The Hindu Business Line : Pitch for inclusive growth

Not too many years ago, growth per se was welcome. Even Mao Zedong did not mind what colour the cat (or the money) was so long as it caught mice (or delivered goods). Soon a distinction came to be made between job-led and job-less growth.

Nowadays, the buzz is all about inclusive growth defined in the words of the Deputy Chairman of the Planning Commission, Dr Montek Singh Ahluwalia, as a process in which people in different walks of life feel that they too have benefited significantly from it.

Spreading growth benefits

India’s policy makers have been bitten once when in 2004, the then National Democratic Alliance (NDA) Government came to grief by prematurely flaunting the slogan “India shining”, unmindful of the persistence of economic disparities which left large tracts of rural India out of the reckoning. Since then, governments at the Centre and in the States have begun putting in their best efforts towards spreading the benefits of growth equitably and in a balanced manner.

All such efforts have obviously to start by addressing the still persistent problem of poverty of nearly one-third of India’s population. In absolute numbers, that is equal to the population of India at the time of Independence and the present population of the US. An important litmus test of growth is the extent to which it contributes to poverty reduction.

A recent paper prepared for the IMF shows that States with higher financial development, higher share of educated population, better infrastructure and more flexible labour markets, raised the ability of the poor to gain from the growth process and that the entire population, rich and poor alike are better off now than ten or 20 years ago.

Wealth accretion

At the same time, the income distribution and consumption pattern were seen to be skewed. For instance, the paper quotes another study of 2007 to the effect that in the past four years, there has been an increase in wealth of over 100 percent of GDP from three key sources:

The equity market, the residential property market, and gold. With 4–7 per cent of the population participating in the stock market, 47 per cent of the population owning a ‘pucca’ house, and the top 34 per cent of households holding 71 per cent of the value of consumer durables (including gold and jewellery), the bulk of wealth accretion was concentrated within a very small segment of the population.

Multiplier effect

Again, according to the paper, in the 11 years between 1993/94 and 2004/05, based on National Sample Survey data, consumption of the richest grew by an average of 40 per cent every year, while for the poorest, the growth rate was slightly above one per cent.

Using income tax data (for a slightly different period, 1987/88–1999/00), another study found that the incomes of the top one per cent increased 70 per cent, while the incomes of the top 0.01 per cent tripled.

Obviously, a lot of ground remains to be covered before India can be said to be within reach of inclusive growth in its truest sense. That claim can be made only when the entire population, especially in the rural areas, are assured of basic needs such as food, energy, drinking water, health care, hygiene and sanitation, housing and employment.

From that standpoint, nothing but good will come out of the substantial increases in the 2008-09 Budget in the allocations for the various component schemes of Bharat Nirman, in general, and the social sector, rural employment and health insurance for the workers of the unorganised sector, in particular.

Even the farm loan waiver should be viewed as a measure for achieving inclusive growth, since higher prospects of agricultural growth has a multiplier effect on all other sector of the economy.

B. S. RAGHAVAN