INCLUSIVE

GROWTH

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INCL
USIVE GR
OWTH
INCLUSIVE
GRO

CHRONICLE
IAS ACADEMY

A CIVIL SERVICES CHRONICLE INITIATIVE

DEFINING INCLUSIVE GROWTH

Inclusive growth basically means, broad
based growth, shared growth, and pro-poor
growth. Rapid and sustained poverty reduction
requires inclusive growth that allow people to
contribute to and benefit from economic
growth. Rapid pace of growth is unquestionably
necessary for substantial poverty reduction, but
for this growth to be sustainable in the long
run, it should be broad-based across sectors,
and inclusive of the large part of the countrys
labor force. This definition of inclusive growth
implies a direct link between the macro and
micro determinants of growth. The micro
dimension captures the importance of structural
transformation for economic diversification and
competition, including creative destruction of
jobs and firms.
Inclusive growth refers both to the pace and
pattern of growth, which is considered
interlinked, and therefore is in need to be
addressed together. Inclusiveness a concept
that encompasses equity, equality of
opportunity, and protection in market and
employment transitions is an essential
ingredient of any successful growth strategy.
Why must growth be inclusive?
Inclusive growth is important for very
various reasons:

For ethical consideration of equity and

fairness, growth must be shared and
should be inclusive across different
segments of populations and regions.
Economic and other shocks hurt the poor
and the vulnerables and growth that
results by it leads to high disparity which
is unacceptable.
Growth with persisting inequalities
within a country may endanger social
peace, force poor and unemployed
people into criminal activities, make
women more vulnerable to prostitution,

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force children into undesirable labor, and

further weaken other disadvantaged and
susceptible sections of population
resulting in a waste of vast human capital
that could otherwise be used productively
in creating economic outputs for
sustainable growth.
Continued inequalities in outcomes and
access to opportunities in a country may
result in civil unrest and violent backlash
from people who are continually
deprived, derailing a sustainable growth
process. This may create political unrest
and disrupt the social fabric and national
integration, undermining the potential for
long-term, sustained growth.

NEED AND IMPORTANCE OF

INCLUSIVE GROWTH
Inclusive growth is necessary for sustainable
development and equitable distribution of
wealth and prosperity. Achieving inclusive
growth is the biggest challenge in a country
like India. In India, bringing 600 million people
living in rural areas into the mainstream is the
biggest concern. The challenge is to take the
levels of growth to all sections of the society
and to all parts of the country.
The inclusive growth approach takes a
longer term perspective as the focus is on
productive employment rather than on direct
income redistribution, as a means of increasing
income for excluded groups. Inclusive growth
focuses on ex-ante analysis of sources of, and
constraints to sustained, high growth, and not
only on one group the poor. Policies for
inclusive growth are an important component
of most government strategies for sustainable
growth. For instance, a country that has grown
rapidly over a decade, but has not seen
substantial reduction in poverty rates may need
to focus specifically on the inclusiveness of its
growth strategy.

[1]

Since independence, significant improvement in Indias economic and social development made the nation to grow strongly in the
21st century. The following factors encouraged
India to concentrate more on inclusive growth.
1.

2.

3.

4.

5.

6.

7.

8.

9.

India is the 7th largest country by area

and 2nd by population. It is the 12th
largest economy at market exchange rate
and 4th largest by PPP. Yet, India is far
away from the development of the
neighbouring nation, i.e., China.
The exclusion in terms of low agriculture
growth, low quality employment growth,
low human development, rural-urban
divides, gender and social inequalities,
and regional disparities, etc. are some of
the problems of the nation.
Reducing of poverty and other disparities
and raising of economic growth are the
key objectives of the nation through
inclusive growth.
Studies have estimated that the cost of
corruption in India amounts to over 10%
of GDP. Corruption is one of the ills that
prevent inclusive growth.
Although child labour has been banned
by law in India and there are stringent
provisions to deter this -inhuman practice.
Still, many children in India are unaware
of education as their lives are spoiled due
to labour work.
Literacy levels have to be raised to provide
the skilled workforce required for higher
growth.
Achievement of 9% of GDP growth for
country as a whole is one of the boosting
factors which gives the importance to the
Inclusive Growth in India.
Inclusiveness benchmarked against
achievement of monitorable targets related
to (i) Income & Poverty (ii) education
(iii) health (iv) women & children
(v) infrastructure (vi) environment.
Even at international level also, there is a
concern about inequalities and exclusion
and now they are also talking about
inclusive approach for development.

MEASUREMENT OF INCLUSION A
MULTI DIMENSIONAL CONCEPT
A. Pillar One- Growth and Expansion of
Economic Opportunity-

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1.

Economic Growth and Employment:

Growth rate of GDP per capita at PPP
Growth rate of average per capita
income/consumption (lowest quintile,
highest quintile, and total)
Employment rate
Elasticity of total employment to total
GDP (employment elasticities)
Number of own-account and
contributing family workers per 100
wage and salaried workers
2. Key Infrastructure Endowments-:
Per capita consumption of electricity
Percentage of paved roads
Number
of
cellular
phone
subscriptions per 100 people
Depositors with other depository
corporations per 1,000 adults

B. Pillar Two -Social Inclusion to Ensure Equal

Access to Economic Opportunity1.

