Shikhar Paper Presentation Competition

Topic:

Inclusive Growth: Imbalance between

Political fantasy & Business Sustainability

Team Name: Sui Generis

Team Members:

Name : Vini Soni Pradeep Narayan Murthy

Email Id: vinisoni06@gmail.com pradeep_d11@iift.ac.in

Institute: IIFT Delhi

 Inclusive Growth: Imbalance Between Political Fantasy & Business sustainability

Abstract:

The staple of newspapers , the premeditate of all , whether there is a distinction of developed or
developing , or whether there is a divergence of boundaries the only word talked and obligated
is Inclusive Growth.

The growing need of stability & removal of social exclusion made governments of various
territories to gusset into the welfare for all themes, by squandering money on partially non
effective schemes and adapting to challenging strategies. In Indian context from past 60 years
there is a hue & cry to bridge social gap & grow economically. Variegate policies for equivalent
development have risen and failed. Some worked but still the bridge gap is not covered as now
also around 400 million population awaits there daily meals.

This paper underlines the basic definition of Inclusive growth and portrays an Indian picture by
comparing to a Utopian Inclusive growth. The political fantasy to grow into all the four inclusive
sectors (Financial, Educational, Health, and Employment) is contrasted effectively with the
indent of sustainability. This sharp distinction is made by microscopically looking at various
policies and schemes implemented for achieving inclusive growth.

In the end the paper concludes by notions to give more importance to financial inclusion as a key
driver for economic growth and underlines the importance of giving rural region a benefit of
doubt.

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 Inclusive Growth: Imbalance Between Political Fantasy & Business sustainability

Introduction

Inclusive growth is an idea that is borne out through common public opinion. Obviously the
electorate that has elected the government is always in favour of or in need of or in demand of
inclusive growth. This amongst others is one of the primary reasons for the government to push
for faster inclusive growth during this 5 year period. Inclusive growth doesn’t necessarily mean
inequality; the idea of that of a capitalistic economy itself brings with it the idea of inequality, to
do away with it will only be an idealistic thought in a free market economy. By solving
inequality by splurging money on in-effective schemes will be a non winner, in order to
effectively be inclusive one should try to understand what inclusive growth effectively means;
Inclusive growth essentially consists of four key attributes:

a) Opportunity: Is the economy generating more and varied ways for people to earn a living
and increase their incomes over time?
b) Capability: Is the economy providing the means for people to create or enhance their
capabilities in order to exploit available opportunities?
c) Access: Is the economy providing the means to bring opportunities and capabilities
together?
d) Security: Is the economy providing the means for people to protect themselves against a
temporary or permanent loss of livelihood?

One of major aspects of social development is income and income is a result of opportunity
being exploited. Hence the idea of Inclusiveness should solve the problem of providing the
means for the opportunity. Motivating people to take up these opportunities, enable people by
providing the requisite skills in order to be able to comprehend the opportunities and effectively
use them to further his interest.

Hence inclusive growth depends on a number of factors, including the motivation and
performance of the individual himself. It is more appropriate to assess the effectiveness of the
process in terms of whether or not it gives a large (and increasing) number of people legitimate
opportunities to earn incomes. The 'capability' dimension clearly relates to education and skill
creation. It must impart a set of skills that are relevant to the market -- in other words, enable the

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 Inclusive Growth: Imbalance Between Political Fantasy & Business sustainability

individual to take advantage of opportunities. And, it must give the individual his values, a sense
of his place in the larger community and his obligations to it.

Finally, the concept of security is both easy to explain and justify. Generally speaking, a rapidly
growing economy is also a turbulent one. Sectors and companies become obsolete quite quickly
and new ones emerge to take their place. The contribution of this turbulence to the growth
momentum is unquestionable, but, equally, its impact on people in terms of predictability and
stability of their livelihoods can be quite brutal.

