Concept of Inclusive Growth

Mains PYQs

1. Is inclusive growth possible under market economy? State the significance of financial inclusion in achieving economic growth in India.(2022)
2. “Investment in infrastructure is essential for more rapid and inclusive economic growth.” Discuss in the light of India’s experience. (2021)
3. Explain intra-generational and inter-generational issues of equity from the perspective of inclusive growth and sustainable development.(2020)
4. It is argued that the strategy of inclusive growth is intended to meet the objectives of inclusiveness and sustainability together. Comment on this statement. (2019)
5. What are the salient features of ‘inclusive growth’? Has India been experiencing such a growth process? Analyze and suggest measures for inclusive growth. (2017)
6. Comment on the challenges for inclusive growth which include careless and useless manpower in the Indian context. Suggest measures to be taken for facing these challenges. (2016)
7. Capitalism has guided the world economy to unprecedented prosperity. However, it often encourages short-sightedness and contributes to the wide disparities between the rich and the poor. In this light, would it be correct to believe and adopt capitalism driving inclusive growth in India? Discuss. (2014)

Exclusive Growth

We use the term “exclusive growth” the antonym of the widely used term “inclusive growth” to denote growth which tends to benefit a select segment the rich of the population.

Or, to put it in another way, exclusive growth is growth from the gains of which the poorer segments of the population are largely excluded.

The exclusion results essentially from the non-utilisation of the factors of production, unskilled and low-skilled labour held by the poorer segments of the population.

Exclusive growth is, in essence, growth in the production of goods and services which are intensive in capital and skilled labour and the factors of production held by the rich.

Hence, exclusive growth is associated with increasing income inequality as also with decelerating employment growth overall (a consequence of the declining employment of unskilled/low-skilled workers), together with an increasing skill bias in employment.

These are precisely the trends that are observed in India through its period of rapid growth. India’s rapid growth has been exclusive growth.

India’s Exclusive Growth

In the period since the early 1990s, India’s economy experienced exclusive growth, that is, growth that benefited the rich.

The richest 10% of the population has been the recipient of a large and growing share of the incremental income generated by growth.

Employment of the skilled, the rich has been growing while the low skilled, the poor have suffered progressive exclusion from employment. The source of India’s exclusive growth lies in the nature and characteristics of the lead sectors, namely skill-intensive services.

 

Inclusive Growth

As per OECD (Organisation for Economic Co-operation and Development), inclusive growth is economic growth that is distributed fairly across society and creates opportunities for all.

Inclusive growth is an economic growth that creates employment opportunities and helps in reducing poverty.

It means having access to essential services in health and education by the poor. It includes providing equality of opportunity, empowering people through education and skill development.

Salient features of Inclusive Growth

• Address the constraints of the excluded and marginalised.
• Participation from all sections of society
• Reduction in disparities among per capita incomes between:
  • Different sectors of economy
  • Different sections of society
  • Different genders
  • Rural And Urban Areas
• Higher potential of poverty reduction
• Ensure access of people to basic infrastructure and basic services/capabilities such as basic health and education. This access should include not only the quantity, but also quality of these basic services.
• Include poor, lagging socio-economic groups and lagging regions as well as they are partners in this growth.

 

Components of Inclusive Growth

• Inclusive growth is defined by many academicians as the pace and pattern of growth, which are considered interlinked, and therefore in need to be addressed together.
• Inclusive growth means economic growth that creates employment opportunities and helps in reducing poverty.
• It means having access to essential services in health and education by the poor. It includes providing equality of opportunity, empowering people through education and skill development.
• This inferred that inclusive growth should include all sections as recipients as well as partners in growth and that inclusion of the excluded should be embodied in the growth process.
• Low agriculture growth, low-quality employment growth, low human development, rural-urban divides, gender and social inequalities, and regional disparities etc. are the problems for the nation.
• Access to education and health is not the same for all sections of the population. Females are treated to be subordinate to males and are dependent on their families in all spheres. Inclusive growth is hence the key to women empowerment.
• Regional inequalities are the cause for the rise in distress migration, either intra-state or inter-state. Distress migration further creates problems of housing, accommodation, safety, hygiene, and sanitation.
• The importance of inclusive growth is indisputable for sustainable growth.
• The best way to realise inclusive growth is through developing people’s talents. It is said by government authorities that a multidimensional approach towards education and skills development is essential to achieve growth.
• The challenge of skills shortage can be addressed through public private partnership. Since independence, noteworthy improvement in India’s economic and social development made the nation to grow strongly in the 21^st
• Labour productivity is very low due to in-formalisation and poor skill development.
• It also encompasses a growth process that is environment friendly growth, aims for good governance and helps in creation of a gender sensitive society.

