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Inclusion and growth Talk at YSP5 Indira
Gandhi Institute of Development
Research Mumbai June 24, 2009 by Pulapre
Balakrishnan Senior Fellow Nehru Memorial Museum
and Library New Delhi
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• For five years from 2003 India was at the very
  top of the league of fast growing economies in
  the world today.
• China was of course the fastest, but India was
  watched by the world at least as keenly.
• Politically, India fascinates because it has
  endured as a democracy despite conditions that
  would predict its withering away.

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• During the period of its high growth India was
  the cynosure of all eyes, partly due to the
  allure of its highly visible corporate
  capability, particularly in IT, which extends
  from management to RD.
• From an economic point of view, India continues
  to fascinate by being at the cutting edge of
  technology and ideas despite a very low average
  income.

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• Consider this
• Aircraft engines need to be put through
  rigourous tests before they are sold. What will
  happen in case of a bird hit, or if a fan blade
  disengages? Done physically, each of these tests
  can cost up to 15 million. And each test has to
  be carried out under different conditions. This
  can burn hundreds of millions of dollars. General
  electric, the worlds leading maker of aircraft
  engines, carries out all such tests on computers
  in an industrial estate in Bangalore at a
  fraction of the cost and time. As a result, GE
  hopes to rollout four or five engines over the
  next five years. An engine can take up to 20
  years to develop. Nobody has ever flooded the
  market with so many engines in a span of just
  five years.
• Bhupesh Bhandari, Frugal innovation, Business
  Standard, June 13/14, 2009

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• India has grown faster since 1991, suggesting
  that the aim of integrating with the global
  economy has paid dividends.
• However, an increasingly heard criticism is that
  the currently high economic growth in India is
  not inclusive.

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India Child anaemia(source Bose, 2007)
Status NFHS (2005-06) NFHS (1998-99)
Any 78.9 74.3
Mild 25.7 22.9
Mod. 49.4 45.9
Severe 3.7 5.4
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• In this talk, I shall
• i. Reflect on the idea of inclusion in the
  context of an economy, and
• ii. Assess how the current growth in India
  measures up to some rudimentary criteria of
  inclusiveness that we might consider.

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Why inclusive growth?

• The genius of a country is not best or most
  in its executives or legislatures, nor in its
  ambassadors or authors or colleges or churches or
  parlors, not even in its newspapers or inventors
  but always most in the common people.
• Leaves of Grass
• Walt Whitman, American poet

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The very idea of India

• To bring freedom and opportunity to the common
  man, to the peasants and workers of India to
  fight and end poverty and ignorance and disease
  to build up a prosperous, democratic and
  progressive nation, and to create social,
  economic and political institutions which will
  ensure justice and fullness of life to every man
  and woman.
• Jawaharlal Nehru
• Address to the Constituent Assembly
• August 14-15, 1947
• There would be no India without
  inclusiveness!

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The method of the economist

• While it is difficult for economists to perform
  experiments to test their theories, as a chemist
  or a physicist might, the world provides a vast
  array of natural experiments as dozens of
  countries try different strategies.
• 
  Joseph Stiglitz, Nobel Laureate
• 
  Making Globalization Work, 2006

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• Its official now!
• Inclusive growth has been stated as an
  objective in the Approach Paper to the Eleventh
  Plan.
• It has also been referred to continuosly by the
  representatives of the government that has just
  assumed office in New Delhi.

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• However, the Approach Document itself does not
  spell out clearly the means to inclusive growth,
  or even what it means.
• This leaves the task to us.

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• I shall spend some time considering alternative
  ways of viewing inclusive growth, and
  consequently potential routes to it.
• At the outset, it needs be recognised that there
  is no costless formula.
• As we are a democratic polity, we need to
  generate political will. As we are a market
  economy, we would need to commit resources.

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• It would seem that at least two conditions are to
  be satisfied for growth to be considered
  inclusive
• i. Growth does not leave behind large numbers.
• Note that this is a very mild requirement. In an
  adaptation from Rawls, we could have adopted
  maximin as the first criterion.

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• The maximin principle is a justice criterion for
  the design of social systems proposed by the
  philosopher Rawls.
• According to this principle the system should be
  designed to maximise the position of those who
  will be worst off in it.

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• ii. Growth is characterised by an evenness across
  the economy, such that the widest range of our
  material needs are satisfied.
• Easily recognised as absent in India where till
  recently there was a boom in the IT sector
  combined with slowing agricultural growth.
• Or, in Kerala, where there has been social
  development without development of what Marx had
  referred to as the productive forces.

