Inclusive Growth, poverty and Inclusive Growth, poverty and Economic Development in IndiaEconomic Development in India

Prof. S.Mahendra Dev, Prof. S.Mahendra Dev, Chairman, Commission for Chairman, Commission for

Agricultural Costs and Prices, Agricultural Costs and Prices, Government of IndiaGovernment of India

IntroductionIntroductionSince independence, significant improvement in Since independence, significant improvement in India’s economic and social development.India’s economic and social development.In the post-reform (since 1991) period, India has In the post-reform (since 1991) period, India has done well in some indicators such as balance of done well in some indicators such as balance of payments, resilience to external shocks, service payments, resilience to external shocks, service sector growth,sector growth, significant accumulation of foreign exchange, significant accumulation of foreign exchange, Information technology (IT) and stock market, Information technology (IT) and stock market, improvements in telecommunications etc.improvements in telecommunications etc.GDP growth was around 8 to 9% per annum in the GDP growth was around 8 to 9% per annum in the period 2004-05 to 2007-08. Investment and period 2004-05 to 2007-08. Investment and savings rates were quite high 32 to 36%.savings rates were quite high 32 to 36%.

Need for Inclusive GrowthNeed for Inclusive GrowthHowever, exclusion continued in terms of low However, exclusion continued in terms of low agriculture growth, low quality employment growth, agriculture growth, low quality employment growth, low human development, rural-urban divides, gender low human development, rural-urban divides, gender and social inequalities, and regional disparities etc.and social inequalities, and regional disparities etc.

There is now recognition that inclusive growth should There is now recognition that inclusive growth should be achieved in order to reduce poverty and other be achieved in order to reduce poverty and other disparities and raise economic growth. disparities and raise economic growth.

1111thth Plan (2007-12) advocates for inclusive growth. Plan (2007-12) advocates for inclusive growth.

Even at international level, there is a concern about Even at international level, there is a concern about inequalities and exclusion and now they are also inequalities and exclusion and now they are also talking about inclusive approach for developmenttalking about inclusive approach for development ..

In this presentation, I will be discussing issues and In this presentation, I will be discussing issues and challenges for achieving inclusive growth. challenges for achieving inclusive growth.

Elements of Inclusive GrowthElements of Inclusive Growth

Five interrelated elements of inclusive Five interrelated elements of inclusive growth.growth.

Poverty Reduction and increase in Poverty Reduction and increase in quantity and quality of employment quantity and quality of employment

Agricultural DevelopmentAgricultural Development

Social Sector DevelopmentSocial Sector Development

Reduction in regional disparitiesReduction in regional disparities

Protecting the environmentProtecting the environment

Poverty Poverty Income poverty and non-income povertyIncome poverty and non-income povertyWe concentrate here on income povertyWe concentrate here on income povertyThe official poverty lines are anchored to a fixed The official poverty lines are anchored to a fixed commodity basket corresponding to the poverty commodity basket corresponding to the poverty line (Rs.49.09 per person per month at 1973-74 line (Rs.49.09 per person per month at 1973-74 prices for rural areas and Rs.56.64 for urban prices for rural areas and Rs.56.64 for urban areas). areas). The suggested rural commodity basket by the The suggested rural commodity basket by the Expert Group contained 2400 kcal per capita per Expert Group contained 2400 kcal per capita per day in rural areas and the urban food basket had day in rural areas and the urban food basket had 2100 kcal per capita per day in 1973-4.2100 kcal per capita per day in 1973-4.For subsequent years, poverty line is updated with For subsequent years, poverty line is updated with consumer prices. consumer prices.