Access and Inputs to Education and

Health: School life expectancy (primary to
tertiary)
Pupil-teacher ratio (primary)
Diphtheria, tetanous toxoid, and
pertussis (DTP3) immunization
coverage among 1-year-olds
Physicians, nurses, and midwives per
10,000 population
Government
expenditure
on
education as percentage of total
government expenditure
Government expenditure on health as
a percentage of total government
expenditure
2. Access to Basic Infrastructure Utilities
and Services: Percentage of population with access
to electricity
Share of population using solid fuels
for cooking
Percentage of population using
improved drinking water sources
Percentage of population using
improved sanitation facilities
3. Gender Equality and Opportunity: Gender parity in primary, secondary,
and tertiary education

[2]

Antenatal care coverage (at least one

visit)

Gender parity
participation

Percentage of seats held by women in

national parliament

in

labor

force

D. Pillar Four: Good Governance and

Institutions

Voice and accountability

Government effectiveness
Corruption perceptions index

INDIAN PLANNING AND INCLUSIVE

GROWTH
Economic Planning is to make decision with
respect to the use of resources. Economic
Planning is a term used to describe the long
term plans of government to co-ordinate and
develop the economy. Economic planning in
India which was started in 1950 is necessary
for economic development and economic
growth.
Need for Economic Planning

Mass Poverty and Low Per Capita

Income
High Rate of Growth of Population

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C. Pillar Three- Social Safety Nets

Social protection and labor rating

Social security expenditure on health as

a percentage of government expenditure
on health

Government expenditure on social

security and welfare as percentage of
total government expenditure

Low Level of Literacy

Lack of infrastructure
Regional disparities
Backward Technology
Social and Economic Problem Created By
Partition Of Country

Objectives of Economic Planning

Economic Growth.
Reduction of Economic Inequalities.
Balanced Regional Development.
Modernization.
Reduction of Unemployment.

First five year plan (1951-1956) Indias

first Prime Minister, Jawaharlal Nehru
presented the first five- year plan to the
Parliament of India on 8 December 1951. The
plan addressed, mainly, Industrial sector ,
Energy and Irrigation, Transport and
Communications , Land rehabilitation, Social
services, Development of agriculture and
community & Miscellaneous issues. The most

[3]

important feature of this phase was active role

of state in all economic sectors. After
independence, India was facing basic
problemsdeficiency of capital and low
capacity to save. The target set for the growth
in the gross domestic product was 2.1 percent
every year. In reality, the actual achieved with
regard to gross domestic product was 3.6
percent per annum. This is a clear indication
of the success of the 1st five year plan.
Second five year plan (1956-61) - Unlike
the First plan, which focused mainly on
agriculture, domestic production of industrial
products was encouraged in the Second plan,
particularly in the development of the public
sector. The plan followed the Mahalanobis
model. The second five- year plan focused on
industry,
especially
heavy
industry,
Hydroelectric power projects and five steel mills
at Bhilai, Durgapur, and Rourkela were
established. Coal production was increased.
More railway lines were added in the north
east.

Atomic energy was also formed in second

five year plan.
The total amount allocated under the
second five year plan in India was Rs.
4,800 crore. This amount was allocated
among various sectors:
Mining and industry
Community and agriculture development
Power and irrigation
Social services
Communications and transport.
(Targetted Growth was 4.5% and 4.0%
Growth was achieved during the plan.)
Third five year plan (1961-66) - The third
plan stressed on agriculture and improvement
in the production of wheat, but the brief SinoIndian War of 1962 exposed weaknesses in the
economy and shifted the focus towards the
Defence industry and Indian army. In 1965
1966, India fought a War with Pakistan. Due
to this there was a severe drought in 1965. The
war led to inflation and the priority was shifted
to price stabilisation. The construction of dams
continued. Many cement and fertilizer plants
were also built. Punjab began producing an
abundance of wheat. Target Growth was 5.6%
and 2.4% Growth was achieved during the plan.
Due to miserable failure of third plan the Govt.

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was forced to declare plan holidays(from

1966-67,1968-69) .Three annual plans were
drawn during this intervening period. During
1966-67 there was again the problem of
drought. Equal priority was given to agriculture
,its allied and industry sector. The main reason
of plan holidays was Indo-Pak war, lack of
resources and increase in inflation.
Fourth five year plan (1969-74) - The Indira
Gandhi government nationalised 14 major
Indian banks and the Green Revolution
advanced agriculture in India. In addition, the
situation in East Pakistan (now Bangladesh)
was becoming dire as the [Indo-Pakistan War
of 1971] and Bangladesh Liberation War took
Funds, earmarked for the industrial
development, had to be diverted for the war
effort. India also performed the Smiling Buddha
underground nuclear test in 1974. Targetted
Growth was 5.7% and Actual Growth was
3.3%.
Fifth five year plan (1974-79) - Stress was
laid on employment, poverty, alleviation, and
justice. The plan also focused on self-reliance
in agricultural production and defense. The
Indian national highway system was introduced
for the first time. In 1978 the newly elected
Morarji Desai government rejected the plan.
Electricity Supply Act was enacted in 1975,
which enabled the Central Government to enter
into power generation and transmission.
(Targetted Growth: 4.4% Actual Growth: 5.0.)
Sixth five year plan (1980-85) - The sixth
plan also marked the beginning of economic
liberalisation. Price controls were eliminated
and ration shops were closed. This led to an
increase in food prices and an increase in the
cost of living. This was the end of Nehruvian
socialism and Rajeev Gandhi became the Prime
Minister during this period. The sixth five year
plan was a great success to Indian economy.
(Targetted Growth: 5.2% Actual Growth: 5.4%)
Seventh five year plan(1985-90) - As an
outcome of the sixth five-year plan, there had
been steady growth in agriculture, control on
rate of Inflation, and favourable balance of
payments which had provided a strong base
for the seventh five Year plan to build on the
need for further economic growth. The plan
laid stress on improving the productivity level
of industries by upgrading of technology. The
main objectives of the 7th five-year plan were

[4]

to establish growth in areas of increasing

economic productivity, production of food
grains, and generating employment. The thrust
areas of the 7th five year plan have been
enlisted below:

Social Justice
Using modern technology
Agricultural development
Full supply of food, clothing, and shelter
Increasing productivity of small and large
scale farmers
Making India an Independent Economy.
Under the Seventh Five Year Plan, India
strove to bring about a self-sustained
economy in the country with valuable
contributions from voluntary agencies
and the general populace. (Targetted
Growth: 5.0% Actual Growth: 6.1%.)

