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Blog: Inclusive growth in India?

17 Nov 2009

Andrew Shepherd and Amita Shah

This blog follows the symposium, Making Growth Inclusive: Opportunities, Scope and Challenges at the State Level, on October 2009 in Ahmedabad.

As the mid-term appraisal of the Government of India’s 11th Five Year Plan is taking place, the Gujarat Institute of Development Research held a symposium in Ahmedabad this week on this topic – which is the leading theme of the Plan. The event was attended by senior researchers, senior government officials, and a range of other researchers and practitioners and was supported by the CPRC as part of the preparation for a Chronic Poverty Report for India, as well as UNIFEM and the Indian Council of Social Science Research

The symposium had an innovative approach – it focused on agriculture, employment and governance – which are all key issues for inclusive growth; and the experiences of four states, Gujarat, Madhya Pradesh, Orissa, and Tamil Nadu, which gave a range of experiences.                                                        

While there was some confusion among participants about what inclusive growth means, and whether it represents any advance over pro-poor growth, the 11th Plan is clear: inclusive growth yields broad based benefits and ensures equal opportunities for all

Abhjit Sen, of the Planning Commission, made clear that there were clearly two sets of factors that had driven the agenda of inclusive growth this time around: First, pertains to the high growth and sustained rise in the state revenue, which then makes it possible to reach shell out a part of the resources for social sector expenditure. And second relates to shifting of the political impetus away from the right wing. This in fact does not mean any significant shift in production sphere; what it implies is using part of the surplus for welfare orientated programmes.   

What is new about poverty reduction in India in this century is that it is beginning to replace a service delivery approach with a rights based approach. Rights to food, employment and information have variously been incorporated into legislation, and major efforts are being made to provide an employment guarantee in rural areas, representing a partial right to employment. In all of this, the passive recipient is being replaced by the active citizen. And civil society actors are critical.

Agricultural growth 

The symposium tracked various challenges for the ambitions of the 11th Plan. Agricultural growth is a major means of including poor people in growth. However, agricultural growth is very hard to achieve in the poorest states like Madhya Pradesh and Orissa, and even where it is achieved – Gujarat has had a high rate of agricultural growth, led by Bt cotton and livestock, it does not seem to be leading to substantial poverty reduction, perhaps because cheap migrant labour flows in from neighbouring poorer state sand tribal areas – though the jury has to be still out on that issue. 

Overall, it has been growing at just above the population growth rate, well below the 4% target, and agricultural incomes are six times lower than non-agricultural. Even higher employment growth has not generated higher level of poverty reduction in the recent past. 

There are major issues still to sort out in agricultural policy – the skewed subsidies on fertilisers, where government has recently shifted the subsidy to allow for a more balanced application of nutrients. But the crops and sub-sectors which have been heavily subsidised are those where there has been little growth – the government seems locked into these subsidies by a combination of the fertiliser industrial lobby, the rich cereal farmers of northern India, and the continued promises of state level politicians to provide free water and electricity, as well as subsidised fertiliser. 

The political dynamics of subsidies are illustrated by Tamil Nadu’s cancelled subsidies during its financial crisis in 2001, which were then reinstated at the 2004 election. By contrast, high value livestock and fruit and vegetables are growing rapidly, in response to demand, and because their markets are well organised by co-operatives, contract farming, and retail driven value chains. Most serious has been the failure to produce enough good quality seeds: the state seed corporations are moribund, there is no clear policy on private sector production, and research stations are asked to produce seed.

 There are even tougher decisions to take to make farming more sustainable than it currently is. Water is not efficiently used; soil fertility has reduced; and in some areas farmers are selling out to urban or industrial buyers. The government is investing heavily in agriculture (4% of GDP directly; this does not include rural roads etc.), and particularly irrigation, but old irrigation fields are also going out of commission so progress is slow. Overall transfers for agriculture, rural development and poverty reduction would be enough to provide the bottom 20% with nearly Rs 6000 (US $500 per year, which would take many over the poverty line if it actually reached them. 


