Is There Inclusive Growth at the End of All the Planning and Politicking?

The Economic Survey 2012 has warned that more than half the population is dependent on a sector whose share in the economy is shrinking, leading to a bigger urban-rural divide and threatening national food security. “Achieving minimum agricultural growth is a pre-requisite for inclusive growth, reduction of poverty levels, development of the rural economy and enhancing of farm incomes,” the Survey has said. The rapid pace of growth is unquestionably necessary for substantial poverty reduction, but for this growth to be sustainable in the long run, it should be broad-based across sectors, and inclusive of a large part of the country’s labour force.

The main instrument for sustainable and inclusive growth is assumed to be productive employment. Employment growth generates new jobs and income for the individual – from wages in all types of firms, or from self employment, usually in micro firms – while productivity growth has the potential to lift wages of those employed and returns to the self-employed. The ability of individuals to be productively employed depends on the opportunities to make full use of available resources as the economy evolves over time.

There have been some positive indicators in the last few years. First, for many years, a few states in India were classified as ‘BIMARU’ states, that meant Bihar, Madhya Pradesh, Rajasthan, Orissa and Uttar Pradesh. The welcome development is that the BIMARU states and those of Orissa, Assam, Chhattisgarh, and Uttarakhand have demonstrated higher growth rates in the 11th Plan period than ever before. In fact, some of them have demonstrated a higher growth rate than the so-called advanced states. This reflects the fact that growth is spreading to parts of India which had not witnessed the benefits of higher economic growth earlier.

If India had continued to grow at 3.5 per cent, we would have been the poorest country in the world. It is the surpluses generated due to the high growth rates achieved through the reforms of the 1990s that have funded inclusive growth efforts like the Bharat Nirman schemes. While some of the gains of this growth have been diluted through leaky public delivery systems, the India growth story itself seems to be slowing down.

” The country could achieve a growth rate of 6.5 to 7 per cent despite external pressures and projections. Growth has decelerated more than we expected. We should see a turnaround to 7.5 per cent growth.”

Montek Singh Ahluwalia, Deputy Chairman, Planning Commission

On all social schemes – of which there are 13 major ones – a total of Rs 188.57 billion will be spent in 2011-12. The question is, do we get the outcomes that are expected from such huge spending? Obviously there are leakages. A few programmes in some areas are poorly designed, outcomes are not measured, quality is sacrificed due to poor monitoring and poor supervision, accountability is not enforced and penalties not imposed. If we can get full value for the money we invest in these programmes, we will undoubtedly be a step closer to inclusive growth.

It is now time for all stakeholders to come together and work towards a consensus on a common minimum economic programme that delivers at least 8 per cent growth on a sustained basis – a necessity for India to become a middle-income country by 2025 and a pre-requisite for generating the surpluses for inclusive growth.

The economy recorded its lowest growth level in nine years at 5.3 per cent in the fourth quarter of the last financial year (ended 31 March 2012). Planning Commission Deputy Chairman Montek Singh Ahluwalia said that the country could achieve a growth rate of 6.5 to 7 per cent despite external pressures and projections. “Growth has decelerated more than we expected. We should still see a turnaround to 7.5 per cent growth.”

Rapid growth in the economy at large, especially in employment-generating sectors such as medium and small industries and services, needs to be supplemented by targeted livelihood support programmes aimed at increasing productivity and incomes of the poor in several low-income occupations which will continue as important sources of employment for quite some time. Special programmes aimed at target groups such as small and micro enterprises, weavers, artisans, craftsmen, etc., will therefore remain important.

Financial inclusion is a key element of the inclusive growth strategy. One of the 12th Plan targets is to attain 24 per cent household savings. Bank deposits are important in this regard. Banks have now been asked to reach out to villages with population of 1,600 and above, either through branches or business correspondents. “We should now look beyond the 75,000 villages targeted for financial inclusion plan. It is imperative to reach every villager,” says M Anjaneya Prasad, Executive Director, Syndicate Bank.