Eighth five year plan (1992-97) - 198991

was a period of economic instability in India
and hence no five-year plan was implemented.
Between 1990 and 1992, there were only
Annual Plans. In 1991, India faced a crisis in
Foreign Exchange (Forex) reserves. It was the
beginning of privatization and liberalization in
India. Modernization of industries was a major
highlight of the Eighth Plan. Under this plan,
the gradual opening of the Indian economy was
undertaken to correct the burgeoning deficit
and foreign debt. Meanwhile India became a
member of the World Trade Organization on 1
January 1995.This plan can be termed as Rao
and Manmohan model of Economic
development. The major objectives included,
controlling population growth, poverty
reduction, employment generation, strengthening the infrastructure, Institutional
building, tourism management, Human
Resource development, Involvement of
Panchayat Raj, Nagar Palikas, N.G.OS and
Decentralisation and peoples participation.
Energy was given priority with 26.6% of the
outlay. An average annual growth rate of
6.78% against the target 5.6% was achieved.
Ninth five year plan (1997-2002) - The main
objectives of the Ninth Five Year Plan were :

to develop the rural & agricultural sector

to generate employment opportunities
and promote poverty reduction.
to provide for the basic infrastructural
facilities like education for all, safe

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drinking water, primary health care,

transport, energy.
During the Ninth Plan period, the growth
rate was 5.35 per cent, a percentage point lower
than the target GDP growth of 6.5 per cent.
Tenth five year plan (2002-07) The main
objectives of the tenth Five Year Plan were :
To Attain 8% GDP growth per year.

Reduction of poverty ratio by 5

percentage points by 2007.

Providing gainful and high-quality

employment.

Reduction in gender gaps in literacy and

wage rates by at least 50%.

Inclusiveness and Eleventh Plan (2007

2012) - The 11th Five Year Plan provided an
opportunity to restructure policies to achieve a
new vision of growth that will be more broad
based and inclusive, bringing about a faster
reduction in poverty and helping bridge the
divides that are currently the focus of greater
attention. The first step in this direction were
in fact initiated in the middle of the Tenth Plan.
The strength of the fundamentals of the State
economy was evident from a noteworthy
transition to a high growth path during the
10th Five Year Plan period. With this backdrop
of an impressive record of economic growth
coupled with an assured positive upsurge in
the living standards of the people, the State
along with the Nation approached culmination
of the Eleventh Five Year Plan on an optimistic
note. Rapid and inclusive growth was the core
theme of the 11th Five Year Plan with main
emphasis on the Social sector and delivery of
services therein. Education, in particular, was
accorded utmost priority during the 11th Five
Year Plan period.
The Eleventh Five Year Plan (2007-08 to
2011-12) had aimed at achieving faster and
more inclusive growth. Rapid GDP growth,
targeted at 9.0 per cent per annum, was
regarded necessary for two reasons: first, to
generate the income and employment
opportunities that were needed for improving
living standards for the bulk of the population;
and second, to generate the resources needed
for financing social sector programmes, aimed
at reducing poverty and enabling inclusiveness.

[5]

The economy performed well on the growth

front, averaging 8.2 per cent in the first four
years. Growth in 2011-12, the final year of the
Eleventh Plan was originally projected at around
9.0 per cent continuing the strong rebound
from the crisis, which saw an 8.5 per cent
growth in 2010-11. Instead, the economy
actually slowed down somewhat in 2011-12
compared to the previous year a phenomenon
common to all major economies reflecting the
fact that 2010 was a rebound from depressed
levels in 2009. The economy achieved an
average GDP growth of around 8.2 per cent
over the Eleventh Plan period, which was lower
than the 9.0 per cent targeted originally, but
higher than the 7.8 per cent achieved in the
Tenth Plan. This implied a nearly 35 per cent
increase in per-capita GDP during this period.
It also led to a substantial increase in
government revenues, both at the Centre and
the States, resulting in a significant step-up of
resources for the programmes aimed at
inclusiveness. A healthy increase in aggregate
savings and investment rates, particularly in
the private sector, testified to the strength of
our economy as it entered the Twelfth Plan
period.
The acceleration in the growth in the
Eleventh Plan period compared with the Tenth
Plan was modest, but it nevertheless was a good
performance, given the fact that a severe global
economic crisis depressed growth in two of
these five years, and also that in the year 2009
India had the weakest monsoon in three
decades.
Inclusiveness- The progress towards
inclusiveness is more difficult to assess, because
inclusiveness is a multidimensional concept.
Inclusive growth should result in lower
incidence of poverty, broad-based and
significant improvement in health outcomes,
universal access for children to school, increased
access to higher education and improved
standards of education, including skill
development. It should also be reflected in
better opportunities for both wage employment
and livelihood, and in improvement in
provision of basic amenities like water,
electricity, roads, sanitation and housing.
Particular attention needs to be paid to the
needs of the SC/ST and OBC population.
Women and children constitute a group which
accounts for 70% of the population and deserves

