‘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
• 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.
• 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 R&D.
• 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.
• 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 world’s 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
• 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.
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
Nutrition status of Indian adults
Men
Women
Proportion of adults with Body Mass Index below 18.5
1975-79
1988-90
1996-97
2000-01
56
49
46
37
52
49
48
39
2004-05
33
36
Body Mass Index is the ratio of weight (in kilos) to the square of height (in metres). BMI
less than 18.5 is the cut-off conventionally associated with “chronic energy deficiency”.
Source: Deaton and Dreze (2009).
BMI: an international comparison
(women aged 15-49 years)
Mean BMI
% women with BMI < 18.5
South Asia:
India
Bangladesh
Nepal
20.5
20.2
20.6
35.6
34.3
24.4
Sub-saharan Africa:
Eritrea
Ethiopia
Burkina Faso
Chad
Madagascar
Niger
Senegal
Nigeria
Zambia
Congo 2005
Guinea
Mauritania
Kenya
Uganda
Benin
Tanzania
Rwanda
Ghana
Malawi
Zimbabwe
Mozambique
Gabon
Lesotho
Mean for sub-Saharan Africa
20.0
20.2
20.9
20.8
20.8
21.4
22.3
22.3
21.6
22.9
21.8
24.3
22.7
22.2
22.4
22.3
21.8
23.1
22.0
23.1
22.1
23.5
25.1
21.9
37.3
26.5
20.8
20.3
19.2
19.2
18.2
15.2
15.0
13.2
13.2
13.0
12.3
12.1
10.7
10.4
9.8
9.3
9.2
9.2
8.6
6.6
5.7
15.8
Source: Deaton and Dreze (2009).
The trend in child nutrition in India
Proportion of children under 3 years who are undernourished
1992-93
1998-99
2005-06
Weight-for-age
52.0
47.0
45.9
Height-for-age
n/a
45.5
38.4
Weight-for-height
n/a
15.5
19.1
Source: Deaton and Dreze (2009).
Countries with the highest levels of
child undernutrition
Country
Nepal
Bangladesh
India
Timor-Leste
Yemen
Burundi
Madagascar
Sudan
Lao
Niger
Eritrea
Afghanistan
Proportion of children with
‘Weight-for-age’
48.3
47.5
46.7
45.8
45.6
45.1
41.9
40.7
40.4
40.1
39.6
39.3
Source: Source: Deaton and Dreze (2009).
• 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.
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
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!
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
• It’s 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.
• 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.
• 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.
• 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.
• 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.
• 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’.
• 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.
• 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.
• 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.
• 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?
• 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.
• 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.
• The absence of growth in two widely
different areas may be noted.
• First, in agriculture. And secondly, in
infrastructure, both social and physical.
• 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?
• 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.
• 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.
• 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.
• 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.
• 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.
• 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.
• 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.
• 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.
Table 6b
The expansion of irrigation
crop\year
1970-71
1980-81
1990-91
Cereals
27.6
34.1
41.0
Pulses
8.8
9.0
10.5
: Foodgrains
24.1
29.7
35.1
Oilseeds
7.4
14.5
22.9
Cotton
17.3
27.3
32.9
Sugarcane
72.4
81.3
86.9
Source: Economic Survey 2006-07.
2000-01
49.6
12.3
43.1
22.5
32.6
91.3
Public expenditure on irrigation and flood control
Nominal Expenditure
in Rs. crore
Expenditure
at 1993-94
prices
Third Plan (1961-66)
664.7
7402.0
Annual Plans (1966-69)
471.0
3699.0
Fourth Plan (1969-74)
1354.1
8484.3
Fifth Plan (1974-79)
3876.5
15095.4
Annual Plan (1979-80)
1287.9
4127.9
Sixth Plan (1980-85)
10929.9
25717.4
Seventh Plan 1985-90)
16589.9
28349.1
Annual Plans (1990-92)
8206.0
10413.7
Eighth Plan (1992-97)
31398.9
28353.7
Ninth Plan (1997-2002)
63009.5
42817.0
Tenth Plan (2002-2007)
103315.0
55450.3
Period
Source: Author’s estimates from Economic Survey 2006-07.
• The case of irrigation is illustrative that political
negotiation is going to be as important as
economic resources in bringing about inclusive
growth in India.
India: relative price of food
(source: author’s calculation)
1993-94
1.00
1994-95
0.97
1995-96
0.98
1996-97
1.01
1997-98
1.01
1998-99
1.02
1999-00
1.04
2000-01
1.04
2001-02
1.05
2002-03
1.03
2003-04
1.00
2004-05
0.99
India: A health card, Child anaemia
(source: Bose, 2007)
Anaemia status
(grams per dcl)
Any (< 11)
NFHS (2005-06) NFHS (1998-99)
78.9
74.3
Mild (10.0 -10.9)
25.7
22.9
Mod. (7 - 9.9)
49.4
45.9
Severe (< 7.0)
3.7
5.4
Nutrition status of Indian adults
Men
Women
Proportion of adults with Body Mass Index below 18.5
1975-79
1988-90
1996-97
2000-01
56
49
46
37
52
49
48
39
2004-05
33
36
Body Mass Index is the ratio of weight (in kilos) to the square of height (in metres). BMI
less than 18.5 is the cut-off conventionally associated with “chronic energy deficiency”.
Source: Deaton and Dreze (2009).
The need to recognise trade-offs
• Conflicts: Emerging consequences of the
NREGS.
• The Knowledge Commission’s recommendation
on higher education.
• What price PDS?
• Where is India headed?
• Political consensus and social cohesion.
• Far greater debate needed than we have
today. Economic policymaking is far more
removed from civil society than it was in
the fifties.
India: Percentage of undernourished households
source: Ray (2008)
1987-88
(NSS Round 43)
2001-02
(NSS Round 57)
Rural
48.16
66.90
Urban
36.97
51.00