INCLUSIVE GROWTH · INCLUSIVE GROWTH Inclusive growth is necessary for sustainable development and equitable distribution of wealth and prosperity. Achieving inclusive growth is the

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DEFINING INCLUSIVE GROWTH

Inclusive growth basically means, “broadbased growth, shared growth, and pro-poorgrowth”. Rapid and sustained poverty reductionrequires inclusive growth that allow people tocontribute to and benefit from economicgrowth. Rapid pace of growth is unquestionablynecessary for substantial poverty reduction, butfor this growth to be sustainable in the longrun, it should be broad-based across sectors,and inclusive of the large part of the country’slabor force. This definition of inclusive growthimplies a direct link between the macro andmicro determinants of growth. The microdimension captures the importance of structuraltransformation for economic diversification andcompetition, including creative destruction ofjobs and firms.

Inclusive growth refers both to the pace andpattern of growth, which is consideredinterlinked, and therefore is in need to beaddressed together. Inclusiveness – a conceptthat encompasses equity, equality ofopportunity, and protection in market andemployment transitions – is an essentialingredient of any successful growth strategy.

Why must growth be inclusive?

Inclusive growth is important for veryvarious reasons:

• For ethical consideration of equity andfairness, growth must be shared andshould be inclusive across differentsegments of populations and regions.Economic and other shocks hurt the poorand the vulnerables and growth thatresults by it leads to high disparity whichis unacceptable.

• Growth with persisting inequalitieswithin a country may endanger socialpeace, force poor and unemployedpeople into criminal activities, makewomen more vulnerable to prostitution,

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force children into undesirable labor, andfurther weaken other disadvantaged andsusceptible sections of population—resulting in a waste of vast human capitalthat could otherwise be used productivelyin creating economic outputs forsustainable growth.

• Continued inequalities in outcomes andaccess to opportunities in a country mayresult in civil unrest and violent backlashfrom people who are continuallydeprived, derailing a sustainable growthprocess. This may create political unrestand disrupt the social fabric and nationalintegration, undermining the potential forlong-term, sustained growth.

NEED AND IMPORTANCE OFINCLUSIVE GROWTH

Inclusive growth is necessary for sustainabledevelopment and equitable distribution ofwealth and prosperity. Achieving inclusivegrowth is the biggest challenge in a countrylike India. In India, bringing 600 million peopleliving in rural areas into the mainstream is thebiggest concern. The challenge is to take thelevels of growth to all sections of the societyand to all parts of the country.

The inclusive growth approach takes alonger term perspective as the focus is onproductive employment rather than on directincome redistribution, as a means of increasingincome for excluded groups. Inclusive growthfocuses on ex-ante analysis of sources of, andconstraints to sustained, high growth, and notonly on one group – the poor. Policies forinclusive growth are an important componentof most government strategies for sustainablegrowth. For instance, a country that has grownrapidly over a decade, but has not seensubstantial reduction in poverty rates may needto focus specifically on the inclusiveness of itsgrowth strategy.

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Since independence, significant improve-ment in India’s economic and social develop-ment made the nation to grow strongly in the21st century. The following factors encouragedIndia to concentrate more on inclusive growth.

1. India is the 7th largest country by areaand 2nd by population. It is the 12thlargest economy at market exchange rateand 4th largest by PPP. Yet, India is faraway from the development of theneighbouring nation, i.e., China.

2. The exclusion in terms of low agriculturegrowth, low quality employment growth,low human development, rural-urbandivides, gender and social inequalities,and regional disparities, etc. are some ofthe problems of the nation.

3. Reducing of poverty and other disparitiesand raising of economic growth are thekey objectives of the nation throughinclusive growth.

4. Studies have estimated that the cost ofcorruption in India amounts to over 10%of GDP. Corruption is one of the ills thatprevent inclusive growth.

5. Although child labour has been bannedby law in India and there are stringentprovisions to deter this -inhuman practice.Still, many children in India are unawareof education as their lives are spoiled dueto labour work.

6. Literacy levels have to be raised to providethe skilled workforce required for highergrowth.

7. Achievement of 9% of GDP growth forcountry as a whole is one of the boostingfactors which gives the importance to theInclusive Growth in India.

8. Inclusiveness benchmarked againstachievement of monitorable targets relatedto (i) Income & Poverty (ii) education(iii) health (iv) women & children(v) infrastructure (vi) environment.

9. Even at international level also, there is aconcern about inequalities and exclusionand now they are also talking aboutinclusive approach for development.

MEASUREMENT OF INCLUSION – AMULTI – DIMENSIONAL CONCEPT

A. Pillar One- Growth and Expansion ofEconomic Opportunity-

1. Economic Growth and Employment:—• Growth rate of GDP per capita at PPP• Growth rate of average per capita

income/consumption (lowest quintile,highest quintile, and total)

• Employment rate• Elasticity of total employment to total

GDP (employment elasticities)• Number of own-account and

contributing family workers per 100wage and salaried workers

• 2. Key Infrastructure Endowments-:• Per capita consumption of electricity• Percentage of paved roads• Number of cellular phone

subscriptions per 100 people• Depositors with other depository

corporations per 1,000 adults

B. Pillar Two -Social Inclusion to Ensure EqualAccess to Economic Opportunity-

1. Access and Inputs to Education andHealth:-

• School life expectancy (primary totertiary)

• Pupil-teacher ratio (primary)• Diphtheria, tetanous toxoid, and

pertussis (DTP3) immunizationcoverage among 1-year-olds

• Physicians, nurses, and midwives per10,000 population

• Government expenditure oneducation as percentage of totalgovernment expenditure