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special attention in terms of the reach of

relevant schemes in many sectors. Minorities
and other excluded groups also need special
programmes to bring them into the mainstream.
To achieve inclusiveness in all these dimensions
require multiple interventions, and success
depends not only on introducing new policies
and government programmes, but on
institutional and attitudinal changes brought
about, which take time.
Inter-State and Inter-Sectoral VariationsOne important feature of the growth
experienced in the Eleventh Plan, which was
relevant for inclusiveness, was that high rates
of economic growth had been more broadly
shared than ever before across the States. While
most States showed sustained high rates of
growth, several of the economically weaker
States demonstrated an improvement in their
growth rates. Amongst them were Bihar, Orissa,
Assam, Rajasthan, Chhattisgarh, Madhya
Pradesh, Uttarakhand and to some extent Uttar
Pradesh. According to the available data, no
State averaged GSDP growth of less than 6.0
per cent during the Eleventh Plan period. While
the economically-weaker states caught up in
growth rates, there was growing concern about
the backwardness of individual districts, several
of which are located in States that were
otherwise doing well. Many of these districts
were also affected by Left-wing Extremism. The
Backward Regions Grant Fund (BRGF) and
various other regional initiatives have been
specially designed to address this problem.
Progress in Reducing Poverty- Reducing
poverty is a key element in our inclusive growth
strategy and there is some progress in that
regard. According to previous official poverty
estimates, the percentage of the population
living below the poverty line had declined by
8.5 percentage points between 1993-94 and
2004-05. The Eleventh Plan had set a more
ambitious target of achieving a decline in poverty
ratio of 2 percentage points per year. While the
actual performance in this regard was below this
target, it was better than it was in the earlier
decade. A summary assessment is that the pace
of poverty reduction had accelerated, though it
may still be short of the target. Nevertheless, it is
heartening to note that looking ahead; India is
well poised to meet the Millennium Development
Goal target of 50 per cent reduction of poverty
between 1990 and 2015.

[6]

Plan Programs for Inclusiveness-The

Eleventh Plan gave a special impetus to several
programmes aimed at building rural and urban
infrastructure and providing basic services with
the objective of increasing inclusiveness and
reducing poverty. Some of these programmes
were new, while others augmented existing
initiatives.
Employment and Livelihood- For growth
to be inclusive it must create adequate livelihood
opportunities and add to decent employment
commensurate with the expectations of a
growing labour force. The 66th round NSSO
Survey of Employment shows that the vast
majority of new jobs created between 2004-05
and 2009-10 were in casual employment, mainly
in construction. While such jobs are often more
attractive for rural labour than casual work in
agriculture, there is a potential for an
accelerated pace of creation of more durable
rural non-farm jobs/livelihood opportunities.
Such job opportunities could come from faster
expansion in agro-processing, supply chains
and the increased demand for technical
personnel for inputs into various aspects of
farming that is undergoing steady
modernisation, and also the maintenance of
equipment and other elements of rural
infrastructure. The service sector too has to
continue to be a place for creation of decent
jobs/livelihood opportunities, in both rural and
urban areas.
Eleventh Plan Achievements on Inclusive
Growth
The following are some important indicators
showing the extent to which the Eleventh Plan
succeeded in fulfilling the objective of inclusive
growth.

GDP growth in the Eleventh Plan 2007

08 to 201112 was 8 per cent compared
with 7.6 per cent in the Tenth Plan
(200203 to 200607) and only 5.7 per
cent in the Ninth Plan (199798 to 2001
02). The growth rate of 7.9 per cent in
the Eleventh Plan period is one of the
highest for any country in that period
which saw two global crises.
Agricultural GDP growth accelerated in
the Eleventh Plan, to an average rate of
3.7 per cent, compared with 2.4 per cent
in the Tenth Plan, and 2.5 per cent in
the Ninth Plan.

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The percentage of the population below

the poverty line declined at the rate of
1.5 percentage points (ppt) per year in
the period 200405 to 200910, twice the
rate at which it declined in the previous
period 199394 to 200405.
The rate of growth of real consumption
per capita in rural areas in the period
200405 to 201112 was 3.4 per cent per
year which was four times the rate in
the previous period 199394 to 200405.

The rate of unemployment declined from

8.2 per cent in 200405 to 6.6 per cent in
200910 reversing the trend observed in
the earlier period when it had actually
increased from 6.1 per cent in 199394
to 8.2 per cent in 200405.

Rural real wages increased 6.8 per cent

per year in the Eleventh Plan (200708
to 201112) compared to an average 1.1
per cent per year in the previous decade,
led largely by the governments rural
policies and initiatives.

Complete immunization rate increased by

2.1 ppt per year between 200204 and
200708, compared to a 1.7 ppt fall per
year between 199899 and 200204.
Similarly, institutional deliveries increased
by 1.6 ppt per year between 200204 and
200708 higher than the 1.3 ppt increase
per year between 199899 and 200204.

Net enrolment rate at the primary level

rose to a near universal 98.3 per cent in
200910. Dropout rate (classes IVIII) also
showed improvements, falling 1.7 ppt per
year between 200304 and 200910,
which was twice the 0.8 ppt fall between
199899 and 200304.

