Inclusive Growth, poverty and Economic Development in India

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Inclusive Growth, poverty and Economic
Development in India

• Prof. S.Mahendra Dev,
• Chairman, Commission for Agricultural Costs and
  Prices, Government of India

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Introduction

• Since independence, significant improvement in
  Indias 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.

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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.

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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

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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.

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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
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Number of poor (in million)
Year Number (million)
1973-74 321
1983 323
1993-94 320
2004-05 302
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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

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Determinants of Rural Poverty

• Agricultural Growth
• Relative food prices
• Rural non-farm sector
• Rural wages
• Governments development expenditure
• Infrastructure
• Human Development

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Percentage budget share of cereals
Year Rural Rural Urban Urban
Bottom 30 Top 30 Bottom 30 Top 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
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Percentage budget share of food
(cerealsnon-cereals)
Year Rural Rural Urban Urban
Bottom 30 Top 30 Bottom 30 Top 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
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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

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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. (womens 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

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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
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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

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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

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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.

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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.

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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.

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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

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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

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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.

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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

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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

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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

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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

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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

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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

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What should be done? (contd.)

• Role of Technology
• Shift focus of reforms to delivery systems
• Importance of womens economic and social
  empowerment
• Decentralization
• Economic reforms in relation to socio-political
  environment
• Rights approach (civil, political and economic)

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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

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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.

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• THANK YOU