Inclusive Growth-Imbalance Between Political Fantasy & Economic Development

8/14/2019 Inclusive Growth-Imbalance Between Political Fantasy & Economic Development

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Shikhar Paper Presentation Competition

Topic:

Inclusive Growth: Imbalance between

Political fantasy & Business Sustainability

Team Name: Sui Generis

Team Members:

Name : Vini Soni Pradeep Narayan Murthy

Email Id:[email protected] [email protected]

Institute: IIFT Delhi
mailto:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]


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Inclusive Growth: Imbalance Between Political Fantasy & Business sustainability

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Abstract:

The staple of newspapers , the premeditate of all , whether there is a distinction of developed or

developing , or whether there is a divergence of boundaries the only word talked and obligated

is Inclusive Growth.

The growing need of stability & removal of social exclusion made governments of various

territories to gusset into the welfare for all themes, by squandering money on partially non

effective schemes and adapting to challenging strategies. In Indian context from past 60 years

there is a hue & cry to bridge social gap & grow economically. Variegate policies for equivalent

development have risen and failed. Some worked but still the bridge gap is not covered as now

also around 400 million population awaits there daily meals.

This paper underlines the basic definition of Inclusive growth and portrays an Indian picture by

comparing to a Utopian Inclusive growth. The political fantasy to grow into all the four inclusive

sectors (Financial, Educational, Health, and Employment) is contrasted effectively with the

indent of sustainability. This sharp distinction is made by microscopically looking at various

policies and schemes implemented for achieving inclusive growth.

In the end the paper concludes by notions to give more importance to financial inclusion as a key

driver for economic growth and underlines the importance of giving rural region a benefit of

doubt.


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Introduction

Inclusive growth is an idea that is borne out through common public opinion. Obviously the

electorate that has elected the government is always in favour of or in need of or in demand of

inclusive growth. This amongst others is one of the primary reasons for the government to push

for faster inclusive growth during this 5 year period. Inclusive growth doesnt necessarily mean

inequality; the idea of that of a capitalistic economy itself brings with it the idea of inequality, to

do away with it will only be an idealistic thought in a free market economy. By solving

inequality by splurging money on in-effective schemes will be a non winner, in order to

effectively be inclusive one should try to understand what inclusive growth effectively means;

Inclusive growth essentially consists of four key attributes:

a) Opportunity: Is the economy generating more and varied ways for people to earn a livingand increase their incomes over time?

b) Capability: Is the economy providing the means for people to create or enhance theircapabilities in order to exploit available opportunities?

c) Access: Is the economy providing the means to bring opportunities and capabilitiestogether?

d) Security: Is the economy providing the means for people to protect themselves against atemporary or permanent loss of livelihood?

One of major aspects of social development is income and income is a result of opportunity

being exploited. Hence the idea of Inclusiveness should solve the problem of providing the

means for the opportunity. Motivating people to take up these opportunities, enable people by

providing the requisite skills in order to be able to comprehend the opportunities and effectively

use them to further his interest.

Hence inclusive growth depends on a number of factors, including the motivation and

performance of the individual himself. It is more appropriate to assess the effectiveness of the

process in terms of whether or not it gives a large (and increasing) number of people legitimate

opportunities to earn incomes. The 'capability' dimension clearly relates to education and skill

creation. It must impart a set of skills that are relevant to the market -- in other words, enable the


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individual to take advantage of opportunities. And, it must give the individual his values, a sense

of his place in the larger community and his obligations to it.

Finally, the concept of security is both easy to explain and justify. Generally speaking, a rapidly

growing economy is also a turbulent one. Sectors and companies become obsolete quite quickly

and new ones emerge to take their place. The contribution of this turbulence to the growth

momentum is unquestionable, but, equally, its impact on people in terms of predictability and

stability of their livelihoods can be quite brutal.

