Paath - Inclusive Economic Growth in India

EXCEL International Journal of Multidisciplinary Management Studies
Vol.2 Issue 5, May 2012, ISSN 2249 8834 Online available at http://zenithresearch.org.in/
INCLUSIVE ECONOMIC GROWTH IN INDIA: ISSUES AND CHALLENGES

MR.CH.PRASHANTH*; DR.G.SHASHIDHAR RAO**
*Assistant Professor, Department of Business Management, Ramappa Engineering College, Warangal -506001, A.P., India. **Reader, Department of Commerce, C.K.M. Arts & Science College, Warangal 506006, A.P., India.
ABSTRACT In the recent past, the focus of economic policy in India has shifted to issues of equitable growth. This implies that the economy should not only maintain the tempo of growth but also spread the benefits of growth to all sections of the population and geographical regions of the country. In India, where rapid economic growth has become a national goal, analysis of the sources of growth assumes special significance to formulation of the macroeconomic strategy and policies that affect the future growth rate- as well as pattern. This study explains How has the Indian economy growing after independence. Using the latest data on labour and a model of capital accumulation and productivity growth, we map out GDP growth on India economy until 2050. The present paper analyses the trends and patterns of economic inequality across Indian states since the early 1990s. The basic objective here is to understand the dynamics of growth in the country which is resulting in regional imbalances and propose measures for alleviating the problem. The inter-state inequality in per capita income and consumption expenditure show a clear increasing trend during the first and second phase of structural reform. The composite indices of economic development, constructed based on a select set of indicators exhibit high correlations with that of social development. This is understandable as the capacity of the governments at the state level to make interventions and bring about social transformations is high in relatively developed states. The correlation of economic development with amenities, although statistically significant, is relatively low, which suggests that the problems pertaining to health, education, and access to other amenities cannot be effectively addressed just by focusing on economic development. ______________________________________________________________________________ INTRODUCTION In the recent past, the focus of economic policy in India has shifted to issues of equitable growth. This implies that the economy should not only maintain the tempo of growth but also spread the benefits of growth to all sections of the population and geographical regions of the country. This change in approach is particularly important for the hilly regions of the country, as they constantly struggle with underdevelopment, even when the rest of the economy is doing well.
173
www.zenithresearch.org.in

There has been a significant shift in the focus of economic policy in India in the last few years, with issues of equitable growth getting more importance. This is clearly revealed in the change in the Planning Commissions perspective from high growth during the Tenth Five Year Plan to inclusive growth in its Approach Paper to the Eleventh Five-Year Plan. With sustained fertility decline and growing survival chances, India is likely to face many new challenges in the realm of its population management strategies especially those relating to life situations or the quality of human life and their key socio-economic determinants. Some of the received economic literature in recent years clearly indicates a growing strain on many of these factors affecting the quality of human life and its determinants. Such literature and data sources also highlight the disparities and emerging mismatch between the post liberalization high GDP growth in the country and the quality of life experienced by a large segment of population in India (Dev and Ravi, 2007; UNICEF, 2005; NSS 61st round). There is another very important area that needs intervention of the state and that is environmental degradation. The ecology of the area is already in a fragile state due to unplanned development in the past. There is a chance that rapid development without due recognition of this problem may lead to the destruction of the natural resource base of the area. Since the livelihood of the weaker sections in the hill areas is completely dependent on these natural resources, their destruction will make the process of inclusive growth unsustainable in the long run. Thus the state must ensure that the growth process in general and private participation in particular does not destroy the ecology of the area. GROWTH RATE, SAVINGS AND CAPITAL FORMATION In India, attainment of higher rate of economic growth received topmost priority in almost all the five year plans of the country. But the achievements of planning in India are far short of its targets. Table 1 shows the targeted and actual growth rate of the economy since 19502010. There are two distinct growth periods: a first phase from 1950 to 1980 (phase I) and second phase from 1980 to 2004 (phase II) (Virmani 2004a). The first phase is characterized by slow growth rate in GDP as comparison to phase II. TABLE 1: TARGETED AND ACTUAL GROWTH RATES OF THE INDIAN ECONOMY Plan period 1951-56 1956-61 1961-66 1966-68 1969-73 Targeted Growth Rate 2.1 4.5 5.6 __ 5.7 Actual Growth Rate 3.5 4.2 2.8 3.9 3.2 www.zenithresearch.org.in
174

