S.Mahendra_CACP

8/8/2019 S.Mahendra_CACP

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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 forAgricultural Costs and Prices,Agricultural Costs and Prices,Government of IndiaGovernment of India


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IntroductionIntroductionSince independence, significant improvement inSince independence, significant improvement in

Indias economic and social development.Indias economic and social development.In the postIn the post--reform (since 1991) period, India hasreform (since 1991) period, India hasdone well in some indicators such as balance ofdone well in some indicators such as balance ofpayments, 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 theperiod 2004period 2004--05 to 200705 to 2007--08. Investment and08. Investment andsavings rates were quite high 32 to 36%.savings rates were quite high 32 to 36%.


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Need for Inclusive GrowthNeed for Inclusive GrowthHowever, 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, rurallow human development, rural--urban divides, genderurban 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 otherdisparities and raise economic growth.disparities and raise economic growth.

1111thth Plan (2007Plan (2007--12) advocates for inclusive growth.12) advocates for inclusive growth.

Even at international level, there is a concern aboutEven at international level, there is a concern aboutinequalities 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.


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PovertyPoverty

Income poverty and nonIncome poverty and non--income povertyincome povertyWe 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 fixedcommodity basket corresponding to the povertycommodity basket corresponding to the povertyline (Rs.49.09 per person per month at 1973line (Rs.49.09 per person per month at 1973--7474prices for rural areas and Rs.56.64 for urbanprices for rural areas and Rs.56.64 for urbanareas).areas).

The suggested rural commodity basket by theThe suggested rural commodity basket by theExpert 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 had2100 kcal per capita per day in 19732100 kcal per capita per day in 1973--4.4.

For subsequent years, poverty line is updated withFor subsequent years, poverty line is updated withconsumer prices.consumer prices.


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Trends in Poverty (%): IndiaTrends in Poverty (%): India

YearYear RuralRural UrbanUrban TotalTotal

19731973--7474 5656 4949 5555

19831983 4646 4141 4545

19931993--9494 3737 3232 3636

20042004--0505 2828 2626 2828


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Number of poor (in million)Number of poor (in million)

YearYear Number (million)Number (million)

19731973--7474 321321

19831983 323323

19931993--9494 320320

20042004--0505 302302


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PovertyPovertyIncome poverty declined from 55% in the earlyIncome poverty declined from 55% in the early

1970s to 28% in 20041970s to 28% in 2004--05.05.

Although there has been progress in decline, stillAlthough there has been progress in decline, stillmore 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 povertyline. 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, UttarPradesh 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


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Determinants of Rural PovertyDeterminants of Rural Poverty

Agricultural GrowthAgricultural GrowthRelative food pricesRelative food prices

Rural nonRural non--farm sectorfarm sector

Rural wagesRural wages

Governments development expenditureGovernments development expenditure

InfrastructureInfrastructure

Human DevelopmentHuman Development


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Percentage budget share of foodPercentage budget share of food

(cereals+non(cereals+non--cereals)cereals)YearYear RuralRural RuralRural UrbanUrban UrbanUrban

BottomBottom

30%30%

Top 30%Top 30% BottomBottom

30%30%

Top 30%Top 30%

19701970--7171 84.184.1 71.371.3 80.080.0 62.562.5

19901990--9191 73.773.7 59.459.4 70.770.7 48.148.1

19931993--9494 69.869.8 52.652.6 66.466.4 43.843.8

20042004--0505 66.166.1 47.547.5 59.959.9 34.534.5


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Movement in Indices of Commodity Prices India vs International:Cereals

106.7

114.1 118.6120.4

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)


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Movement in Indices of Commodity Prices India vs International:Wheat

100

128.8125

124.6120.7

113

167.4

125.8

269.9

100

208.4

227.3

50

100

150

200

250

300




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Movement in Indices of Commodity Prices India vs International:Rice

100

117115.8113.5

108.4102.1

115.5105.5

179.2

100

261.5

331.1

50

100

150

200

250

300

350




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Policies for Poverty AlleviationPolicies for Poverty AlleviationIndia adopted two pronged approachIndia adopted two pronged approach

---- Growth approach: all three sectors contributeGrowth approach: all three sectors contributeagriculture, industry and servicesagriculture, industry and services

---- Direct approach : Safety nets or antiDirect approach : Safety nets or anti--poverty prog.poverty prog.

---- Self employment progra. (womens groups), wageSelf employment progra. (womens groups), wageemployment progra, food subsidies, nutritionemployment progra, food subsidies, nutritionprogrammes for children, old age and maternityprogrammes for children, old age and maternitybenefitsbenefits

---- Public Distribution SystemPublic Distribution System Subsidized foodSubsidized food---- National Rural Employment Guarantee SchemeNational Rural Employment Guarantee Scheme

(NREGS)(NREGS) Giving 100 days of wage employmentGiving 100 days of wage employmentto the poorto the poor


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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


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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


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Problems in EmploymentProblems in Employment

There are 458 million workers in India in 2004There are 458 million workers in India in 2004--0505Out 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 socialsecurity to unorganized workerssecurity to unorganized workers


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Inclusive Growth: AgricultureInclusive Growth: Agriculture

Concerns in AgricultureConcerns in Agriculture----Deceleration in growth from 3.5% duringDeceleration in growth from 3.5% during

19811981--97 to 2% during 199797 to 2% during 1997--2005. Decline in2005. Decline inyield growth.yield growth.