Inclusive growtha Political fantasy

Inclusive growth has been the major manifesto material of all the ruling political parties

throughout the course of Indian history post independence. But it is interesting to observe that

sort of inclusive growth that we seek is elusive even post liberalization. Reasons for this do range

from policy reforms that try to solve just the superficial problem and not really address the core

issues. Any idea of an inclusive growth should essentially talk about a) Financial inclusion b)

health care inclusion c) Educational inclusion d) Inclusive Employment Reforms.

Utopian Inclusive growth:

Inclusive growth by its very definition implies an equitable allocation of resources with benefits

accruing to every section of society, which is a utopian concept. But the allocation of resources

must be focused on the indented short and long terms benefits and economic linkages at large

and not just equitable mathematically on some regional and population criteria.

Utopia it is because it dreams of an ideal state which we all strive towards. We still have

trappings of an utterly violent prone tribal society where most of conflicts simmer for ages with

no solutions at sight and yet we talk of an ideal state. Can we have the so called ideal state with

so many criminals and people having no clue, sitting at top and making a huge mess of

everything they lay their hands on?

As a nation still in the process of developing itself, it would perhaps be very premature to let go

of the dream of inclusive growth but with some hard realities thrown in too. Society by its very


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definition implies coming together of a variety of peoples and sharing of benefits in order to

survive and grow. But what we do of the people who are seeped deep in concept of zero sum

game, where one has to win at the cost of other across whole gamut of economic activity?

Any direct jobs to skilled people create direct and indirect jobs for people having

complementary/down stream/associative skills. When thousands of people get job in IT/BPO

sector many job streams are automatically created across wide spectrum of skills and locations. I

do not understand aversion towards expanding job market for skilled people in IT/BPO sector.

There is no economic activity, which is stand-alone and isolated from its immediate and external

environment. In an expanding economy more people with wide skills are required. What will be

educated people will do if there are no job opportunities when they pass out of schools and

collages? This notion of berating any job creations because millions do not have access to

primary educations is faulty to core. The need to upgrade education across the length and

breadth of country has been for long and there has not been much done about it in true sense.

These are two separate issues and one must not be berated and criticized because of deficiency in

other. The concept of few people monopolizing and restricting the entry of others is a faulty

notion again based on mindset of stagnant economy and static society. In today's increasingly

global, dynamic and competitive economy such notions are based on inherent failure to identify

the skill/activity linkages present and missing in the real sense.

Of course there is scope for vast improvements and yet the trickledown effect is visible across

country with few exceptions too. These exceptions are due to various regional, environmental,

political and infrastructures deficiencies. Growth in a competitive economy is and will always be

inclusive, because it cannot be otherwise. But it is immensely fashionable to criticize and play

down innovations in economy and hence the job market. The Eleventh Plan Approach Paper

according to which a key element of the strategy for inclusive growth must be "to provide the

mass of our people access to basic facilities such as health, education, clean drinking water etc,

and that governments at different levels have to ensure the provision of these services".


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The question, which must be asked, is why previous ten plans could not make any significant

differences in these areas and that too with so much of high-sounding ideas but with no

substances of real value? That is the legacy of "high thinking-no action" socialism we have to

bear within the twenty-first century. Pyramid of economy and its jobs will always be initiated,

activated by people having higher managerial and technical skills and their acts and risk taking

abilities will create jobs for other people down stream.

The proponents of "Inclusive Growth" have some vogue notions of growth and fail to see a vast

change underway. Off course they fail to see any linkages between pyramid of resources,

entrepreneurships, skills and jobs.

There is so much of noise about only the educated and skilled people getting employed and most

remain uneducated and hence unemployable. What will be use of education if those boys and

girls passing out of collages remain unemployed because there are so many who are uneducated?

An entrepreneur friend is a very harassed man on verge of going out of business due to rampant

absenteeism of around 100 workers he employs. He is faced every day with angry customer's

unprintable expletives due to delayed shipments of lower qualities leading to delayed payments

and all associative problems. The manufacturing system he is comfortable with is largely manual

with no automatic machines. To survive he has to invest in imported automatic machinery that

would lead to cut down his labor force by 60% and increase production by 50% along with better

quality.

