Thursday, February 25, 2010

Some thoughts on the Inclusive growth chapter of the Economic Survey

The Economic Survey was released today. To the ones who usually skip such “heavy” economic matters, an Economic Survey, according to an ET columnist Mythili Bhusnurmath are ready reckoners on the state of the economy during a year that is fast drawing to a close. Only to a far lesser extent can they be said to be a portent of what is likely to follow in the subsequent year. This is because they are largely a technical view of finance ministry technocrats. Thus to the extent Surveys are relatively divorced from the political ground realities that play a dominant role in decision-making by democratically elected governments, they also tend to be a little idealistic.
This year’s survey includes a chapter on inclusive growth. And I am very happy about it as increasingly there is disenchantment with the “high rates of growth” talk that usually crowds our newspapers. It is extremely naïve ( and I was naïve) to believe that high GDP rates of growth would automatically mitigate poverty and bring prosperity to large sections of Indians. But that of course is not true.
The increase in GDP is due to high growth in services and to some extent in industry. Services account for more than fifty per cent of our GDP and hence high growth rates in this sector will propel our GDP to high levels as well. Industry is doing well but since 80s its contribution to GDP has stagnated in the mid twenties.
The problem then lies in Agriculture. We have a sector which employs more than 60 per cent of our population and is projected to grow at .2 percent this year. It also contributes least to the GDP of our country. Now that leaves a huge section of our population staring at abject poverty. Farm output growth is projected at 0 per cent largely due to the drought that occurred last year. So this high GDP growth does not really matter to around 60 crore people of our country.
It’s a big deal for policy makers to include a chapter on inclusive growth as it reflects the realities that we confront today.
So what is inclusive growth? The survey mentions “A nation interested in inclusive growth views the same growth differently depending on whether the gains of the growth are heaped primarily on a small segment or shared widely by the population. The latter is cause for celebration but not the former. In other words, growth must not be treated as an end in itself but as an instrument for spreading prosperity to all. India’s own past experience and the experience of other nations suggests that growth is necessary for eradicating poverty but it is not a sufficient condition. In other words, policies for promoting growth need to be complemented with policies to ensure that more and more people join in the growth process and, further, that there are mechanisms in place to redistribute some of the gains to those who are unable to partake in the market process and, hence, get left behind.”
It is an acknowledgement of the fact that a large section of population needs to be integrated with the mainstream economy so that they too can enjoy the fruits of the high growth we are fortunate to witness in these times.
The chapter deals with the role of the government as an “enabler” which does not try to directly deliver to the citizens everything that they need. Instead, it (1) creates an enabling ethos for the market so that individual enterprise can flourish and citizens can, for the most part, provide for the needs of one another, and (2) steps in to help those who do not manage to do well for themselves, for there will always be individuals, no matter what the system, who need support and help. Hence we need a Government that, when it comes to the market, sets effective, incentive compatible rules and remains on the sidelines with minimal interference, and, at the same time, plays an important role in directly helping the poor by ensuring that they get basic education and health services and receive adequate nutrition and food.This rollback of the Government in the former will enable it to devote more energy and resources to and be more effective in the latter.
It elaborates how this can be done by focusing on specific issues like replacing the PDS with a “food voucher coupons”, advocating the same coupon approach in lieu of subsidy for fertilizers, etc. It also looks at bureaucratic delays and costs to buttress its point of advocating the “enabler” role of the government.
Overall it is a refreshing addition to the Economic Survey as it goes beyond sector wise discussion, and fascination with the short term numbers and takes a hard look at the long term.
If this post prods you to read that chapter, here is the link.

No comments:

Post a Comment