ISBN - 978-93-81583-46-3

Macroeconomic Analysis of Indias Inclusive Growth

Sunil Bhardwaj1, Rohit Bhagat2, Vinay Sharma3 1 Assistant Professor 1,2,3 The Business School, Bhaderwah Campus, University of Jammu, Jammu 1 sunil.tbs2010@gmail.com

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Macroeconomic Analysis Of Indias Inclusive Growth

Macroeconomic Analysis of Indias Inclusive Growth

* Sunil Bhardwaj, Rohit Bhagat and Vinay Sharma Abstract: After the adoption of LPG policy by India in 1991, Indias growth story has shown many magnificent results with many macroeconomic variables showing positive movement. This Economic Liberalisation has helped India to accelerate its growth rate to an average of 7% per year since 1997, up from 3.5% in the 1970s. Expect during the economic crisis of 200708, we have maintained a GDP growth rate of 8.6% in the year 2010-11. The effect of financial crisis was visible when our GDP growth rate plunged down from 9.6% in 2007-08 to 6.8% in 2008-09. With increase in the real GDP growth rate at 8.5% in 2010-11, the economy has moved closer to pre-crisis level. Today we are claiming ourselves as the worlds fourth largest economy and the second fastest growing economy in Asia. Moreover India is now a major player in global trading system. During the first quarter of 2011-12 (April-June 2011) export rose by 45.7% to $ 79 billion and import by 36.2% to $ 110.6 billion. As a result of robust growth some economist are of the opinion that India and China will together act as an engine to drive the world economy. These economies are least affected by the global slowdown and can together act as a shock absorber for the world economy. But in spite of having two decades of prosperous growth the dark side of our economic development is clearly visible and that is what is reflected upon in this piece of research. Many macroeconomic variables indicate its flaws and consider it far away from what is known as Inclusive Growth. India is placed on 56th rank in global business competitiveness index, 62nd in innovation efficiency index, 67th in global hunger index, 112th rank out of 134 nations in gender gap and is placed on 134th rank in HDI. According to the world bank report, in 2004-05 about 37 crore people were poor but this figure rose to 38.5 crore in 2011. The top 1% of Indian population owns 15.9% of Indias wealth, the top 5% own 38.3% and the top 10% have 52.9% of Indias wealth which means that 90% of Indian poor have very less stake in Indias wealth. These figures will remain a matter of concern to our policy makers and inclusive growth seems to be a mere dream. This study tries to find the ways and means to take India towards more inclusive pattern of Growth. Key words: Liberalisation, Privatisation, Globalisation, Inclusive Growth, HDI, GHI, Innovation Efficiency Index and Poverty. Corresponding author: Sunil Bhardwaj, Assistant Professor, The Business School, Bhaderwah Campus, University of Jammu, Jammu sunil.tbs2010@gmail.com

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Macroeconomic Analysis Of Indias Inclusive Growth

Inclusive Growth: Taking about inclusive growth, the Indian Prime Minister Dr. Manmohan Singh says that India needs to "ensure that growth is widely spread so that its benefits, in terms of income and employment, are adequately shared by the poor and weaker sections of our society". Let me put it in other way inclusive growth is growth for the welfare of all. The oxford English dictionary gives another definition of it a growth not excluding any section of the society. However in Indian context and as perceived by eleventh five year plan (2006-07 to 2011-12) the integrated elements which can boost are grow are poverty reduction and increase in quantity and quality of employment, agriculture development, social sector development, poor quality delivery system and regional disparities. So a well planned homework if done on these parameters can help us to make our growth story more inclusive in nature. The paper discuses about some variables like HDI, poverty, gender disparities, global hunger index etc which play an important role for the overall development of an economy. Rationale of Inclusive Growth: According to both World Bank and CIA India is ranked 4th largest economy worldwide. The CIA World Fact Book lists India as the second most populated country with 17.5% of world population after china (19.5%). India has quite successfully liberalised its investments and it is a open fact that the its equity is ranked third in the world. There are number of industries that are pushing countrys growth beside a number of economic reforms that are put in place time to time in the last two decades to make India a global figure at the global platform. During tenth five year plan our economy has accelerated with an average rate of 7.7% and it seems as if we are in comfortable zone with respect to balance of payment, foreign exchange reserves, service sector growth. CAN WE CALL THIS GROWTH AS INCLUSIVE GROWTH? A thirteen year old child begging on the road side with an empty stomach and no hope for future. Merely telling him that our economy is growing at rate of 9% per annum, hardly compensate for his empty stomach. According to credit issue, the top 1% of the Indian population owns 15.9% of Indians wealth; the top 5% own 38.3% and top 10% have 52.9% of countrys wealth (Prarthna, 2012). This means that rest 90% have less than half (47.1%) of the share in the countrys wealth. Inclusive growth is necessary for sustainable development and equitable distribution of wealth and prosperity. In a country like India having demographic dividend a big challenge is to bring 600 million rural people in the main stream. Still 50% of countrys poor belong to excluded sections of society i.e. SCs, STs and OBCs who should also be given fair opportunity and support for their growth and development. Otherwise chances are there that countrys demographic dividend may turn into demographic liability. The main goal of inclusive growth is to feed, clothe, educate and employ Indias growing population which is expected to reach nearly 1.5 billion by 2030. Objectives of Study: The objective of this study is to give a sceptical insight to the Indians growth story and to bring in focus the facts and figures which shows countrys high growth performance but not inclusive.
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Macroecono omic Analysi Of Indias Inclusive Gro is I owth