Kuznets Curve

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Kuznets’ work on economic growth and income distribution led him to hypothesize that industrializing nations experience a rise and subsequent decline in economic inequality, characterized as an inverted \”U\”—the “Kuznets curve.\”

The rise in inequality occurs after rural labor migrates to urban areas and becomes socially mobile. After a certain income level is reached, inequality declines as a welfare state takes hold.

A modification of the curve, known as environmental Kuznets curve, has become popular to chart the rise and decline of pollution in an industrializing nation\’s economy.

Economic Growth

• India is among the fastest-growing major economies in the world. However, currently Indian economy is facing slowdown due to both cyclic and structural challenges.
• However, the target of becoming a $5 trillion economy by 2024-25 can allow India to reduce inequality, increase social expenditure and provide employment to all.

 

Poverty

• As per the Multidimensional Poverty Index (MPI) 2018, India lifted 271 million people between 2005-06 and 2015-16, with the poorest regions, groups, and children, reducing poverty fastest. India demonstrates the clearest pro-poor pattern at the sub-national level.
• Still, despite the massive gains, 373 million Indians continue to experience acute deprivations. Additionally, 8.8% of the population lives in severe multidimensional poverty and 19.3% of the population are vulnerable to multidimensional poverty.
• Uplifting the poor out of poverty should be the most priority to achieve inclusive growth.

*More about poverty, inequality and unemployment in separate chapters

 

Unemployment

• As per the Periodic Labour Force Survey (PLFS) of NSSO, the unemployment rate among the urban workforce was 7.8%, while the unemployment rate for the rural workforce was 5.3% totalling the total unemployment rate at 6.1%.
• The quality and quantity of employment in India are low due to illiteracy and due to over-dependence on agriculture.
• The quality of employment is a problem as more than 80% of people work in the informal sector without any social security.
• Low job growth is due to the following factors:
  • Low investment
  • Low capital utilization in industry
  • Low agriculture growth

Agriculture Backwardness

• Around 44% of people in India have agriculture-related employment but its contribution to the Indian GDP is only 16.5% which lead to widespread poverty
• Issues in agriculture are as follows:
  • Declining per capita land availability
  • A slow reduction in the share of employment
  • Low labour productivity
  • Decline in agriculture yield due to climate change, land degradation and unavailability of water
  • Disparities in growth across regions and crops

Financial Inclusion

• Financial Inclusion is the process of ensuring access to financial services to vulnerable groups at affordable costs.
• Financial inclusion is necessary for inclusive growth as it leads to the culture of saving, which initiates a virtuous cycle of economic development.

Skill Development

• Harnessing the demographic dividend will depend upon the employability of the working age population, their health, education, vocational training and skills. Skill development plays a key role here.
• India is facing a dual challenge in skill development:
  • First, there is a paucity of highly trained workforce
  • Second, there is non-employment of conventionally trained youths
• According to the Economic Survey 2017, over 30% of youth in India are NEET (Not in education, employment or training).
• Similarly, UNICEF 2019 reports stats that at least 47% of Indian youth are not on track to have the education and skills necessary for employment in 2030.

Technological Advancement

• The world is moving towards an era of Industrial Revolution 4.0.These technological advancements have capabilities to both decrease or increase the inequality depending on the way these are being used.
• Several initiatives have been taken by the government, e.g. Digital India Mission, so that a digitally literate population can leverage technology for endless possibilities.
• Technology can help to combat other challenges too, e.g.:
  • Agriculture-Modern technology can help in making an agro-value chain from farmer to consumer more efficient and competitive.
  • Manufacturing-Technology can resolve the problems of finance, procuring raw materials, land, and linkages with the user market. GST was made possible only with the help of sound technology.
  • Education-Innovative digital technologies can create new forms of adaptive and peer learning, increasing access to trainers and mentors, providing useful data in real-time.
  • Health-Technologies could transform the delivery of public health services – extend care through remote health services
  • Governance-Technology can cut down delays, corruption, and inefficiency in the delivery of a public service

Social Development

• It means the empowerment of all marginalised sections of the population like SC/ST/OBC/Minorities, women and transgenders.
• Empowerment can be done by improving institutions of the social structure i.e. hospitals especially primary care in the rural areas, schools, universities, etc.
• Investment in social structures will not only boost growth (by fiscal stimulus) but will also create a healthy and capable generation to handle future work.