• Government expenditure on health asa percentage of total governmentexpenditure

2. Access to Basic Infrastructure Utilitiesand Services:-

• Percentage of population with accessto electricity

• Share of population using solid fuelsfor cooking

• Percentage of population usingimproved drinking water sources

• Percentage of population usingimproved sanitation facilities

3. Gender Equality and Opportunity:-• Gender parity in primary, secondary,

and tertiary education


• Antenatal care coverage (at least onevisit)

• Gender parity in labor forceparticipation

• Percentage of seats held by women innational parliament

C. Pillar Three- Social Safety Nets-

• Social protection and labor rating

• Social security expenditure on health asa percentage of government expenditureon health

• Government expenditure on socialsecurity and welfare as percentage oftotal government expenditure

D. Pillar Four: Good Governance andInstitutions-

• Voice and accountability• Government effectiveness• Corruption perceptions index

INDIAN PLANNING AND INCLUSIVEGROWTH

Economic Planning is to make decision withrespect to the use of resources. EconomicPlanning is a term used to describe the longterm plans of government to co-ordinate anddevelop the economy. Economic planning inIndia which was started in 1950 is necessaryfor economic development and economicgrowth.

Need for Economic Planning

• Mass Poverty and Low Per CapitaIncome

• High Rate of Growth of Population

• Low Level of Literacy• Lack of infrastructure• Regional disparities• Backward Technology• Social and Economic Problem Created By

Partition Of Country

Objectives of Economic Planning

• Economic Growth.• Reduction of Economic Inequalities.• Balanced Regional Development.• Modernization.• Reduction of Unemployment.

First five year plan (1951-1956) – India’sfirst Prime Minister, Jawaharlal Nehrupresented the first five- year plan to theParliament of India on 8 December 1951. Theplan addressed, mainly, Industrial sector ,Energy and Irrigation, Transport andCommunications , Land rehabilitation, Socialservices, Development of agriculture andcommunity & Miscellaneous issues. The most


important feature of this phase was active roleof state in all economic sectors. Afterindependence, India was facing basicproblems—deficiency of capital and lowcapacity to save. The target set for the growthin the gross domestic product was 2.1 percentevery year. In reality, the actual achieved withregard to gross domestic product was 3.6percent per annum. This is a clear indicationof the success of the 1st five year plan.

Second five year plan (1956-61) - Unlikethe First plan, which focused mainly onagriculture, domestic production of industrialproducts was encouraged in the Second plan,particularly in the development of the publicsector. The plan followed the Mahalanobismodel. The second five- year plan focused onindustry, especially heavy industry,Hydroelectric power projects and five steel millsat Bhilai, Durgapur, and Rourkela wereestablished. Coal production was increased.More railway lines were added in the northeast.

• Atomic energy was also formed in secondfive year plan.

• The total amount allocated under thesecond five year plan in India was Rs.4,800 crore. This amount was allocatedamong various sectors:

• Mining and industry• Community and agriculture development• Power and irrigation• Social services• Communications and transport.

(Targetted Growth was 4.5% and 4.0%Growth was achieved during the plan.)

Third five year plan (1961-66) - The thirdplan stressed on agriculture and improvementin the production of wheat, but the brief Sino-Indian War of 1962 exposed weaknesses in theeconomy and shifted the focus towards theDefence industry and Indian army. In 1965–1966, India fought a War with Pakistan. Dueto this there was a severe drought in 1965. Thewar led to inflation and the priority was shiftedto price stabilisation. The construction of damscontinued. Many cement and fertilizer plantswere also built. Punjab began producing anabundance of wheat. Target Growth was 5.6%and 2.4% Growth was achieved during the plan.Due to miserable failure of third plan the Govt.

was forced to declare “plan holidays”(from1966-67,1968-69) .Three annual plans weredrawn during this intervening period. During1966-67 there was again the problem ofdrought. Equal priority was given to agriculture,its allied and industry sector. The main reasonof plan holidays was Indo-Pak war, lack ofresources and increase in inflation.

Fourth five year plan (1969-74) - The IndiraGandhi government nationalised 14 majorIndian banks and the Green Revolutionadvanced agriculture in India. In addition, thesituation in East Pakistan (now Bangladesh)was becoming dire as the [Indo-Pakistan Warof 1971] and Bangladesh Liberation War tookFunds, earmarked for the industrialdevelopment, had to be diverted for the wareffort. India also performed the Smiling Buddhaunderground nuclear test in 1974. TargettedGrowth was 5.7% and Actual Growth was3.3%.

Fifth five year plan (1974-79) - Stress waslaid on employment, poverty, alleviation, andjustice. The plan also focused on self-reliancein agricultural production and defense.• TheIndian national highway system was introducedfor the first time. In 1978 the newly electedMorarji Desai government rejected the plan.Electricity Supply Act was enacted in 1975,which enabled the Central Government to enterinto power generation and transmission.(Targetted Growth: 4.4% Actual Growth: 5.0.)

Sixth five year plan (1980-85) - The sixthplan also marked the beginning of economicliberalisation. Price controls were eliminatedand ration shops were closed. This led to anincrease in food prices and an increase in thecost of living. This was the end of Nehruviansocialism and Rajeev Gandhi became the PrimeMinister during this period. The sixth five yearplan was a great success to Indian economy.(Targetted Growth: 5.2% Actual Growth: 5.4%)

Seventh five year plan(1985-90) - As anoutcome of the sixth five-year plan, there hadbeen steady growth in agriculture, control onrate of Inflation, and favourable balance ofpayments which had provided a strong basefor the seventh five Year plan to build on theneed for further economic growth. The planlaid stress on improving the productivity levelof industries by upgrading of technology. Themain objectives of the 7th five-year plan were


to establish growth in areas of increasingeconomic productivity, production of foodgrains, and generating employment. The thrustareas of the 7th five year plan have beenenlisted below:

• Social Justice• Using modern technology• Agricultural development• Full supply of food, clothing, and shelter• Increasing productivity of small and large

scale farmers• Making India an Independent Economy.

