Inclusive Growth: A precursor to Equitable Growth
Equitable Growth

Inclusive Growth: A precursor to Equitable Growth

Relevance: GS Paper III – Indian Economy

Meaning of Inclusive Growth:

Inclusive growth refers to economic expansion that is equitably shared throughout society, providing opportunities for everyone.

  • The significance of inclusive growth in economic development has heightened, driven by escalating economic inequality and its impact on human welfare and prosperity.

  • As per the OECD, inclusive growth is characterised by the equitable distribution of economic growth across society, fostering opportunities for everyone.

  • The concept of inclusive growth aligns with the dual goals of inclusiveness and sustainability. Former President Pranab Mukherjee emphasised that it should not be a mere slogan but a fundamental driver for sustainable development.

  •  A key aspect of inclusive growth is its emphasis on environmentally sustainable economic expansion, a vital prerequisite for both poverty reduction and long-term sustainability.

Features Of Inclusive Growth:

  • Sustainable Growth with a Long-Term Vision: Inclusive growth entails adopting a long-term perspective, emphasising sustainable economic expansion. The focus is on fostering growth that not only persists but also considers environmental and social sustainability.

  • Economic Diversification Across Sectors: An integral feature involves ensuring that growth is broad-based, extending across various sectors for economic diversification. Diversification minimises dependency on specific industries, contributing to a more resilient and robust economy.

  • Inclusivity for the Labor Force: Inclusive growth must encompass the vast labour force, providing them with equitable market access, resources, and a conducive environment for trade and business. This approach aims to bridge gaps in economic opportunities, ensuring that no segment of the workforce is left behind.

  • Focus on Quality and Pattern of Growth: It emphasises not only the pace but also the quality and pattern of economic growth. This nuanced approach ensures that the nature of growth aligns with sustainable development goals, promoting balanced progress.

  • Potential Outcomes- Employment and Income Distribution: Inclusive growth is associated with tangible outcomes, such as the generation of employment opportunities and a more equitable distribution of income. These outcomes contribute to reducing disparities and fostering a more balanced economic landscape.

  • Comprehensive Pro-Poor Approach: Taking a comprehensive approach, inclusive growth aligns with pro-poor growth strategies. Policies and initiatives are designed to uplift the economically disadvantaged, ensuring that the benefits of growth reach those at the bottom of the socio-economic spectrum.

Elements of Inclusive Growth:

  • Skill Development for Employability: The emphasis on skill development addresses the need for vocational training and education to enhance the output of the employable population. In India, there exists a dual challenge of a shortage of highly trained workers and the unemployment of conventionally trained youths.

  • Financial Inclusion for Economic Development: Financial inclusion, ensuring access to financial aid and services, particularly for vulnerable groups, is a crucial element for inclusive growth and economic development. The goal is to make financial resources affordable and accessible to all segments of society.

  • Technology and its Impact: The era of Industrial Revolution 4.0 brings technological advancements that have the potential to both increase and decrease inequality, contributing to an urban-rural divide. Initiatives like the Digital India Mission aim to bridge this gap by enhancing digital literacy and leveraging technology for positive transformations across sectors like agriculture, manufacturing, education, health, and governance.

  • Economic Growth and Inclusivity: Given India's status as one of the fastest-growing economies globally, a shift towards inclusive growth is imperative for overall economic development. Inclusive growth strategies ensure that the benefits of economic progress reach all sections of society, fostering a more equitable distribution of wealth.

  • Social Development for Marginalised Sections: Social development plays a pivotal role in inclusive growth, specifically targeting marginalised and vulnerable populations. Investing in social structures to provide services for these sections not only addresses immediate needs but also contributes to building capable future generations, thereby enhancing fiscal stability.

 Issues/Challenges to Inclusive Growth: 

  • Poverty: Despite a 12.3% decline in extreme poverty in India between 2011 and 2019, it remains a significant obstacle to inclusive growth. India's global rank of 66 out of 109 countries on the multidimensional poverty index indicates the persistent challenges on this front.

  • Unemployment: The Covid-19 pandemic has exacerbated unemployment among educated urban youth, particularly in informal sectors lacking social security. The emerging gig economy, while providing opportunities, raises concerns about the absence of social security for workers.