The pape examines and analyse important variables at micro and macro level showing th er es t t l he gap betw ween actual g growth of th country an the inclusive growth and to sugg ways an he nd gest nd means to make it more inclusive in nature. o Research Methodol h logy: The piec of researc is descri ce ch iptive and a analytical in nature. The feature of this type o e f of research is to report things that have happened or are happening without hav t t ving much o of control o over these va ariables. The research u e uses fact and figures alre d eady availab to analys ble se and exam these to make a crit mine o tical evaluati of the ma ion aterial. Data Collection: er ondary data collection te echnique for the collect r tion of data. The variou us The pape uses seco sources u used are rese earch public cations, mag gazines, repo and pub orts blications of organisation f n, data and statistics com mpiled by in nstitutions an research j nd journals. on ervations: Discussio and obse Economy of a countr depends m y ry mainly on fiv basic vari ve iables such a GDP, infl as lation, foreig gn exchange reserves, balance of pa e b ayment and per capita in ncome. With GDP grow of 6.1% i h wth in rd 3 quart of 2011-12, inflation 5.1% in m ter n march 2011, forex reser , rves of US$ 327 billion $ n, balance of payment surplus of rupees 59449 crores, and per capita income of rupees 5283 o r 9 d 35 per annu in 2010-11, countrys economy has reached new heigh in the gl um d hts lobal contex xt. Before the process of econom liberalisation start t mic ted the focus was to bring abou ut fundamen changes so as to m ntal s make domestic economic competent to the globa challenge c al es. The focu of reducin the barrier was to exp us ng rs pose the eco onomy to new technolog managerial w gy, skills, an technical k nd knowhow an to lure fo nd oreign indust tries towards large India market an s an nd customer with high expendable income. Be rs e eside this 25 of Indian population is below th 5% n n he age of 30 years whic present a better rather than best op 0 ch b r pportunity f global pla for ayers for hig gh profits. W have use the platf We ed form quite s successfully as a result of which so ocioeconomic changes of the count are enorm try mous which has changed India and Indians. Wi the growt d ith th coming from all the sectors of the econom agricultu still play a dominan part in th f e my, ure ys nt he countrys growth and contributes 14% to Ind s d s dias GDP an employs 5 nd 52% of popu ulation. Reta ail sector co ontributes 1 14% to the nations G e GDP and em mploy 9% of populati ion in whic ch unorganised retail sector plays an important r n role. GDP G Growth Rate e

8.5

7.6

8.3

Quartlygrowthrate(2 201112)in % 7.8 7.7 6 6.9 6.1 Quartlygrowthrate(2 201011)in %

Q1

Q2

Q3

Q4

Q1

Q2 Q

Q3

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Macroeconomic Analysis Of Indias Inclusive Growth

Again large size of Indian market, the intrinsic strength of Indian corporate and Indians well established and well functioning banking system are conducive to a sustainable inflow of foreign equity. As a result of this FDI inflow to India was US$ 3.5 billion in 2010-11 mainly from Mauritius, Singapore, USA, Germany and UAE. Indian economy was least hit by global financial crisis and it was one of the first to recover from it. With GDP growth rate of 8.6 percent in 2010-11we have brought ourselve to precrisis level. However many macroeconomic variables do not support this growth story rather they call it as a pseudo growth, a growth far away from inclusive growth. Inclusive growth means which is not exclusive. Some integral elements of economic growth are not in favour of countrys this type of growth. According to Human Development Index, India has been classified in the medium human development category and is placed at 134th rank (According to UNPP, Human Development Report, 2011). Indias HDI value is 0.547, life expectancy at birth is 65.4 years, education index is 0.450, inequality index is 0.392 and GNI per capita (PPPUS$) is 3468. This clearly shows that Indias HDI ranking still lag behind other medium human development countries such as Srilanka (0.691), China (0.687), Thailand (0.682) and even Iraq having HDI value of 0.573. This means poor access to essential services such as health, education, drinking water, sanitation, public distribution system, information etc.