The ability to generate an adequate number of productive employment opportunities will be a major factor on which the inclusiveness of growth will be judged. India is currently at a stage of demographic transition where population growth is slowing down but the population of young people entering the labour force continues to expand. The vision of inclusiveness must go beyond the traditional objective of poverty alleviation to encompass equality of opportunity as well as economic and social mobility for all sections of society, with affirmative action for Scheduled Castes (SCs), Scheduled Tribes (STs), Other Backward Castes (OBCs), minorities and women. There must be equality of opportunity to all with freedom and dignity, without social or political obstacles. This must be accompanied by improved opportunities for economic and social advancement. In particular, individuals belonging to disadvantaged groups should be provided special opportunities to develop their skills and participate in the growth process.

It is necessary that when we look at inclusive growth, we look at participation by all segments of the economy, by all sectors and communities.”

R V Verma, Chairman & Managing Director, National Housing Bank

This outcome can only be ensured if there is a degree of empowerment that creates a true feeling of participation so necessary in a democratic polity. Empowerment of the disadvantaged and hitherto marginalised groups is therefore an essential part of any vision of inclusive growth. India’s democratic polity, with the establishment of the third layer of democracy at the Panchayati Raj Institution (PRI) level, provides opportunities for empowerment and participation for all groups with reservations for SCs, STs and women. These institutions should be made more effective through greater delegation of power and responsibility to the local level. It is absolutely critical for inclusiveness that these large numbers of elected representatives in PRIs are involved in planning, implementing and supervising the delivery of essential public services. There is a need to build in incentives that will encourage States to devolve functions, funds and functionaries to PRIs.

The task to feed, house, clothe, educate and employ India’s growing population, which is expected to reach nearly 1.5 billion by 2030, is enormous. This includes a net increase of 270 million people which will be added to the work force. Bringing them into the economic mainstream both as producers and consumers of goods and services must be the basis of any inclusive strategy.

Today, economic power rests with a precious few. According to Credit Suisse, the top 1 per cent of the population own 15.9 per cent of India’s wealth, the top 5 per cent own 38.3 per cent and the top 10 per cent have 52.9 per cent of India’s wealth. What this really means is that 90 per cent of Indians – the urban and rural poor – has a very small stake in the pie. Growth must lead to the re-distribution of an ever-growing pie where bulk of the population is middle class and a smaller percentage of the population is either very rich or very poor.

“Inclusion and growth have to go hand in hand. The onus is on us. In the next 20 years, we have to create 300 million new jobs. If we don’t do it well, we will have huge social unrest,” asserts Ashishkumar Chauhan, Interim Chief Executive Officer, Bombay Stock Exchange.

An important aspect of generating “inclusive growth” is shifting the target of government aid to rural areas. Typically, large projects such as power generation, roads for freight travel and airports receive the lion’s share of government subsidies, while rural infrastructure receives comparatively little.

As National Housing Bank Chairman & Managing Director R V Verma said, it is necessary that when we look at inclusive growth, we look at participation by all segments of the economy, by all sectors and communities.

A recent op-ed piece in The Wall Street Journal by Saurabh Tripathi, a partner with Boston Consulting Group, echoed these sentiments.“Rural infrastructure, which serves 70 per cent of the population, doesn’t get the attention it deserves. As the Planning Commission sets out to draft the country’s planned investments for the next five years, it is important to take note of this gap, and the innovative solutions needed to fill it,” Tripathi wrote.

Inclusive development strategies will require more inclusive growth processes that involve those on the “wrong side” of the income divide say participants of a UNDP-Planning Commission consultation in New Delhi. The two-day consultation in December 2011 aimed to arrive at a conceptual understanding of inclusive growth and the key determinants of an inclusive growth framework that can guide countries, development agencies and communities in the coming years.

The objectives and targets of the 12th Five Year Plan put emphasis on the achievement of inclusive growth but it remains a burning question whether India will this time be able to achieve all the targets of inclusive growth or will inclusive growth remain on paper only.