Under the Seventh Five Year Plan, Indiastrove to bring about a self-sustainedeconomy in the country with valuablecontributions from voluntary agenciesand the general populace. (TargettedGrowth: 5.0% Actual Growth: 6.1%.)

Eighth five year plan (1992-97) - 1989–91was a period of economic instability in Indiaand hence no five-year plan was implemented.Between 1990 and 1992, there were onlyAnnual Plans. In 1991, India faced a crisis inForeign Exchange (Forex) reserves. It was thebeginning of privatization and liberalization inIndia. Modernization of industries was a majorhighlight of the Eighth Plan. Under this plan,the gradual opening of the Indian economy wasundertaken to correct the burgeoning deficitand foreign debt. Meanwhile India became amember of the World Trade Organization on 1January 1995.This plan can be termed as Raoand Manmohan model of Economicdevelopment. The major objectives included,controlling population growth, povertyreduction, employment generation, streng-thening the infrastructure, Institutionalbuilding, tourism management, HumanResource development, Involvement ofPanchayat Raj, Nagar Palikas, N.G.O’S andDecentralisation and people’s participation.Energy was given priority with 26.6% of theoutlay. An average annual growth rate of6.78% against the target 5.6% was achieved.

Ninth five year plan (1997-2002) - The mainobjectives of the Ninth Five Year Plan were :

• to develop the rural & agricultural sector• to generate employment opportunities

and promote poverty reduction.• to provide for the basic infrastructural

facilities like education for all, safe

drinking water, primary health care,transport, energy.

During the Ninth Plan period, the growthrate was 5.35 per cent, a percentage point lowerthan the target GDP growth of 6.5 per cent.

Tenth five year plan (2002-07) – The mainobjectives of the tenth Five Year Plan were :

To Attain 8% GDP growth per year.

• Reduction of poverty ratio by 5percentage points by 2007.

• Providing gainful and high-qualityemployment.

• Reduction in gender gaps in literacy andwage rates by at least 50%.

Inclusiveness and Eleventh Plan (2007–2012) - The 11th Five Year Plan provided anopportunity to restructure policies to achieve anew vision of growth that will be more broadbased and inclusive, bringing about a fasterreduction in poverty and helping bridge thedivides that are currently the focus of greaterattention. The first step in this direction werein fact initiated in the middle of the Tenth Plan.The strength of the fundamentals of the Stateeconomy was evident from a noteworthytransition to a high growth path during the10th Five Year Plan period. With this backdropof an impressive record of economic growthcoupled with an assured positive upsurge inthe living standards of the people, the Statealong with the Nation approached culminationof the Eleventh Five Year Plan on an optimisticnote. ‘Rapid and inclusive growth’ was the coretheme of the 11th Five Year Plan with mainemphasis on the Social sector and delivery ofservices therein. Education, in particular, wasaccorded utmost priority during the 11th FiveYear Plan period.

The Eleventh Five Year Plan (2007-08 to2011-12) had aimed at achieving faster andmore inclusive growth. Rapid GDP growth,targeted at 9.0 per cent per annum, wasregarded necessary for two reasons: first, togenerate the income and employmentopportunities that were needed for improvingliving standards for the bulk of the population;and second, to generate the resources neededfor financing social sector programmes, aimedat reducing poverty and enabling inclusiveness.


The economy performed well on the growthfront, averaging 8.2 per cent in the first fouryears. Growth in 2011-12, the final year of theEleventh Plan was originally projected at around9.0 per cent continuing the strong reboundfrom the crisis, which saw an 8.5 per centgrowth in 2010-11. Instead, the economyactually slowed down somewhat in 2011-12compared to the previous year – a phenomenoncommon to all major economies reflecting thefact that 2010 was a rebound from depressedlevels in 2009. The economy achieved anaverage GDP growth of around 8.2 per centover the Eleventh Plan period, which was lowerthan the 9.0 per cent targeted originally, buthigher than the 7.8 per cent achieved in theTenth Plan. This implied a nearly 35 per centincrease in per-capita GDP during this period.It also led to a substantial increase ingovernment revenues, both at the Centre andthe States, resulting in a significant step-up ofresources for the programmes aimed atinclusiveness. A healthy increase in aggregatesavings and investment rates, particularly inthe private sector, testified to the strength ofour economy as it entered the Twelfth Planperiod.

The acceleration in the growth in theEleventh Plan period compared with the TenthPlan was modest, but it nevertheless was a goodperformance, given the fact that a severe globaleconomic crisis depressed growth in two ofthese five years, and also that in the year 2009India had the weakest monsoon in threedecades.

