1. Economic Development in India

2. Introduction
• Since independence, significant improvement in India’s
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%.

3. 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.

4. 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

5. 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

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

7. 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

8. Determinants of Rural Poverty
• Agricultural Growth
• Relative food prices
• Rural non-farm sector
• Rural wages
• Governments’ development expenditure
• Infrastructure
• Human Development

9. Percentage budget share of cereals
Year Rural Rural Urban Urban
Bottom Top 30% Bottom Top 30%
30% 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

10. Percentage budget share of food
(cereals+non-cereals)
Year Rural Rural Urban Urban
Bottom Top 30% Bottom Top 30%
30% 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

11. Movement in Indices of Commodity Prices India vs International:Cereals
300
257.9
250 237.4 231.1
200
158.7
150 122.6
121.3 118.6 120.4
114.1
100 106.7
100
100
50
2005 2006 2007 Year 2008 Qtr I 2008 Qtr II 2008 Qtr III
India WPI International (IMF Indices)

12. Movement in Indices of Commodity Prices India vs International:Wheat
300
269.9
250
227.3
208.4
200
167.4
150 128.8
125.8 120.7 125
124.6
113
100
100
100
50
2005 2006 2007 Year 2008 Qtr I 2008 Qtr II 2008 Qtr III
India WPI International (IMF Indices)

13. Movement in Indices of Commodity Prices India vs International:Rice
350
331.1
300
261.5
250
200
179.2
150
113.5 115.8
115.5 117
100 105.5 102.1
108.4
100
100
50
2005 2006 2007 Year 2008 Qtr I 2008 Qtr II 2008 Qtr III
India WPI International (IMF Indices)

14. 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

15. 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. (women’s 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

16. 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

17. 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

18. 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

19. 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.

20. 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.

21. 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.

22. 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

23. 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

24. 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.

25. 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

26. 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

27. 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

28. 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

29. 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

30. 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

31. What should be done? (contd.)
• Role of Technology
• Shift focus of reforms to delivery systems
• Importance of women’s economic and social
empowerment
• Decentralization
• Economic reforms in relation to socio-political
environment
• Rights approach (civil, political and economic)