Twelfth Five Year Plan (20122017)- Faster,

More Inclusive and Sustainable Growth:Indias 1.25 billion citizens have higher
expectations about their future today, than they
have ever had before. They have seen the
economy grow much faster in the past 10 years
than it did earlier, and deliver visible benefits
to a large number of people. This has
understandably raised the expectations of all
sections, especially those who have benefited
less. Our people are now much more aware of
what is possible, and they will settle for no
less. The Twelfth Five Year Plan must rise to
the challenge of meeting these high expectations.

[7]

Highlights of 12th Five Year Plan (2012-17):

The Plan aims to achieve average growth

rate of 8 per cent during the 12th Five
Year Plan (2012-17)

It aims to raise the farm sector growth

rate to 4 per cent and achieve a growth
rate of 10 per cent in the manufacturing
sector.

The target is to generate 50 million new

jobs while achieving 8% growth target.

The Plan aims at increasing investment

in infrastructure to 9 per cent of the GDP
by the end of the Plan period (2012-17).

The aggregate Plan resources are

estimated at Rs 37.16 lakh crore during
the five year period.

The 12th Plan also seeks to reduce poverty

by 10 percentage points in the five-year
period.

The other targets include increasing green

cover by one million hectare every year
and adding 30,000 MW of renewable
energy generation capacity in the Plan
period.

It also seeks to reduce emission intensity

of the GDP in line with the target of 2025 reduction by 2020 over 2005 levels.

Based on an intensive process within the

Planning Commission, the following Twelve
Strategy Challenges have been identified for
the 12th Five Year Plan-:
1. Enhancing the Capacity for GrowthToday, India can sustain a GDP growth of 8
percent a year. Increasing this to 9 or 10 percent
will need more mobilization of investment
resources; better allocation of these resources
through more efficient capital markets; higher
investment in infrastructure through both public
and PPP routes; and more efficient use of public
resources.
2. Enhancing Skills and Faster Generation
of Employment- It is believed that Indias
economic growth is not generating enough jobs
or livelihood opportunities. At the same time,
many sectors face manpower shortages. To
address both, we need to improve our
education and training systems; create efficient
and accessible labour markets for all skill
categories; and encourage the faster growth of
small and micro enterprises.

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3. Managing the Environment- Environmental and ecological degradation has serious

global and local implications, especially for the
most vulnerable citizens of our country. How
can we encourage responsible behaviour,
without compromising on our developmental
needs?
4. Markets for Efficiency and InclusionOpen, integrated, and well-regulated markets
for land, labour, and capital and for goods and
services are essential for growth, inclusion, and
sustainability. We have many sectors were
markets are non-existent or incomplete,
especially those which are dominated by public
provisioning. How do we create or improve
markets in all sectors?
5. Decentralization, Empowerment and
Information- Greater and more informed
participation of all citizens in decision-making,
enforcing accountability, exercising their rights
and entitlements; and determining the course
of their lives is central to faster growth,
inclusion, and sustainability. How can we best
promote the capabilities of all Indians,
especially the most disadvantaged, to achieve
this end?
6. Technology and Innovation- Technological and organizational innovation is the key
to higher productivity and competitiveness.
How can we encourage and incentivize
innovation and their diffusion in academia and
government as well as in enterprises of all sizes.
7. Securing the Energy Future for IndiaFaster and more inclusive growth will require
a rapid increase in energy consumption. Since
we have limited domestic resources, how can
we meet this need equitably and affordably
without compromising on our environment?
8. Accelerated Development of Transport
Infrastructure- Our inadequate transport
infrastructure results in lower efficiency and
productivity; higher transaction costs; and
insufficient access to our large national market.
How can we create an efficient and widespread
multi-modal transport network?
9. Rural Transformation and Sustained
Growth of Agriculture- Rural India suffers from
poor infrastructure and inadequate amenities.
Low agricultural growth perpetuates food and

[8]

nutritional insecurities, which also reduces rural

incomes. How can we encourage and support
our villages in improving their living and
livelihood conditions in innovative ways?
10. Managing Urbanization- Most of our
metros and cities are under severe stress with
inadequate social and physical infrastructure
coupled with worsening pollution. Migration
pressures are likely to increase. How do we
make our cities more liveable? What can we do
today to ensure that smaller cities and towns
are not similarly overwhelmed tomorrow?
11. Improved Access to Quality EducationEducational and training facilities have been
increasing rapidly. However, access,
affordability, and quality remain serious
concerns. Employability is also an issue. How
can we improve the quality and the utility of
our education, while ensuring equity and
affordability?
12. Better Preventive and Curative Health
Care- Indias health indicators are not
improving as fast as other socio-economic
indicators. Good healthcare is perceived to be
either unavailable or unaffordable. How can
we improve healthcare conditions, both curative
and preventive, especially relating to women
and children?

FINANCIAL INCLUSION AND

INCLUSIVE GROWTH
The Rangarajan Committee on Financial
Inclusion defines financial inclusion as a
comprehensive and holistic process of ensuring
access to financial services and timely and
adequate credit where needed by vulnerable
groups such as weaker sections and low income
groups at an affordable cost. Financial
inclusion is delivery of banking services at an
affordable cost to the vast sections of
disadvantaged and low income groups. It
means extending the banking habits among the
less privileged both in urban and rural areas.
The process of ensuring access to financial
services and timely and adequate credit where
needed by vulnerable groups such as weaker
sections and low income groups at an affordable
cost. The main objectives are to connect people
with banking system and to give people access
to payment & credit system.