1974-78 1979-80 1980-84 1985-89 1990-91 1992-96 1997-2001 2002-06 2007-12 2006-07 2007-08 2008-09
4.4 __ 5.2 5.0 __ 5.6 6.5 8.0 9.0
4.7 -5.2 5.5 5.6 3.4 6.5 5.5 7.6
9.7 9.6 6.8
Source: Planning Commission, Eleventh five year plan, Government of India, New Delhi, 2007 STEADILY GROWING SECTORS A single scenario, i.e., the Realistic Scenario, captures the growth dynamics for the six Sub sectors that exhibit steady growth for the period 1993-04 to 2005-06. In this scenario, the sectors are assumed to grow at the same (constant) rate at which they have grown in the postreform period. The projections for output from these sub-sectors for the Eleventh Plan period are represented graphically below. The corresponding average projected growth rates are also provided. www.zenithresearch.org.in ISSUES AND CHALLENGES India currently faces several issues and challenges in the area of Financial Inclusion for Inclusive growth. Salient among them are stated here below; 1. SPATIAL DISTRIBUTION OF BANKING SERVICES Even though after often emphasized policy intervention by the government and the concerted efforts of Reserve Bank of India and the public sector banks there has been a significant increase in the number of bank offices in the rural areas; but it is not in tune with the large population living in the rural areas. For a population of 70% only 45% of bank offices provide the financial services
175

2. REGIONAL DISTRIBUTION OF BANKING SERVICES The analysis by the authors brings to the fore that there has been uneven distribution of the banking services in terms of population coverage per bank office in the six regions viz; Northern, North-eastern, Eastern, Central, Western and Southern regions of the country. 4. OVERCOMING BANKERS AVERSION FOR FINANCIAL INCLUSION Even though no banker openly expresses his aversion for the financial inclusion process, overtly it can be noticed that they are averse to it in view of the cost aspects involved in opening of no frill accounts. 5. BANK BRANCHES Bank branches are required to be increased as it has a direct impact on the progress of financial inclusion. It is clearly established that as the bank branches increase number of bank accounts also increase significantly. 6. POVERTY LEVELS Poverty levels are having direct relationship with the progress of financial inclusion. The authors have established in their study that as the poverty levels decrease financial inclusion also increase. As such, there should be multi fold strategic approach in such poverty dominated areas for financial inclusion. Economic Survey 2009-10, Government of India, New Delhi, 2010. The economic activity is being supported by a significant rise in domestic savings and capital formation. Insufficiency of capital is considered as an important limiting factor for growth (Ahmad, 2007). The step up in the growth rate of the Indian economy since 2003-04, has been driven by a higher capital formation, supported by a sizeable increase in the rate of gross domestic savings. Over the longer term, Indias gross domestic savings and gross domestic capital formation have increased substantially. Both savings and capital formation have grown steadily throughout, rising from low levels of 9 percent of GDP during 1950s to 23 percent ranges in the 1990s. The national savings rate surged further to 27 percent during 2000-04, buoyed by inflow of remittances. Domestic savings and capital formation rates reached highs during 2005-06. Gross domestic savings rose to 32 percent of GDP in 2005-06 from 31 percent in 2004-05. The increase during the year was driven by higher private corporate and household savings. Due to higher savings rate as well as the higher recourse to foreign savings, the gross domestic capital formation increased to 33 percent of GDP in 2005-06, a substantial jump from 23 percent recorded during 2001-02. Overall, the average gross domestic savings and gross domestic capital formation was much high than that in 1980. A STATE LEVEL ANALYSIS Given the main objective of the paper to identify a set of lagging states for directed policy intervention, it would be important to probe into the state level scenario in a disaggregate manner by considering the performance of each state separately. In a study undertaken as a part of
176

