Developing India’s rapid growth rates have contributed to a remarkable decline in the incidence of poverty have also been accompanied by rising income and expenditure inequalities and persistence of high levels of non income inequalities. These inequalities could be traced to various dimensions of unevenness in the growth process. Several social, political and economic factors need to be tackled for sustaining a high rate of growth, as well as to make this growth inclusive. Elimination of child labour, women empowerment, removal of caste barriers are just a few of the things the Indian society needs to introspect on. Rapid growth in the rural economy (revival of agriculture ), planned urban growth, infrastructure development, reforms in education and health-care ,ensuring future energy needs, a healthy PPP models, intent to secure inclusivity, and above all good governance will ensure that India achieves what it deserves.
Inclusive Growth : Survival imperative for Indian Economy
( paper selected at NMIMS ,Mumbai B-school competition Ecolibria)
1.The debates on inclusive growth.
Let us first address few debates regarding issue of “inclusive –growth” in a developing economy
1.1 Debate 1: Doesn’t Growth means poverty reduction ?No , says the India V/s Bharat Divide.
The dramatic reduction in poverty achieved in parts of Asia is well-documented. Overall Between 1990 and 2001, the number of people living on less than $1-a-day declined from 931 to 679 million, or from 31% to 20% of a growing population (ADB 2005). These successes are closely associated with rapid growth, and driven in particular by high growth rates in a few countries including People’s Republic of China &India.
But , this growth has been accompanied by rising income and expenditure inequalities and persistence of high levels of non income inequalities. These inequalities could be traced to various dimensions of unevenness in the growth process .we thus see , that growth process creates new economic opportunities that are unevenly distributed. The poor are generally constrained by their circumstances or market failures that disable them to avail of these opportunities. As a result, the poor generally benefit less from growth than the non poor. Thus, growth will generally be not pro-poor if left completely to markets.
Responding to the opportunities of globalization, technological change, economies of scale, and competition, we have the “India “syndrome is emerging where a small segment of the population is benefiting from an extraordinary boom. In sharp contrast, large segments of the population are stuck in a “Bharat” syndrome with low wages, little or no social services, and little opportunity for improved mobility. Rising income inequalities and the persistence of unacceptably high levels of non income inequalities pose a clear and present danger to India’s sustained progress.
1.2 Debate 2: Does “Inclusive growth “ is anti-capitalist or utopian concept ?No, says India’s case. With flagging of growth fueled by middle class , it has become a survival imperative.
Inclusive growth means not only creation of economic opportunities, but also to ensures equal access to the opportunities created for all segments of society, particularly for the poor (Ali and Hwa Son, 2007 p. 12).
The ultimate outcomes of inclusive growth are
• Sustainable and equitable growth : It should be broad-based across sectors and regions, and inclusive of the large part of the labor force
• Social inclusion : the removal of institutional barriers and the enhancement of incentives to increase the access of all segments of the society to development opportunities
• Empowerment: enhancement of the assets and capabilities of diverse individuals and groups to function in and to participate in the growth process
• Security : improved management of the social risks arising out of development interventions
The focus here is not on “redistribution of wealth” (so it is not anti-capitalist ) but creation of sustainable growth( hence more practical then utopian).
1.3 Debate 3: As long as we sustain growth , inequality doesn’t matter ! No. Because it is unsustainable .Inequality may actually dampen growth.
There has been long held view that that greater inequality is inherent in the growth process (Lewis 1983). In the process of structural transformation and growth, certain regions in certain sectors can be expected to benefit first. This would cause some increase in inequality initially. As growth proceeds, more regions and sectors undergo beneficial transformation and inequality declines
The counterviews to this is that inequality if left unchecked may actually dampen growth through three links
• Economic link /Investment Link :
o Who will fuel the next wave of growth ? Underinvestment by people with little wealth or low income impacts negatively on growth.
o With too much capital concentrated in the hands of the rich, allocative inefficiency in investment will impact negatively on growth.
• Political Link
o High levels of inequality will eventually lead to pressures to redistribute, which, if executed via orthodox political mismanagement (India’s case , misdirected subsidies, tax soaps, unaccounted farm -waivers etc)
o Growing inequalities may lead to capture of political ,economic, and legal institutions by an elite .This would aggravate the initial inequalities of opportunities and endowments.
o Call for redistribution and sharing political power can range from peaceful and prolonged street demonstration to violent civil war. India has 160+ declared naxal districts , J&K and North-Eastern states have problems of militancy mainly because of the step-motherly treatment from central government. Lack of institutions (legal , political , health and education ) cause inequalities which after a certain stage begin to demolish the asymmetric system of which they are part of .
• People’s Link If India has opportunity being in the the “Demographic- Sweet spot” (young & dynamic population ).India needs to cash it on the people’s link by providing institutions of Education (Skilled /Semiskilled workforce requirements for growing economy) and Health (longevity of work life , & not to become a social liability).
Hence , inequality is an issue despite growth and also for the want of sustaining growth .
2. India’s Case : How severe is the inequality ?
Indicators of inequality
1) Income Inequality : India has Gini-Coefficient of 38 and it is ever-increasing . Poverty in India is widespread with the nation estimated to have a third of the world's poor. Percent of population living on less than $1 a day 44.2% .& $2 a day is 86.2%
2) Sector Inequality :Agriculture and allied sectors like forestry and logging accounted for 16.6% of the GDP in 2007, employed 52% of the total workforce.It however grew at less than 3% (on average) over last three decades.
3) Social Inequality : Eg: Gender Inequality : Literacy of males (76.9%) & women (54.5%) (ref.CIA_World_Factbook,2001)
4) Institutional Inequality : For example healthcare, number of doctors in urban India are six times to that of rural India
3. The three pillars of “Inclusive Growth “ & The Inclusive Strategy !
The three pillars with respective strategy are
(a) Maximum opportunity : This can be done through following
Improving productivity in rural areas
Urbanisation of new growth centres
(b) Equal Access for all
Capability enhancement (Education & Health)
Infrastructure building (Roads, Utilities , Technology)
(c) Ensuring minimum economic well being. Ensured through social protection ,social safety nets.
The above three pillars rests on fundamentals like
1) Good Governance
2) Adequacy of Institutions : Equitable distribution and access
Fig1. Pillars of Inclusive Growth
4. Conclusions
Overall, inclusive growth with its focus on the process of expanding opportunities will result in more effective poverty reduction in India. While at the same time it will ensure growth , laggard sectors of agriculture should be given importance to. The lower middle class and the BPL class can become the next growth driver , given the inclusive growth. Adequacy of institution, reach and access to legal , health and educational institutions would ensure equalities within seclude societies (North-Eastern states) and minorities .This would ensure the growth is not hampered by abrupt response to inequalities by Bharat in form of social unrest or a liability burden too hot to handle. Inclusive growth will ensure that India reaps its “demographic dividend” and rises to top with efficient allocation of resources across sectors.
References
[1] “Defining and Measuring Inclusive Growth: Application to the Philippines” Ifzal Ali and Hyun H. Son , July 2007, ERD Working Paper No. 98, ADB.
[2] Inclusive Growth: The Road for Global Prosperity and Stability by Sophie Coughlin, Fabrice Lehmann and Jean-Pierre Lehmann the ICC CEO Regional Forum, New Delhi, 4 December 2009