Trends in Poverty (%): India Trends in Poverty (%): India

YearYear RuralRural UrbanUrban TotalTotal

1973-741973-74 5656 4949 5555

19831983 4646 4141 4545

1993-941993-94 3737 3232 3636

2004-052004-05 2828 2626 2828

Number of poor (in million)Number of poor (in million)

YearYear Number (million)Number (million)

1973-741973-74 321321

19831983 323323

1993-941993-94 320320

2004-052004-05 302302

PovertyPovertyIncome poverty declined from 55% in the early Income poverty declined from 55% in the early 1970s to 28% in 2004-05. 1970s to 28% in 2004-05. Although there has been progress in decline, still Although there has been progress in decline, still more than 300 million below poverty line.more than 300 million below poverty line.World Bank Estimates: 42% below $1.25 poverty World Bank Estimates: 42% below $1.25 poverty line. ADB 65% with $1.35 poverty lineline. ADB 65% with $1.35 poverty line80% of the poor are from rural areas.80% of the poor are from rural areas.Poverty concentrated in few states (Bihar, Uttar Poverty concentrated in few states (Bihar, Uttar Pradesh and Madhya Pradesh and Orissa, Pradesh and Madhya Pradesh and Orissa, Chattisgarh and JharkhandChattisgarh and Jharkhand))Concentrated among agricultural labourers, casual Concentrated among agricultural labourers, casual workers, Scheduled Castes and Scheduled Tribesworkers, Scheduled Castes and Scheduled Tribes

Determinants of Rural PovertyDeterminants of Rural Poverty

Agricultural GrowthAgricultural Growth

Relative food pricesRelative food prices

Rural non-farm sectorRural non-farm sector

Rural wagesRural wages

Governments’ development expenditureGovernments’ development expenditure

InfrastructureInfrastructure

Human DevelopmentHuman Development

Percentage budget share of cerealsPercentage budget share of cerealsYearYear RuralRural RuralRural UrbanUrban UrbanUrban

Bottom Bottom 30%30%

Top 30%Top 30% Bottom Bottom 30%30%

Top 30%Top 30%

1970-711970-71 53.753.7 29.529.5 38.938.9 13.413.4

1990-911990-91 39.439.4 18.218.2 27.627.6 9.59.5

1993-941993-94 35.735.7 15.715.7 25.625.6 8.28.2

2004-052004-05 29.329.3 12.512.5 20.620.6 6.36.3

Percentage budget share of food Percentage budget share of food (cereals+non-cereals)(cereals+non-cereals)

YearYear RuralRural RuralRural UrbanUrban UrbanUrban

Bottom Bottom 30%30%

Top 30%Top 30% Bottom Bottom 30%30%

Top 30%Top 30%

1970-711970-71 84.184.1 71.371.3 80.080.0 62.562.5

1990-911990-91 73.773.7 59.459.4 70.770.7 48.148.1

1993-941993-94 69.869.8 52.652.6 66.466.4 43.843.8

2004-052004-05 66.166.1 47.547.5 59.959.9 34.534.5

Movement in Indices of Commodity Prices India vs International:Cereals

106.7

114.1 118.6 120.4122.6

100

257.9

231.1

100

237.4

121.3

158.7

50

100

150

200

250

300

2005 2006 2007 2008 Qtr I 2008 Qtr II 2008 Qtr IIIYear

India WPI International (IMF Indices)

Movement in Indices of Commodity Prices India vs International:Wheat

100

128.8125

124.6120.7

113

167.4

125.8

269.9

100

208.4

227.3

50

100

150

200

250

300

2005 2006 2007 2008 Qtr I 2008 Qtr II 2008 Qtr IIIYear

India WPI International (IMF Indices)

Movement in Indices of Commodity Prices India vs International:Rice

100

117115.8113.5

108.4102.1

115.5105.5

179.2

100

261.5

331.1

50

100

150

200

250

300

350

2005 2006 2007 2008 Qtr I 2008 Qtr II 2008 Qtr IIIYear

India WPI International (IMF Indices)

Reasons for low domestic food pricesReasons for low domestic food prices

India insulated domestic food prices from India insulated domestic food prices from the recent high global food pricesthe recent high global food prices

Reasons are the followingReasons are the following

-- high oil and fertilizer subsidies-- high oil and fertilizer subsidies

-- Duty cuts, export bans-- Duty cuts, export bans

-- Administrative measures on hoarding, ban -- Administrative measures on hoarding, ban on futures marketson futures markets