Inclusive growth – a Political fantasy

Inclusive growth has been the major manifesto material of all the ruling political parties
throughout the course of Indian history post independence. But it is interesting to observe that
sort of inclusive growth that we seek is elusive even post liberalization. Reasons for this do range
from policy reforms that try to solve just the superficial problem and not really address the core
issues. Any idea of an inclusive growth should essentially talk about a) Financial inclusion b)
health care inclusion c) Educational inclusion d) Inclusive Employment Reforms.

Utopian Inclusive growth:

Inclusive growth by its very definition implies an equitable allocation of resources with benefits
accruing to every section of society, which is a utopian concept. But the allocation of resources
must be focused on the indented short and long terms benefits and economic linkages at large
and not just equitable mathematically on some regional and population criteria.

Utopia it is because it dreams of an ideal state which we all strive towards. We still have
trappings of an utterly violent prone tribal society where most of conflicts simmer for ages with
no solutions at sight and yet we talk of an ideal state. Can we have the so called ideal state with
so many criminals and people having no clue, sitting at top and making a huge mess of
everything they lay their hands on?

As a nation still in the process of developing itself, it would perhaps be very premature to let go
of the dream of inclusive growth but with some hard realities thrown in too. Society by its very

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 Inclusive Growth: Imbalance Between Political Fantasy & Business sustainability

definition implies coming together of a variety of peoples and sharing of benefits in order to
survive and grow. But what we do of the people who are seeped deep in concept of zero sum
game, where one has to win at the cost of other across whole gamut of economic activity?

Any direct jobs to skilled people create direct and indirect jobs for people having
complementary/down stream/associative skills. When thousands of people get job in IT/BPO
sector many job streams are automatically created across wide spectrum of skills and locations. I
do not understand aversion towards expanding job market for skilled people in IT/BPO sector.
There is no economic activity, which is stand-alone and isolated from its immediate and external
environment. In an expanding economy more people with wide skills are required. What will be
educated people will do if there are no job opportunities when they pass out of schools and
collages? This notion of berating any job creations because millions do not have access to
primary educations is faulty to core. The need to upgrade education across the length and
breadth of country has been for long and there has not been much done about it in true sense.

These are two separate issues and one must not be berated and criticized because of deficiency in
other. The concept of few people monopolizing and restricting the entry of others is a faulty
notion again based on mindset of stagnant economy and static society. In today's increasingly
global, dynamic and competitive economy such notions are based on inherent failure to identify
the skill/activity linkages present and missing in the real sense.

Of course there is scope for vast improvements and yet the trickledown effect is visible across
country with few exceptions too. These exceptions are due to various regional, environmental,
political and infrastructures deficiencies. Growth in a competitive economy is and will always be
inclusive, because it cannot be otherwise. But it is immensely fashionable to criticize and play
down innovations in economy and hence the job market. The Eleventh Plan Approach Paper
according to which a key element of the strategy for inclusive growth must be "to provide the
mass of our people access to basic facilities such as health, education, clean drinking water etc,
and that governments at different levels have to ensure the provision of these services".

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The question, which must be asked, is why previous ten plans could not make any significant
differences in these areas and that too with so much of high-sounding ideas but with no
substances of real value? That is the legacy of "high thinking-no action" socialism we have to
bear within the twenty-first century. Pyramid of economy and its jobs will always be initiated,
activated by people having higher managerial and technical skills and their acts and risk taking
abilities will create jobs for other people down stream.

The proponents of "Inclusive Growth" have some vogue notions of growth and fail to see a vast
change underway. Off course they fail to see any linkages between pyramid of resources,
entrepreneurships, skills and jobs.

There is so much of noise about only the educated and skilled people getting employed and most
remain uneducated and hence unemployable. What will be use of education if those boys and
girls passing out of collages remain unemployed because there are so many who are uneducated?
An entrepreneur friend is a very harassed man on verge of going out of business due to rampant
absenteeism of around 100 workers he employs. He is faced every day with angry customer's
unprintable expletives due to delayed shipments of lower qualities leading to delayed payments
and all associative problems. The manufacturing system he is comfortable with is largely manual
with no automatic machines. To survive he has to invest in imported automatic machinery that
would lead to cut down his labor force by 60% and increase production by 50% along with better
quality.

