13 Macroeconomic Analysis of India's Inclusive Growth_Sunil Bhardwaj_GM012

ISBN - 978-93-81583-46-3

National Conference on Emerging Challenges for Sustainable Business 2012 591

Macroeconomic Analysis of India’s Inclusive Growth Sunil Bhardwaj1, Rohit Bhagat2, Vinay Sharma3

1Assistant Professor 1,2,3The Business School, Bhaderwah Campus, University of Jammu, Jammu

[email protected]

Macroeconomic Analysis Of India’s Inclusive Growth


Macroeconomic Analysis of India’s Inclusive Growth

* Sunil Bhardwaj, Rohit Bhagat and Vinay Sharma Abstract: After the adoption of LPG policy by India in 1991, India’s growth story has shown many magnificent results with many macroeconomic variables showing positive movement. This Economic Liberalisation has helped India to accelerate its growth rate to an average of 7% per year since 1997, up from 3.5% in the 1970s. Expect during the economic crisis of 2007-08, we have maintained a GDP growth rate of 8.6% in the year 2010-11. The effect of financial crisis was visible when our GDP growth rate plunged down from 9.6% in 2007-08 to 6.8% in 2008-09. With increase in the real GDP growth rate at 8.5% in 2010-11, the economy has moved closer to pre-crisis level. Today we are claiming ourselves as the world’s fourth largest economy and the second fastest growing economy in Asia. Moreover India is now a major player in global trading system. During the first quarter of 2011-12 (April-June 2011) export rose by 45.7% to $ 79 billion and import by 36.2% to $ 110.6 billion. As a result of robust growth some economist are of the opinion that India and China will together act as an engine to drive the world economy. These economies are least affected by the global slowdown and can together act as a shock absorber for the world economy. But in spite of having two decades of prosperous growth the dark side of our economic development is clearly visible and that is what is reflected upon in this piece of research. Many macroeconomic variables indicate its flaws and consider it far away from what is known as Inclusive Growth. India is placed on 56th rank in global business competitiveness index, 62nd in innovation efficiency index, 67th in global hunger index, 112th rank out of 134 nations in gender gap and is placed on 134th rank in HDI. According to the world bank report, in 2004-05 about 37 crore people were poor but this figure rose to 38.5 crore in 2011. The top 1% of Indian population owns 15.9% of India’s wealth, the top 5% own 38.3% and the top 10% have 52.9% of India’s wealth which means that 90% of Indian poor have very less stake in India’s wealth. These figures will remain a matter of concern to our policy makers and inclusive growth seems to be a mere dream. This study tries to find the ways and means to take India towards more inclusive pattern of Growth. Key words: Liberalisation, Privatisation, Globalisation, Inclusive Growth, HDI, GHI, Innovation Efficiency Index and Poverty. Corresponding author: Sunil Bhardwaj, Assistant Professor, The Business School, Bhaderwah Campus, University of Jammu, Jammu [email protected]



Inclusive Growth: Taking about inclusive growth, the Indian Prime Minister Dr. Manmohan Singh says that India needs to "ensure that growth is widely spread so that its benefits, in terms of income and employment, are adequately shared by the poor and weaker sections of our society". Let me put it in other way inclusive growth is growth for the welfare of all”. The oxford English dictionary gives another definition of it “a growth not excluding any section of the society”. However in Indian context and as perceived by eleventh five year plan (2006-07 to 2011-12) the integrated elements which can boost are grow are poverty reduction and increase in quantity and quality of employment, agriculture development, social sector development, poor quality delivery system and regional disparities. So a well planned homework if done on these parameters can help us to make our growth story more inclusive in nature. The paper discuses about some variables like HDI, poverty, gender disparities, global hunger index etc which play an important role for the overall development of an economy. Rationale of Inclusive Growth: According to both World Bank and CIA India is ranked 4th largest economy worldwide. The CIA World Fact Book lists India as the second most populated country with 17.5% of world population after china (19.5%). India has quite successfully liberalised its investments and it is a open fact that the its equity is ranked third in the world. There are number of industries that are pushing country’s growth beside a number of economic reforms that are put in place time to time in the last two decades to make India a global figure at the global platform. During tenth five year plan our economy has accelerated with an average rate of 7.7% and it seems as if we are in comfortable zone with respect to balance of payment, foreign exchange reserves, service sector growth. CAN WE CALL THIS GROWTH AS INCLUSIVE GROWTH? A thirteen year old child begging on the road side with an empty stomach and no hope for future. Merely telling him that our economy is growing at rate of 9% per annum, hardly compensate for his empty stomach. According to credit issue, the top 1% of the Indian population owns 15.9% of Indian’s wealth; the top 5% own 38.3% and top 10% have 52.9% of country’s wealth (Prarthna, 2012). This means that rest 90% have less than half (47.1%) of the share in the country’s wealth. Inclusive growth is necessary for sustainable development and equitable distribution of wealth and prosperity. In a country like India having demographic dividend a big challenge is to bring 600 million rural people in the main stream. Still 50% of country’s poor belong to excluded sections of society i.e. SCs, STs and OBCs who should also be given fair opportunity and support for their growth and development. Otherwise chances are there that country’s demographic dividend may turn into demographic liability. The main goal of inclusive growth is to feed, clothe, educate and employ India’s growing population which is expected to reach nearly 1.5 billion by 2030. Objectives of Study: The objective of this study is to give a sceptical insight to the Indian’s growth story and to bring in focus the facts and figures which shows country’s high growth performance but not inclusive.

