Inclusive growth, a broader view

By Pulapre Balakrishnan


For close to at least five years now inclusive growth has had a central place in the official discourse on the economy. My own understanding is that the UPA II itself has worn its self-proclaimed success in delivering an inclusive growth as a badge of is effectiveness, not to mention its commitment to improving the lives of those at the bottom of the pyramid. However, at a recent international seminar on the economic reforms held at the prestigious Administrative College of India, Hyderabad one of India’s leading financial journalists announced that whatever may be the case on the ground, the political class as a collective believe that the current growth process in India is not inclusive. He saw this as failure on the part of India’s economists to express and communicate the actual position. While accepting readily that economists are not always and everywhere the least opaque of interlocutors one must also reckon with the proclivity of the political class to paint the picture in ways that appeal to their constituencies. Be that as it may, it is incumbent among professional economists to say it as it is, and it is to this task I turn first.

            The most widely accepted definition of inclusive growth is likely to be that of a growth process that lifts the incomes of all households in a society. As with the proverbial rising tide, now no one is excluded. As rising household incomes, prices staying constant, implies declining poverty inclusive growth is also poverty reducing. This is the definition of inclusive growth encountered most often in the public discourse. The point of this article is to argue that this too narrow a view of inclusive growth to satisfy us. However, I first sift through the evidence on the impact of growth on poverty since the early nineties, that is, what do the data show? There is overwhelming evidence that the decline in poverty that had set in in the 1980s has continued after the launching of reforms since 1991. Among poverty researchers, Deaton and Dreze, upon whom the majority of professional economists would rely on for veracity, have shown that the decline in poverty has continued at more or less the same pace before and after. In fact, they are at pains to emphasise that extreme positions such as that “the poor have become poorer” or “the reforms have unleashed the poor” are untenable in light of their finding. The latter establishes conclusively that growth by reducing poverty has been inclusive. Apart from willful disbelief, the scepticism towards accepting this finding may well derive from a sense that India is a country of major contrasts, contrasts straddling regions and persons. In particular, social stratification is evoked. Such scepticism is healthy, and must be encouraged till it is shown to be without foundation. So, when it comes to ascertaining whether growth is inclusive or not, it is a natural to ask whether poverty is declining across all social groups.  As caste has historically been a seemingly durable barrier to individual advancement, we would want to see how when growth takes place poverty is affected across the principal social groups of the country. Recently published research of Sukhdeo Thorat and Amaresh Dubey shed light on precisely this issue. They study the trend in poverty across social groups and demonstrate that there has been a decline in poverty across all sections of the population grouped by caste and religion. Interestingly, according to their results, over the period 1993-2010 the decline in poverty in rural India has been the highest among the religious minorities. And, for the period of very high growth over 2004-10, the rate of decline in poverty among the scheduled tribes was higher than the national average. Finally, for both rural and urban India, the decline in poverty across all of India’s social groups accelerated as the noughties progressed. So from the most recent and uptodate of the studies on poverty we get a picture of inclusive growth, inclusion being defined as the spreading of income across the population as growth occurs. At the same time, India being a large and varied country these results are consistent with growth having bypassed some groups and possibly even whole regions. For instance, we cannot be so confident of how the scheduled tribes have fared in parts of India that have attracted the extractive industries, notably mining. There is also the knotty issue of how we are to square a decline in income poverty among the tribals when it is accompanied by a permanent loss of their original sources of livelihood. Clearly, a case-by-case approach would be needed to assess such special situations. But for the country on the whole the emerging picture is that of an inclusive growth, as defined. However, this is no cause for complacency. The levels of income at the bottom of the pyramid are currently very low. To remedy this fast enough we must be seeking a growth process that can rapidly raise these incomes. The challenge is to bring this about at a time when growth is slowing as appears to be the case right now.

            One response to the claim that growth has been inclusive in the sense of the income being shared is that this is happening in a milieu of rising inequality. This would be worrying in itself even if a rising inequality does not slow the decline in poverty as the growth gets concentrated at the top. However, the point is that inequality is yet about income, and a focus on income diverts our attention from the non-income factors that determine our well-being, perhaps better understood as ‘the quality of life’. Towering over all non-income factors are public goods. Economists see public goods as non-rival in consumption, which renders them egalitarian in their impact on a population. They are important to us as they add to our sense of well-being. Think of roads, pavements, parks, and every kind of urban civic infrastructure including especially sanitation. It is not as if our villages abound in them, only that being less congested we miss their absence less. Public goods enter into the economic imagination in the following way. Such goods are defined by the characteristic that access to them cannot be restricted. With unrestricted access they are rendered unattractive to potential private providers guided by the profit motive.

            Once we comprehend fully the role of public goods we can see why it is necessary to broaden the ambit of the discourse on inclusive growth beyond the customary inter-personal income comparisons. We can visualise a society with a relatively equal income distribution that is yet short of public goods. That this is not academic in its import becomes clear to anyone observing the development of India over the past couple of decades. While the economy has grown public goods provision has not expanded commensurately. In fact, our cities where growth is concentrated are getting close to becoming unlivable. Amidst the host of problems making life difficult for the ordinary Indian a new one has emerged. Almost overnight, the management solid-waste in our cities has sprung up as a formidable challenge. Aesthetics apart, and it is perfectly human to desire a beautiful habitat, rotting garbage is despoiling our water supply and contributing to the spread of communicable diseases. From the evidence on the incidence of dengue and chikungunya we may infer that the public health system is unable to cope with the situation. This infrastructural deficit is the obverse of a public good. Exactly as access to public goods cannot be restricted, no one is exempt from the ill-effects of the public bad so to speak. Santosh Mehrotra and Ankita Gandhi, authors of India Human Development Report 2011, put it pithily when they state: “Even if a single household defecates in the open, it can be a source of diarrhoea in all neighbouring households.” There can no escape from public bads, a less immediately obvious manifestation of which is climate change. Their salience to our lives arises from the twin feature that they affect us even when we are not their cause, and those who cause it do not bear a private cost. The trouble with laissez-faire as a social arrangement is that it is niggardly when it comes to public goods and liberal with the ‘bads’.

            A widening of the definition of inclusive growth has implications for the discourse on public policy. It is far from sufficient to aver that growth is not inclusive as income is not getting spread in order to justify a whole host of schemes that amount to handouts by the government of the day. Firstly, we have conclusive evidence that income is being spread though perhaps not at the rate at which we desire. But, more importantly, in democracies we elect a government primarily to provide public goods which the private sector has no incentive to do. This is far more difficult than handing out money. It requires negotiation among all stakeholders and bringing in technical expertise. India’s political class needs to turn to this task to justify their existence. Distributive politics fuelled by borrowing is not ‘inclusive growth’ even if can be sustained, which it can never be. Moreover, it is far from being democratic in a meaningful way. The success of democracy in India will be judged by the availability of public goods.