HumanDevelopmentIndex
0.717 0.450 Health Education

0.547

0.508

HumanDevelopmentIndex

HDI

Income

Global gender gap report assesses gender equality in 134 countries which take into consideration economic participation and opportunity, education attainment, political empowerment, health and survival. India has been ranked 112th out of 134 nations. This is a clear indication that besides having two decades of robust growth there is very little improvement in gender gap index. Gender inequality index value of India is 0.617 (UNDP, Human development report 2011). Sex ratio of the country: Total Persons 914 Rural 919 Urban 926

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Macroeconomic Analysis Of Indias Inclusive Growth

Sex ratio of the country (0-6 years): Total Persons 940 Rural 947 Urban 926

Although literacy rate of India is in comfortable zone (74.04%) but disparity in male literacy rate (82.14%) and female literacy rate (65.46%) is very prominent in Indian economy. Indias ranking is the lowest even among BRIC nations. Also Indias gender equality performance remains the worst in the region with Srilanka and Bangladesh getting 16th and 82nd ranking. Moreover, there is disparity in literacy rate of different states with 93.91% literacy rate of PERSON Total 74.04 Rural 68.91 Urban 84.98 MALE Total 82.14 Rural 78.57 Urban 89.67 FEMALE Total 65.46 Rural 58.75 Urban 79.92

Kerala and 63.82% Literacy rate of Bihar and same gap is found in rural and urban population. Literacy Rate of India (%)

Decadal population growth (2001-2011) rate of country is 17.64% showing a big gap in the growth rate of urban and rural population. Agriculture is the main stay of Indian economy and it account for 14.2% of the countrys GDP in 2010-11 and 10.59% of the total exports. This sector employs 58.2% of the total workforce which make it even more prominent for inclusive growth (census 2011). Moreover this sector is the supplier of food, fodder and raw material for a vast segment of industry which give it a separate status in the countrys growth story. During the first three years of the current five year plan, the agriculture sector (including allied activities) recorded an average growth of 2.03 percent against the target of 4 percent per annum. The first year (2007-08) of the plan ended with an impressive growth of 5.8 percent but next two years agriculture fell into negative zone with negative 0.1 percent in 2008-09. In order to achieve the plan target of average 4 percent per year, the agriculture sector needs to grow at 8.5 percent during 2011-12, which seem to be a mere dream so the inclusiveness of countrys growth. Despite the increase in growth in share, the contribution of agriculture in GDP is coming down. Recent experience suggests that high GDP growth in the agriculture sector leads to inflation in the country which would destroy our growth process, affecting the poor much.

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Macroeconomic Analysis Of Indias Inclusive Growth

%shareofagriculture
17.00% 16.00% 15.00% 14.00% 13.00% 200708 200809 200910 201011 %shareofagriculture

According to UNDP, Human Development Report 2011 Multidimensional Poverty Index of the country is 0.283 which shows another loophole of our economy. Some sections of society like SCs, STs and OBCs are still out of the main stream of the society. Nearly 50 percent of Indian poor belong to these classes of the society. Even after acknowledging these poor still an effect support is missing as a result of which poverty of STs has hardly declined in the last few years. According to reports percentage of poor people has decreased from 37.5 percent to 32 percent from 2004-05 to 2009-10 but absolute number of poor have increased from 37 crore people to 38.5 crore people. The situation is even more astonishing when we look at Global Hunger Index which is developed by International Food Policy Research Institute (IFPRI). It include three main hunger related indicators i.e. the proportion of undernourished in the population, the prevalence of underweight in children and the mortality rate of children. India, despite having robust economy growth with GDP growth rate of 6.1 percent in Q3 of 2011-12 country, is still placed at 67th rank in Global Hunger Index which is worse even when compared with the rank of Nepal (56th), Pakistan (52nd), Srilanka (39th) and China (9th). Global Innovation Index places India on 62nd position in 2011 from 56th in 2010. India is also considered as one of the most corrupt nations of the world. Transparency internationals Corruption Index report 2011 places India on 95th rank with corruption perception index score 3.1 which is again alarming and is effecting the countrys long term as well as short term growth perspectives. On Global Competitive Index (56th) India continues to being rank at par with South Africa (50th), Brazil (53rd), Russia (66th) and it is getting worse in comparison to China moving from less than 0.1 to 0.6 point. Country has performed on the poor front in the areas considered to be the basic factors for competitiveness. Supply of transport, ICT and energy infrastructure are insufficient and ill adopted to the global business needs which are improving but at a very slower rate in comparison to other nations which are improving at much faster rate. Not only this but macroeconomic environment (105th) continues to be characterised by large and repeated public deficit and highest debt to GDP ratio among BRICS. More recently the stability of the country is shaken by high inflation above 10%. Due to this India is hovering near 100 mark in this important aspect of economic growth.