 

Challenges in Achieving Inclusive Growth

Issues with Social Development

• Social development is one of the key concerns for inclusive growth. But it is facing some problems such as:
• Significant regional, social and gender disparities
• Low level and slow growth in public expenditure particularly in health and education
• The poor quality delivery system
• Social indicators are much lower for OBC, SC, ST, and Muslims
• Malnutrition among the children – India ranks 102^ndin Global Hunger Index

Regional Disparities

• Regional disparities are a major concern for India. Factors like the caste system, gap between rich and poor etc. contribute to the regional disparities which create a system where some specific groups hold more privileges over others.

 Some of the regional disparities problems are as follows:

• In terms of literacy rate, Kerala is the most literate state with 93.1% literacy, on the other hand, literacy rate of Bihar is only 63.82%
• In terms of per capita income, Goa\’s per capita income is Rs 4,67,998 in 2018 while per capita income of Bihar is just one-tenth of that i.e. Rs 43,822

Measuring Inclusive Growth

Inclusive Development Index (IDI)

• In the Inclusive Development Index (IDI) compiled by the World Economic Forum (WEF), India ranked 62nd out of 74 emerging countries and was among the least inclusive countries in Group of 20 (G-20) countries.
• The IDI is based on the idea that most people base their country’s growth not on GDP but by their own standard of living.
• It gives a measure of inequality based on three parameters: :
  • Growth and development
  • Inclusion
  • Inter-generational equity and sustainability.
• India also did not make it to the top 10 most inclusive emerging and developing economies, where its neighbours Nepal, China and Sri Lanka made a mark.
• India performed its best in terms of “intergenerational equity and sustainability”, ranking 44^th, for which credit can be attributed to its demographic dividend.

 

UNCTAD’s new Inclusive Growth Index shows countries’ performance across four pillars: economy, living conditions, equality and environment.

The Inclusive Growth Index (IGI) analyses countries’ ability to achieve such growth, with a focus on gender equality and environmental sustainability.

Social Progress Index (SPI)

• It is an aggregate index of social and environmental indicators which includes the following:
  • Basic human need
  • Foundation of well being
  • Opportunity
• Limitation of other indices:
  • GDP: It does not include non-market activities.
    • Excludes factors like environment, equality, etc
  • Gini Coefficient:
    • Only income inequalities are included and other inequalities like social inequality, equality of opportunities, etc are ignored.
  • Gross Happiness Index:
    • Ignores gender neutrality, education, etc
  • HDI:
    • The unequal distribution of wealth is ignored.
  • Benefits of SPI:
    • SPI measures the outcomes of the government measures rather than money spent. It also takes account of efficiency by which money spent by the government has been used.
    • It is more comprehensive.

Need for inclusive growth in India

For India, it is a tough task to accomplish inclusive growth. In a democratic country India, majority of population living in rural India and to bringing them into the mainstream is main concern. The challenge for Indian government is to take the levels of growth to all section of the society and to all parts of the country.

India is the 7^th major country by area and 2^nd by population. Yet, India is far away from development while our neighbour China is advancing at a faster rate to become the largest economy of the world.

Rapid and sustained poverty reduction requires inclusive growth that permits people to contribute to and benefit from economic growth. Poverty in India is at 22% according to the Tendulkar committee report.

Rapid growth is necessary to reduce poverty but for this growth to be sustainable in the long run, it should be broad-based across sectors, and inclusive of the large part of the country’s labour force. This explanation of inclusive growth implies a direct link between the macro and micro determinants of growth.

India needs inclusive growth to achieve the overall progress of the country and attain certain targets relating to poverty, employment, education, infrastructure, health, women and children, gender equality, regional equality etc.

Inclusive growth is necessary to maintain growth with equity, achieving sustainable development, human development, raise economic growth, equal distribution of income and wealth.

India ranks at low 100 among 119 countries with score of 31.4 on Global Hunger Index – 2017, place the country in the “Serious” hunger levels category. India ranks at 37th out of 103 countries in the Global Multidimensional Poverty Index – 2017 and accounts that 31 per cent of the world’s “Multidimensionally Poor” children live in India.

It shows that a high economic growth is no guarantee of food and nutrition security. India has largest number of wasted, stunted, and malnourished children below five years and facing a serious burden of under-nutrition.

According to The Global Nutrition Report – 2017, 38 per cent of children under five years are affected by stunting due to lack of nutrients, 21 per cent of children under five years are “Wasted” or “Severely Wasted”, and 51 per cent of women of reproductive age suffer from anaemia.

