Reasons why India has not been able to achieve inclusive growth in the economy

  • Growth vs. Development
    • Over a period since economic reforms, India’s economic growth has witnessed a mixed effect on the real development.
    • GDP is considered the key parameter of economic growth. In reality, the increasing GDP growth rate has not trickled down to the bottom of pyramid.
    • A research study carried by Indira Gandhi Institute of Development Research, an autonomous think-tank under Reserve Bank of India find out that economic growth has “trickled down” in both rural and urban areas; it has not been in favour of the poor.
    • In urban areas, growth has been “anti-poor.” BPL and poor of the poor still remains marginalized. Such issues are quite fundamental in nature as they depict the lack of clarity in the vision and strategy of the policy.
    • It is time, to put the Inclusive Growth as the central agenda of the economic growth.

 

  • Defining Poor
    • Who are poor and who should be the beneficiaries of the welfare schemes? Without a proper criterion of poverty, proper policy framework for inclusive growth cannot be developed.
    • Efforts have been put taking calorie values, wages etc. as criteria of defining poverty line.
    • The lacuna of poverty definition also impacts the other associated areas such as employment schemes and subsidies for the poor.
    • All this have repercussions on inclusive growth. Govt. is gung-ho on the observation the reducing rate of poverty which has come down to the level of 35% but the inequality has increased at the same time.

 

  • Fiscal Deficit
    • Development schemes run by the govt. have created a dilemma of expanding fiscal deficit.
    • India’s current fiscal deficit situation has limited the prospect of development schemes.
    • India has significantly high debt to GDP ratio, balance of trade (negative) and current account deficit (CAD).
    • Last year’s estimates were: fiscal deficit: 5.2% of GDP; CAD: USD 92 billion; stimulus package: Rs. 1.84 lakh crore (3% of GDP). The govt. has set a target of reducing fiscal deficit to the level of 3 per cent by 2016-17.
    • Fiscal deficit also creates the problem of inflation which in turn makes the poor even more vulnerable.
    • Increasing CAD is comparatively more detrimental to INCLUSIVE GROWTH than fiscal deficit.

 

  • Ill-effects of LPG:
    • Liberalization, privatization and globalization of Indian economy has ushered the poor to vulnerability and irony.
    • Liberalization and privatization have particularly suited to the Indian private corporate, elites and rich. Globalization has created a question of existence in-front of small and medium enterprises (SMEs).
    • Have a look at the plight of the women employed in the cotton fields of northern India. Now, India’s share of textile industries in world trade is remarkably low.
    • All this have limited the growth potential and created the problem of unemployment. The malfunctioning of LPG in Indian scenario has surmounted new issues viz. gender inequality and threat to women empowerment.

 

  • Social-injustice:
    • Government is gung-ho on their efforts of reducing the poverty rate; even the UN’s MDG report affirms that India’s poverty rate is expected to fall to 22% by 2015 from 51% in 1990.
    • At the same time, there are other chronicle issues which have magnified over a period e.g. child malnutrition.
    • Poor skilling and professional competencies; Lack women’s in mainstream economic activities; Poor nutritional, health and educational indicators
    • A Hunger and Malnutrition Survey 2011 revealed something shocking; in the 100 focus districts with the poorest child development indicators, over 40 per cent of children were underweight and almost 60 per cent stunted.
    • Regional Disparities; Inadequate infrastructure; Social inequality and discrimination
    • Citing the report, the PM lamented: the problem of malnutrition a matter of national shame. Rich have become richer and poor have become poorer, marginalized are even more ignored, also, poverty has concentrated more in backward classes, minority, SCs and STs.

 

  • Infrastructure:
    • Infrastructure is fundamental to the economic and inclusive growth. In budgetary allocations, Infrastructure is assigned the highest expenditure. Major proportion of this allocation goes to large projects such as power generation, freight corridors, and airports etc.
    • While rural infrastructure is immensely neglected. In many areas, the lack of proper infrastructure is acute.
    • Major thrust of the infrastructural development of the govt. has been from view of industrial development. Agriculture, for an instance, has always lacked the focus. Infrastructure to support and facilitate backward linkages in agriculture e.g. cold storage houses, processing facilities, rural transport is need of the hour.
    • Apart from that, the rural-urban divide in infrastructure development has become prominent.
    • For a case in point, Eleventh plan recognizes that: It is an irony that the phenomenal growth in the telecom sector has also created a digital divide in terms of mobile and land line connections and Internet and broadband connections between urban and rural India.
    • The plan also highlights the dearth of rural electrification and observes that rural electrification an important instrument to bring about inclusive growth by making electricity available to farmers and in rural areas. 7.8 crore rural households still remains un-electrified.

 

  • Low Technology and Innovation:
    • Indian economy is suffering from a technology-lag vis-a-vis developed economies and other industrialized economies. Poor rate of technology and innovation creates a burden on capital and resource base.
    • India’s agricultural productivity is far below to that of developed countries. Agriculture is mainstay of the economic growth and a source to unskilled work-force employment.
    • The rapid technological development in primary activities such as agriculture creates a question of economic duality in front of the policy makers of the country. This means, if a high rate of technology is adopted in primary sector industry, then it may lead to high rate of unemployment, but at the same time, without technological progress, the productivity would be less to sustain the pressure on the economy.
    • Considering this, there is an immediate requirement of technologies such as green technology, environmentally friendly technologies and renewable energy technology etc. so that the pressure on natural resources may be overcome.
    • Policy makers have to address the economic duality judiciously. Apart from that, the innovation per se is required to be a harbinger of Inclusive Growth which is broad sense is termed as inclusive innovation.
    • Inclusive innovation means the creation and absorption of product and services relevant to the poor. In this case, SMEs, MSMEs and grass root innovation enabling agencies such as National Innovation Foundation can play a decisive role. Finance, competency and infrastructure are the foundation for inclusive innovation and enabler for Inclusive Growth.