background research for the World Development Report, 2009, Ahmad and Narain (2008) classify the Indian states into high, medium and low income categories. The north-eastern states that belong to a special category, 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 1970s8. 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. INTER-STATE INEQUALITY IN PER CAPITA CONSUMPTION EXPENDITURE UN-WEIGHTED COEFFICIENTS OF VARIATION
Source: Computed from NSS unit records CD data. 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
177

problem not encountered in the middle or high income states. What compounds the problem of the former is that there is marginal or no decline in their population growth rates and these continue to be much above the national average. The average per capita SDP and growth in SDP at constant prices for the late 1990s, the middle of the present decade, and for the final years of the present decade, provide interesting insights in to the dynamics of regional development (Table 2a). It may be noted that eight of the backward states such as Bihar, Uttar Pradesh, Rajasthan, Assam, Orissa, Madhya Pradesh, Chhattisgarh, and Jharkhand occupy the bottom positions in terms of per capita SDP during the latest triennium, 20079. Uttarakhand is the only state, identified as backward by Ahmad and Narain (2008) as a part of the state of Uttar Pradesh, wherein the average SDP is about the national average. Considering the growth scenario in SDP, the less developed states reported low figures in the late 1990s, especially during 19982000. The situation, however, seems to be changing rapidly. Three of the states, viz., Madhya Pradesh, Rajasthan, and Orissa, showed high income growth during 20046. The distinct change in the spatial thrust in growth in favour of backward states has further increased in the subsequent period, as almost all these nine states record high growth rates. TABLE 2: PER CAPITA SDP AND GROWTH IN SDP FOR SELECT STATES A. THREE YEARLY AVERAGES
178

B. CORRELATION CO-EFFICIENT Correlations Gr9799 Gr0305 Gr0608 Pcsdp9799 Pcsdp0305 Pcsdp0608 gr9799 1.000 -0.165 -0.269 0.247 0.174 0.144 gr0305 -0.165 1.000 0.056 0.222 0.362 0.426 gr0709 -0.269 0.056 1.000 -0.130 -0.053 0.027 Pcsdp9799 0.247 0.222 -0.130 1.000 0.971 0.940 Pcsdp0305 0.174 0.362 -0.053 0.971 1.000 0.992 Pcsdp0709 0.144 0.426 0.027 0.940 0.992 1.000
The CV (un-weighted) in the growth rate has gone down from 44 per cent in late 1990s to 35 per cent in the middle of the present decade due to high growth in less developed states, as discussed above. It has gone down further to 24 per cent in the later years of the decade. The most important point is that the weighted CV of the growth rates works out to be marginally below the un-weighted figure, implying that more populated states had a marginal advantage over the others, in the early 1990s. This advantage of the former seems to be evening out in recent years, the inter-state growth differentials becoming less than before. There is no evidence of the growth being higher in more developed states as the correlation between level and growth in income is statistically insignificant (Table 2b). The importance of this more equitable growth pattern notwithstanding, one must note that this, unfortunately, has not made a dent on the trend of regional imbalance. The inequality in per capita SDP has gone up consistently including the recent periods, by both weighted and un-weighted CV, as presented in Table 2a. Furthermore, the Gini Index too has maintained a rising trend, as exhibited in the 1990s, as presented in Figure 3, along with the CVs. The correlations between the rates of growth for the three yearly periods across the states work out to be negative, although not statistically significant (Table 2b). This is because a high growth rate has been recorded in recent years in many of the less developed states that recorded low growth in earlier years, as discussed above. Three newly formed states Chhattisgarh, Uttarakhand, and Jharkhand have grown faster than the average in the present decade, marking a departure from the trend in late 1990s. The Plan-wise growth figures, including those for the Eleventh Plan, as projected by the Planning Commission (2008), confirm the above conclusions. The growth rate of less developed states was less than 4 per cent, much below the average of the developed states during the Eighth and the Ninth Plans (Table 3).
179

