Inclusive Growth, poverty and Economic Development in India

Inclusive Growth, poverty and Economic Development in IndiaIntroductionSince independence, significant improvement in Indias economic and social development.In the post-reform (since 1991) period, India has done well in some indicators such as balance of payments, resilience to external shocks, service sector growth, significant accumulation of foreign exchange, Information technology (IT) and stock market, improvements in telecommunications etc.GDP growth was around 8 to 9% per annum in the period 2004-05 to 2007-08. Investment and savings rates were quite high 32 to 36%. Need for Inclusive GrowthHowever, exclusion continued in terms of low agriculture growth, low quality employment growth, low human development, rural-urban divides, gender and social inequalities, and regional disparities etc.There is now recognition that inclusive growth should be achieved in order to reduce poverty and other disparities and raise economic growth. 11th Plan (2007-12) advocates for inclusive growth.Even at international level, there is a concern about inequalities and exclusion and now they are also talking about inclusive approach for development.In this presentation, I will be discussing issues and challenges for achieving inclusive growth. Elements of Inclusive GrowthFive interrelated elements of inclusive growth.Poverty Reduction and increase in quantity and quality of employment Agricultural DevelopmentSocial Sector DevelopmentReduction in regional disparitiesProtecting the environment

Poverty Income poverty and non-income povertyWe concentrate here on income povertyThe official poverty lines are anchored to a fixed commodity basket corresponding to the poverty line (Rs.49.09 per person per month at 1973-74 prices for rural areas and Rs.56.64 for urban areas). The suggested rural commodity basket by the Expert Group contained 2400 kcal per capita per day in rural areas and the urban food basket had 2100 kcal per capita per day in 1973-4.For subsequent years, poverty line is updated with consumer prices. Trends in Poverty (%): India YearRuralUrbanTotal1973-7456495519834641451993-943732362004-05282628Number of poor (in million)YearNumber (million)1973-7432119833231993-943202004-05302PovertyIncome poverty declined from 55% in the early 1970s to 28% in 2004-05. Although there has been progress in decline, still more than 300 million below poverty line.World Bank Estimates: 42% below $1.25 poverty line. ADB 65% with $1.35 poverty line80% of the poor are from rural areas.Poverty concentrated in few states (Bihar, Uttar Pradesh and Madhya Pradesh and Orissa, Chattisgarh and Jharkhand)Concentrated among agricultural labourers, casual workers, Scheduled Castes and Scheduled TribesDeterminants of Rural PovertyAgricultural GrowthRelative food pricesRural non-farm sectorRural wagesGovernments development expenditureInfrastructureHuman DevelopmentPercentage budget share of cerealsYearRuralRuralUrbanUrbanBottom 30%Top 30%Bottom 30%Top 30%1970-7153.729.538.913.41990-9139.418.227.69.51993-9435.715.725.68.22004-0529.312.520.66.3Percentage budget share of food (cereals+non-cereals)YearRuralRuralUrbanUrbanBottom 30%Top 30%Bottom 30%Top 30%1970-7184.171.380.062.51990-9173.759.470.748.11993-9469.852.666.443.82004-0566.147.559.934.5Reasons for low domestic food pricesIndia insulated domestic food prices from the recent high global food pricesReasons are the following-- high oil and fertilizer subsidies-- Duty cuts, export bans-- Administrative measures on hoarding, ban on futures markets-- Procurement, buffer stock and public distribution of foodPolicies for Poverty AlleviationIndia adopted two pronged approach-- Growth approach: all three sectors contribute agriculture, industry and services-- Direct approach : Safety nets or anti-poverty prog.-- Self employment progra. (womens groups), wage employment progra, food subsidies, nutrition programmes for children, old age and maternity benefits-- Public Distribution System Subsidized food-- National Rural Employment Guarantee Scheme (NREGS) Giving 100 days of wage employment to the poorEmploymentSector19612004-05Agriculture75.956.4Industry10.618.2Tertiary12.425.4Total100.0100.0Problems in EmploymentShare in Ouput and Employment of different sectorsAgriculture: 20% in GDP, 57% in Employ.Industry: 23% in GDP,18% in Employ.Services: 57% in GDP, 25% in Employ.Employment growth increased in recent years but quality is low.Problem of working poorPoverty is much higher than unemploymentProblems in Employment458 million workers in India in 2004-05Out of this 423 million workers in informal / unorganised sector (92%) workersGrowth in employment more in unorganised sector. Thus, quality of employment is a problemWorkers in this sector do not have social security.Government is trying to provide minimum social security to unorganized workersInclusive Growth: AgricultureConcerns in Agriculture--Deceleration in growth from 3.5% during 1981-97 to 2% during 1997-2005. Decline in yield growth.-- Land and water problems, vulnerability to world commodity prices, farmers suicides, 45% of farmers want to leave agri but no where to go.----Disparities in growth across regions and crops: growth rate declined more in rainfed areas.Problems in Indian agricultureLong term factors: Steeper decline in per capita land availability. Shrinking of farm size Slow reduction in share of employment (still 55%) Main problem is low labour productivity in agriculture. Gap between agri. and non-agri. is widening.We should blame non-agriculture (industry and services) for not absorbing workers from agriculture.