Inclusiveness- The progress towardsinclusiveness is more difficult to assess, becauseinclusiveness is a multidimensional concept.Inclusive growth should result in lowerincidence of poverty, broad-based andsignificant improvement in health outcomes,universal access for children to school, increasedaccess to higher education and improvedstandards of education, including skilldevelopment. It should also be reflected inbetter opportunities for both wage employmentand livelihood, and in improvement inprovision of basic amenities like water,electricity, roads, sanitation and housing.Particular attention needs to be paid to theneeds of the SC/ST and OBC population.Women and children constitute a group whichaccounts for 70% of the population and deserves

special attention in terms of the reach ofrelevant schemes in many sectors. Minoritiesand other excluded groups also need specialprogrammes to bring them into the mainstream.To achieve inclusiveness in all these dimensionsrequire multiple interventions, and successdepends not only on introducing new policiesand government programmes, but oninstitutional and attitudinal changes broughtabout, which take time.

Inter-State and Inter-Sectoral Variations-One important feature of the growthexperienced in the Eleventh Plan, which wasrelevant for inclusiveness, was that high ratesof economic growth had been more broadlyshared than ever before across the States. Whilemost States showed sustained high rates ofgrowth, several of the economically weakerStates demonstrated an improvement in theirgrowth rates. Amongst them were Bihar, Orissa,Assam, Rajasthan, Chhattisgarh, MadhyaPradesh, Uttarakhand and to some extent UttarPradesh. According to the available data, noState averaged GSDP growth of less than 6.0per cent during the Eleventh Plan period. Whilethe economically-weaker states caught up ingrowth rates, there was growing concern aboutthe backwardness of individual districts, severalof which are located in States that wereotherwise doing well. Many of these districtswere also affected by Left-wing Extremism. TheBackward Regions Grant Fund (BRGF) andvarious other regional initiatives have beenspecially designed to address this problem.

Progress in Reducing Poverty- Reducingpoverty is a key element in our inclusive growthstrategy and there is some progress in thatregard. According to previous official povertyestimates, the percentage of the populationliving below the poverty line had declined by8.5 percentage points between 1993-94 and2004-05. The Eleventh Plan had set a moreambitious target of achieving a decline in povertyratio of 2 percentage points per year. While theactual performance in this regard was below thistarget, it was better than it was in the earlierdecade. A summary assessment is that the paceof poverty reduction had accelerated, though itmay still be short of the target. Nevertheless, it isheartening to note that looking ahead; India iswell poised to meet the Millennium DevelopmentGoal target of 50 per cent reduction of povertybetween 1990 and 2015.


Plan Programs for Inclusiveness-TheEleventh Plan gave a special impetus to severalprogrammes aimed at building rural and urbaninfrastructure and providing basic services withthe objective of increasing inclusiveness andreducing poverty. Some of these programmeswere new, while others augmented existinginitiatives.

Employment and Livelihood- For growthto be inclusive it must create adequate livelihoodopportunities and add to decent employmentcommensurate with the expectations of agrowing labour force. The 66th round NSSOSurvey of Employment shows that the vastmajority of new jobs created between 2004-05and 2009-10 were in casual employment, mainlyin construction. While such jobs are often moreattractive for rural labour than casual work inagriculture, there is a potential for anaccelerated pace of creation of more durablerural non-farm jobs/livelihood opportunities.Such job opportunities could come from fasterexpansion in agro-processing, supply chainsand the increased demand for technicalpersonnel for inputs into various aspects offarming that is undergoing steadymodernisation, and also the maintenance ofequipment and other elements of ruralinfrastructure. The service sector too has tocontinue to be a place for creation of decentjobs/livelihood opportunities, in both rural andurban areas.

Eleventh Plan Achievements on InclusiveGrowth

The following are some important indicatorsshowing the extent to which the Eleventh Plansucceeded in fulfilling the objective of inclusivegrowth.

• GDP growth in the Eleventh Plan 2007–08 to 2011–12 was 8 per cent comparedwith 7.6 per cent in the Tenth Plan(2002–03 to 2006–07) and only 5.7 percent in the Ninth Plan (1997–98 to 2001–02). The growth rate of 7.9 per cent inthe Eleventh Plan period is one of thehighest for any country in that periodwhich saw two global crises.

• Agricultural GDP growth accelerated inthe Eleventh Plan, to an average rate of3.7 per cent, compared with 2.4 per centin the Tenth Plan, and 2.5 per cent inthe Ninth Plan.

• The percentage of the population belowthe poverty line declined at the rate of1.5 percentage points (ppt) per year inthe period 2004–05 to 2009–10, twice therate at which it declined in the previousperiod 1993–94 to 2004–05.

• The rate of growth of real consumptionper capita in rural areas in the period2004–05 to 2011–12 was 3.4 per cent peryear which was four times the rate inthe previous period 1993–94 to 2004–05.

• The rate of unemployment declined from8.2 per cent in 2004–05 to 6.6 per cent in2009–10 reversing the trend observed inthe earlier period when it had actuallyincreased from 6.1 per cent in 1993–94to 8.2 per cent in 2004–05.

• Rural real wages increased 6.8 per centper year in the Eleventh Plan (2007–08to 2011–12) compared to an average 1.1per cent per year in the previous decade,led largely by the government’s ruralpolicies and initiatives.

• Complete immunization rate increased by2.1 ppt per year between 2002–04 and2007–08, compared to a 1.7 ppt fall peryear between 1998–99 and 2002–04.Similarly, institutional deliveries increasedby 1.6 ppt per year between 2002–04 and2007–08 higher than the 1.3 ppt increaseper year between 1998–99 and 2002–04.

• Net enrolment rate at the primary levelrose to a near universal 98.3 per cent in2009–10. Dropout rate (classes I–VIII) alsoshowed improvements, falling 1.7 ppt peryear between 2003–04 and 2009–10,which was twice the 0.8 ppt fall between1998–99 and 2003–04.

