Growth for Whom: An Investigation of India’s Inclusive Growth Strategy

April 1, 2013

by Paramjit Singh

Inclusive growth has been projected as the strategic pillar in the forthcoming 12thfive year plan. The policy designers are of the opinion that the ‘inclusive growth strategy for the 12thfive year plan should be based on the experience of inclusive outcomes of the 11thfive year plan’. The approach to 12thfive year plan titled ‘Faster, Sustainable and More Inclusive Growth’ defines inclusive growth as: Inclusive growth should result in lower incidence of poverty, universal access to school education including skill and education, better opportunities for wage employment and livelihood, improvement in health outcomes, improvement in provision of basic amenities like water, electricity, roads, sanitation and housing.

Has growth of Indian economy been really inclusive during the last plan or since the last two decades of reforms? This question demands a close empirical investigation. Since July 1991, Indian economy has witnessed several reforms encompassing all the major sectors of the economy (agriculture, industry, trade, foreign investment, technology, public sector, financial institutions and so on). The main objective of these reforms was to put the Indian economy out of the low level equilibrium trap. These reforms have marked a steady break from the previous policy regime. Due to these policies, India has raced to the top of world chart in terms of GDP growth. Since the last decade or so, GDP and Investment growth have recorded historical increase in India. However, in the last two years, there is a sharp decline in growth rate due to the economic crisis at the global level. But the economic survey of 2012 predicts that the recovery is on the way as far as growth is concerned. It projects that the GDP growth will increase from 6.9 per cent in 2011-12 to 7.6 per cent and upto 8.6 per cent in next two years respectively. Who is benefiting from this higher growth trajectory is the other important question. Can high growth provide better and secure employment to the common people? Has this growth made health and educational facilities more accessible to the common people? Has this high growth rate been able to reduce real poverty? All these issues are closely related to the title of 11th and forthcoming 12thfive year plan. The policy designers generally claim that with the passage of time the fruit of higher GDP economic growth will ‘trickles down’ to lower levels. But in India, this ‘trickle down’ has not worked yet. Here, we examine some crucial parameters of Indian economy and thereby try to bring out the real picture of its performance.

Unbalanced Sectoral Performance

As per economic survey of 2011-12 the share of agriculture in GDP is at all time low (13.9 per cent during this year) but it is still the most important sector in terms of employment share. On the other hand, the manufacturing and services activities which are contributing more than 85 per cent to GDP and getting a lion’s share of total capital formation are employing less than half of the total workforce. The higher growth and capital formation in the above two sectors have failed to transfer the workforce from low productive activities (agricultural and allied) to high productive activities (manufacturing and services). For growth to be inclusive it must create adequate livelihood opportunities and add to decent employment commensurate with the expectations of a growing labour force. The 11th five year plan aimed at generating 58 million work opportunities. But the NSSO survey has reported an increase in work opportunities to the tune of only 18 million between 2004-05 to 2009-10. The growth rate of employment in the organised sector (public and private combined) is only 1.9 per cent in 2010. The recent data shows that only 15.6 per cent of India’s workforce has regular jobs whereas remaining 84.4 per cent are either self-employed or working on casual basis. It obviously means that 85 per cent of India’s workforce is working under insecure and irregular conditions. So the theoretical claim regarding the relationship between GDP growth and increasing employment opportunities is nothing else but a myth.

Performance of Social Indicators

Social sector spending in India has recorded secular decline after the introduction of neo-liberal policies, no matter how essential these expenditures are. Wide range of social sector activities accounted only 18 per cent of the total budgetary expenditure during 2011-12. Among the social indicators, healthcare and education are the two key components. As Dreze and Sen (2011) argued, in the light of high GDP growth, India’s common man surely deserves the educational and health facilities comparable not to those of U.S.A. European Union, Socialist Cuba and China but at least to its neighbouring countries which have the same kind of political and economic set up. According to Human Development Report of 2011, India ranks 134 out of 187 countries (Low Human Development Index Category) in terms of human development. India’s public expenditure on health ranks among the lowest in world. In India, public spending on health as percentage of total public spending is 4.1 per cent, which is about 1.2 per cent of GDP. The draft of upcoming 12th five year plan projected merely 1.95 per cent of GDP as public health expenditure by the end of the 12th plan which is less than the overall norm of 5 per cent suggested by World Health Organisation. It is also less than the target UPA government set in 2004, which stated that the public expenditure on health would reach 2-3 per cent in the next five years. Under the neo-liberal agenda it is such planned disinvestment policy of the government that is facilitating the corporate/commercial bodies to invest in health services and earn enormous profits, exploiting the sickness of common people. At present, three quarter of the advanced medical technology and 68 per cent of hospitals are in private sector. The government health services, which were well reputed in the past, have hardly any patients today and if there is any it is because costly private hospitals are inaccessible to the public. There are no or very few medicines in government hospitals. The patients have to often buy the medicines from private stores which are directly linked with the doctors through commissions. This corporate sector led health network is exploiting the bottom strata of society and deepening the health inequality in India. The retreat of the State from health sector and rising corporatisation of these facilities through government incentives have put a serious question mark on the state of our public health facilities and its future.