TABLE 3: ANNUAL GROWTH RATES IN STATE DOMESTIC PRODUCT IN DIFFERENT PLAN Periods S.No. State/UT Eighth Plan (19927) Ninth Plan (1997- 2002) Tenth Plan (200207) Eleventh Plan (2007-12)
Non Special Category States 5.4 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 Andhra Pradesh Bihar Chhattisgarh Goa Gujarat Haryana Jharkhand Karnataka Kerala Madhya Pradesh Maharashtra Orissa Punjab Rajasthan Tamil Nadu Uttar Pradesh West Bengal 2.2 NA 8.9 12.4 5.2 NA 6.2 6.5 6.3 8.9 2.1 4.7 7.5 7.0 4.9 6.3 4.0 NA 5.5 4.0 4.1 NA 7.2 5.7 4.0 4.7 5.1 4.4 3.5 6.3 4.0 6.9 4.7 9.2 7.8 10.6 7.6 11.1 7.0 7.2 4.3 7.9 9.1 4.5 5.0 6.6 4.6 6.1 7.6 8.6 12.1 11.2 11.0 9.8 11.2 9.5 6.7 9.1 www.zenithresearch.org.in 8.8 5.9 7.4 8.5 6.1 9.7 4.6 6.7 9.5
180

Special Category States
1 Arunachal Pradesh 2 Assam 3 Himachal Pradesh 4 Jammu & Kashmir 5 Manipur 6 Meghalaya 7 Mizoram 8 Nagaland 9 Sikkim 10 Tripura 11 Uttarakhand All India GDP Developed States Special Cat States Less Dev States CV in Growth Rates
5.1 2.8 6.5 5.0 4.6 3.8 NA 8.9 5.3 6.6 NA 6.5 7.2 5.7 3.7 38.8
4.4 2.1 5.9 5.2 6.4 6.2 NA 2.6 8.3 7.4 NA 5 5.2 5.8 3.8 29.9
5.8 6.1 7.3 5.2 11.6 5.6 5.9 8.3 7.7 8.7 8.8 7 7.0 7.3 7.2 27.8
6.4 6.5 9.5 6.4 5.9 7.3 7.1 9.3 6.7 6.9 9.9 9.0 9.6 7.3 8.0 21.7 www.zenithresearch.org.in
Source: CSO (base 19992000 constant price) as on 31.8.2007. The figures for the former during the Tenth Plan period are similar to that of the national average or that of the developed states. The same can be said about their projected growth rates during the Eleventh Plan period, suggesting that there has been a paradigm shift in the growth pattern in the country. Happily, the actual growth rates for the less developed states in the first couple of years in this Plan have turned out to be even higher than projected. The same is true for the Special Category States in the North-East. Their growth rates, too, were less than the national average in the Eighth and Ninth Plans, but have caught up with it in the Tenth Plan period. More importantly, these are expected to be above the national average in the Eleventh Plan. One can,
181

