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Inclusive Growth: An Imperative for India's Growth

Posted in Finance Articles, Total Reads: 4453 , Published on December 10, 2011

Having chosen the topic myself I am trapped with the dilemma of from where to start. So the best way to start is to begin from the origin some 3 millennia years ago the “Shanti Mantra” from Kato Upanishad of Hindu Sculptures is:

“Om Sahana Vavatu Sahanau Bhunaktu, Saha Viryam Karawavahai, Tejasvinavaditamastu, MaVidvishavahai, Om Shanti hi Shanti hi Shanti hi”

The above mantra interprets as

“Together may we be protected, together may we be nurtured, together may we work with great vigor, may our journey together is dazzling and effective, and may there be no wicked feelings between us, Peace, Peace, and Peace”

Undeniably the importance of inclusive growth has been recognized way back. The inclusive growth tactic takes a longer viewpoint as the center is on fruitful employment instead of direct income redistribution, as a way of snowballing incomes for excluded groups. In a nutshell, income distribution programs permits people, to benefit from economic growth in short run but inclusive growth grants people “to contribute to and benefit from economic growth”.

Inclusive Growth

State of Economy

According to a recent report published by Goldman Sachs, India is anticipated to be the 3rd largest economy in the world by 2020. As it is explicitly visible from the following table, India has managed fine with recession in 2008-09 and Ministry of Statistics and Programming Implementation estimated growth rate for 2010-11 to be 7.7 %.

Despite the extra ordinary escape and a bad monsoon, India managed to grow close to 7 %. But, as per the records of past 15 years economic growth has led to disparity between rural and urban areas, across states and among rich and poor as well. The following diagram is grounded on the figures derived by S. Subramanian (Madras Institute of Development Studies) in which it is clearly visible that how the bottom 20% of population is lagging behind in terms of per capita income during rising food inflation.

Monthly Consumer Spending

But, on the contrary Chief Economic Advisor of Indian Government, Mr. Kaushik Basu was found quoting that for growth to be inclusive it is not sufficient that the income of bottom 20% rise at the same level as average.

The table given below shows us the total growth in poverty reduction in India. The overall poverty has decreased from 54.9% (1973-74) to 26.1% (1999-2000) and the same trend is visible in rural and urban poverty. These estimates claim that poverty has slowed down around 2000-05, it is exactly the same time when Indian GDP started to shoot up but poverty decline could not keep a check on the trend in GDP. This trend feasibly shows slight negligence on the part of the government as far as poverty lessening is concerned.

One more point of concern for inclusive growth is Human Development Indicators. The current trend shows no synergism between inclusive growth and human development. Despite high economic growth, India has been ranked very low on Human Development Index. Human Development is a combined measure of human development including health, education and income also.

Role of various sector - recommended steps

Education Sector

"There is in our time no well-educated literate population that is poor; there is no illiterate population that is other than poor."(John Kenneth Galbraith)

In order to achieve inclusion in education we need to look at children of poorer segments as citizens with rights instead as objects of assistance. The policies must meet the origin of reasons of children’s problems, not just their insincere exhibitions. Importance has to be given to decentralization, public-private partnership, community participation and a drastic change in the thinking of people. Finally, intensive efforts from all must thrive to overcome ennui, cynicism, and absolute inertia and reconfigure primacies to put children ahead of all. Thus, a transparent, responsible and systematic method without fragmentary inputs is essential.

Healthcare Sector

A rural person seeking healthcare has to travel 10kms which takes a complete day (and as a result a day’s earnings) due to poor physical connectivity. The lack of infrastructure, poor monetary reimbursement, and social bigotries result in doctors being hesitant to practice in rural areas and thus further decreasing healthcare accessibility.

Emphasis should be on to shield the remaining important untapped potential in facets, such as the setting up of utilitarian hospitals, drug development and prudent innovation in medical technologies along with leveraging economies of scale to lower costs.

The private sector can also contribute in a larger role by empowering the weaker sections to afford and access healthcare by emerging micro health insurance products; also, developing cashless admittance to hospitals in rural India. An analogous initiative is already running in Kenya via the Cooperative Insurance Company of Kenya (CICK), which advertises its insurance products through microfinance organizations.

Agriculture Sector

To proceed with, agriculture has received merely 7% of budgetary sharing in the recent past, much low from about 20% in the period 1980s. Bearing in mind the demand-supply imbalances and its significance as a source of living for the rural economy, the budgetary allocation of agriculture should increase.

Increase spending on agricultural research and farm expansion practices to enhance yield and production. Over the past decade, wheat production in the country has marginally grown at 0.1% while rice has grown at 1.3% per annum.

The last time, our country saw a production up thrust was way back during the "Green Revolution “and the implementation of hybrid crops. The agricultural research should pay emphasis on improved farm practices, appropriate use of fertilizers and pesticides, high yielding seed varieties (GM crops), various crops in the same land, etc.

The nail in the coffin is the futile distribution system. India's vegetable productions rose by 5% this fiscal year but vegetable prices shoot up a lot. A huge quantity of production is lost in the procurement process due to absence of timely action. Insufficient storage systems further pile on the waste.

Financial Sector

There is a need to ensure a fair equilibrium between sustainability of processes through coverage of costs, and interest pressure on the borrower. Reckless lending also focus on the issue of retrieval practices, the use of agents and the need of being sensitive to the needs of the poor people, as in majority of the cases there is no actual intent of defaulting. In this context, the need for reasonable health, accident and life insurance cover as a part of major list of products for financial inclusion, also the financial education and credit advocating, cannot be inflated.

The consequences of various programmes and policy steps get greatly boosted if there is good understanding and synchronization between the government gears responsible for development and the banks functional in the area. While the Government representatives have to appreciate that banks have accountability to their depositors equal to their borrowers, at least, it is equally vital for banks to brace up their operating at the local level for achieving developmental goals of the Government.

Looking at the rapid urbanization, the requirements of urban poor have to get a discrete focus. Noteworthy investments will be prerequisite in housing, lighting and power, water and sanitation, education and health amenities, waste management, and other essential infrastructure in urban areas - the banking system can play a very significant role in this.


India’s record of attaining inclusive growth was scrutinized in the background of the familiarities of some of the Asian countries. These assessments show that while India’s development since 2000 has been constructive to the poor, India’s accomplishments are decently modest as compared to the other Asian countries. This calls for an intensive effort to make India’s progress much more inclusive in the coming future. Several actions are sketched to toughen the foundations of inclusive growth.


  1. Habito, CF 2009, Patterns of inclusive growth in developing Asia: Insights from an enhanced Growth-Poverty Elasticity analysis, ADBI Working paper no. 145, Asian Development Bank Institute, August.
  2. Prahlad, C K "The Fortune at the Bottom of the Pyramid - Eradicating Poverty Through Profits", Pearson Publication, 2005.
  3. The Tendulkar  Committee,  (2009),  Report  of the Expert  Group  to Review  the Methodology  for Estimation  of Poverty,  Planning Commission, Government of India, New Delhi.
  4. United Nations (2008). “Moving out of Poverty: progress from Bottom Up”, United Nations, New York.
  5. World Development Indicators, World Bank (2008)

This article has been authored by Tarun Avtar Arya from FMS, New Delhi.

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