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• Querying accounts of progress based on the growth
  rate alone is a concern worldwide today.
• In 2008 the French president appointed an Indian
  adviser to re-define economic progress bearing in
  mind the quality of life.

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• I suggest that, at least for India, we use a
  paired criteria by which to judge how inclusive
  is growth.
• First, growth must carry the many with it.
  Secondly, it must satisfy the widest range of our
  material needs.

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• Some features of the growth of the last decade or
  so
• Growth has accelerated since 1991.
• Significant feature is the resurgence of
  manufacturing in the very recent past.
• Manufacturing is important not only for faster
  growth, but also as this growth is in new
  sectors automobiles, high-end consumer durables.
  

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• However, by the definition that we have sketched,
  growth in the past decade and a half has not been
  inclusive.
• First, are the emerging opportunities being
  distributed equally?
• While we cannot be certain, we have reason to
  believe that they are not.
• But why?

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• As the demand for labour is what we term derived
  demand it is related to the growth of output.
• And we know that not all sectors are growing at
  the same rate.
• While this is not unusual the world over, there
  has occurred a great shift in labour from the
  slow growing to the fast growing sectors.

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• In India such is shift is being thwarted by a
  very low level of education and general
  capability development. This constraint is
  fundamental.
• So recent growth has not been inclusive by our
  first criterion, as the opportunities are not
  equally distributed.
• Recent growth also does not satisfy our second
  requirement, that growth cater to the entire
  range of our needs.

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• The absence of growth in two widely different
  areas may be noted.
• First, in agriculture. And secondly, in
  infrastructure, both social and physical.

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• So we can identify education, health and physical
  infrastructure as the missing elements in the
  Indian economy.
• What can we do to rectify this absence?

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• Both history and economic theory tell us that the
  broad policy of relying on the market is not
  sufficient to deal with this problem.
• All succesful economies from Europe to Japan have
  relied on mass public education to raise the
  general level of capability of their economies.

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• For half a century, the UK has had a National
  Health Service that provides free medical care of
  the highest order.
• The inter-state highway system in the United
  States was built by the government.
• The economies of the EC combine high levels of
  income with substantial welfare provision.

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• The role of public provision of services is that
  it mitigates income poverty. It is an important
  instrument of inclusiveness.
• The theoretical reason for the belief that better
  government alone can bring about inclusiveness is
  investment on education and infrastructure, and
  even health, has a social rate of return that is
  higher than the private rate of return. We know
  from theory that the market under-provides such
  goods.
• There is also the general collective goods
  problem in public goods provision.

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• Recognising the historical experience of
  development
• of the currently richest economies and the
  theoretical
• case for public provision of public goods, we
  can turn to the
• Indian case.
• It is by now clear that the policy focus has
  excluded social
• and physical infrastructure.
• There is a policy deficit.
• Public goods are not on the radar, as we find
  from the
• flooding of Mumbai during the monsoon, the
  outbreak of
• cholera in Bangalore and Chikungunya, a
  mosquito-borne
• ailment, in Kerala within the last six months.
  Public health is
• in a precarious condition.

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• Can the reforms per se handle the paucity of
• public goods in India? This question is
  relevant as
• the case is constantly made that what India
  needs
• most now is more reforms
• To answer the question posed we need to first
• understand the nature of the reforms since
  1991.

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• Since 1991 the economic policy environment in
• India has been liberalised.
• Much of this was necessary and has shown
• results, notably in manufacturing.
• However, in areas where the government has been
• inactive in the past particularly social and
• physical infrastructure it continues to
  remain so.
• This indicates the prospects for greater supply
  of
• public goods in India unless the problem is
• specifically addressed.
• We know that benign neglect will not deliver
  the
• goods.

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• Improved public goods provision straddle the 2
  elements
• in our definition of inclusive growth.
• First, they can enable participation in the
  opportunities
• thrown up by those currently excluded.
• Secondly, in some avatars such as sanitation,
  roads
• and urban recreational spaces they are
  constitutive of
• an inclusive growth.

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• The challenge of bringing about a more inclusive
  
• growth may be demonstrated with an example from
  
• the agricultural sector.
• The agricultural sector currently occupies the
• overwhelming majority of Indians. Not only is
  it
• growing slowly, it is also not able to produce
  food
• cheaply. The relative price of food has not
  declined
• since 1991.
• It is believed on the basis of past research
  that the
• main factor in raising the rate of growth of
• agriculture, as proposed in the Eleventh Plan,
  is the
• expansion of irrigation.
• But irrigation expansion has actually slowed
  since
• 1991.

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