therefore, stipulate that the strategy of inclusive growth and balanced regional development has led to acceleration in the average growth rate of the less developed states, including those in the North- East, and this would continue in future. Unfortunately, however, this has made little impact on the trend towards accentuation of regional imbalances measured through per capita SDP. CONCLUSION Indian economy has changed a lot over the past 60 years. Over the next 40 years the changes could be dramatic. Using the latest demographic projection and a model of capital accumulation and productivity growth, we map out GDP growth in the Indian economy until 2050. The result shows that if things go right, the Indian economy could become an important source of growth to the world economy. Our projections are optimistic, in the sense that they assume reasonably successful development Any kind of long term projection is subject to a great deal of uncertainty, and we need to be mindful that Indias growth transition is unlikely to be smooth or devoid of shocks. The present attempt may not be conclusive in itself to estimate potential GDP growth. The empirical estimation based on multivariate production function is constraint by data availability. There was a large restriction on foreign capital since 1951. If the whole restrictions are removed on foreign capital, it increases the availability of foreign capital and further increases the growth rate of economy. The growth rate is also affected by the fiscal and monetary policies of the government, consumer spending of the people of the country, the increase in infrastructure facilities, governance and external and internal policies made by the government. Our results show that Indian economy has the potential to have the fastest growth over the next 30 and 50 years. According to Goldman Sachs (2003), the Indian economy GDP potential could be more than 46.03 percent in 2050 as comparison to 2004-05. The strength of the external sector would supplement the growth process. Indias high growth rate since 2003 represents a structural increase rather than simply upturn. We project Indias potential growth rate about 9 percent until 2050. REFERENCES 1. Acharya, Shankar (2002), India: Crisis, Reform and Growth in the 1990s, Working Paper No.139, Centre for Research on Economic Development and Policy Reform, Stanford University 2. Bhattacharya, B.B. and S. Sakthivel (2004): Regional Growth and Disparity in India: Comparison of Pre- and Post-Reform Decades, Economic andPolitical Weekly, Vol 39, No. 10, pp. 1071-7, March 2004 3. Amitabh Kundu and K. Varghese (2010), Regional Inequality andInclusive Growth in Indiaunder Globalization:Identification of Lagging States forStrategic Intervention, working papers series, Oxfam India. 4. Dr. Vighneswara Swamy and Dr. Vijayalakshmi(2009), pp.6-10, Role of Financial Inclusion for Inclusive Growth in India- Issues & Challenges,,work paper.
182

5. World Bank (2009), World Development Report 2009: Reshaping Economic Geography, Oxford University Press, New York 6. Bank for International Settlements. International Financial Statistics. http://www.bis.org/statistics/bankstats.htm. 7. Datt, G. and M. Ravallion (2002), Is India's Economic Growth Leaving the Poor Behind? Policy Research Working Paper 2846, The World Bank, Washington DC Ombir Singh and Manju Dahiya, Long Run Prospects for GDP Growth in India, work paper. 8. Central Statistical Organization (CSO). 2009. National Account Statistics. New Delhi: CSO. 9. 2005), Policy Regimes, Growth and Poverty: Lessons of Government Failure and Entrepreneurial Success, Working Paper No. 170, Indian Council for Research on International Economic Relation, New Delhi.
183

Paath - Inclusive Economic Growth in India

Hochgeladen von

Dokumentinformationen

Originalbeschreibung:

Originaltitel

Copyright

Verfügbare Formate

Dieses Dokument teilen

Dokument teilen oder einbetten

Freigabeoptionen

Stufen Sie dieses Dokument als nützlich ein?

Sind diese Inhalte unangemessen?

Copyright:

Verfügbare Formate

Paath - Inclusive Economic Growth in India

Hochgeladen von

Copyright:

Verfügbare Formate

EXCEL International Journal of Multidisciplinary Management Studies

INCLUSIVE ECONOMIC GROWTH IN INDIA: ISSUES AND CHALLENGES

EXCEL International Journal of Multidisciplinary Management Studies

EXCEL International Journal of Multidisciplinary Management Studies

4.4 5.2 5.0 5.6 6.5 8.0 9.0

4.7 -5.2 5.5 5.6 3.4 6.5 5.5 7.6

9.7 9.6 6.8

EXCEL International Journal of Multidisciplinary Management Studies

EXCEL International Journal of Multidisciplinary Management Studies

EXCEL International Journal of Multidisciplinary Management Studies

EXCEL International Journal of Multidisciplinary Management Studies

EXCEL International Journal of Multidisciplinary Management Studies

EXCEL International Journal of Multidisciplinary Management Studies

Special Category States

EXCEL International Journal of Multidisciplinary Management Studies

EXCEL International Journal of Multidisciplinary Management Studies

Das könnte Ihnen auch gefallen