-- Procurement, buffer stock and public -- Procurement, buffer stock and public distribution of fooddistribution of food

Policies for Poverty AlleviationPolicies for Poverty AlleviationIndia adopted two pronged approachIndia adopted two pronged approach

-- Growth approach: all three sectors contribute -- Growth approach: all three sectors contribute agriculture, industry and servicesagriculture, industry and services

-- Direct approach : Safety nets or anti-poverty prog.-- Direct approach : Safety nets or anti-poverty prog.-- Self employment progra. (women’s groups), wage -- Self employment progra. (women’s groups), wage

employment progra, food subsidies, nutrition employment progra, food subsidies, nutrition programmes for children, old age and maternity programmes for children, old age and maternity benefitsbenefits

-- Public Distribution System – Subsidized food-- Public Distribution System – Subsidized food-- National Rural Employment Guarantee Scheme -- National Rural Employment Guarantee Scheme

(NREGS) – Giving 100 days of wage employment (NREGS) – Giving 100 days of wage employment to the poorto the poor

EmploymentEmployment

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 EmploymentProblems in Employment

Share in Ouput and Employment of different Share in Ouput and Employment of different sectorssectors

Agriculture: 20% in GDP, 57% in Employ.Agriculture: 20% in GDP, 57% in Employ.

Industry: 23% in GDP,18% in Employ.Industry: 23% in GDP,18% in Employ.

Services: 57% in GDP, 25% in Employ.Services: 57% in GDP, 25% in Employ.

Employment growth increased in recent years Employment growth increased in recent years but quality is low.but quality is low.

Problem of working poorProblem of working poor

Poverty is much higher than unemploymentPoverty is much higher than unemployment

Problems in EmploymentProblems in Employment

There are 458 million workers in India in 2004-05There are 458 million workers in India in 2004-05

Out of this 423 million workers are Out of this 423 million workers are informal/unorganised workers (92%).informal/unorganised workers (92%).

Growth in employment more in unorganised Growth in employment more in unorganised sector. sector.

Thus, Thus, quality of employmentquality of employment is a problem is a problem

Workers in this sector do not have social security.Workers in this sector do not have social security.

Government is trying to provide minimum social Government is trying to provide minimum social security to unorganized workerssecurity to unorganized workers

Inclusive Growth: AgricultureInclusive Growth: AgricultureConcerns in AgricultureConcerns in Agriculture

--Deceleration in growth from 3.5% during --Deceleration in growth from 3.5% during 1981-97 to 2% during 1997-2005. Decline in 1981-97 to 2% during 1997-2005. Decline in yield growth.yield growth.

-- Land and water problems, vulnerability to -- Land and water problems, vulnerability to world commodity prices, farmers’ suicides, world commodity prices, farmers’ suicides, 45% of farmers want to leave agri but no 45% of farmers want to leave agri but no where to go.where to go.

----Disparities in growth across regions and ----Disparities in growth across regions and crops: growth rate declined more in rainfed crops: growth rate declined more in rainfed areas.areas.

Problems in Indian agricultureProblems in Indian agriculture

Long term factors: Steeper decline in per Long term factors: Steeper decline in per capita land availability. Shrinking of farm size capita land availability. Shrinking of farm size

Slow reduction in share of employment (still Slow reduction in share of employment (still 55%) 55%)

Main problem is Main problem is low labour productivitylow labour productivity in in agriculture. Gap between agri. and non-agri. agriculture. Gap between agri. and non-agri. is widening.is widening.

We should blame non-agriculture (industry We should blame non-agriculture (industry and services) for not absorbing workers from and services) for not absorbing workers from agriculture.agriculture.