  • Urban and Rural Divide: Rural India grapples with agricultural challenges stemming from reduced per capita land availability and yield decline due to factors like climate change and land degradation. Digital advancements have widened regional and social disparities, exacerbating the urban-rural divide.

  • Social Issues: Deep-rooted social issues, including gender disparity, the persistence of the caste system, and religious differences, pose impediments to inclusive growth. Concerns like malnutrition among children further compound the challenges, impacting the nation's future prospects.

  • Education Disparities: Unequal access to quality education, especially in remote and marginalised areas, hinders the development of a skilled workforce. Disparities in educational opportunities contribute to a cycle of poverty and limit the potential for inclusive economic growth.

  • Environmental Sustainability: The environmental impact of economic activities, exacerbated by industrialization and urbanisation, poses a threat to inclusive growth. Balancing economic development with environmental sustainability is crucial to prevent long-term consequences on the well-being of communities.

Reasons for Inequality in India:

  • Historical Reasons: Discrimination against specific societal sections throughout history has impacted their education, employment opportunities, and health accessibility. Policies like Reservation, implemented since Independence, succeeded economically and politically but fell short in achieving widespread social upliftment.

  • Gender Disparities: Females have long been perceived as subordinate and weaker, limiting their educational choices and employment opportunities. Girls education is often considered a burden, contributing to the restricted choices for women in the workforce.

  • Informal Employment Challenges: Approximately 80% of the Indian labour force operates in the informal sector, characterised by job insecurity and a lack of regular pay and social security benefits. This informal sector's prevalence intensifies the wage gap between formal and informal employment.

  • Agricultural Dependency Shift: Despite a significant portion of the population relying on agriculture, the sector's contribution to the total GDP is diminishing.

  • Inter-State Inequalities: Regional and sectoral growth disparities exist; for instance, the Green Revolution disproportionately favoured Western and Southern India over Eastern India.

  • Globalisation Impact: Studies indicate that globalisation and economic liberalisation have primarily benefited the affluent, exacerbating inequality. Global platforms like the World Trade Organization (WTO) have increased trade competitiveness, affecting local investors and producers negatively.

  • Tax Policies and Wage Inequality: Renowned economist Thomas Piketty's research suggests that tax progressivity, crucial for curbing rising inequality, has progressively diminished. Privatisations have led to increased wage inequality dispersion, as government-set pay scales, which were less unequal, were removed.

  • Lack of Skill Development and Jobless Growth: Inadequate emphasis on skill development and a growth pattern characterised  by joblessness contribute significantly to the prevailing inequality in India.

Measurement of Inclusive Growth:

  • Inclusive Development Index (IDI): Compiled by the World Economic Forum (WEF), the IDI focuses on people's perception of their country's growth, emphasising standards of living over GDP. The index gauges inequality using three key parameters: Growth and development, Inclusion, and Inter-generational equity and sustainability.

  • Social Progress Index (SPI):  Serving as an aggregate index for social and environmental indicators, the SPI considers Basic human needs, Foundation of well-being, and Opportunities. Unlike focusing solely on government spending, SPI assesses outcomes and the efficiency with which government expenditures are utilised, offering a more comprehensive perspective.

  • Global Slavery Index: Released by the Walk Free Foundation of Australia, this index addresses modern slavery, characterised by one person depriving another of freedom for exploitation. Factors contributing to modern slavery include the absence of rights, lack of physical safety, access to necessities like healthcare and education, and migration patterns.

 Indian Initiatives for Inclusive Growth:

  • Mahatma Gandhi National Rural Employment Guarantee Act Scheme (MGNREGA): Enacted in 2005, MGNREGA guarantees 100 days of employment per financial year to adult members of rural households willing to engage in unskilled manual work. Monitored by the Ministry of Rural Development, this scheme addresses unemployment in association with state governments.

  • Prime Minister’s Employment Generation Programme (PMEGP): Implemented by the Khadi and Village Industries Commission, PMEGP operates at the national and state levels. It facilitates entrepreneurship by providing government subsidies through designated banks directly to beneficiaries, supporting small and micro-enterprises.