Twelfth Five Year Plan (2012–2017)- Faster,More Inclusive and Sustainable Growth:-

India’s 1.25 billion citizens have higherexpectations about their future today, than theyhave ever had before. They have seen theeconomy grow much faster in the past 10 yearsthan it did earlier, and deliver visible benefitsto a large number of people. This hasunderstandably raised the expectations of allsections, especially those who have benefitedless. Our people are now much more aware ofwhat is possible, and they will settle for noless. The Twelfth Five Year Plan must rise tothe challenge of meeting these high expectations.


Highlights of 12th Five Year Plan (2012-17):

• The Plan aims to achieve average growthrate of 8 per cent during the 12th FiveYear Plan (2012-17)

• It aims to raise the farm sector growthrate to 4 per cent and achieve a growthrate of 10 per cent in the manufacturingsector.

• The target is to generate 50 million newjobs while achieving 8% growth target.

• The Plan aims at increasing investmentin infrastructure to 9 per cent of the GDPby the end of the Plan period (2012-17).

• The aggregate Plan resources areestimated at Rs 37.16 lakh crore duringthe five year period.

• The 12th Plan also seeks to reduce povertyby 10 percentage points in the five-yearperiod.

• The other targets include increasing greencover by one million hectare every yearand adding 30,000 MW of renewableenergy generation capacity in the Planperiod.

• It also seeks to reduce emission intensityof the GDP in line with the target of 20-25 reduction by 2020 over 2005 levels.

Based on an intensive process within thePlanning Commission, the following TwelveStrategy Challenges have been identified forthe 12th Five Year Plan-:

1. Enhancing the Capacity for Growth-Today, India can sustain a GDP growth of 8percent a year. Increasing this to 9 or 10 percentwill need more mobilization of investmentresources; better allocation of these resourcesthrough more efficient capital markets; higherinvestment in infrastructure through both publicand PPP routes; and more efficient use of publicresources.

2. Enhancing Skills and Faster Generationof Employment- It is believed that India’seconomic growth is not generating enough jobsor livelihood opportunities. At the same time,many sectors face manpower shortages. Toaddress both, we need to improve oureducation and training systems; create efficientand accessible labour markets for all skillcategories; and encourage the faster growth ofsmall and micro enterprises.

3. Managing the Environment- Environ-mental and ecological degradation has seriousglobal and local implications, especially for themost vulnerable citizens of our country. Howcan we encourage responsible behaviour,without compromising on our developmentalneeds?

4. Markets for Efficiency and Inclusion-Open, integrated, and well-regulated marketsfor land, labour, and capital and for goods andservices are essential for growth, inclusion, andsustainability. We have many sectors weremarkets are non-existent or incomplete,especially those which are dominated by publicprovisioning. How do we create or improvemarkets in all sectors?

5. Decentralization, Empowerment andInformation- Greater and more informedparticipation of all citizens in decision-making,enforcing accountability, exercising their rightsand entitlements; and determining the courseof their lives is central to faster growth,inclusion, and sustainability. How can we bestpromote the capabilities of all Indians,especially the most disadvantaged, to achievethis end?

6. Technology and Innovation- Techno-logical and organizational innovation is the keyto higher productivity and competitiveness.How can we encourage and incentivizeinnovation and their diffusion in academia andgovernment as well as in enterprises of all sizes.

7. Securing the Energy Future for India-Faster and more inclusive growth will requirea rapid increase in energy consumption. Sincewe have limited domestic resources, how canwe meet this need equitably and affordablywithout compromising on our environment?

8. Accelerated Development of TransportInfrastructure- Our inadequate transportinfrastructure results in lower efficiency andproductivity; higher transaction costs; andinsufficient access to our large national market.How can we create an efficient and widespreadmulti-modal transport network?

9. Rural Transformation and SustainedGrowth of Agriculture- Rural India suffers frompoor infrastructure and inadequate amenities.Low agricultural growth perpetuates food and


nutritional insecurities, which also reduces ruralincomes. How can we encourage and supportour villages in improving their living andlivelihood conditions in innovative ways?

10. Managing Urbanization- Most of ourmetros and cities are under severe stress withinadequate social and physical infrastructurecoupled with worsening pollution. Migrationpressures are likely to increase. How do wemake our cities more liveable? What can we dotoday to ensure that smaller cities and townsare not similarly overwhelmed tomorrow?

11. Improved Access to Quality Education-Educational and training facilities have beenincreasing rapidly. However, access,affordability, and quality remain seriousconcerns. Employability is also an issue. Howcan we improve the quality and the utility ofour education, while ensuring equity andaffordability?

12. Better Preventive and Curative HealthCare- India’s health indicators are notimproving as fast as other socio-economicindicators. Good healthcare is perceived to beeither unavailable or unaffordable. How canwe improve healthcare conditions, both curativeand preventive, especially relating to womenand children?

FINANCIAL INCLUSION ANDINCLUSIVE GROWTH

The Rangarajan Committee on FinancialInclusion defines financial inclusion as “acomprehensive and holistic process of ensuringaccess to financial services and timely andadequate credit where needed by vulnerablegroups such as weaker sections and low incomegroups at an affordable cost”. Financialinclusion is delivery of banking services at anaffordable cost to the vast sections ofdisadvantaged and low income groups. Itmeans extending the banking habits among theless privileged both in urban and rural areas.

“The process of ensuring access to financialservices and timely and adequate credit whereneeded by vulnerable groups such as weakersections and low income groups at an affordablecost.” The main objectives are to connect peoplewith banking system and to give people accessto payment & credit system.