---- Land and water problems, vulnerability toLand and water problems, vulnerability toworld 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 andDisparities in growth across regions and

crops: growth rate declined more in rainfedcrops: growth rate declined more in rainfedareas.areas.


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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 farm sizecapita land availability. Shrinking of farm size

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 nonagriculture. Gap between agri. and non--agri.agri.

is widening.is widening.

We should blame nonWe should blame non--agriculture (industryagriculture (industryand services) for not absorbing workers fromand services) for not absorbing workers from

agriculture.agriculture.


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Three Goals of AgriculturalThree Goals of Agricultural

DevelopmentDevelopment

1.Achieve 4% growth in agriculture and raise1.Achieve 4% growth in agriculture and raiseincomes. Increasing productivity (land,incomes. Increasing productivity (land,labor), diversification to high value agri. andlabor), diversification to high value agri. andrural nonrural non--farm by maintaining food security.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, laggingregions, women etc. On lagging regions,regions, women etc. On lagging regions,

focus on Eastern India and other rainfedfocus on Eastern India and other rainfedareas.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.


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Deficits in Agriculture GrowthDeficits in Agriculture Growth

Six deficitsin agricultureSix deficitsin agriculture::(a) land and water management(a) land and water managementdeficitdeficit

(b) investment, credit and(b) investment, credit andInfrastructure 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


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Rural nonRural non--farm sectorfarm sectorPoverty can not be removed with 55% ofPoverty can not be removed with 55% of

workers in agri.workers in agri. Needto promoteruralnonNeedto promoteruralnon--farmfarmsector.sector.

India currently produces about 50 million tonnes ofIndia currently produces about 50 million tonnes offruits 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% inPhillippines, 83% in Malaysia.Phillippines, 83% in Malaysia.

Halfofthose engagedinagriculturearestillilliterateHalfofthose engagedinagriculturearestillilliterateandandjust 5% havejust 5% have completedhighersecondary educ.completedhighersecondary educ.

Evenin 2004Evenin 2004--05, around05, around60% of rural male60% of rural maleworkers and 85% of rural female workers areworkers and 85% of rural female workers areeither illiterateeither illiterate or educatedupto primarylevel.or educatedupto primarylevel.

Inother words,Inother words, education and skills areeducation and skills are

constraintsconstraints


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Lessons from ChinaLessons from ChinaIndia 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 inMalaysia 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 nonDiversification towards rural non--form sector inform sector inChina is one of the important factorsChina is one of the important factorsresponsible for rural poverty reductionresponsible for rural poverty reduction(poverty 3%).(poverty 3%).

This was partly due to high agriculturalThis was partly due to high agriculturalproductivity and investment in physical andproductivity and investment in physical andhuman capital.human capital.


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Social DevelopmentSocial Development

In social sector, significant achievementsIn social sector, significant achievementsin education and healthin education and health

However, Human development index rankHowever, Human development index rankis 127 out of 170 countries.is 127 out of 170 countries.

Social indicators are much lower forSocial indicators are much lower forScheduled castes and Scheduled tribesScheduled castes and Scheduled tribes

Malnutrition among children is one majorMalnutrition among children is one majorproblem (46% of children suffer fromproblem (46% of children suffer frommalnutritionmalnutrition


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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 percapita 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


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Regional DisparitiesRegional Disparities

InterInter--statestate disparitiesdisparities inin thethe growthgrowth ofof GrossGrossStateState DomesticDomestic ProductProduct (GSDP)(GSDP) increasedincreased inin thethe

postpost--reformreform periodperiod comparedcompared toto thethe eightieseighties..

InIn general,general, richerricher statesstates grewgrew faster faster thanthan thethepoorerpoorer statesstates..

CausesCauses forfor disparitiesdisparities;;

InvestmentInvestment inin physicalphysical andand humanhuman capitalcapitalTechnologyTechnology

InstitutionsInstitutions includingincluding governancegovernance


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EnvironmentEnvironment

Degradation of land, water. Increase inDegradation of land, water. Increase in

pollution levelspollution levels

Challenges of climate changeChallenges of climate changeConsumption patterns of richConsumption patterns of rich

Higher economic growth should not lead toHigher economic growth should not lead to

decline in our environmentdecline in our environment


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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 macroEconomic reforms are important. But macro--

poor policies (fiscal, trade, financial, monetarypoor policies (fiscal, trade, financial, monetaryetc.) should have proetc.) should have pro--poor focuspoor focus

Structural change should have followedStructural change should have followedagricultureagriculture--industryindustry--services sequenceservices sequence

Development of manufacturing sector isDevelopment of manufacturing sector is

important for creation of productive employmentimportant for creation of productive employmentEquality of opportunities (education)Equality of opportunities (education)

South East Asian and East Asian experienceSouth East Asian and East Asian experience


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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 womens economic andImportance of womens economic andsocial empowermentsocial empowerment

DecentralizationDecentralization

Economic reforms in relation to socioEconomic reforms in relation to socio--

political environmentpolitical environmentRights approach (civil, political andRights approach (civil, political andeconomic)economic)


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ConclusionConclusionThere 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 unrestamong 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 governmentin a democracy can afford to ignore large sections ofin a democracy can afford to ignore large sections ofworkers and nonworkers and non--working population.working population.

If it is not inclusive it can generate very severe socialIf it is not inclusive it can generate very severe socialtensions. Thus, politically, for having a stable andtensions. Thus, politically, for having a stable anddemocratic society one needs to have inclusivedemocratic society one needs to have inclusivegrowth.growth.


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THANK YOUTHANK YOU

S.Mahendra_CACP

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