Inclusive Growth, poverty and

Economic Development in India

Prof. S.Mahendra Dev,

Chairman, Commission for
Agricultural Costs and Prices,
Government of India
 Introduction
Since independence, significant improvement in
India’s economic and social development.
In the post-reform (since 1991) period, India has
done well in some indicators such as balance of
payments, resilience to external shocks, service
sector growth,
significant accumulation of foreign exchange,
Information technology (IT) and stock market,
improvements in telecommunications etc.
GDP growth was around 8 to 9% per annum in the
period 2004-05 to 2007-08. Investment and
savings rates were quite high 32 to 36%.
 Need for Inclusive Growth
However, exclusion continued in terms of low
agriculture growth, low quality employment growth,
low human development, rural-urban divides, gender
and social inequalities, and regional disparities etc.
There is now recognition that inclusive growth should
be achieved in order to reduce poverty and other
disparities and raise economic growth.
11th Plan (2007-12) advocates for inclusive growth.
Even at international level, there is a concern about
inequalities and exclusion and now they are also
talking about inclusive approach for development .
In this presentation, I will be discussing issues and
challenges for achieving inclusive growth.
Elements of Inclusive Growth
Five interrelated elements of inclusive
growth.
Poverty Reduction and increase in
quantity and quality of employment
Agricultural Development
Social Sector Development
Reduction in regional disparities
Protecting the environment
 Poverty
Income poverty and non-income poverty
We concentrate here on income poverty
The official poverty lines are anchored to a fixed
commodity basket corresponding to the poverty
line (Rs.49.09 per person per month at 1973-74
prices for rural areas and Rs.56.64 for urban
areas).
The suggested rural commodity basket by the
Expert Group contained 2400 kcal per capita per
day in rural areas and the urban food basket had
2100 kcal per capita per day in 1973-4.
For subsequent years, poverty line is updated with
consumer prices.
 Trends in Poverty (%): India
Year Rural Urban Total

1973-74 56 49 55

1983 46 41 45

1993-94 37 32 36

2004-05 28 26 28
 Number of poor (in million)
Year Number (million)

1973-74 321

1983 323

1993-94 320

2004-05 302
 Poverty
Income poverty declined from 55% in the early
1970s to 28% in 2004-05.
Although there has been progress in decline, still
more than 300 million below poverty line.
World Bank Estimates: 42% below $1.25 poverty
line. ADB 65% with $1.35 poverty line
80% of the poor are from rural areas.
Poverty concentrated in few states (Bihar, Uttar
Pradesh and Madhya Pradesh and Orissa,
Chattisgarh and Jharkhand)
Concentrated among agricultural labourers, casual
workers, Scheduled Castes and Scheduled Tribes
Determinants of Rural Poverty
Agricultural Growth
Relative food prices
Rural non-farm sector
Rural wages
Governments’ development expenditure
Infrastructure
Human Development
 Percentage budget share of cereals
Year Rural Rural Urban Urban

Bottom Top 30% Bottom Top 30%

30% 30%
1970-71 53.7 29.5 38.9 13.4

1990-91 39.4 18.2 27.6 9.5

1993-94 35.7 15.7 25.6 8.2

2004-05 29.3 12.5 20.6 6.3

 Percentage budget share of food
(cereals+non-cereals)
Year Rural Rural Urban Urban

Bottom Top 30% Bottom Top 30%

30% 30%
1970-71 84.1 71.3 80.0 62.5

1990-91 73.7 59.4 70.7 48.1

1993-94 69.8 52.6 66.4 43.8

2004-05 66.1 47.5 59.9 34.5

 Movement in Indices of Commodity Prices India vs International:Cereals

300

257.9

250 237.4 231.1

200

158.7

150 122.6
121.3 118.6 120.4
114.1

100 106.7

100
100

50
2005 2006 2007 Year 2008 Qtr I 2008 Qtr II 2008 Qtr III

India WPI International (IMF Indices)

 Movement in Indices of Commodity Prices India vs International:Wheat

300

269.9

250
227.3

208.4

200
167.4

150 128.8
125.8 120.7 125
124.6
113
100
100
100

50
2005 2006 2007 Year 2008 Qtr I 2008 Qtr II 2008 Qtr III
India WPI International (IMF Indices)
 Movement in Indices of Commodity Prices India vs International:Rice

350
331.1

300
261.5

250

200
179.2

150
113.5 115.8
115.5 117
100 105.5 102.1
108.4
100
100

50
2005 2006 2007 Year 2008 Qtr I 2008 Qtr II 2008 Qtr III

India WPI International (IMF Indices)

 Reasons for low domestic food prices
India insulated domestic food prices from
the recent high global food prices
Reasons are the following
-- high oil and fertilizer subsidies
-- Duty cuts, export bans
-- Administrative measures on hoarding, ban
on futures markets
-- Procurement, buffer stock and public
distribution of food
 Policies for Poverty Alleviation
India adopted two pronged approach
-- Growth approach: all three sectors contribute
agriculture, industry and services
-- Direct approach : Safety nets or anti-poverty prog.
-- Self employment progra. (women’s groups), wage
employment progra, food subsidies, nutrition
programmes for children, old age and maternity
benefits
-- Public Distribution System – Subsidized food
-- National Rural Employment Guarantee Scheme
(NREGS) – Giving 100 days of wage employment
to the poor
 Employment
Sector 1961 2004-05