By financial inclusion, we mean the deliveryof financial services, including banking servicesand credit, at an affordable cost to the vastsections of disadvantaged and low-incomegroups who tend to be excluded. The variousfinancial services include access to savings,loans, insurance, payments and remittancefacilities offered by the formal financial system.Among the key financial services that are ofgreat relevance here are risk management orrisk mitigation services vis-à-vis economicshocks. Such shocks may be an income shockdue to adverse weather conditions or naturaldisasters, or an expenditure shock due to healthemergencies or accidents, leading to a high levelof unexpected expenditure. This aspect offinancial inclusion is of vital importance inproviding economic security to individuals andfamilies.

Financial Inclusion As a Quasi-PublicGood-It is well recognized in the literature thatfinance performs the important functions ofmobilizing savings, allocating capital andtransforming risk by pooling and repackagingit. There is growing evidence that a well-functioning financial system fosters faster andmore equitable growth. Access to financialservices allows the poor to save money outsidethe house safely, prevents concentration ofeconomic power with a few individuals andhelps in mitigating the risks that the poor faceas a result of economic shocks. Providing accessto financial services is increasingly becomingan area of concern for policy-makers for theobvious reason that it has far-reachingeconomic and social implications.

First and foremost, enhanced financialinclusion will drastically reduce the farmers’indebtedness, which is one of the main causesof farmers’ suicides.

The second important benefit is that it willlead to more rapid modernization of Indianagriculture. New agriculture, by nature, needsmore working capital and is capital intensiveas it depends on improved seeds, fertilizers andother modern inputs and equipment. Sinceenhanced financial inclusion means better riskmanagement tools for the farmers, they will beencouraged to adopt new technologies at afaster rate.

Yet another benefit will be increasedgrowth, as well as more equitable growth, in


both rural and urban areas because financialgrowth will mobilize what Prof. C. K. Prahaladcalls “the bottom of the pyramid”. By providinggreater access to educational loans for allsections of society, improved financial inclusionwill also mean India becoming a more equalopportunity nation—a pre-condition forpromoting inclusive growth.

Finally, a very positive impact of promotingfinancial inclusion will be the boost given tograss-roots innovations and entrepreneurship.

Present State of Financial Inclusion in India:-

The focus of financial inclusion is onpromoting sustainable development andgenerating employment for a vast majority ofthe population, especially in the rural areas. Inthe first-ever Index of Financial Inclusion tofind out the extent of reach of banking servicesamong 100 countries, India has been ranked50. Out of 19.9 crore households in India, only6.82 crore households have access to bankingservices. As far as rural areas are concerned,out of 13.83 crore rural households in India,only 4.16 crore rural households have access tobasic banking services. In respect of urban areas,only 49.52 per cent of urban households haveaccess to banking services and 34 per cent ofIndia’s urban population with annual incomeof less than 50,000 have access to bankingservices. The latest National Sample SurveyOrganisation survey reports that there are over80 million poor people living in the cities andtowns of India and they lack access to the mostbasic banking services such as savings accounts,credit, remittances and payment services,financial advisory services, etc. Low-incomegroups do not have access to the formal bankingsystems, as they usually do not have thedocuments needed to open a bank account. Asa result, they depend on the informal sector fortheir savings and loan requirements. Thus,financial inclusion is considered to be criticalfor achieving inclusive growth, which itself isrequired for ensuring overall sustainablegrowth. Recognising the importance of inclusivegrowth in India, efforts are being taken to makethe financial system more inclusive.

Causes of Financial Exclusion in India

Access to formal banking system is affectedby several barriers such as culture, financialliteracy, gender, income and assets, proof of

identity, remoteness of residence, and so on.Over a period of time several measures are beingtaken by the banks in India to improve accessto affordable financial services through financialeducation, leveraging technology, andgenerating awareness. There are number offactors affecting access to financial services byweaker section of society in India. The lack ofawareness, low incomes and assets, socialexclusion, illiteracy are the barriers fromdemand side. The distance from bank branch,branch timings, cumbersome banking procedureand requirements of documents for openingbank accounts, unsuitable banking products orschemes, language, high transaction costs andattitudes of bank officials are the barriers fromsupply side. Hence, there is a need for financialinclusion to build uniform economicdevelopment, both spatially and temporally,and ushering in greater economic and socialequity.

Measures for Financial Inclusion in India

Several measures have been taken by boththe Reserve Bank of India and the Governmentto bring the financially excluded people to thefold of the formal banking services. Theimportant financial inclusion initiatives of RBIare given below:

• Introduction of ‘No-Frills’ account• Relaxing ‘Know Your Customer’ (KYC)

norms• General Purpose Credit Card (GCC)

Schemes• Role NGOs, SHGs and MFIs• Business Facilitator (BF) and Business

Correspondent (BC) Models.• Nationwide Electronic Financial Inclusion

System (NEFIS)• Project Financial Literacy• Financial Literacy and Credit Counseling

(FLCC) centres• National Rural Financial Inclusion Plan

(NRFIP)• Financial Inclusion Fund (FIF)• Financial Inclusion Technology Fund

(FITF)

Regional Inequality and ‘Inclusive Growth’ inIndia:-

The Indian development scenario looksoptimistic, not only in terms of the pace of


economic growth but also in its capability tostand out in periods of global economic crises.In the context of growth in employment, too,the economy has done reasonably well overthe past decade, allaying fears of jobless growth,the key concern that emerged in the late 1990s.The growth rates, as per all three alternatedefinitions of employment adopted by NationalSample Survey Organization, namely usualstatus, weekly status, and daily status, havebeen exceptionally high since the early years ofthe present decade. The impact of growth inpoverty reduction, too, has been significant,although the estimated elasticity of povertyreduction has been lower than several countriesin the South Asian region.

