure social inclusiveness of Indian economic growth during 1993-94 to 2009-10 by measuring changes in poverty and growth in terms of monthly per capita consumption expenditure  (MPCE) for major socio-religious and economic groups and further decompose changes in incidence of poverty into growth and distribution components and suggest that growth has been more poverty reducing during period 2004-05 to 2009-10 as compared to 1993-94 to 2004-05 (Table 1). Thorat et al. (2012) consider growth to be pro-poor if poverty incidence in the current period declined at a higher yearly rate compared to the preceding period, and if the per annum changes in income in the current period exceeds that of the previous period. D Jayaraj et al., in their paper ‘On the interpersonal inclusiveness of India’s consumption expenditure growth,’ Economic and Political Weekly take a different conception of inclusive growth by assuming it an aspect of vertical inclusiveness in the distribution of the product of growth over time. The results of their analysis show disturbingly little evidence of interpersonal inclusiveness in India’s consumption growth experience. M Surynarayana in his 2008 paper ‘What is exclusive about inclusive growth’ published in Economic and Political Weekly, also argued that there is no cross-sectional evidence to believe that growth in India has been inclusive.

Thorat et al. (2012), observe that between 1993-94 and 2004-05, the decline in poverty incidence, ∆H, is –8.2 per cent for the rural sector as a whole. They note that the rate of increase in MPCE should have brought about around 11.1 per cent decline in the head count ratio (HCR) (the growth effect) but because of distributional changes, about 2.9 per cent of the reduction in poverty has been offset (Table 1). Table 1 also shows that between 1993-94 and 2004-05, the role of growth in reducing poverty across socio-religious groups (SRGs) has been similar. They observe that with the growth of MPCE, the incidence of poverty should have declined by about 14 per cent for scheduled castes (SCs) in 2004-05 as compared to 1993-94, while for ‘Others’ it should have declined by 11 per cent. They however note that because of the changes in distribution, 2.4 per cent for SCs and 3 per cent for ‘Others’ were offset. In the case of scheduled tribes (STs), the loss due to distribution is about 4.6 per cent. Among the religious groups, the highest decline in poverty has been for Muslims (11 per cent), followed by 8.2 per cent and 7.9 per cent for Hindus and other religious minorities, respectively. However, with growth alone, these figures should have been 14.9, 10.5 and 11.4 per cent respectively, they say. But because of the unfavourable changes in the distribution, close to 4 per cent for Muslims, 2.3 per cent for Hindus and 3.6 per cent for other religious minorities have been offset. During the first period, Thorat et al. add that the loss due to distribution has been high for STs, Muslims and others among the social groups”.


Recommendations

The target of achieving inclusive growth in India for its 1.2 billion people is a mammoth and complex task mainly due to India’s diversity. Achieving inclusive growth is not only a priority in the Planning Commission’s Five Year Plans, but also as an equally important responsibility for every stakeholder in the public and private sector. Focus of the government on better and more efficient delivery mechanisms to improve access to currently backward regions and group is crucial. India also has a strategic opportunity as a result of its demographic dividend, its entrepreneurs, its technology progress, its democracy, and the large English-speaking population. Better governance, more and better educational institutions, higher agricultural productivity, controlled inflation and improvement in infrastructure are some of the major and more important steps required in this direction. It is however difficult to conclude the degree of inclusiveness of growth in India as different scholars hold different opinions. As discussed above some believe that inclusiveness has not been that significant to conclude growth is inclusive. At the same time there are groups of scholars who have concluded that the post reform era has seen more inclusive growth. However, these studies give some valid recommendations some which are listed below.

Governance issue to tap the efficiency of government and private machinery working towards the development of the nation.

  • A broad-based pro-poor policy must be supplemented by group specific policy (social, religious and economic groups), and this must be made an integral part of the overall planning strategy.
  • Productive employment and growth to generate new jobs and income for the individual.
  • The focus on self-employment to benefit casual labour households through increased employment. Facilitating the entry of labourers into formal sector jobs is a sure way to pull them out of a persistent poverty trap.
  • Affordable vocational education for poor households, particularly STs, SCs and minorities, to be a necessary component of an inclusive growth strategy.
  • Development of the rural non-farm sector
  • Strengthening of wage employment programme to serve as a supplementary to farm wage employment. The use of wage employment programme for improving the land and water resources on small farms, particularly the poor and among them the SCs and STs has great potential for small farm-based inclusive growth.

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