Three Goals of Agricultural Three Goals of Agricultural DevelopmentDevelopment

1.Achieve 4% growth in agriculture and raise 1.Achieve 4% growth in agriculture and raise incomes. Increasing productivity (land, incomes. Increasing productivity (land, labor), diversification to high value agri. and labor), diversification to high value agri. and rural non-farm by maintaining food security. rural non-farm by maintaining food security. 2.Second goal is sharing growth (equity): 2.Second goal is sharing growth (equity): focus on small and marginal farmers, lagging focus on small and marginal farmers, lagging regions, women etc. On lagging regions, regions, women etc. On lagging regions, focus on Eastern India and other rainfed focus on Eastern India and other rainfed areas.areas.3. Third is to maintain sustainability of agri. 3. Third is to maintain sustainability of agri. by focusing on environmental concerns.by focusing on environmental concerns.

Deficits in Agriculture GrowthDeficits in Agriculture Growth

Six deficits in agricultureSix deficits in agriculture

::(a) land and water management (a) land and water management deficitdeficit

(b) investment, credit and (b) investment, credit and Infrastructure deficit, Infrastructure deficit,

(c) research and extension (c) research and extension (technology) deficit, (technology) deficit,

(d)market deficit, (d)market deficit,

(e) institutions deficit, (e) institutions deficit,

(f) education/skill deficit(f) education/skill deficit

Rural non-farm sectorRural non-farm sectorPoverty can not be removed with 55% of Poverty can not be removed with 55% of workers in agri.workers in agri. Need to promote rural non-farm Need to promote rural non-farm sector.sector. India currently produces about 50 million tonnes of fruits India currently produces about 50 million tonnes of fruits and 90 million tonnes of vegetables. Only 2% of these and 90 million tonnes of vegetables. Only 2% of these are processed as against 23% in China, 78% in are processed as against 23% in China, 78% in Phillippines, 83% in Malaysia. Phillippines, 83% in Malaysia. Half of those engaged in agriculture are still Half of those engaged in agriculture are still illiterate and illiterate and just 5% have just 5% have completed higher completed higher secondary educ.secondary educ.Even in 2004-05, around Even in 2004-05, around 60% of rural male 60% of rural male workers and 85% of rural female workers workers and 85% of rural female workers are either illiterateare either illiterate or educated upto primary or educated upto primary level. level. In other words, In other words, education and skills are education and skills are constraintsconstraints

Lessons from ChinaLessons from ChinaIndia leap frogged from agriculture to services India leap frogged from agriculture to services with less focus on manufacturing.with less focus on manufacturing.The share of employment in manufacturing in The share of employment in manufacturing in Malaysia is 50%, in Korea 62%, in China 31%. Malaysia is 50%, in Korea 62%, in China 31%. On the other hand, the share of employment in On the other hand, the share of employment in manufacturing in manufacturing in India is only 12%India is only 12% Diversification towards rural non-form sector in Diversification towards rural non-form sector in China is one of the important factors China is one of the important factors responsible for rural poverty reduction responsible for rural poverty reduction (poverty 3%). (poverty 3%). This was partly due to high agricultural This was partly due to high agricultural productivity and investment in physical and productivity and investment in physical and human capital.human capital.

Social DevelopmentSocial Development

In social sector, significant achievements In social sector, significant achievements in education and healthin education and healthHowever, Human development index rank However, Human development index rank is 127 out of 170 countries.is 127 out of 170 countries.Social indicators are much lower for Social indicators are much lower for Scheduled castes and Scheduled tribesScheduled castes and Scheduled tribesMalnutrition among children is one major Malnutrition among children is one major problem (46% of children suffer from problem (46% of children suffer from malnutritionmalnutrition

Six problems in Social Sector: Six problems in Social Sector: education and healtheducation and health

There have been significant achievements but There have been significant achievements but there are problemsthere are problemsLow levels of social indicatorsLow levels of social indicatorsSlow progressSlow progressSignificant regional, social and gender Significant regional, social and gender disparitiesdisparitiesLow level and slow growth in public expenditures Low level and slow growth in public expenditures particularly on healthparticularly on healthPoor quality delivery systemsPoor quality delivery systemsPrivatization of Health and Education Privatization of Health and Education

Regional DisparitiesRegional Disparities

Significant Regional Disparities in India.Significant Regional Disparities in India.