To operate these machines he would need to employ fewer technically educated/ skilled people

at two to three times of the average salary paid right now. If he does that is he going against the

concepts of "Inclusive Growth"?

Business sustainability of financial inclusion:

Micro Financing and micro lending have been taken to in full swing by the public as well as

private sector banks in the India. The most significant development is the extent to which rural

and micro-banking is now an industry in India with each bank having a dedicated Rural,


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Agricultural, and Micro-banking (RMAG) division. Rural credit from the banks to the applicants

is mainly driven through referral lending and group lending where the repayment is more than

95%, this scheme is even attractive to the bank as they get best of both worlds Higher rate of

return with low risk but the catch to this models sustainability is that expansion in credit has not

seen a expansion in deposits hence most of this retail credit is being driven or funded through

cash from other operations of the bank. The implications of this mismatch are important to

understand some of the constraints faced by an expanding micro banking industry. In the absence

of deposit growth banks face a liquidity problem which limits further credit expansion. This

problem is evident in recent policy changes to reduce the statutory liquidity ratio (SLR) of Indian

banks. In other words, the banking system will be expected to increasingly provide larger

quantum of funds to existing and emerging enterprises. And without adequate deposit growth,

however, credit expansion might not be sustainable over the medium-term, without putting

immense pressure on real interest rates and impacting the overall stability of the financial

system.

The other systemic obstacles to micro financing which can be effectively understood asfinancial inclusion here is that of the transaction costs involved in for both the bank and the

customer are high, further the interest rates remain high due to unavailability of a structured

credit assessments. The second obstacle is the policy structures in place which limit the

geographical reach of banks beyond physical bank branches.


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Yet beyond these limitations financial inclusion becomes important in the context of improving

agricultural productivity therefore policy reforms have taken precedence:

1) KYC procedures have been simplified for low income groups.2) Banks have been asked to voluntarily make available an account, and all printed bank

material has to be made available in regional languages.

Hence with increasing liberalization and higher economic growth, the role of banking sector is

poised to increase in the financing pattern of economic activities within the country. To meet the

growing credit demand, the banks need to mobilize resources from a wider deposit base and

extend credit to activities hitherto not financed by banks. The trend of increasing

commercialization of agriculture and rural activities should generate greener pastures, and banks

should examine the benefits of increasing penetration therein. Financial inclusion will strengthen

financial deepening and provide resources to the banks to expand credit delivery. Thus, financial

inclusion will lead to financial development in our country which will help to accelerate

economic growth only if efficient policy reforms are put in place and implemented with due

diligence .

Health Care Initiatives - Inclusive Growth:

Healthcare is another sector where India's potential can be realized with the increasing tandems

of prioritising rural health and insurance schemes. Policies like NRHM (National Rural Health

Mission), ASHA (Accredited Social Health Activist) are the various reformatory measures put in

by government to increase national health indicators like Infant mortality rate, maternal

mortality, rural sanitation etc. Despite considerable gains in health status over the past few

decades in terms of increased life expectancy, reductions in mortality and morbidity serious

challenges still remain.

A sizeable share of population remains deprived of basic health care facilities despite the

National Rural Health Mission (NRHM) and other health initiatives by the government and

related agencies. The issues of availability, accessibility, acceptability, affordability and quality

with regard to health care remain as serious concerns. 'Double burden of diseases' has further


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aggravated the problem together with escalating cost of health care and collapse of state support.

Under NRHM government organised to develop many hospitals in rural areas which by and large

covered many remote areas but this withered on the wake of implementation due to varying

reasons of channels, bureaucracy etc.

Medical tourism may be booming, but thousands die due to inadequate primary healthcare. We

need more doctors, hospitals and beds to deal with that, but more importantly, we also need to

equip more than a million healthcare workers and get across primary healthcare facilities to

every Indian. The solution is to make the public health system accountable, affordable and

accessible by improved management of resources and community action.The potential of scaling

remote diagnostics and care (broadly called telemedicine) should be established through a variety

of trials and pilot deployments.