Three Goals of Agricultural Development1.Achieve 4% growth in agriculture and raise incomes. Increasing productivity (land, labor), diversification to high value agri. and rural non-farm by maintaining food security. 2.Second goal is sharing growth (equity): focus on small and marginal farmers, lagging regions, women etc. On lagging regions, focus on Eastern India and other rainfed areas.3. Third is to maintain sustainability of agri. by focusing on environmental concerns.Deficits in Agriculture GrowthSix deficits in agriculture:(a) land and water management deficit(b) investment, credit and Infrastructure deficit, (c) research and extension (technology) deficit, (d)market deficit, (e) institutions deficit, (f) education/skill deficit

Rural non-farm sectorPoverty can not be removed with 55% of workers in agri. Need to promote rural non-farm sector. India currently produces about 50 million tonnes of fruits and 90 million tonnes of vegetables. Only 2% of these are processed as against 23% in China, 78% in Phillippines, 83% in Malaysia. Half of those engaged in agriculture are still illiterate and just 5% have completed higher secondary educ.Even in 2004-05, around 60% of rural male workers and 85% of rural female workers are either illiterate or educated upto primary level. In other words, education and skills are constraints

Lessons from ChinaIndia leap frogged from agriculture to services with less focus on manufacturing.The share of employment in manufacturing in Malaysia is 50%, in Korea 62%, in China 31%. On the other hand, the share of employment in manufacturing in India is only 12% Diversification towards rural non-form sector in China is one of the important factors responsible for rural poverty reduction (poverty 3%). This was partly due to high agricultural productivity and investment in physical and human capital. Social DevelopmentIn social sector, significant achievements in education and healthHowever, Human development index rank is 127 out of 170 countries.Social indicators are much lower for Scheduled castes and Scheduled tribesMalnutrition among children is one major problem (46% of children suffer from malnutrition

Six problems in Social Sector: education and healthThere have been significant achievements but there are problemsLow levels of social indicatorsSlow progressSignificant regional, social and gender disparitiesLow level and slow growth in public expenditures particularly on healthPoor quality delivery systemsPrivatization of Health and Education

Regional DisparitiesSignificant Regional Disparities in India.Per capita income : Highest per capita income Rs.16,679 in Punjab; lowest per capita income state Rs.3557 in BiharFemale infant mortality varies from 12 in Kerala to 88 in Madhya PradeshFemale literacy varies from 33.6% in Bihar to 88% in KeralaRegional DisparitiesInter-state disparities in the growth of Gross State Domestic Product (GSDP) increased in the post-reform period compared to the eighties.In general, richer states grew faster than the poorer states.Causes for disparities;Investment in physical and human capitalTechnologyInstitutions including governance

EnvironmentDegradation of land, water. Increase in pollution levelsChallenges of climate changeConsumption patterns of richHigher economic growth should not lead to decline in our environmentWhat Should be done to improve inclusive growth?Equity is important for economic developmentAgricultural DevelopmentEconomic reforms are important. But macro-poor policies (fiscal, trade, financial, monetary etc.) should have pro-poor focusStructural change should have followed agriculture-industry-services sequenceDevelopment of manufacturing sector is important for creation of productive employmentEquality of opportunities (education)South East Asian and East Asian experienceWhat should be done? (contd.)Role of TechnologyShift focus of reforms to delivery systemsImportance of womens economic and social empowermentDecentralizationEconomic reforms in relation to socio-political environmentRights approach (civil, political and economic)ConclusionThere is a need to have a broad based and inclusive growth to benefit all sections of society and improve economic growth.We have examined issues and challenges in five elements of inclusive growth (poverty and employment, agriculture, social sector, regional disparities and environment)It is more challenging for the country to achieve inclusive growth than getting 8 to 10 per cent growth in GDP

ConclusionThere are strong social, economic and political reasons for achieving broader and inclusive growth. Socially, lack of inclusive growth leads to unrest among many people. There is also an economic argument. The measures which raise equity also promote economic growth. Lastly, the political argument is that no government in a democracy can afford to ignore large sections of workers and non-working population. If it is not inclusive it can generate very severe social tensions. Thus, politically, for having a stable and democratic society one needs to have inclusive growth. THANK YOU