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By financial inclusion, we mean the delivery

of financial services, including banking services
and credit, at an affordable cost to the vast
sections of disadvantaged and low-income
groups who tend to be excluded. The various
financial services include access to savings,
loans, insurance, payments and remittance
facilities offered by the formal financial system.
Among the key financial services that are of
great relevance here are risk management or
risk mitigation services vis--vis economic
shocks. Such shocks may be an income shock
due to adverse weather conditions or natural
disasters, or an expenditure shock due to health
emergencies or accidents, leading to a high level
of unexpected expenditure. This aspect of
financial inclusion is of vital importance in
providing economic security to individuals and
families.
Financial Inclusion As a Quasi-Public
Good-It is well recognized in the literature that
finance performs the important functions of
mobilizing savings, allocating capital and
transforming risk by pooling and repackaging
it. There is growing evidence that a wellfunctioning financial system fosters faster and
more equitable growth. Access to financial
services allows the poor to save money outside
the house safely, prevents concentration of
economic power with a few individuals and
helps in mitigating the risks that the poor face
as a result of economic shocks. Providing access
to financial services is increasingly becoming
an area of concern for policy-makers for the
obvious reason that it has far-reaching
economic and social implications.
First and foremost, enhanced financial
inclusion will drastically reduce the farmers
indebtedness, which is one of the main causes
of farmers suicides.
The second important benefit is that it will
lead to more rapid modernization of Indian
agriculture. New agriculture, by nature, needs
more working capital and is capital intensive
as it depends on improved seeds, fertilizers and
other modern inputs and equipment. Since
enhanced financial inclusion means better risk
management tools for the farmers, they will be
encouraged to adopt new technologies at a
faster rate.
Yet another benefit will be increased
growth, as well as more equitable growth, in

[9]

both rural and urban areas because financial

growth will mobilize what Prof. C. K. Prahalad
calls the bottom of the pyramid. By providing
greater access to educational loans for all
sections of society, improved financial inclusion
will also mean India becoming a more equal
opportunity nationa pre-condition for
promoting inclusive growth.
Finally, a very positive impact of promoting
financial inclusion will be the boost given to
grass-roots innovations and entrepreneurship.
Present State of Financial Inclusion in India:The focus of financial inclusion is on
promoting sustainable development and
generating employment for a vast majority of
the population, especially in the rural areas. In
the first-ever Index of Financial Inclusion to
find out the extent of reach of banking services
among 100 countries, India has been ranked
50. Out of 19.9 crore households in India, only
6.82 crore households have access to banking
services. As far as rural areas are concerned,
out of 13.83 crore rural households in India,
only 4.16 crore rural households have access to
basic banking services. In respect of urban areas,
only 49.52 per cent of urban households have
access to banking services and 34 per cent of
Indias urban population with annual income
of less than 50,000 have access to banking
services. The latest National Sample Survey
Organisation survey reports that there are over
80 million poor people living in the cities and
towns of India and they lack access to the most
basic banking services such as savings accounts,
credit, remittances and payment services,
financial advisory services, etc. Low-income
groups do not have access to the formal banking
systems, as they usually do not have the
documents needed to open a bank account. As
a result, they depend on the informal sector for
their savings and loan requirements. Thus,
financial inclusion is considered to be critical
for achieving inclusive growth, which itself is
required for ensuring overall sustainable
growth. Recognising the importance of inclusive
growth in India, efforts are being taken to make
the financial system more inclusive.
Causes of Financial Exclusion in India
Access to formal banking system is affected
by several barriers such as culture, financial
literacy, gender, income and assets, proof of

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identity, remoteness of residence, and so on.

Over a period of time several measures are being
taken by the banks in India to improve access
to affordable financial services through financial
education, leveraging technology, and
generating awareness. There are number of
factors affecting access to financial services by
weaker section of society in India. The lack of
awareness, low incomes and assets, social
exclusion, illiteracy are the barriers from
demand side. The distance from bank branch,
branch timings, cumbersome banking procedure
and requirements of documents for opening
bank accounts, unsuitable banking products or
schemes, language, high transaction costs and
attitudes of bank officials are the barriers from
supply side. Hence, there is a need for financial
inclusion to build uniform economic
development, both spatially and temporally,
and ushering in greater economic and social
equity.
Measures for Financial Inclusion in India
Several measures have been taken by both
the Reserve Bank of India and the Government
to bring the financially excluded people to the
fold of the formal banking services. The
important financial inclusion initiatives of RBI
are given below:

Introduction of No-Frills account

Relaxing Know Your Customer (KYC)
norms
General Purpose Credit Card (GCC)
Schemes
Role NGOs, SHGs and MFIs
Business Facilitator (BF) and Business
Correspondent (BC) Models.
Nationwide Electronic Financial Inclusion
System (NEFIS)
Project Financial Literacy
Financial Literacy and Credit Counseling
(FLCC) centres
National Rural Financial Inclusion Plan
(NRFIP)
Financial Inclusion Fund (FIF)
Financial Inclusion Technology Fund
(FITF)

Regional Inequality and Inclusive Growth in

India:The Indian development scenario looks
optimistic, not only in terms of the pace of