Jobless Growth to Inclusive Growth: Employability as an Alternative Planning Strategy

Employment generation has been projected as the major outcome of the growth paradigm in

India. In fact the very creation of multiple development opportunities through provision of

formal employment has been considered to be the development function of the economic growth.

Sensing this government of India has taken various measures to increase employment

opportunities like NREGS, UNDP etc.

Allocation under National Rural Employment Guarantee Scheme (NREGS) increased by 144 %

to Rs.39,100 crore in B.E. 2009-10 over B.E. 2008-09 pointing it as a major step towards

achieving an inclusive growth. But the several criticisms which actually points out at the

sustainability of this major step can be visualized from data below.

In last 3 years on average only 50% of the households that registered under the scheme actually

got employment. Also the wide variation of performance across states is also an issue. In terms

of the percentage of registered households provided work, Maharashtra has averaged an abysmal

13% over the three years while Rajasthan at the other end of the spectrum has averaged 73%.

Despite the political and economic importance NREGA has generated, there is lack of studies on

the working of public employment programmes.


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On doing various statistical analyses of poverty and inequality among rural and urban population

using indicators such as GINI coefficient, Head Count Poverty Ratios, NFHS a broader picture

of very decline in the major productive growth indicator can be seen. There lies a need to

increase non-farm employment and productivity to achieve higher level of inclusive growth with

specific thrust on agriculture sector. There is a need of improving our labor participation rate.

According to an ILO study, the labor force participation rate in India at 60.9% (age group 15-64)

in 2005 was way behind Chinas 82%. There is a need for faster employment growth for not only

absorbing the new entrants to the labor force but also to meet the rise in labor force due to a

higher participation rate. While a lower growth in labor force participation rate or a lower labor

to population ratio in the short run may give a lower unemployment figure, we cannot afford to

forego the potential output from such a valuable source.

On one hand the Government is not able to provide jobs to people on the other, growing sectors

do not find suitable man-power. The example of higher growth of IT sector but less employment

to the needy is a distressful reality. The training institutes should lay emphasis on employability

and skill development which would mitigate problems of educated unemployed. Inclusive

growth can be achieved through creation of employable work-force. There is a mismatch

between employment opportunities and employability. So a skill-based education system and

need for integration of academia and work place as an effective strategy for inclusive growth.

Education Inclusion:

A strong equity-enhancing and inequality-reducing thrust to the education plan is an

Imperative, particularly in view of the emphasis on inclusive growth. Government initiated

Sarva Shiksha Abhiyan for elementary education which is being strengthened with expansion of

the midday meal program for children to the Upper Primary level in 3479 educationally

backward blocks of the country. This has no doubt benefited the various dropouts but was also

not able to answer some A universal access to secondary education by supporting 6000 new high

quality model schools, with one school in each block in the country to set standards of excellence

that can be emulated. Higher education will receive massive investment in the 11th Plan with 30

new Central Universities, 370 new colleges in educationally backward districts, and expansion in

the number of technical institutions with 8 new Indian Institutes of Technology, 20 new Indian


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Institutes of Information Technology, 7 new Indian Institutes of Management, and 2 more Indian

Institutes of Science Education and Research in addition to the three started at Pune, Kolkata and

Mohali. The National Skill Development Mission will ensure employability of our youth and

address the skill deficit presently felt in some sectors of our economy.

The Economic Survey 2006-07 has identified five mantras for achieving high and inclusive

economic growth with a view to creating more jobs and eliminating poverty at a faster pace.

1. As a first step, the government should initiate measures to channelize savings accruing on

account of high growth rate coupled with the demographic dividend (a growing proportion of the

population in the working age group) for investment.

2. Secondly, efficiency improvements in the economy since 1999-2000 will reinforce the

country's confidence in the high-growth phase.

The ratio of net capital stock to gross value added in the national economy, which went down

from 2.78 to 2.60 between 1999-2000 and 2004-05, has increased to 2.66 in 2004-05, suggesting

efficient utilization of resources.