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Again large size of Indian market, the intrinsic strength of Indian corporate and Indian’s well established and well functioning banking system are conducive to a sustainable inflow of foreign equity. As a result of this FDI inflow to India was US$ 3.5 billion in 2010-11 mainly from Mauritius, Singapore, USA, Germany and UAE. Indian economy was least hit by global financial crisis and it was one of the first to recover from it. With GDP growth rate of 8.6 percent in 2010-11we have brought ourselve to pre-crisis level. However many macroeconomic variables do not support this growth story rather they call it as a pseudo growth, “ a growth far away from inclusive growth”. Inclusive growth means which is not exclusive. Some integral elements of economic growth are not in favour of country’s this type of growth. According to Human Development Index, India has been classified in the medium human development category and is placed at 134th rank (According to UNPP, Human Development Report, 2011). India’s HDI value is 0.547, life expectancy at birth is 65.4 years, education index is 0.450, inequality index is 0.392 and GNI per capita (PPPUS$) is 3468. This clearly shows that India’s HDI ranking still lag behind other medium human development countries such as Srilanka (0.691), China (0.687), Thailand (0.682) and even Iraq having HDI value of 0.573. This means poor access to essential services such as health, education, drinking water, sanitation, public distribution system, information etc.

Global gender gap report assesses gender equality in 134 countries which take into consideration economic participation and opportunity, education attainment, political empowerment, health and survival. India has been ranked 112th out of 134 nations. This is a clear indication that besides having two decades of robust growth there is very little improvement in gender gap index. Gender inequality index value of India is 0.617 (UNDP, Human development report 2011).

Sex ratio of the country:

0.5470.717

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Human Development Index

Persons

Total Rural Urban

914 919 926



Sex ratio of the country (0-6 years):

Although literacy rate of India is in comfortable zone (74.04%) but disparity in male literacy rate (82.14%) and female literacy rate (65.46%) is very prominent in Indian economy. India’s ranking is the lowest even among BRIC nations. Also India’s gender equality performance remains the worst in the region with Srilanka and Bangladesh getting 16th and 82nd ranking. Moreover, there is disparity in literacy rate of different states with 93.91% literacy rate of

Kerala and 63.82% Literacy rate of Bihar and same gap is found in rural and urban population.

Literacy Rate of India (%) Decadal population growth (2001-2011) rate of country is 17.64% showing a big gap in the growth rate of urban and rural population. Agriculture is the main stay of Indian economy and it account for 14.2% of the country’s GDP in 2010-11 and 10.59% of the total exports. This sector employs 58.2% of the total workforce which make it even more prominent for inclusive growth (census 2011). Moreover this sector is the supplier of food, fodder and raw material for a vast segment of industry which give it a separate status in the country’s growth story. During the first three years of the current five year plan, the agriculture sector (including allied activities) recorded an average growth of 2.03 percent against the target of 4 percent per annum. The first year (2007-08) of the plan ended with an impressive growth of 5.8 percent but next two years agriculture fell into negative zone with negative 0.1 percent in 2008-09. In order to achieve the plan target of average 4 percent per year, the agriculture sector needs to grow at 8.5 percent during 2011-12, which seem to be a mere dream so the inclusiveness of country’s growth. Despite the increase in growth in share, the contribution of agriculture in GDP is coming down. Recent experience suggests that high GDP growth in the agriculture sector leads to inflation in the country which would destroy our growth process, affecting the poor much.

