The Path Towards Inclusive Growth

The New Millennium Growth Story

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The 21^st century begun by seeing growth on a positive note on the event of a series of economic catastrophe that preceded the last decade of the 20^th century like the Asian financial crisis and the dot com burst in USA. Until then growth was the primary goal of the developed countries and many other developing countries. On the other hand there were some third countries that was struck in between growth and development as they were nowhere between the two. Since then international organizations like UNO and OECD have started to explore other pressing issues confronting the world. The 2000 UN millennium summit was an indicative of the shift from the standard growth which redefined growth by targeting a set of goals known as the Millennium Development Goals (MDGs) to be achieved by 2015.

The developed countries took a key lesson from this and the developing nations deep dived into actionable policy making to achieve the target within the timeframe. As the name indicates, most of these goals are development oriented. The key take away from the event was a change in focus from growth to development. This is when the concept of inclusive growth became popular as many economists across the world started to accept that it is the inclusive growth that one has to concentrate on the long run. It is a known fact that, that there exists a short run tradeoff between growth and sustainable development. Other growth concepts that are of prime interest to the present day economists are inclusive and sustainable growth both of which are of long term interest.

Comparison with China

Though the concept of inclusive growth has gained global attention it is more relevant to the emerging nations than the developed nations as there are seen wide disparities in the economic outcomes in the case of former. Considering China a tough competitor to India and with which we often compare ourselves on various grounds is also showing some great affinity towards inclusive growth in the past decade. China has transformed itself has a leading industrialized hub of the Asia Pacific region with export oriented growth in the past three decade. China managed to reduce its poverty sharply compared to India which declined steeply to 12 percent in 2012 from 84 percent three decade ago. The number of people living in absolute poverty line has fallen from 99 million in 2012 to 82.5 million in 2013. It has shown huge scope for inclusive growth in the areas of infrastructure, labor market and agricultural technology.  Social protection system is much stronger in China than India.  The recent policy measure to reduce the number of car ownership in major cities is a good sign of inclusive growth. With more such structural reforms on the ground, China is targeting inclusive growth more efficiently.

The Indian Picture

Taking the Indian picture, it is all the more different. India is a growing population of 1.2 billion people and is likely to overtake China’s population by 2030. With this India will be the highest populated country in the world. Though India has witnessed rapid economic growth over the last two decade, there is high inequality and disparities in many of the social outcomes like quality health and education. This suggests that the growth is not that inclusive as desired. The health indicators are far worse than anything else. Almost one in three children is malnourished from India.  While the literacy rate has increased from 64.8 percent in 2001 to 74.04 percent in 2013, it is still lower compared to the global standard. India ranks 131 on HDI among the medium development countries. Poverty in India has declined to 22.9 percent in 2012 from 68 percent three decade ago. Still India accounts for the highest number of slum dwellers with largest slum in the business centered city of Mumbai.  Still many people do not get access to food and go to bed hungry with around 3000 children dying every day making it is as the hunger capital. The unemployment rate is at 8.8 percent which is very high compared to its other Asian counterparts. The ginni index, a measure of income inequality also suggest the gap between the rich and poor in India is rising. Many economists in the past have pointed out that the only way to tackle inequality is through inclusiveness.  The high growth octane in India is characterized by industrialization and this has led to stagnant agricultural productivity leaving many farmers deprived. All this do not suggest that India is opposed to inclusive growth as it has been embracing inclusive growth since the last decade with sophisticated infrastructure and notable public welfare schemes. These statistics just reiterate that India should plan its policy and adopt fiscal reforms in terms of inclusive growth. Economic policy is not just about promoting economic growth but also to make sure that the fruits of the growth are shared equally by every section of the society in a fair and just manner.

The Need for a Paradigm Shift

Towards this there is a need for big bang reforms that nurtures inclusive growth while Indian policymakers are highly skeptical about the right reforms for the right people. Most of the reforms that are proposed in the past lack the decisive objectives and clarity. Take for instance the controversial Food Security Act proposed by the opposition in 2009; though it was intended to target the vulnerable section of the society to reduce poverty, it did not have strong principals and methods to identify the right people who are eligible for the subsidy. Other programs such as NREGA and the recent Direct Benefit Transfer were also criticized on similar grounds.  In India, subsidies are mainly used to garner votes and put heavy burden on the government's budgets causing fiscal imbalance. Taking lessons from developed countries and our fast growing neighboring countries like China and Singapore can make India truly become inclusive. Instead of promoting subsidies and other populist measures India needs to invest heavily on health, education, skill development and infrastructure to move on the path towards inclusive growth. India as we know is a land of cultural diversity and it is not only the culture and languages that are different but also the social and economic outcomes. Needless to say, there are high variations within the states on many of the development indicators. Hence there is a call for unlocking the fiscal space right from the state level as there is a need for increasing intervention by the state governments to rightly implement policies that promotes inclusive growth. 

Market risks and uncertainty poses great threat to the economic growth in the short run. Business cycle characterized by recession and depression will occur and hence growth is bound to fluctuate. So what one has to concentrate is on inclusive growth. Though some economists argue that inequality always exist no matter what, it may be acceptable on the grounds of income distribution but not in social outcomes as no one is denied or can be excluded from social development. Inclusive growth can happen only when there is rapid growth. So Indian policymakers should not forget the two sides of the coin as to promote growth first and then simultaneously target inclusive growth.  India being a developing country, which is on the forefront of developing nations, should highly target inclusive growth for sustainable development. Modi is a great follower of Inclusive economics and Inclusive governance. So with Modi on the lead we can expect that India targets inclusive growth for a wholesome shared economic prosperity.

“The worst form of inequality is to make unequal things equal” - Aristotle