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  • 1. Inclusive Growth, poverty andInclusive Growth, poverty and Economic Development in IndiaEconomic Development in India Prof. S.Mahendra Dev,Prof. S.Mahendra Dev, Chairman, Commission forChairman, Commission for Agricultural Costs and Prices,Agricultural Costs and Prices, Government of IndiaGovernment of India
  • 2. IntroductionIntroduction Since independence, significant improvement inSince independence, significant improvement in India’s economic and social development.India’s economic and social development. In the post-reform (since 1991) period, India hasIn the post-reform (since 1991) period, India has done well in some indicators such as balance ofdone well in some indicators such as balance of payments, resilience to external shocks, servicepayments, 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 theGDP growth was around 8 to 9% per annum in the period 2004-05 to 2007-08. Investment andperiod 2004-05 to 2007-08. Investment and savings rates were quite high 32 to 36%.savings rates were quite high 32 to 36%.
  • 3. Need for Inclusive GrowthNeed for Inclusive Growth However, exclusion continued in terms of lowHowever, exclusion continued in terms of low agriculture growth, low quality employment growth,agriculture growth, low quality employment growth, low human development, rural-urban divides, genderlow 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 shouldThere is now recognition that inclusive growth should be achieved in order to reduce poverty and otherbe 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 aboutEven at international level, there is a concern about inequalities and exclusion and now they are alsoinequalities 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 andIn this presentation, I will be discussing issues and challenges for achieving inclusive growth.challenges for achieving inclusive growth.
  • 4. Elements of Inclusive GrowthElements of Inclusive Growth Five interrelated elements of inclusiveFive interrelated elements of inclusive growth.growth. Poverty Reduction and increase inPoverty Reduction and increase in quantity and quality of employmentquantity and quality of employment Agricultural DevelopmentAgricultural Development Social Sector DevelopmentSocial Sector Development Reduction in regional disparitiesReduction in regional disparities Protecting the environmentProtecting the environment
  • 5. PovertyPoverty Income poverty and non-income povertyIncome poverty and non-income poverty We concentrate here on income povertyWe concentrate here on income poverty The official poverty lines are anchored to a fixedThe official poverty lines are anchored to a fixed commodity basket corresponding to the povertycommodity basket corresponding to the poverty line (Rs.49.09 per person per month at 1973-74line (Rs.49.09 per person per month at 1973-74 prices for rural areas and Rs.56.64 for urbanprices for rural areas and Rs.56.64 for urban areas).areas). The suggested rural commodity basket by theThe suggested rural commodity basket by the Expert Group contained 2400 kcal per capita perExpert Group contained 2400 kcal per capita per day in rural areas and the urban food basket hadday 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 withFor subsequent years, poverty line is updated with consumer prices.consumer prices.
  • 6. Trends in Poverty (%): IndiaTrends 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
  • 7. 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
  • 8. PovertyPoverty Income poverty declined from 55% in the earlyIncome 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, stillAlthough 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 povertyWorld Bank Estimates: 42% below $1.25 poverty line. ADB 65% with $1.35 poverty lineline. ADB 65% with $1.35 poverty line 80% of the poor are from rural areas.80% of the poor are from rural areas. Poverty concentrated in few states (Bihar, UttarPoverty 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, casualConcentrated among agricultural labourers, casual workers, Scheduled Castes and Scheduled Tribesworkers, Scheduled Castes and Scheduled Tribes
  • 9. 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
  • 10. Percentage budget share of cerealsPercentage budget share of cereals YearYear RuralRural RuralRural UrbanUrban UrbanUrban BottomBottom 30%30% Top 30%Top 30% BottomBottom 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
  • 11. Percentage budget share of foodPercentage budget share of food (cereals+non-cereals)(cereals+non-cereals) YearYear RuralRural RuralRural UrbanUrban UrbanUrban BottomBottom 30%30% Top 30%Top 30% BottomBottom 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
  • 12. Movement in Indices of Commodity Prices India vs International:Cereals 106.7 114.1 118.6 120.4 122.6 100 257.9 231.1 100 237.4 121.3 158.7 50 100 150 200 250 300 2005 2006 2007 2008 Qtr I 2008 Qtr II 2008 Qtr IIIYear India WPI International (IMF Indices)
  • 13. Movement in Indices of Commodity Prices India vs International:Wheat 100 128.8 125 124.6120.7 113 167.4 125.8 269.9 100 208.4 227.3 50 100 150 200 250 300 2005 2006 2007 2008 Qtr I 2008 Qtr II 2008 Qtr IIIYear India WPI International (IMF Indices)