The government has made inclusive growth as a key element of eleventh and twelfth five-year plans and introduced various policies, programmes and social safety nets to achieve targets.

 

Measures Taken India to Achieve Inclusive Growth

Several schemes are being implemented by the government for inclusive growth which includes the following:

• Mahatma Gandhi National Rural Employment Guarantee Act Scheme (MGNREGA)
• Prime Minister’s Employment Generation Programme (PMEGP)
• Mudra Bank scheme
• Deen Dayal Upadhyaya Grameen Kaushalya Yojana (DDU-GKY)
• Deendayal Antyodaya Yojana- National Urban Livelihoods Mission (DAY-NULM)
• Sarva Siksha Abhiyan (SSA)
• National Rural Health Mission (NRHM)
• Bharat Nirman
• Swachh Bharat Mission
• Mission Ayushman
• Pradhan Mantri Jan Dhan Yojana

Government is working with NGOs and International groupings in policy making e.g.: DISHA Project is being implemented in partnership with UNDP for creating employment and entrepreneurship opportunities for women in India.

NITI Aayog\’s Strategy for New India @75 has the following objectives for the inclusive growth:

• To have a rapid growth, which reaches 9-10% by 2022-23, which is inclusive, clean, sustained and formalized.
• To Leverage technology for inclusive, sustainable and participatory development by 2022-23.
• To have an inclusive development in the cities to ensure that urban poor and slum dwellers including recent migrants can avail city services.
• To make schools more inclusive by addressing the barriers related to the physical environment (e.g. accessible toilets), admission procedures as well as curriculum design.
• To make higher education more inclusive for the most vulnerable groups.
• To provide quality ambulatory services for an inclusive package of diagnostic, curative, rehabilitative and palliative care, close to the people.
• To prepare an inclusive policy framework with citizens at the center

Inclusive Growth and Sustainable Growth

The virtuous cycle starts with growth:

What do we mean by sustainable, inclusive growth? There are many ideas associated with these words. We aim for broad rather than narrow interpretations:

• In growth, we include the ambition of increased prosperity and well-being, including economic-profit growth for companies, GDP growth for nations—as well as measures such as life satisfaction for citizens—derived in part from dignity of work (while recognizing that measurable definitions of well-being are still evolving).
• In inclusion, we consider equality of opportunity and broad-based progress of outcomes for all—especially sufficiency of living standards—and the narrowing of inequalities among genders, ages, ethnicities, family backgrounds, and places of residence.
• In sustainability, we aim for environmental resilience, which starts with reducing climate risk but also includes much broader preservation of natural capital as well as intergenerational fairness, all considered in terms of economic and societal costs and benefits.

These three goals are daunting. Fortunately, they can strengthen and reinforce one another:

Growth supports inclusion, part 1: Creating meaningful jobs and lifting incomes.

High-growth emerging economies have delivered powerful proof that growth supports inclusion, by reducing the global share of those living in extreme poverty by two-thirds—to less than 10 percent of the world’s population—and by welcoming hundreds of millions to the middle class.

This applies in advanced economies too: from the early 1990s to 2005, before the global financial crisis, GDP per capita rose by 2 to 4 percent per year and real median household market incomes also rose.

Growth supports inclusion, part 2: Correcting labor-market inadequacies. 

In growing economies, government transfers and tax policies can help support incomes for large swaths of the population.

Growth enables sustainability by encouraging investment. 

Economic growth strengthens consumer confidence, spending, and demand, all vital elements of a healthy investment climate

Greater inclusion and sustainability promote growth through new demand and investment opportunities. 

Sustainability drives new business opportunities in various domains such as clean technologies. India, for example, could more than quadruple its renewable-energy capacity by 2030; we estimate that this could generate some $90 billion in GDP and support about two million jobs in 2030. And inclusion has similarly powerful effects on growth. We estimate that more inclusive access to healthcare could add 0.4 percent to the world’s GDP growth by 2040. More broadly, inclusion spurs demand, as a burgeoning middle class is a key driver of consumption. Africa has about 200 million young people of working age and will have close to a billion by 2050. Youth training and development, especially of digital skills, can vault this group into the middle class—and help close skill gaps in the rest of the world.

Sustainability reinforces both inclusion and growth.

Conclusion

• Indian government along with the state governments and local governments should continue to focus on eradicating poverty and achieving sustainable development in order to improve the lives of India\’s people.
• Through innovative partnerships with an international organization, civil societies, and private companies, inclusive and equitable growth can be targeted.
• Inclusive growth will help in the empowerment of vulnerable and marginalized populations, improve livelihoods, and augment skill-building for women.