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According to UNDP, Human Development Report 2011 Multidimensional Poverty Index of the country is 0.283 which shows another loophole of our economy. Some sections of society like SCs, STs and OBCs are still out of the main stream of the society. Nearly 50 percent of Indian poor belong to these classes of the society. Even after acknowledging these poor still an effect support is missing as a result of which poverty of STs has hardly declined in the last few years. According to reports percentage of poor people has decreased from 37.5 percent to 32 percent from 2004-05 to 2009-10 but absolute number of poor have increased from 37 crore people to 38.5 crore people. The situation is even more astonishing when we look at Global Hunger Index which is developed by International Food Policy Research Institute (IFPRI). It include three main hunger related indicators i.e. the proportion of undernourished in the population, the prevalence of underweight in children and the mortality rate of children. India, despite having robust economy growth with GDP growth rate of 6.1 percent in Q3 of 2011-12 country, is still placed at 67th rank in Global Hunger Index which is worse even when compared with the rank of Nepal (56th), Pakistan (52nd), Srilanka (39th) and China (9th). Global Innovation Index places India on 62nd position in 2011 from 56th in 2010. India is also considered as one of the most corrupt nations of the world. Transparency international’s Corruption Index report 2011 places India on 95th rank with corruption perception index score 3.1 which is again alarming and is effecting the country’s long term as well as short term growth perspectives. On Global Competitive Index (56th) India continues to being rank at par with South Africa (50th), Brazil (53rd), Russia (66th) and it is getting worse in comparison to China moving from less than 0.1 to 0.6 point. Country has performed on the poor front in the areas considered to be the basic factors for competitiveness. Supply of transport, ICT and energy infrastructure are insufficient and ill adopted to the global business needs which are improving but at a very slower rate in comparison to other nations which are improving at much faster rate. Not only this but macroeconomic environment (105th) continues to be characterised by large and repeated public deficit and highest debt to GDP ratio among BRICS. More recently the stability of the country is shaken by high inflation above 10%. Due to this India is hovering near 100 mark in this important aspect of economic growth.

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8. Economic reforms related to banking or macro polices (fiscal, trade, financial, monetary, judiciary) keeping in view all the sectors and sections of the society can help us achieve what is known as inclusive growth. Conclusion: Twenty years had passed since India had Balance of Payment crisis and the country is doing fairly well in many sectors. But it seems as if the main focus of the country is to increase the GDP growth rate and not to analyse the inclusiveness of this growth trajectory. Our study tries to highlight the areas which are of utter importance for the inclusive growth of India like poverty, education, agriculture, health and social welfare through government spending. The focus of government aids also need to be directed towards rural population. Remodelling of government schemes, fiscal deficit discipline, economic reforms, dismantling of barriers for foreign investment, quality infrastructure, collaborating secondary sector to the primary sector, to bring in vulnerable population into the main stream, improvement in effectiveness of government programmes with poverty as main focus is very necessary for India. Webliography/ Bibliography/ References:

1. http://www.planningcommissionofindia.com 2. Towards faster and more inclusive growth, an approach to the 11th five year plan, planning

commission of India as downloaded from http://www.pci.com. 3. Challenges before inclusive growth in India by Prarthna Baranwal. 4. Human Development Report2011,http://hdrstats.undp.org/en/countries/profiles/IND.html 5. Data and Statistics from Reserve Bank of India, www.rbi.org.in/ 6. World Economic Forum, http://www.weforum.org/reports/global-gender-gap-report-2011 7. Ministry of Statistics and Programme Implementation, Central Statistical Office

http://mospi.nic.in/Mospi_New/site/India_Statistics.aspx?status=1&menu_id=14 8. Transparency International, http://cpi.transparency.org/cpi2011/results/ 9. International Food Policy Institute, http://www.ifpri.org/book-8018/node/8058 10. The Global Innovation Index Report 2011,

http://www.globalinnovationindex.org/gii/main/analysis/showcountrydetails.cfm 11. Planning Commission of India,

http://planningcommission.nic.in/plans/planrel/fiveyr/11th/11_v1/11v1_ch1.pdf 12. Ministry of Commerce, http://commerce.nic.in/tradestats/filedisplay.aspx?id=1 13. The Indian Government's 2102 economic survey,

http://investorzclub.blogspot.in/2012/03/india-2012-2013-gdp-at-76-percent.html

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13 Macroeconomic Analysis of India's Inclusive Growth_Sunil Bhardwaj_GM012