Per capita income : Highest per capita Per capita income : Highest per capita income Rs.16,679 in Punjab; lowest per income Rs.16,679 in Punjab; lowest per capita income state Rs.3557 in Biharcapita income state Rs.3557 in Bihar

Female infant mortality varies from 12 in Female infant mortality varies from 12 in Kerala to 88 in Madhya PradeshKerala to 88 in Madhya Pradesh

Female literacy varies from 33.6% in Bihar Female literacy varies from 33.6% in Bihar to 88% in Keralato 88% in Kerala

Regional DisparitiesRegional DisparitiesInter-state disparities in the growth of Gross Inter-state disparities in the growth of Gross State Domestic Product (GSDP) increased in the State Domestic Product (GSDP) increased in the post-reform period compared to the eighties.post-reform period compared to the eighties.

In general, richer states grew faster than the In general, richer states grew faster than the poorer states.poorer states.

Causes for disparities;Causes for disparities;

Investment in physical and human capitalInvestment in physical and human capital

TechnologyTechnology

Institutions including governanceInstitutions including governance

EnvironmentEnvironment

Degradation of land, water. Increase in Degradation of land, water. Increase in pollution levelspollution levels

Challenges of climate changeChallenges of climate change

Consumption patterns of richConsumption patterns of rich

Higher economic growth should not lead to Higher economic growth should not lead to decline in our environmentdecline in our environment

What Should be done to improve What Should be done to improve inclusive growth?inclusive growth?

Equity is important for economic developmentEquity is important for economic developmentAgricultural DevelopmentAgricultural DevelopmentEconomic reforms are important. But macro-Economic reforms are important. But macro-poor policies (fiscal, trade, financial, monetary poor policies (fiscal, trade, financial, monetary etc.) should have pro-poor focusetc.) should have pro-poor focusStructural change should have followed Structural change should have followed agriculture-industry-services sequenceagriculture-industry-services sequenceDevelopment of manufacturing sector is Development of manufacturing sector is important for creation of productive employmentimportant for creation of productive employmentEquality of opportunities (education)Equality of opportunities (education)South East Asian and East Asian experienceSouth East Asian and East Asian experience

What should be done? (contd.)What should be done? (contd.)

Role of TechnologyRole of TechnologyShift focus of reforms to delivery systemsShift focus of reforms to delivery systemsImportance of women’s economic and Importance of women’s economic and social empowermentsocial empowermentDecentralizationDecentralizationEconomic reforms in relation to socio-Economic reforms in relation to socio-political environmentpolitical environmentRights approach (civil, political and Rights approach (civil, political and economic)economic)

ConclusionConclusion

There is a need to have a broad based and There is a need to have a broad based and inclusive growth to benefit all sections of society inclusive growth to benefit all sections of society and improve economic growth.and improve economic growth.We have examined issues and challenges in five We have examined issues and challenges in five elements of inclusive growth (poverty and elements of inclusive growth (poverty and employment, agriculture, social sector, regional employment, agriculture, social sector, regional disparities and environment)disparities and environment)It is more challenging for the country to achieve It is more challenging for the country to achieve inclusive growth than getting 8 to 10 per cent inclusive growth than getting 8 to 10 per cent growth in GDPgrowth in GDP

ConclusionConclusionThere are strong social, economic and political There are strong social, economic and political reasons for achieving broader and inclusive growth. reasons for achieving broader and inclusive growth. Socially, lack of inclusive growth leads to unrest Socially, lack of inclusive growth leads to unrest among many people. among many people. There is also an economic argument. The measures There is also an economic argument. The measures which raise equity also promote economic growth. which raise equity also promote economic growth. Lastly, the political argument is that no government Lastly, the political argument is that no government in a democracy can afford to ignore large sections of in a democracy can afford to ignore large sections of workers and non-working population. workers and non-working population. If it is not inclusive it can generate very severe social If it is not inclusive it can generate very severe social tensions. Thus, politically, for having a stable and tensions. Thus, politically, for having a stable and democratic society one needs to have inclusive democratic society one needs to have inclusive growth. growth.

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