  • 14. Movement in Indices of Commodity Prices India vs International:Rice 100 117 115.8113.5 108.4 102.1 115.5 105.5 179.2 100 261.5 331.1 50 100 150 200 250 300 350 2005 2006 2007 2008 Qtr I 2008 Qtr II 2008 Qtr IIIYear India WPI International (IMF Indices)
  • 15. Reasons for low domestic food pricesReasons for low domestic food prices India insulated domestic food prices fromIndia 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
  • 16. Policies for Poverty AlleviationPolicies for Poverty Alleviation India 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, nutritionemployment progra, food subsidies, nutrition programmes for children, old age and maternityprogrammes 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
  • 17. 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
  • 18. Problems in EmploymentProblems in Employment Share in Ouput and Employment of differentShare 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 yearsEmployment 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
  • 19. 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 areOut of this 423 million workers are informal/unorganised workers (92%).informal/unorganised workers (92%). Growth in employment more in unorganisedGrowth in employment more in unorganised sector.sector. Thus,Thus, quality of employmentquality of employment is a problemis 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 socialGovernment is trying to provide minimum social security to unorganized workerssecurity to unorganized workers
  • 20. Inclusive Growth: AgricultureInclusive Growth: Agriculture Concerns 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 in1981-97 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 no45% 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 rainfedcrops: growth rate declined more in rainfed areas.areas.
  • 21. Problems in Indian agricultureProblems in Indian agriculture Long term factors: Steeper decline in perLong term factors: Steeper decline in per capita land availability. Shrinking of farmcapita land availability. Shrinking of farm sizesize Slow reduction in share of employment (stillSlow reduction in share of employment (still 55%)55%) Main problem isMain problem is low labour productivitylow labour productivity inin agriculture. Gap between agri. and non-agri.agriculture. Gap between agri. and non-agri. is widening.is widening. We should blame non-agriculture (industryWe should blame non-agriculture (industry and services) for not absorbing workers fromand services) for not absorbing workers from agriculture.agriculture.
  • 22. Three Goals of AgriculturalThree Goals of Agricultural DevelopmentDevelopment 1.Achieve 4% growth in agriculture and raise1.Achieve 4% growth in agriculture and raise incomes. Increasing productivity (land,incomes. Increasing productivity (land, labor), diversification to high value agri. andlabor), 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, laggingfocus on small and marginal farmers, lagging regions, women etc. On lagging regions,regions, women etc. On lagging regions, focus on Eastern India and other rainfedfocus 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.
  • 23. 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
  • 24. Rural non-farm sectorRural non-farm sector Poverty can not be removed with 55% ofPoverty can not be removed with 55% of workers in agri.workers in agri. Need to promote rural non-farmNeed to promote rural non-farm sector.sector. India currently produces about 50 million tonnes ofIndia currently produces about 50 million tonnes of fruits and 90 million tonnes of vegetables. Only 2% offruits and 90 million tonnes of vegetables. Only 2% of these are processed as against 23% in China, 78% inthese 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 illiterateHalf of those engaged in agriculture are still illiterate andand just 5% havejust 5% have completed higher secondarycompleted higher secondary educ.educ. Even in 2004-05, aroundEven in 2004-05, around 60% of rural male60% of rural male workers and 85% of rural female workers areworkers and 85% of rural female workers are either illiterateeither illiterate or educated upto primary level.or educated upto primary level. In other words,In other words, education and skills areeducation and skills are constraints
  • 25. Lessons from ChinaLessons from China India leap frogged from agriculture to servicesIndia leap frogged from agriculture to services with less focus on manufacturing.with less focus on manufacturing. The share of employment in manufacturing inThe 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 inOn the other hand, the share of employment in manufacturing inmanufacturing in India is only 12%India is only 12% Diversification towards rural non-form sector inDiversification towards rural non-form sector in China is one of the important factorsChina is one of the important factors responsible for rural poverty reductionresponsible for rural poverty reduction (poverty 3%).(poverty 3%). This was partly due to high agriculturalThis was partly due to high agricultural productivity and investment in physical andproductivity and investment in physical and human capital.human capital.
