A few days before he is once again sworn in as prime minister of India, Manmohan Singh reiterated that the benefits of economic growth should not be restricted to a select few. “The election verdict is a verdict for inclusive growth. It is a verdict for equitable development,” he said on Tuesday.
The Prime Minister wishes to revive falling growth and “make it even more inclusive”.
There is no reason to question him on these points nor doubt his intentions. Inclusive growth is a must from a narrow economic point of view (it will broaden the base for domestic demand) as well as in terms of politics (more people will have a stake in stability and reform).
The point is: What exactly does inclusive growth entail? Through the tough election campaign, Congress leaders touted inclusive growth to mean last year’s farm loan waiver and the National Rural Employment Guarantee Scheme. These doled out lots of cash—but without delivering clear economic benefits. They are very basic social security schemes at best and lodestones of corruption at worst.
These schemes throw money at the poor and destitute without actually helping them climb the economic ladder. In the long run, they could perversely prevent people from moving out of their low-productivity traps in rural India. In a way, rural Indians now have incentives to keep digging a ditch and refilling it.
Neither programme creates wealth.
True inclusive development would mean that even the poorest Indians get a chance to move into the modern, high-productivity sectors.
For that, we will need greater liberalization. Three reforms will be especially important.
One, greater ease of doing business so that starting and— equally important—shutting down a business should be less of a Himalayan task.
Two, new labour laws that will give companies a reason to use less expensive capital and more permanent labour.
Three, public investment in education and also selective privatization so that the poor acquire the skills needed in modern jobs.
We believe such reforms will ensure truly inclusive growth. But pursuing these reforms will surely meet with stiff opposition. It’s so much easier to offer a few more subsidies instead.
What should inclusive growth really mean? Tell us at firstname.lastname@example.org