The case is more or less the same in education. In primary education, we are well behind the other nations which have comparable level of economic growth and per capita income. During 2011, the mean year of schooling in India was 4.4 and female literacy rate was lower than the overall average. In 2004, UPA government has announced to raise the public spending on education to 6 per cent of GDP. But the ground reality shows that the public expenditure on education as percentage of GDP has declined from 4.2 per cent in 2000 to 3.1 per cent in 2011-12. After the introduction of neo-liberal policies, the private sector investment in education has increased sharply and it has become one of the major profits earning sectors. In India, the percentage of private schools has increased from 53 per cent to 62.4 per cent in 2006-07. The number of deemed universities has also recorded a sharp increase in the last decade or so. These corporate sector led universities and institutions are more concerned about the quantitative addition in their strength and higher profits rather than quality of education. Since the last decade or so the quality of education in India has greatly deteriorated. Planned reduction in public expenditure on education and health on one hand and incentives provided to the private sector to invest in these two priority fields, which are essential for common people, on the other hand is a cause of serious concern.

Poverty Paradox

The gap between the haves and have not’s has widened after the introduction of new economic policy. Planning commission has adjusted the poverty line for 2009-10 prices, which stood at Rs. 29 per day per capita expenditure in urban areas and Rs. 22 per day per capita in rural areas. On the basis of this, the commission claimed that there was impressive rate of decline in poverty from 37.2 per cent in 2004-05 to 29.8 per cent in 2009-10. According to this measure, even in absolute terms, the number of poor has also came down from 407.2 million in 2004-05 to 354.6 million in 2009-10. The orthodox economists are of the view that the higher GDP growth (8.5 per cent) from 2004-05 to 2009-10 has reduced poverty at a record rate of 1.5 per cent point per year.

Now, let us check the reality. Is it possible for a family of five members in urban areas to meet the consumption requirements with Rs. 4298 per month and in rural areas with Rs. 3364 per month when the food prices inflation rate has entered the two digit level? According to the calorie estimates of poverty, the proportion of households which are unable to consume 2100 calories in urban areas and 2200 calories in rural areas (earlier it was 2400) are considered to be poor. On the basis of this criterion Utsa Patnaik calculated that the proportion of urban population living below this nutrition level has increased from 57 per cent in 1993-94 to 73 per cent in 2009-10. In case of rural areas, the proportion of population below minimum nutrition norms has increased from 59 per cent in 1993-94 to 76 per cent in 2009-10. It means that after the introduction of neoliberal measures the extent of poverty in Indian has increased.

The ‘Inclusive Growth Strategy’ of government has proven to be a failure in key/urgent spheres. Therefore it is necessary for us, before announcing the 12th five year plan strategy, to realise the ground realities and evaluate where we really stand. There is an urgent need to rethink about so called ‘inclusiveness’ of India’s present economic model. The uncontrolled and unconditional privatisation of education and health facilities is a real threat to inclusive growth. To make growth inclusive in reality, the government should impose checks on uncontrolled private sector investment in education and health sector and should keep at least these two priority sectors in the hands of the State. The government also need to make these facilities accessible to the poor and should make appropriate investment in these two fields for the development of quality educational institutions and hospitals with well trained staff. There is also an urgent requirement to take steps to reduce the rate of poverty in real terms rather than in monetary terms by generating secure, better and permanent employment opportunities instead of temporary measures such as MGNREGA.

References

Dreze, J and A. Sen, (2011), “Putting Growth in its Place”, Outlook, November 14.

Government of India (2011), Faster, Sustainable and More Inclusive Growth: An Approach to the 12th Five Year Plan, Planning Commission, Delhi.

Government of India (2012), Economic Survey of India, Oxford University Press, New Delhi.

Government of India (2012) Poverty Estimates for 2009-10, Press Release, March 2012.

Human Development Report (2011), Sustainability and Equity: A Better Future for All, UNDP.

Patnaik, U. (2007)“Neoliberalism and Rural Poverty in India.” Economic and Political Weekly, Vol. 22 No.30.

Patnaik, U. (2010) “Trends in Urban Poverty under Economic Reforms: 1993-94 to 2004 05,” Economic and Political Weekly, Vol. 65 No.4.