  • 26. Social DevelopmentSocial Development In social sector, significant achievementsIn social sector, significant achievements in education and healthin education and health However, Human development index rankHowever, Human development index rank is 127 out of 170 countries.is 127 out of 170 countries. Social indicators are much lower forSocial indicators are much lower for Scheduled castes and Scheduled tribesScheduled castes and Scheduled tribes Malnutrition among children is one majorMalnutrition among children is one major problem (46% of children suffer fromproblem (46% of children suffer from malnutritionmalnutrition
  • 27. Six problems in Social Sector:Six problems in Social Sector: education and healtheducation and health There have been significant achievements butThere have been significant achievements but there are problemsthere are problems Low levels of social indicatorsLow levels of social indicators Slow progressSlow progress Significant regional, social and genderSignificant regional, social and gender disparitiesdisparities Low level and slow growth in public expendituresLow level and slow growth in public expenditures particularly on healthparticularly on health Poor quality delivery systemsPoor quality delivery systems Privatization of Health and EducationPrivatization of Health and Education
  • 28. Regional DisparitiesRegional Disparities Significant Regional Disparities in India.Significant Regional Disparities in India. Per capita income : Highest per capitaPer capita income : Highest per capita income Rs.16,679 in Punjab; lowest perincome 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 inFemale infant mortality varies from 12 in Kerala to 88 in Madhya PradeshKerala to 88 in Madhya Pradesh Female literacy varies from 33.6% in BiharFemale literacy varies from 33.6% in Bihar to 88% in Keralato 88% in Kerala
  • 29. Regional DisparitiesRegional Disparities Inter-state disparities in the growth of GrossInter-state disparities in the growth of Gross State Domestic Product (GSDP) increased in theState 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 theIn 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
  • 30. EnvironmentEnvironment Degradation of land, water. Increase inDegradation 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 leadHigher economic growth should not lead to decline in our environmentto decline in our environment
  • 31. What Should be done to improveWhat Should be done to improve inclusive growth?inclusive growth? Equity is important for economic developmentEquity is important for economic development Agricultural DevelopmentAgricultural Development Economic reforms are important. But macro-Economic reforms are important. But macro- poor policies (fiscal, trade, financial, monetarypoor policies (fiscal, trade, financial, monetary etc.) should have pro-poor focusetc.) should have pro-poor focus Structural change should have followedStructural change should have followed agriculture-industry-services sequenceagriculture-industry-services sequence Development of manufacturing sector isDevelopment of manufacturing sector is important for creation of productive employmentimportant for creation of productive employment Equality of opportunities (education)Equality of opportunities (education) South East Asian and East Asian experienceSouth East Asian and East Asian experience
  • 32. What should be done? (contd.)What should be done? (contd.) Role of TechnologyRole of Technology Shift focus of reforms to delivery systemsShift focus of reforms to delivery systems Importance of women’s economic andImportance of women’s economic and social empowermentsocial empowerment DecentralizationDecentralization Economic reforms in relation to socio-Economic reforms in relation to socio- political environmentpolitical environment Rights approach (civil, political andRights approach (civil, political and economic)economic)
  • 33. ConclusionConclusion There is a need to have a broad based andThere is a need to have a broad based and inclusive growth to benefit all sections of societyinclusive growth to benefit all sections of society and improve economic growth.and improve economic growth. We have examined issues and challenges in fiveWe have examined issues and challenges in five elements of inclusive growth (poverty andelements of inclusive growth (poverty and employment, agriculture, social sector, regionalemployment, agriculture, social sector, regional disparities and environment)disparities and environment) It is more challenging for the country to achieveIt is more challenging for the country to achieve inclusive growth than getting 8 to 10 per centinclusive growth than getting 8 to 10 per cent growth in GDPgrowth in GDP
  • 34. ConclusionConclusion There are strong social, economic and politicalThere 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 unrestSocially, lack of inclusive growth leads to unrest among many people.among many people. There is also an economic argument. The measuresThere 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 governmentLastly, the political argument is that no government in a democracy can afford to ignore large sections ofin 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 socialIf it is not inclusive it can generate very severe social tensions. Thus, politically, for having a stable andtensions. Thus, politically, for having a stable and democratic society one needs to have inclusivedemocratic society one needs to have inclusive growth.growth.
  • 35. THANK YOUTHANK YOU