To operate these machines he would need to employ fewer technically educated/ skilled people
at two to three times of the average salary paid right now. If he does that is he going against the
concepts of "Inclusive Growth"?

Business sustainability of financial inclusion:

Micro Financing and micro lending have been taken to in full swing by the public as well as
private sector banks in the India. The most significant development is the extent to which rural
and micro-banking is now an industry in India with each bank having a dedicated Rural,

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Agricultural, and Micro-banking (RMAG) division. Rural credit from the banks to the applicants
is mainly driven through referral lending and group lending where the repayment is more than
95%, this scheme is even attractive to the bank as they get best of both worlds – Higher rate of
return with low risk but the catch to this models sustainability is that expansion in credit has not
seen a expansion in deposits hence most of this retail credit is being driven or funded through
cash from other operations of the bank. The implications of this mismatch are important to
understand some of the constraints faced by an expanding micro banking industry. In the absence
of deposit growth banks face a liquidity problem which limits further credit expansion. This
problem is evident in recent policy changes to reduce the statutory liquidity ratio (SLR) of Indian
banks. In other words, the banking system will be expected to increasingly provide larger
quantum of funds to existing and emerging enterprises. And without adequate deposit growth,
however, credit expansion might not be sustainable over the medium-term, without putting
immense pressure on real interest rates and impacting the overall stability of the financial
system.

The other systemic obstacles to micro – financing which can be effectively understood as
financial inclusion here is that of the transaction costs involved in for both the bank and the
customer are high, further the interest rates remain high due to unavailability of a structured
credit assessments. The second obstacle is the policy structures in place which limit the
geographical reach of banks beyond physical bank branches.

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Yet beyond these limitations financial inclusion becomes important in the context of improving
agricultural productivity therefore policy reforms have taken precedence:

1) KYC procedures have been simplified for low income groups.

2) Banks have been asked to voluntarily make available an account, and all printed bank
material has to be made available in regional languages.

Hence with increasing liberalization and higher economic growth, the role of banking sector is
poised to increase in the financing pattern of economic activities within the country. To meet the
growing credit demand, the banks need to mobilize resources from a wider deposit base and
extend credit to activities hitherto not financed by banks. The trend of increasing
commercialization of agriculture and rural activities should generate greener pastures, and banks
should examine the benefits of increasing penetration therein. Financial inclusion will strengthen
financial deepening and provide resources to the banks to expand credit delivery. Thus, financial
inclusion will lead to financial development in our country which will help to accelerate
economic growth only if efficient policy reforms are put in place and implemented with due
diligence .

Health Care Initiatives - Inclusive Growth:

Healthcare is another sector where India's potential can be realized with the increasing tandems
of prioritising rural health and insurance schemes. Policies like NRHM (National Rural Health
Mission), ASHA (Accredited Social Health Activist) are the various reformatory measures put in
by government to increase national health indicators like Infant mortality rate, maternal
mortality, rural sanitation etc. Despite considerable gains in health status over the past few
decades in terms of increased life expectancy, reductions in mortality and morbidity serious
challenges still remain.

A sizeable share of population remains deprived of basic health care facilities despite the
National Rural Health Mission (NRHM) and other health initiatives by the government and
related agencies. The issues of availability, accessibility, acceptability, affordability and quality
with regard to health care remain as serious concerns. 'Double burden of diseases' has further

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aggravated the problem together with escalating cost of health care and collapse of state support.
Under NRHM government organised to develop many hospitals in rural areas which by and large
covered many remote areas but this withered on the wake of implementation due to varying
reasons of channels, bureaucracy etc.

Medical tourism may be booming, but thousands die due to inadequate primary healthcare. We
need more doctors, hospitals and beds to deal with that, but more importantly, we also need to
equip more than a million healthcare workers and get across primary healthcare facilities to
every Indian. The solution is to make the public health system accountable, affordable and
accessible by improved management of resources and community action.The potential of scaling
remote diagnostics and care (broadly called telemedicine) should be established through a variety
of trials and pilot deployments.