3. Thirdly, availability of labor at reasonable wages and efficiency improvements will open new

avenues in services, beyond the already well-known IT and ITeS that bolster confidence in the

new high-growth phase.

The Survey also suggested that the government should encourage tourism, which globally

contributes 10 per cent to the world's gross domestic product.

4. As fourth step, the Survey underlined the need for rapid capacity addition through investments

to prevent overheating of the economy as is being feared by some economists.

5. Fifthly, the poor infrastructure that constrained growth in the past has started improving and is

likely to strengthen further, giving a boost to economic growth.


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Conclusion:

The economy is presently in a phase of rapidly rising incomes, rural and urban, arising from an

expansion of extant economic activities as well as the creation of new activities. Corporate

profitability has exhibited sustainable trends and consumer incomes are increasing rapidly, riding

on the growth momentum. All of these developments suggest that the demand for financial

services, both for savings as well as production purposes, will be greater than has been the case

in the past, and there will be many new entrants in need of financial services who have not

hitherto been served. At present our financial depth is much lower than that of other Asian

countries, though it has picked up in the recent past. While there is evidence of an increase in

financial deepening, particularly during the present decade, the increase in the breadth and

coverage of formal finance has been less than adequate. Deepening the financial system and

widening its reach is crucial for both accelerating growth and for equitable distribution, given the

present stage of development of our country.

There has been a burst of entrepreneurship across the country, spanning rural, semi-urban and

urban areas. This has to be nurtured and financed. It is only through growth of enterprises across

all sizes that competition will be fostered. A small entrepreneur today will be a big entrepreneur

tomorrow, and might well become a multinational enterprise eventually if given the comfort of

financial support. But we also have to understand that there will be failures as well as successes.

Banks will therefore have to tone up their risk assessment and risk management capacities, and

provide for these failures as part of their risk management. Despite the risk, financing of first

time entrepreneurs is a must for financial inclusion and growth.

The Parliament passed the Credit Information Bureau Act last year and the guidelines for its

implementation will be released shortly. This should enable, over time, the availability of credit

histories of both individuals and small businesses, which will help significantly in reducing

transactions and information costs for banks. It will also help in spreading the credit culture

among borrowers. It should help banks greatly in assessing and managing risk at low cost.


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As poverty levels decline and households have greater levels of discretionary incomes, they will

be first time financial savers. They will, therefore, need to have easy access to formal financial

systems to get into the banking habit. Banks will need to innovate and devise newer methods of

including such customers into their fold. The importance of 'no-frills' account and expanding the

range of identity documents that is acceptable to open an account without sacrificing objectivity

of the process in this milieu can never be over-emphasized. Banks will need to go to their

customers, rather than the other way around.

The micro-credit and the Self Help Group movements are in their infancy but are gathering

force. More innovation in the form of business facilitators and correspondents will be needed for

banks to increase their outreach for banks to ensure financial inclusion. New entrants to the

banking system need households at their doorstep.

To conclude, we wish to stress that with increasing liberalization and higher economic growth,

the role of banking sector is poised to increase in the financing pattern of economic activities

within the country. To meet the growing credit demand, the banks need to mobilize resources

from a wider deposit base and extend credit to activities hitherto not financed by banks. The

trend of increasing commercialization of agriculture and rural activities should generate greener

pastures, and banks should examine the benefits of increasing penetration therein. Financial

inclusion will strengthen financial deepening and provide resources to the banks to expand credit

delivery. Thus, financial inclusion will lead to financial development in our country which will

help to accelerate economic growth.

References:

1. Address by Rakesh Mohan: Economic growth, financial deepening and financialinclusion.

2. WikipediaInclusive growth3. www.economist.com4. [email protected]. www.mckinseyquarterly.com

Total Word Count : 4023
http://www.economist.com/http://www.economist.com/http://[email protected]/http://[email protected]/http://www.mckinseyquarterly.com/http://www.mckinseyquarterly.com/http://www.mckinseyquarterly.com/http://[email protected]/http://www.economist.com/

Inclusive Growth-Imbalance Between Political Fantasy & Economic Development

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