[10]

economic growth but also in its capability to

stand out in periods of global economic crises.
In the context of growth in employment, too,
the economy has done reasonably well over
the past decade, allaying fears of jobless growth,
the key concern that emerged in the late 1990s.
The growth rates, as per all three alternate
definitions of employment adopted by National
Sample Survey Organization, namely usual
status, weekly status, and daily status, have
been exceptionally high since the early years of
the present decade. The impact of growth in
poverty reduction, too, has been significant,
although the estimated elasticity of poverty
reduction has been lower than several countries
in the South Asian region.
The high growth in employment can partly
be attributed to demographic dividend the
country is currently enjoying due to decline in
the natural growth rate in population. Many
of the states, particularly in southern India, like
Kerala and Tamil Nadu have experienced
fertility decline over the past couple of decades,
making the Net Reproduction Rate equal to or
less than unity. The growth of population in
several other states, especially in north and
central India has, however, been high, reporting
either no decline, or in some cases, even an
increase, in recent years, which is a cause for
concern. However, as a result of general
reduction in fertility, the percentage of adults
in the age group 2035 is expected to grow
rapidly over the next few decades. This would

help these states to pick up their growth

momentum, provided the incremental adult
population can be meaningfully absorbed in
productive sectors. In the absence of such
employment opportunities, a north-south
transfer of adult population on a massive scale
would have to be considered, which has serious
societal implications. Such transfers may indeed
be difficult due to the emerging socio-political
scenario in the country, which would put
enormous pressure on land and infrastructure
in many less developed states.
There seems to be a shared concern that
the country has not been very successful in
transforming its growth into development,
which manifests most significantly in serious
regional imbalances despite very positive macro
economic trends, as discussed above. The major
questions confronting policymakers today are:
(i) which are the states getting excluded in the
development process and how can these be
brought into the mainstream of development?
(ii) what are the deficiencies in the macro
economic growth strategy or the special
programmes launched as a part of the policy
of inclusive growth and how can these be
remedied?
Trends and Patterns of Economic Inequality
across States
It would be important to begin an
exploration of the regional scenario of
development in the country by looking at the
trend of certain indices that articulate regional
disparity.

Fig. Trend in Inter-State Inequality in Per Capita Income: Unweighted and Weighted Indices.

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[11]

It is a matter of concern that the values of

the Coefficient of Variation (CV) and Gini Index
for per capita state domestic product (SDP)
have gone up systematically during the period
from the early 1990s to the middle of the present
decade. It is, however, not for the first time
that regional inequality has shown an increasing
trend in the country. It had gone up during
1960s, and was attributed then to the Green
Revolution and its regional concentration in
north-west India and a few southern districts.
Similarly, the later half of the 1970s saw an
increase in inequality explained in terms of
industrial stagnation in backward states.
However, the 1980s saw little increase in
regional disparity.This is extremely important
since this has been considered a period of
financial instability resulting in macro economic
crisis, compelling the policy makers to opt for
policies of economic liberalization in 199091.
The period since the early 1990s has come
under closer scrutiny as the emphasis has been
on economic efficiency, reduction of subsidy,
and greater accountability under the strategy
of globalization. The latter, that have been
impacting, and even reshaping, the
programmes and schemes for infrastructural
development, have favoured the relatively
developed regions. Consequently, except for a
year or two in mid-1990s, inequality has been
on the increase over the past decade and a
half.
It has been argued that the governmental
strategy of regional development, particularly
of federal resource allocations, has not gone
simply by the development deficit of the states
and their population share, but also by other
socio-political considerations. One can take a
critical view of this as reflecting vested interests
influencing the process of planning and resource
allocation, which is responsible for poorer states
with a larger share in the population not being
able to improve their economic conditions. One
can, however, argue that a federal system
would always force governments to take into
account various social, ethnic, and historical
factors in designing development strategy,
particularly in devolution of central resources.
Understandably, emerging regional identities,
aspirations, feelings of deprivation, etc., besides
the vulnerability of states due to locations at

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the national borders, would weigh the system

of fund disbursal.
In a study undertaken as a part of
background research for the World
Development Report, 2009, Ahmad and Narain
(2008) classified the Indian states into high,
medium and low income categories. The
north-eastern states that belong to a special
category, and thereby enjoy special grants from
the Finance Commission, as well as other
preferential treatment, constitute a separate
category. The study shows that most of the
states that had low levels of per capita income
recorded low income growth, not only in the
1980s, but also in the 1990s. The low income
category states and the north-eastern states
were noted to have registered growth rates of
2.5 per cent and 2.8 per cent respectively during
the 1980s, which was much below the national
average. These went down further to 2.3 and
2.5 per cent respectively during the 1990s. These
states were in the bottom rung even in the early
1970s. The growth rates for the high and
middle income states, on the other hand,
increased from about 3.4 and 3.2 per cent to
3.6 and 4.9 respectively during this period.
Considering the growth performance of
individual states, one would note that the low
income states like Assam, Bihar (including
Jharkhand), Madhya Pradesh (including
Chhattisgarh), Orissa, and Uttar Pradesh
(including Uttarakhand) have reported very
low average growth rates during the 1980s,
which has further gone down in the 1990s. A
more alarming fact about these states (excluding
Rajasthan)is the instability in growth rates as
assessed through their coefficient of variation
over time. Furthermore, these states have
reported a decline in the absolute figure of per
capita income or no growth in at least two
years during the 1990s, a problem not
encountered in the middle or high income states.
Based on the level of per capita SDP and the
growth therein, a set of eight states (including
three newly formed states) can be identified as
belonging to the lagging region category in the
first stage operation. These are Bihar,
Jharkhand, Orissa, Madhya Pradesh,
Chhattisgarh, Uttar Pradesh, Uttarakhand, and
Assam.

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TABLE: Annual Growth Rates in State Domestic Product in Different Plan Periods
S.No. State/UT

Eighth Plan

Ninth Plan

Tenth Plan Eleventh Plan

(1992-97)

(1997-2002)

(2002-07)

(2007-12)

Non Special Category States

1.