Jobless Growth to Inclusive Growth: Employability as an Alternative Planning Strategy

Employment generation has been projected as the major outcome of the growth paradigm in
India. In fact the very creation of multiple development opportunities through provision of
formal employment has been considered to be the development function of the economic growth.
Sensing this government of India has taken various measures to increase employment
opportunities like NREGS, UNDP etc.

Allocation under National Rural Employment Guarantee Scheme (NREGS) increased by 144 %
to Rs.39,100 crore in B.E. 2009-10 over B.E. 2008-09 – pointing it as a major step towards
achieving an inclusive growth. But the several criticisms which actually points out at the
sustainability of this major step can be visualized from data below.

In last 3 years on average only 50% of the households that registered under the scheme actually
got employment. Also the wide variation of performance across states is also an issue. In terms
of the percentage of registered households provided work, Maharashtra has averaged an abysmal
13% over the three years while Rajasthan at the other end of the spectrum has averaged 73%.
Despite the political and economic importance NREGA has generated, there is lack of studies on
the working of public employment programmes.

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On doing various statistical analyses of poverty and inequality among rural and urban population
using indicators such as GINI coefficient, Head Count Poverty Ratios, NFHS a broader picture
of very decline in the major productive growth indicator can be seen. There lies a need to
increase non-farm employment and productivity to achieve higher level of inclusive growth with
specific thrust on agriculture sector. There is a need of improving our labor participation rate.
According to an ILO study, the labor force participation rate in India at 60.9% (age group 15-64)
in 2005 was way behind China’s 82%. There is a need for faster employment growth for not only
absorbing the new entrants to the labor force but also to meet the rise in labor force due to a
higher participation rate. While a lower growth in labor force participation rate or a lower labor
to population ratio in the short run may give a lower unemployment figure, we cannot afford to
forego the potential output from such a valuable source.

On one hand the Government is not able to provide jobs to people on the other, growing sectors
do not find suitable man-power. The example of higher growth of IT sector but less employment
to the needy is a distressful reality. The training institutes should lay emphasis on employability
and skill development which would mitigate problems of educated unemployed. Inclusive
growth can be achieved through creation of employable work-force. There is a mismatch
between employment opportunities and employability. So a skill-based education system and
need for integration of academia and work place as an effective strategy for inclusive growth.
Education Inclusion:

A strong ‘equity-enhancing’ and ‘inequality-reducing’ thrust to the education plan is an

Imperative, particularly in view of the emphasis on ‘inclusive growth.’ Government initiated
Sarva Shiksha Abhiyan for elementary education which is being strengthened with expansion of
the midday meal program for children to the Upper Primary level in 3479 educationally
backward blocks of the country. This has no doubt benefited the various dropouts but was also
not able to answer some A universal access to secondary education by supporting 6000 new high
quality model schools, with one school in each block in the country to set standards of excellence
that can be emulated. Higher education will receive massive investment in the 11th Plan with 30
new Central Universities, 370 new colleges in educationally backward districts, and expansion in
the number of technical institutions with 8 new Indian Institutes of Technology, 20 new Indian

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Institutes of Information Technology, 7 new Indian Institutes of Management, and 2 more Indian
Institutes of Science Education and Research in addition to the three started at Pune, Kolkata and
Mohali. The National Skill Development Mission will ensure employability of our youth and
address the skill deficit presently felt in some sectors of our economy.

The Economic Survey 2006-07 has identified five mantras for achieving high and inclusive
economic growth with a view to creating more jobs and eliminating poverty at a faster pace.

1. As a first step, the government should initiate measures to channelize savings accruing on
account of high growth rate coupled with the demographic dividend (a growing proportion of the
population in the working age group) for investment.

2. Secondly, efficiency improvements in the economy since 1999-2000 will reinforce the
country's confidence in the high-growth phase.

