Inclusive Growth: Why? And How?

Dr. Bhalchandra Mungekar

(Maiden speech of Dr. Bhalchandra Mungekar, Member of Rajya Sabha, delivered in the House on 4th May, 2010)

Mr. Deputy Chairman, Sir, thank you very much for giving me this opportunity to speak on the Finance Bill in this august House.

Sir, it is gratifying that after the global financial crisis of 2008, the Indian economy quickly returned to the path of growth and registered 6.7 % growth in 2008-09 and 7.2 % in 2009-10. The credit for this must be given, firstly, to our regulated banking system, most importantly, our public sector banks for reducing the severity of the adverse impact of the global recession; and secondly, to the quick measures taken by the government, by resorting to financial stimulus packages, which helped maintain the level of aggregate demand for bringing back the economy to the growth path. For 2010-11, according to the recent World Economic Outllook published by IMF, the rate of growth for the Indian economy is forecast at 8.8 per cent.

Sir, higher rate of economic growth is absolutely essential and is an effective instrument of reduction in poverty and unemployment and raising the standard of living of the people. In the absence of higher rate of growth, the country will only be witnessing distribution of poverty.

But Sir, the relation between higher rate of growth and reduction in poverty and unemployment has never been automatic. It depends upon nature, structure and composition of growth. Most importantly, it depends upon the approach to growth itself.

Sir, in this context, it is saddening to mention that the countries that got freedom after the Second World War adopted a faulty approach to economic development. The growth models of all post-War economies depended on Arthur Lewis' celebrated classic in development literature, "Theory of Economic Growth". I quote: "First, it should be noted that our subject matter is growth, and not distribution. It is possible that output may be growing, and yet that the mass of the people may be becoming poorer. We shall have to consider the relationship between growth and distribution of output, but our primary interest is in analyzing not distribution, but growth."

Surprisingly, our First Five Plan was not behind what Lewis said in 1955, and I quote from the same. This was what it said:

"A programme aimed only at raising output might result in most of the increased wealth flowing into the hands of a few, leaving the mass of the people in their present state of poverty, and yet, in the initial stages, the accent of endeavour must be on increased production."

Sir, having emphasised the importance of growth, I am constrained to say that it is "the growth first, distribution later" programme, that resulted in the divorce between growth and distribution, and undue reliance on the "trickle-down theory" that have been all along pursued by the developing countries that got freedom after the Second World War, including India, have been the most important reasons for the coexistence of growth with inequality and poverty. It was the failure of growth to become inclusive. This was true of all Asian and Sub-Sahara African countries.

Sir, (I am happy that) Hon'ble Prime Minister is here. It is a tragedy of human civilization that after Adam Smith wrote "An Enquiry into the Nature and Causes of the Wealth of Nations" in 1776, 192 years later, in 1968, Gunnar Myrdal, another Nobel Prize Winner in Economics, had to write "The Asian Drama : An Enquiry into the Nature and Causes of the Poverty of Nations". This is not only a paradox of development, but a crisis of development.

Sir, let me come straight to the 11th Five Year Plan. I most humbly mention that I was privileged to get involved in the preparation of the 11th Plan for which I am grateful to the Hon'ble Prime Minister, Dr. Manmohan Singh ji, who gave me the opportunity. The 11th Plan is entitled "Towards Faster and More Inclusive Growth". It clearly acknowledged that economic growth is a necessary, but not sufficient condition of reduction in poverty and expansion of employment. Growth, to be meaningful, must be inclusive. Since poverty is a structural problem, economic growth also has to be in that direction. Economic growth encompasses social, political and cultural dimensions; economic growth also requires inclusive society. Our tragedy is that our society is inherently inegalitarian and, hence, growth is exclusive.

Regretfully, however, the great debate on poverty in India that was initiated by Dr. Ram Manohar Lohia in his maiden speech in the Parliament in 1963, mainly concentrated on the statistical issues relating to the measurement of poverty and neglected the most crucial question: Why poverty?