The high growth in employment can partlybe attributed to demographic dividend thecountry is currently enjoying due to decline inthe natural growth rate in population. Manyof the states, particularly in southern India, likeKerala and Tamil Nadu have experiencedfertility decline over the past couple of decades,making the Net Reproduction Rate equal to orless than unity. The growth of population inseveral other states, especially in north andcentral India has, however, been high, reportingeither no decline, or in some cases, even anincrease, in recent years, which is a cause forconcern. However, as a result of generalreduction in fertility, the percentage of adultsin the age group 20–35 is expected to growrapidly over the next few decades. This would

help these states to pick up their growthmomentum, provided the incremental adultpopulation can be meaningfully absorbed inproductive sectors. In the absence of suchemployment opportunities, a north-southtransfer of adult population on a massive scalewould have to be considered, which has serioussocietal implications. Such transfers may indeedbe difficult due to the emerging socio-politicalscenario in the country, which would putenormous pressure on land and infrastructurein many less developed states.

There seems to be a shared concern thatthe country has not been very successful intransforming its growth into development,which manifests most significantly in seriousregional imbalances despite very positive macroeconomic trends, as discussed above. The majorquestions confronting policymakers today are:(i) which are the states getting excluded in thedevelopment process and how can these bebrought into the mainstream of development?(ii) what are the deficiencies in the macroeconomic growth strategy or the specialprogrammes launched as a part of the policyof inclusive growth and how can these beremedied?

Trends and Patterns of Economic Inequalityacross States

It would be important to begin anexploration of the regional scenario ofdevelopment in the country by looking at thetrend of certain indices that articulate regionaldisparity.

Fig. Trend in Inter-State Inequality in Per Capita Income: Unweighted and Weighted Indices.


It is a matter of concern that the values ofthe Coefficient of Variation (CV) and Gini Indexfor per capita state domestic product (SDP)have gone up systematically during the periodfrom the early 1990s to the middle of the presentdecade. It is, however, not for the first timethat regional inequality has shown an increasingtrend in the country. It had gone up during1960s, and was attributed then to the GreenRevolution and its regional concentration innorth-west India and a few southern districts.Similarly, the later half of the 1970s saw anincrease in inequality explained in terms ofindustrial stagnation in backward states.However, the 1980s saw little increase inregional disparity.This is extremely importantsince this has been considered a period offinancial instability resulting in macro economiccrisis, compelling the policy makers to opt forpolicies of economic liberalization in 1990–91.The period since the early 1990s has comeunder closer scrutiny as the emphasis has beenon economic efficiency, reduction of subsidy,and greater accountability under the strategyof globalization. The latter, that have beenimpacting, and even reshaping, theprogrammes and schemes for infrastructuraldevelopment, have favoured the relativelydeveloped regions. Consequently, except for ayear or two in mid-1990s, inequality has beenon the increase over the past decade and ahalf.

It has been argued that the governmentalstrategy of regional development, particularlyof federal resource allocations, has not gonesimply by the development deficit of the statesand their population share, but also by othersocio-political considerations. One can take acritical view of this as reflecting vested interestsinfluencing the process of planning and resourceallocation, which is responsible for poorer stateswith a larger share in the population not beingable to improve their economic conditions. Onecan, however, argue that a federal systemwould always force governments to take intoaccount various social, ethnic, and historicalfactors in designing development strategy,particularly in devolution of central resources.Understandably, emerging regional identities,aspirations, feelings of deprivation, etc., besidesthe vulnerability of states due to locations at

the national borders, would weigh the systemof fund disbursal.

In a study undertaken as a part ofbackground research for the WorldDevelopment Report, 2009, Ahmad and Narain(2008) classified the Indian states into ‘high’,‘medium’ and ‘low’ income categories. Thenorth-eastern states that belong to a specialcategory, and thereby enjoy special grants fromthe Finance Commission, as well as otherpreferential treatment, constitute a separatecategory. The study shows that most of thestates that had low levels of per capita incomerecorded low income growth, not only in the1980s, but also in the 1990s. The low incomecategory states and the north-eastern stateswere noted to have registered growth rates of2.5 per cent and 2.8 per cent respectively duringthe 1980s, which was much below the nationalaverage. These went down further to 2.3 and2.5 per cent respectively during the 1990s. Thesestates were in the bottom rung even in the early1970s. The growth rates for the high andmiddle income states, on the other hand,increased from about 3.4 and 3.2 per cent to3.6 and 4.9 respectively during this period.

Considering the growth performance ofindividual states, one would note that the lowincome states like Assam, Bihar (includingJharkhand), Madhya Pradesh (includingChhattisgarh), Orissa, and Uttar Pradesh(including Uttarakhand) have reported verylow average growth rates during the 1980s,which has further gone down in the 1990s. Amore alarming fact about these states (excludingRajasthan)is the instability in growth rates asassessed through their coefficient of variationover time. Furthermore, these states havereported a decline in the absolute figure of percapita income or no growth in at least twoyears during the 1990s, a problem notencountered in the middle or high income states.Based on the level of per capita SDP and thegrowth therein, a set of eight states (includingthree newly formed states) can be identified asbelonging to the lagging region category in thefirst stage operation. These are Bihar,Jharkhand, Orissa, Madhya Pradesh,Chhattisgarh, Uttar Pradesh, Uttarakhand, andAssam.