The ratio of net capital stock to gross value added in the national economy, which went down
from 2.78 to 2.60 between 1999-2000 and 2004-05, has increased to 2.66 in 2004-05, suggesting
efficient utilization of resources.

3. Thirdly, availability of labor at reasonable wages and efficiency improvements will open new
avenues in services, beyond the already well-known IT and ITeS that bolster confidence in the
new high-growth phase.

The Survey also suggested that the government should encourage tourism, which globally
contributes 10 per cent to the world's gross domestic product.

4. As fourth step, the Survey underlined the need for rapid capacity addition through investments
to prevent overheating of the economy as is being feared by some economists.

5. Fifthly, the poor infrastructure that constrained growth in the past has started improving and is
likely to strengthen further, giving a boost to economic growth.

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Conclusion:

The economy is presently in a phase of rapidly rising incomes, rural and urban, arising from an
expansion of extant economic activities as well as the creation of new activities. Corporate
profitability has exhibited sustainable trends and consumer incomes are increasing rapidly, riding
on the growth momentum. All of these developments suggest that the demand for financial
services, both for savings as well as production purposes, will be greater than has been the case
in the past, and there will be many new entrants in need of financial services who have not
hitherto been served. At present our financial depth is much lower than that of other Asian
countries, though it has picked up in the recent past. While there is evidence of an increase in
financial deepening, particularly during the present decade, the increase in the breadth and
coverage of formal finance has been less than adequate. Deepening the financial system and
widening its reach is crucial for both accelerating growth and for equitable distribution, given the
present stage of development of our country.

There has been a burst of entrepreneurship across the country, spanning rural, semi-urban and
urban areas. This has to be nurtured and financed. It is only through growth of enterprises across
all sizes that competition will be fostered. A small entrepreneur today will be a big entrepreneur
tomorrow, and might well become a multinational enterprise eventually if given the comfort of
financial support. But we also have to understand that there will be failures as well as successes.
Banks will therefore have to tone up their risk assessment and risk management capacities, and
provide for these failures as part of their risk management. Despite the risk, financing of first
time entrepreneurs is a must for financial inclusion and growth.

The Parliament passed the Credit Information Bureau Act last year and the guidelines for its
implementation will be released shortly. This should enable, over time, the availability of credit
histories of both individuals and small businesses, which will help significantly in reducing
transactions and information costs for banks. It will also help in spreading the credit culture
among borrowers. It should help banks greatly in assessing and managing risk at low cost.

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As poverty levels decline and households have greater levels of discretionary incomes, they will
be first time financial savers. They will, therefore, need to have easy access to formal financial
systems to get into the banking habit. Banks will need to innovate and devise newer methods of
including such customers into their fold. The importance of 'no-frills' account and expanding the
range of identity documents that is acceptable to open an account without sacrificing objectivity
of the process in this milieu can never be over-emphasized. Banks will need to go to their
customers, rather than the other way around.
The micro-credit and the Self Help Group movements are in their infancy but are gathering
force. More innovation in the form of business facilitators and correspondents will be needed for
banks to increase their outreach for banks to ensure financial inclusion. New entrants to the
banking system need households at their doorstep.

To conclude, we wish to stress that with increasing liberalization and higher economic growth,
the role of banking sector is poised to increase in the financing pattern of economic activities
within the country. To meet the growing credit demand, the banks need to mobilize resources
from a wider deposit base and extend credit to activities hitherto not financed by banks. The
trend of increasing commercialization of agriculture and rural activities should generate greener
pastures, and banks should examine the benefits of increasing penetration therein. Financial
inclusion will strengthen financial deepening and provide resources to the banks to expand credit
delivery. Thus, financial inclusion will lead to financial development in our country which will
help to accelerate economic growth.

References:

1. Address by Rakesh Mohan: Economic growth, financial deepening and financial

inclusion.
2. Wikipedia – Inclusive growth
3. www.economist.com
4. www.knowledge@wharton.com
5. www.mckinseyquarterly.com
Total Word Count : 4023

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