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Why do we need inclusive growth?

Why do we need inclusive growth?
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First Published: Fri, Oct 21 2011. 12 47 AM IST

Photo: Bloomberg
Photo: Bloomberg
Updated: Fri, Oct 21 2011. 12 47 AM IST
The Draft Approach Paper to the 12th Five Year Plan is now in the public domain. It is a legacy of the time when economic development in the country was actively shaped by the planning process, in line with the vision of the government; in this day and age of market-led economic growth and high levels of global integration, both the willingness and the ability of the government to sculpt the growth process to achieve broader developmental objectives seems weak and the broader, overarching vision for development is hard to find.
Photo: Bloomberg
The growth spurt of the economy is well-known, even though growth rates have not been as high as were projected due to a combination of factors (global recession and domestic imbalances). Compared to the advanced industrialized West, the growth rate of the Indian economy is definitely respectable. Let’s assume, for the time being, that high growth is unambiguously beneficial for the economy and that the stimuli for high growth continue to operate. The question that then needs to be asked is the following: in a diverse country such as India, what does this high rate of growth mean for the different sections of the population? As the cake gets bigger, is it the case that the proportionate share of the different social groups (e.g. castes, religious groups, states, regions, men and women) remains the same, so that every group gets a larger piece than earlier, but each group’s share of the cake remains unchanged? Or, if the initial distribution of the cake was highly unequal, such that some groups were getting a share far in excess of their share in the population, thus leading to hostility, resentment and alienation among those groups whose share was much less than their share in the population, can and would the government intervene in a productive and pro-active manner, to make the distribution of the bigger cake more equitable?
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If the answer to the former question is ‘yes’, then we simply have a high growth scenario (bigger cake, distribution unchanged); if the answer to the latter question is ‘yes’, we have inclusive growth (bigger cake, with a distribution which is socially more equitable). The key to which of these is operating should lie in the draft approach paper. Also, in addition to the government’s own agenda, most developing countries are committed to the UN Millennium Development Goals (MDGs), which tie the governments down to certain well-defined goal which, if achieved, could advance the cause of inclusive growth.
The draft paper does not give a special direction towards achieving inclusive growth. There are elements – like the promotion of self-help groups, or the discussion about the Mahatma Gandhi National Rural Employment Guarantee Act (MNREGA), where the paper claims that this measure has been “highly inclusive”, with 51% to 56% of beneficiaries being SC-ST and 41% to 50% percent being women. In order to ensure that benefits of growth are more equitably redistributed, the government needs to make sure that the most marginalized remain in focus vis-à-vis all policies, not only in terms of some special policies, like affirmative action. In other words, the entire gamut of social policies needs to be monitored in terms of their impact on the most marginalized sections, if inclusive growth is to become a real policy, instead of remaining a mere slogan. For instance, take the issue of food security. Here, if complex academic debates over counting methods and deflators result in a situation where large sections of poor people end up being classified as non-poor and therefore lose their eligibility for subsidized foodgrains, the high growth rates could co-exist with large scale immiserization of large numbers of, for example, SC-ST or Muslim populations. While the debates can (and should) continue, it might make more sense to move towards universalization of the public distribution system, with strict steps to lower corruption at all levels. Lowering hunger and malnutrition levels, especially among the most marginalized, would be an important step towards inclusive growth. However, the draft paper lacks a clear focus in this area, and reflects the pressures to move away from universal schemes towards targeted schemes, the latter being subject to a large number of errors, especially serious being those that exclude the really poor.
To take another sphere: provision of productive employment, especially rural non-farm employment, and access to productive assets, for instance, land. Both of these are critical, not only to lift the poor out of the poverty trap, but these can also provide a stimulus to growth, as stable incomes can enlarge the purchasing power of the poor and enlarge the size of the domestic market. There is no evidence to suggest that this is happening on its own; the evidence from most parts of the country is to the contrary. The lack of access to productive employment and productive assets for long periods of time could have serious consequences, one instance of which is the Maoist insurgency spread over large parts of the country. Again, the draft paper makes cursory references to these issues at different places, but seems to be lacking in concerted focus, especially in areas where strong political will and judicious use of the legal and regulatory powers of the state is needed (e.g. in punishing corrupt contractors, or in ensuring a more equitable division of land).
To sum up, in order to reap the benefits of economic growth, we need to make it inclusive. In addition to being valuable for its own sake, inclusive growth could actually result in a virtuous cycle of fuelling further economic growth. However, this virtuous cycle is unlikely to be unleashed on its own. The government, through pro-active policies, has to make it happen and this is the challenge for the 12th Five Year Plan.
Ashwini Deshpande is a professor of economics at the Delhi School of Economics.
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First Published: Fri, Oct 21 2011. 12 47 AM IST