Andhra Pradesh

5.4

4.6

6.7

9.5

2.

Bihar

2.2

4.0

4.7

7.6

3.

Chhattisgarh

NA

NA

9.2

8.6

4.

Goa

8.9

5.5

7.8

12.1

5.

Gujarat

12.4

4.0

10.6

11.2

6.

Haryana

5.2

4.1

7.6

11.0

7.

Jharkhand

NA

NA

11.1

9.8

8.

Karnataka

6.2

5.7

7.2

9.5

9.

Kerala

6.5

5.7

7.2

9.5

10.

Madhya Pradesh

6.3

4.0

4.3

6.7

11.

Maharashtra

8.9

4.7

7.9

9.1

12.

Orissa

2.1

5.1

9.1

8.8

13.

Punjab

4.7

4.4

4.5

5.9

14.

Rajasthan

7.5

3.5

5.0

7.4

15.

Tamil Nadu

7.0

6.3

6.6

8.5

16.

Uttar Pradesh

4.9

4.0

4.6

6.1

17.

West Bengal

6.3

6.9

6.1

9.7

Special Category States

1.

Arunachal Pradesh

5.1

4.4

5.8

6.4

2.

Assam

2.8

2.1

6.1

6.5

3.

Himachal Pradesh

6.5

5.9

7.3

9.5

4.

Jammu & Kashmir

5.0

5.2

5.2

6.4

5.

Manipur

4.6

6.4

11.6

5.9

6.

Meghalaya

3.8

6.2

5.6

7.3

7.

Mizoram

NA

NA

5.9

7.1

8.

Nagaland

8.9

2.6

8.3

9.3

9.

Sikkim

5.3

8.3

7.7

6.7

10.

Tripura

6.6

7.4

8.7

6.9

11.

Uttarakhand

NA

NA

8.8

9.9

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[13]

All India GDP

6.5

5.5

7.7

9.0

Developed States

7.2

5.2

7.0

9.6

Special Cat States

5.7

5.8

7.3

7.3

Less Dev States

3.7

3.8

7.2

8.0

CV in Growth Rates

38.8

29.9

27.8

21.7

Identification of Socio-Economic Dimensions

and Indicators of Development and
Composite Indices
In order to understand the nature and
pattern of the contemporary process of
development, (i) economic, (ii) basic amenities,
and (iii) social, have been considered the three
important dimensi
(a) Economic Development
It is well acknowledged in development
literature that analyses based on the levels of
SDP in per capita terms and growth rates
therein do not capture several important
aspects of economic development at the macroor state-level. Inclusion of a number of other
indicators reflecting other aspects of economic
well-being has been considered indispensable.
Like per capita SDP, per capita consumption
expenditure is an important summary.

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(b) Basic Amenities

A set of nine indicators pertaining to basic
amenities have been selected. All these have
been taken from the National Health and Family
Survey III and pertain to the year 200506. The
percentages of female and male literates have
been included to reflect the level and access to
educational facilities in the states. These have been
considered more appropriate than the
information on the facilities given by the individual
states. The percentages of men and women
reading newspapers have been taken as a proxy
of transportation and social linkages of the distant
rural and urban areas to the nearby large centres.
These linkages contribute in a significant way to
the dissemination of growth impulses in a region.
The percentage of households having electricity,
improved sources of drinking water, toilet facility,
non-solid fuel for cooking, and residing in
puccahouses are direct measures of availability
of basic amenities, and consequently, have been
included under this dimension.

[14]

TABLE : Per Capita SDP and Growth in SDP for Select States

Indicators pertaining to the Dimension of Basic Amenities

S. No.

Indicator

1.

Education Female

2.

Education Male

3.

Per cent women (1549) reading newspaper at least once a week

4.

Per cent men (1549) reading newspaper at least once a week

5.

Percentage of household with electricity

6.

Percentage of household with improved source of drinking water

7.

Percentage of household with toilet facility

8.

Percentage of household using non-solid fuel for cooking

9.

Percentage of household living in a pucca house.

(c) Social Developmen:

Ten indicators identified under the
dimension of social development, reflect deficit
in development and can be described as
negative indicators. The first two indicators

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infant mortality rate and total fertility rate

articulate the basic demographic character of
the state. In a way these two bring out the sum
total of the developmental interventions on the
demographic front. The indicators of malnou-

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rished children in the age group of 03 years

and of underweight children below 5 years
reveal the physical health of the children. The
indicator pertaining to anemia in women
captures the health status for persons in the
reproductive age group.
The sixth and seventh indicators reflect the
pre-natal and post-natal facilities to expectant
women, young mothers, and children. The
eighth indicator captures malnutrition among
people as also absence of preventive facilities
against tuberculosis. The last two indicators
have been included to articulate the prevalence
of modern values relating to family planning
among men and women.
TABLE: Indicators pertaining to the Dimension of Social Development
S.No. Indicator
1

Infant Mortality Rate Current

Total Fertility Rate Current

Malnutrition of Children (03 Years) Current

Percentage of children under age 5 years with weight for age -3SD

Anemia among Women (1549 Years) Current

Percentage of women who had no antenatal care by doctor

Percentage of children (Below 6 years) who has not received any ICDS service

Number of persons per 100,000 suffering from Tuberculosis

Percentage of Women (1549) wanting children

10

Percentage of Men (1549) wanting children

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[16]

TABLE : The Composite Indices Articulating Three Different Dimensions of Development

and their Correlations

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[17]