Agriculture 75.9 56.4

Industry 10.6 18.2

Tertiary 12.4 25.4

Total 100.0 100.0

 Problems in Employment
Share in Ouput and Employment of different
sectors
Agriculture: 20% in GDP, 57% in Employ.
Industry: 23% in GDP,18% in Employ.
Services: 57% in GDP, 25% in Employ.
Employment growth increased in recent years
but quality is low.
Problem of working poor
Poverty is much higher than unemployment
 Problems in Employment
There are 458 million workers in India in 2004-05
Out of this 423 million workers are
informal/unorganised workers (92%).
Growth in employment more in unorganised
sector.
Thus, quality of employment is a problem
Workers in this sector do not have social security.
Government is trying to provide minimum social
security to unorganized workers
 Inclusive Growth: Agriculture
Concerns in Agriculture
--Deceleration in growth from 3.5% during
1981-97 to 2% during 1997-2005. Decline in
yield growth.
-- Land and water problems, vulnerability to
world commodity prices, farmers’ suicides,
45% of farmers want to leave agri but no
where to go.
----Disparities in growth across regions and
crops: growth rate declined more in rainfed
areas.
 Problems in Indian agriculture

Long term factors: Steeper decline in per

capita land availability. Shrinking of farm size
Slow reduction in share of employment (still
55%)
Main problem is low labour productivity in
agriculture. Gap between agri. and non-agri.
is widening.
We should blame non-agriculture (industry
and services) for not absorbing workers from
agriculture.
 Three Goals of Agricultural
Development
1.Achieve 4% growth in agriculture and raise
incomes. Increasing productivity (land,
labor), diversification to high value agri. and
rural non-farm by maintaining food security.
2.Second goal is sharing growth (equity):
focus on small and marginal farmers, lagging
regions, women etc. On lagging regions,
focus on Eastern India and other rainfed
areas.
3. Third is to maintain sustainability of agri.
by focusing on environmental concerns.
 Deficits in Agriculture Growth
Six deficits in agriculture
:(a) land and water management
deficit
(b) investment, credit and
Infrastructure deficit,
(c) research and extension
(technology) deficit,
(d)market deficit,
(e) institutions deficit,
(f) education/skill deficit
 Rural non-farm sector
Poverty can not be removed with 55% of
workers in agri. Need to promote rural non-farm
sector.
India currently produces about 50 million tonnes of
fruits and 90 million tonnes of vegetables. Only 2% of
these are processed as against 23% in China, 78% in
Phillippines, 83% in Malaysia.
Half of those engaged in agriculture are still illiterate
and just 5% have completed higher secondary educ.
Even in 2004-05, around 60% of rural male
workers and 85% of rural female workers are
either illiterate or educated upto primary level.
In other words, education and skills are
constraints
 Lessons from China
India leap frogged from agriculture to services
with less focus on manufacturing.
The share of employment in manufacturing in
Malaysia is 50%, in Korea 62%, in China 31%.
On the other hand, the share of employment in
manufacturing in India is only 12%
Diversification towards rural non-form sector in
China is one of the important factors
responsible for rural poverty reduction
(poverty 3%).
This was partly due to high agricultural
productivity and investment in physical and
human capital.
 Social Development
In social sector, significant achievements
in education and health
However, Human development index rank
is 127 out of 170 countries.
Social indicators are much lower for
Scheduled castes and Scheduled tribes
Malnutrition among children is one major
problem (46% of children suffer from
malnutrition
 Six problems in Social Sector:
education and health
There have been significant achievements but
there are problems
Low levels of social indicators
Slow progress
Significant regional, social and gender
disparities
Low level and slow growth in public expenditures
particularly on health
Poor quality delivery systems
Privatization of Health and Education
 Regional Disparities
Significant Regional Disparities in India.
Per capita income : Highest per capita
income Rs.16,679 in Punjab; lowest per
capita income state Rs.3557 in Bihar
Female infant mortality varies from 12 in
Kerala to 88 in Madhya Pradesh
Female literacy varies from 33.6% in Bihar
to 88% in Kerala
 Regional Disparities
Inter-state disparities in the growth of Gross
State Domestic Product (GSDP) increased in the
post-reform period compared to the eighties.
In general, richer states grew faster than the
poorer states.
Causes for disparities;
Investment in physical and human capital
Technology
Institutions including governance
 Environment
Degradation of land, water. Increase in
pollution levels
Challenges of climate change
Consumption patterns of rich
Higher economic growth should not lead to
decline in our environment
What Should be done to improve
inclusive growth?
Equity is important for economic development
Agricultural Development
Economic reforms are important. But macro-
poor policies (fiscal, trade, financial, monetary
etc.) should have pro-poor focus
Structural change should have followed
agriculture-industry-services sequence
Development of manufacturing sector is
important for creation of productive employment
Equality of opportunities (education)
South East Asian and East Asian experience
What should be done? (contd.)
Role of Technology
Shift focus of reforms to delivery systems
Importance of women’s economic and
social empowerment
Decentralization
Economic reforms in relation to socio-
political environment
Rights approach (civil, political and
economic)
 Conclusion
There is a need to have a broad based and
inclusive growth to benefit all sections of society
and improve economic growth.
We have examined issues and challenges in five
elements of inclusive growth (poverty and
employment, agriculture, social sector, regional
disparities and environment)
It is more challenging for the country to achieve
inclusive growth than getting 8 to 10 per cent
growth in GDP
 Conclusion
There are strong social, economic and political
reasons for achieving broader and inclusive growth.
Socially, lack of inclusive growth leads to unrest
among many people.
There is also an economic argument. The measures
which raise equity also promote economic growth.
Lastly, the political argument is that no government
in a democracy can afford to ignore large sections of
workers and non-working population.
If it is not inclusive it can generate very severe social
tensions. Thus, politically, for having a stable and
democratic society one needs to have inclusive
growth.
THANK YOU