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