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Macroecono omic Analysi Of Indias Inclusive Gro is I owth

9.54 9.68 9.74 4 9.78 9.06 9.44 9.22 10 9.87 9.46 7.47 6.55 6.95 6

2011 2012

1. 1

2. 2

3. 3

4. 4

5. 5

6. 6

7. 7

mendations: Recomm Emergen of techn nce nology fatigu in the in ue ntensive irrig gated crop p production regions is th r he main rea ason of poor performan of agricu r nce ulture sector in the past decade. So technolog r t o, gy innovatio with parti on icular focus on raising th yield is ve importan Moreover the focus t he ery nt. r, to shape di istrict specif plan aft analysin the clima fic ter ng atic and ge eographical condition, o of particular area supp r plemented by research in seed va b arieties and innovation of countrys agricultu in technology can hel to shape th future of countrys ag ure lp he griculture sector. Beside th collabora his ating the se econdary sec ctor with the agriculture sector can give desire e e n ed thrust of profitability to the agric y culture sector r. Central a assistance pr rogramme, the Rashriya Krishi Vik Yojana (RKVY), m t a kas must be resu ult oriented and proper accountabili and align ity ning them with other gov Schemes can prove t vt. s to be effecti ive. To achiev countrys inclusive growth good quality infra ve s g astructure is the most cri itical physical requirem ment for atta aining faste growth in a compet er n titive world and also for ensurin d ng investme in backward regions. ent SC, ST and OBC po a opulation, w women and c children con nstitute 70% of the popu % ulation. So, a particular attention m be give to them in terms of th reach of r r must en n he relevant sche emes in man ny sectors. M Minorities a other exc and cluded grou also need certain ass ups d sistance sche emes to brin ng them into main stream o ms. For allev viation of po overty prope stress on education, r er reservation o seats in g of govt. Jobs fo or BPL people, special assistance schemes for w women, and skill develo d opment in ur rban and rur ral nt. poor is very importan Remodel lling of gov initiated schemes like NRHM, MGNERGS, SSA, NUR & Bhar vt. s M , RM rat Nirman f achieving Millennium developm for g m ment goal is v very necessa by makin them mor ary ng re result ori iented with p proper evaluation and mo onitoring me easures. Foreign investments in the form of FDI, FII & FPI is ve necessary for the cou i ery y untry and ac cts as an imp portant sour of long-t rce term as well as short-ter fund. Dismantling of barriers an l rm nd liberal po olicy in resp pect to thes must be a se adopted so as to lure th hem toward large India d an market.

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Macroeconomic Analysis Of Indias Inclusive Growth

8. Economic reforms related to banking or macro polices (fiscal, trade, financial, monetary, judiciary) keeping in view all the sectors and sections of the society can help us achieve what is known as inclusive growth.

Conclusion: Twenty years had passed since India had Balance of Payment crisis and the country is doing fairly well in many sectors. But it seems as if the main focus of the country is to increase the GDP growth rate and not to analyse the inclusiveness of this growth trajectory. Our study tries to highlight the areas which are of utter importance for the inclusive growth of India like poverty, education, agriculture, health and social welfare through government spending. The focus of government aids also need to be directed towards rural population. Remodelling of government schemes, fiscal deficit discipline, economic reforms, dismantling of barriers for foreign investment, quality infrastructure, collaborating secondary sector to the primary sector, to bring in vulnerable population into the main stream, improvement in effectiveness of government programmes with poverty as main focus is very necessary for India.

Webliography/ Bibliography/ References: 1. http://www.planningcommissionofindia.com 2. Towards faster and more inclusive growth, an approach to the 11th five year plan, planning commission of India as downloaded from http://www.pci.com. 3. Challenges before inclusive growth in India by Prarthna Baranwal. 4. Human Development Report2011,http://hdrstats.undp.org/en/countries/profiles/IND.html 5. Data and Statistics from Reserve Bank of India, www.rbi.org.in/ 6. World Economic Forum, http://www.weforum.org/reports/global-gender-gap-report-2011 7. Ministry of Statistics and Programme Implementation, Central Statistical Office http://mospi.nic.in/Mospi_New/site/India_Statistics.aspx?status=1&menu_id=14 8. Transparency International, http://cpi.transparency.org/cpi2011/results/ 9. International Food Policy Institute, http://www.ifpri.org/book-8018/node/8058 10. The Global Innovation Index Report 2011, http://www.globalinnovationindex.org/gii/main/analysis/showcountrydetails.cfm 11. Planning Commission of India, http://planningcommission.nic.in/plans/planrel/fiveyr/11th/11_v1/11v1_ch1.pdf 12. Ministry of Commerce, http://commerce.nic.in/tradestats/filedisplay.aspx?id=1 13. The Indian Government's 2102 economic survey, http://investorzclub.blogspot.in/2012/03/india-2012-2013-gdp-at-76-percent.html

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