Employment largely depends on the private sector, and much of the high levels of growth there remain relatively jobless. Jobs are increasingly informal and casual – and India has a massive low wage unskilled labour force. Demand for skilled labour from industry remains low. The labour inspectorate is poorly staffed and resourced (see Extending labour inspections to the informal sector and agriculture, CPRC working paper 54). At the same time, there is a serious concern about the falling demand of agriculture labour, resulting in declining productivity hence income among these workers.  In 2004-05, the Indian workforce consisted of 455.7 million workers in the category of usual principle and subsidiary status (UPSS). Of this, 55.6% were self employed. Whereas the proportion of self employed has increased as compared to 1993-94, that of hired workers in total workforce declined. The decline in the share of hired workers is an outcome of the collapse of demand for casual labour in both rural and urban areas. 

Low and declining labour productivity in agriculture, coupled with increasing prices of food and other essential commodities in the recent past seem to have created a dismal scenario of poverty and vulnerability among a vast majority of people in India – both the working and non-working. Failing to create demand for hired labour and the resultant decline in GDP per worker in agriculture thus emerge as the most important sources of rural distress that lie behind the shift in employment scenario in the recent time. It is in this context one needs to appreciate how appropriate and potentially important the initiative of employment guarantee programmes in the country.  

There is no link between trade and labour policy. The government’s National Rural Employment Guarantee of up to 100 days of work for anyone who needs it represents the Government of India’s major and celebrated effort to bring incomes of the poorest up to a reasonable minimum, and is an appropriate response to the insecurity experienced by labourers looking for work (see Rural casual labourers, wages and poverty, CPRC India working paper).

 The global crisis has reduced FDI, ODA, remittances, tourism and export revenues, and increased the cost of imports. In the massive informal economy, there have been substantial declines in income – an average of 33% across a number of sub-sectors including gems, engineering, auto-motive parts, chikan crafts. Government help only reached 4% of the workers. Households have reduced consumption (6% reduced meal), withdrawn children from school, shifted to cheaper schools, and reduced health consumption. More women have joined the labour market. Some migrants have returned home to places where there is little work.

Governance and inclusive growth

Does faster growth reduce poverty and generate the resources for progress on health and education? The state of Gurajat has very high growth, in both industry and services and agriculture, but little of this translates into poverty reduction or human development. Macro-economic policies on exchange rate and credit have prevented labour intensive manufacturing from leading the way to inclusive growth as it has in East Asia. And limited value addition reduces the employment potential. 

Tamil Nadu presents a model of balanced development – over the decades it has invested in human development, social protection and growth, and has reduced the incidence of poverty to 22%.While it has its own challenges, this would seem to be the best approach available in India currently for addressing the worst poverty. The exceptional development of social protection schemes since the 1980s is a particular feature – tax-based pensions for the poor started there; there are allowances for several deserving categories of people, and the famous Mid Day School Meals programme. This probably explains the significantly better than average reduction in depth of poverty. 

By contrast, the poorest states do not seem to have development-minded elites. They are natural resource-rich and have malfunctioning development institutions. Mineral based development in tribal areas is highly regressive for the local population. There is sometimes little implementation of progressive Government of India legislation, like the 2006 Forest Resources Act, which hands over forests to local people, something which could benefit large numbers of India’s poorest (tribal) people. Even out-migration is not a good solution for most migrants, but with helpful policies in sending as well as receiving states the outcomes of migration could be significantly better. This is largely an inter-state issue, and so requires the Government of India to take an interest. Even to make out-migration a success in the long term, massive investment in health, education, and social protection would be needed (World Development Report, 2009). Civil society actors raising rights and entitlement issues are sometimes repressed. 

Regional disparities remain, and the Naxalite movement has come to dominate attention. Unfortunately the response is largely on law and order in practice, despite the Home Ministry’s commitment to promoting equalising development, and the excellent report produced for the Planning Commission. The velvet glove probably needs more serious attention than the mailed fist on this issue: since it is persistent poverty and poor governance which throws ordinary people in the Naxal direction.