  • Mudra Bank Scheme - Pradhan Mantri MUDRA Yojana (PMMY): Launched in 2015, PMMY offers loans up to 10 lakh for non-corporate, non-farm small/micro-enterprises. Commercial Banks, RRBs, Small Finance Banks, MFIs, and NBFCs play a key role in disbursing MUDRA loans to promote entrepreneurship.

  • Pt. Deen Dayal Upadhyaya Grameen Kaushalya Yojana (DDU-GKY): Aimed at skill development for rural youth, DDU-GKY provides jobs with regular monthly wages. As part of the National Rural Livelihood Mission, it strives to uplift more than 55 million poor rural youth by offering sustainable employment opportunities.

  • Deendayal Antyodaya Yojana- National Urban Livelihoods Mission (DAY-NULM): This mission focuses on providing shelters with essential services to the urban homeless and addressing livelihood concerns of street vendors. It facilitates access to suitable spaces, institutional credit, social security, and skills for urban street vendors.

  • Sarva Shiksha Abhiyan (SSA): SSA is the Government of India's flagship program for achieving Universalization of Elementary Education. Mandated by the 86th amendment to the Constitution, SSA ensures free and compulsory education for children aged 6-14 as a Fundamental Right.

  • National Rural Health Mission (NRHM): Launched in 2005, NRHM aims to provide accessible, affordable, and quality healthcare to the rural population, particularly vulnerable groups.

  • Swachh Bharat Mission: Transitioning to ODF-Plus, this mission ensures sustained open defecation-free behaviour, accessibility to solid and liquid waste management facilities, and reinforces ODF behaviours in rural areas.

  • Mission Ayushman - Ayushman Bharat Digital Mission (ABDM): ABDM aims to develop the digital infrastructure supporting integrated healthcare. It bridges gaps among different stakeholders in the healthcare ecosystem through digital advancements.

  • Pradhan Mantri Jan Dhan Yojana (PMJDY): The National Mission for Financial Inclusion, PMJDY ensures access to financial services, including basic savings & deposit accounts, remittance, credit, insurance, and pensions, in an affordable manner.

  • DISHA Project: Implemented in partnership with UNDP, DISHA focuses on creating employment and entrepreneurship opportunities for women in India.

Way Forward: 

  • Challenges in Reflecting Economic Growth on Ground: Despite India's economic growth, the tangible impact on real-time development remains inadequate for achieving complete inclusive growth. Further steps are imperative to align development objectives with inclusive growth.

  • Addressing Persistent Issues: Schemes and projects are underway to tackle social and regional disparities, the rural-urban divide, malnutrition, and poverty. However, a more robust approach is needed to accelerate progress in these critical areas.

  • Learning from the 2008 Financial Crisis: The 2008 financial crisis served as a stark reminder that conventional growth models do not benefit everyone, jeopardising overall well-being. There is a pressing need for new and improved models that prioritise improving lives.

  • Ensuring Benefits Reach the Majority: To foster greater motivation and involvement, economic growth benefits must not disproportionately favour a wealthy minority. Achieving this involves steps such as making tax systems fairer, ensuring fair wages, and creating a business environment that uplifts communities.

  • Global Support for Marginalised Groups: Globally, certain social groups and territories, even in affluent nations, have been neglected for years. Strategic policies and investments in essential public services can contribute to building cohesive societies and bridging divisive gaps for future prosperity.

  • Anticipating Global Changes: Proactively addressing the impacts of globalisation, digitalization, and demographic shifts is crucial. Key considerations include building the skills of the future workforce, supporting entrepreneurship while safeguarding job quality, and integrating migrants for enhanced solidarity in societies.

  • Grassroots Approach to Inclusive Growth: Emphasising that inclusive growth must start from the grassroots level, addressing fundamental issues becomes paramount. Restoring public faith in institutions requires the highest standards of integrity, efficiency, transparency, and public participation from public authorities.

Ultimately, the initiation of inclusive growth must originate at the grassroots level, underscoring the importance of addressing fundamental issues. Presently, a substantial portion of the population is losing trust in institutions. This trajectory can be reversed through public authorities exhibiting the utmost standards of integrity and efficiency in their endeavours, along with actively fostering transparency and encouraging greater public participation.

Advait IAS