TABLE: Annual Growth Rates in State Domestic Product in Different Plan Periods

S.No. State/UT Eighth Plan Ninth Plan Tenth Plan Eleventh Plan

(1992-97) (1997-2002) (2002-07) (2007-12)

Non Special Category States

1. Andhra Pradesh 5.4 4.6 6.7 9.5

2. Bihar 2.2 4.0 4.7 7.6

3. Chhattisgarh NA NA 9.2 8.6

4. Goa 8.9 5.5 7.8 12.1

5. Gujarat 12.4 4.0 10.6 11.2

6. Haryana 5.2 4.1 7.6 11.0

7. Jharkhand NA NA 11.1 9.8

8. Karnataka 6.2 5.7 7.2 9.5

9. Kerala 6.5 5.7 7.2 9.5

10. Madhya Pradesh 6.3 4.0 4.3 6.7

11. Maharashtra 8.9 4.7 7.9 9.1

12. Orissa 2.1 5.1 9.1 8.8

13. Punjab 4.7 4.4 4.5 5.9

14. Rajasthan 7.5 3.5 5.0 7.4

15. Tamil Nadu 7.0 6.3 6.6 8.5

16. Uttar Pradesh 4.9 4.0 4.6 6.1

17. West Bengal 6.3 6.9 6.1 9.7

Special Category States

1. Arunachal Pradesh 5.1 4.4 5.8 6.4

2. Assam 2.8 2.1 6.1 6.5

3. Himachal Pradesh 6.5 5.9 7.3 9.5

4. Jammu & Kashmir 5.0 5.2 5.2 6.4

5. Manipur 4.6 6.4 11.6 5.9

6. Meghalaya 3.8 6.2 5.6 7.3

7. Mizoram NA NA 5.9 7.1

8. Nagaland 8.9 2.6 8.3 9.3

9. Sikkim 5.3 8.3 7.7 6.7

10. Tripura 6.6 7.4 8.7 6.9

11. Uttarakhand NA NA 8.8 9.9


All India GDP 6.5 5.5 7.7 9.0

Developed States 7.2 5.2 7.0 9.6

Special Cat States 5.7 5.8 7.3 7.3

Less Dev States 3.7 3.8 7.2 8.0

CV in Growth Rates 38.8 29.9 27.8 21.7

Identification of Socio-Economic Dimensionsand Indicators of Development andComposite Indices

In order to understand the nature andpattern of the contemporary process ofdevelopment, (i) economic, (ii) basic amenities,and (iii) social, have been considered the threeimportant dimensi

(a) Economic Development

It is well acknowledged in developmentliterature that analyses based on the levels ofSDP in per capita terms and growth ratestherein do not capture several importantaspects of economic development at the macro-or state-level. Inclusion of a number of otherindicators reflecting other aspects of economicwell-being has been considered indispensable.Like per capita SDP, per capita consumptionexpenditure is an important summary.

(b) Basic Amenities

A set of nine indicators pertaining to basicamenities have been selected. All these havebeen taken from the National Health and FamilySurvey III and pertain to the year 2005–06. Thepercentages of female and male literates havebeen included to reflect the level and access toeducational facilities in the states. These have beenconsidered more appropriate than theinformation on the facilities given by the individualstates. The percentages of men and womenreading newspapers have been taken as a proxyof transportation and social linkages of the distantrural and urban areas to the nearby large centres.These linkages contribute in a significant way tothe dissemination of growth impulses in a region.The percentage of households having electricity,improved sources of drinking water, toilet facility,non-solid fuel for cooking, and residing inpuccahouses are direct measures of availabilityof basic amenities, and consequently, have beenincluded under this dimension.


TABLE : Per Capita SDP and Growth in SDP for Select States

(c) Social Developmen:

Ten indicators identified under thedimension of social development, reflect ‘deficitin development’ and can be described asnegative indicators. The first two indicators—

Indicators pertaining to the Dimension of Basic Amenities

S. No. Indicator

1. Education Female

2. Education Male

3. Per cent women (15–49) reading newspaper at least once a week

4. Per cent men (15–49) reading newspaper at least once a week

5. Percentage of household with electricity

6. Percentage of household with improved source of drinking water

7. Percentage of household with toilet facility

8. Percentage of household using non-solid fuel for cooking

9. Percentage of household living in a pucca house.

infant mortality rate and total fertility rate—articulate the basic demographic character ofthe state. In a way these two bring out the sumtotal of the developmental interventions on thedemographic front. The indicators of malnou-


rished children in the age group of 0–3 yearsand of underweight children below 5 yearsreveal the physical health of the children. Theindicator pertaining to anemia in womencaptures the health status for persons in thereproductive age group.

The sixth and seventh indicators reflect thepre-natal and post-natal facilities to expectantwomen, young mothers, and children. Theeighth indicator captures malnutrition amongpeople as also absence of preventive facilitiesagainst tuberculosis. The last two indicatorshave been included to articulate the prevalenceof modern values relating to family planningamong men and women.

TABLE: Indicators pertaining to the Dimension of Social Development

S.No. Indicator

1 Infant Mortality Rate Current

2 Total Fertility Rate Current

3 Malnutrition of Children (0–3 Years) Current

4 Percentage of children under age 5 years with weight for age -3SD

5 Anemia among Women (15–49 Years) Current

6 Percentage of women who had no antenatal care by doctor

7 Percentage of children (Below 6 years) who has not received any ICDS service

8 Number of persons per 100,000 suffering from Tuberculosis

9 Percentage of Women (15–49) wanting children

10 Percentage of Men (15–49) wanting children


TABLE : The Composite Indices Articulating Three Different Dimensions of Developmentand their Correlations

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