There are three dimensions of inclusive growth: sectoral, regional and social.

Sir, it is not necessary for me, in this august house, to emphasise the importance of all-round agricultural development in our country. Regretfully, however, all available evidence shows that during the last one and half decades or so, our agriculture did not get due priority in the scheme and structure of development. Public investment in agriculture, both by the centre and the States taken together, as proportion to the GDP, as also the proportion of GDP originating from agriculture consistently declined. Private investment occasionally rose, but it is not sufficient to take care of such a large sector. As a result, no substantial expansion of irrigation facilities took place. Productivity of all major crops increased at differential rates, but it is considerably lower than in some of the developing countries. Research and extension failed to make any major headway. As a result, the share of agriculture in GDP declined to 17.0% in 2009-10, while the sector continues to employ about 52% of the country's labour force. Indian agriculture has been going through some sort of a crisis for the last one and half decade or so. This crisis has been brought out by the National Commission on Farmers headed by Prof. M. S. Swaminathan, where about 42% of the total farmers in the country are desiring to give up farming as occupation. This is a result of the unprecedented crisis, including the farmers' suicides in different parts of the country. On the other hand, our non-agricultural sector failed to meaningfully absorb surplus labour in agriculture. This is a major disproportionality crisis facing the Indian economy.

Sir, the Hon'ble Finance Minister has mentioned in the Budget Speech that in 2010-11, the target of agricultural credit is raised to Rs, 3,75,000 crore (up from Rs. 3,25,000 crore). This is a welcome step, and I congratulate the Hon,ble Finance Minister. But the important issue is: what will be the share in this credit of marginal, small and dry-land farmers, who constitute about 72 to 80 per cent of the total number of farmers in the country? I hope, the FM will take necessary steps to ensure that their credit requirements are adequately met.

Sir, I began with agriculture for two reasons. First, by nature, the positive impact of one per cent growth in agriculture on reduction in poverty and expansion of employment is much stronger than one per cent growth in services, and even in industry. Second, during my tenure in the Planning commission, I have seen complacency on the part of most of the State Governments with respect to agricultural development despite its being a state subject and the Central Government, for one reason or the other, falls in line with the State Governments. The problem, therefore is not with importance being given to industry and services, but with not giving due importance to agriculture.

Sir, from the view point of inclusive growth, micro, small and medium enterprises ( MSMEs ) are obviously the second important sector in our economy. According to Economic survey, 2009-10, it contributes 8% of the GDP, about 45% of the manufacturing output and 40% of exports. 26 million MSMEs in the country provide employment to about 60 million persons. Of these, 28% are in the manufacturing sector and 72% are in the service sector. The contribution of this sector to the national economy is stupendous. With consistent decline in the organized sector employment during last 10 or 15 years, it is this sector that continued to accommodate a large segment of our labour force and helped reduce the severity of the problem of unemployment. Regretfully, however, the sector is working under most unfavourable conditions. It is not getting adequate credit from the banking sector, thanks to the doctrine of non-performing assets; nor does it get all other infrastructural facilities including technological and those relating to marketing. In view of its large contribution to the economy, the sector should have received a much larger outlay than Rs.2,400.00 crore allocated by the Finance Minister. I even suggest that the Government should take urgent steps for preparing a comprehensive blue-print for the all-round development of this sector.

Sir, our post-Independence labour welfare legislation has been largely irrelevant so far as it failed to give any kind of protection to the vast unorganized sector employees who constitute nearly 92% of the total labour force. The Report of the National Commission on Enterprises in the Unorganised Sector has forcefully brought to the fore this fact. I appreciate the Finance Minister's gesture, in this Budget, of allocating Rs. 1,000.00 crore for Unorganised Workers Social Security Fund, though it is very meager. hope that the allocation would be substantially enhanced at the earliest opportunity.

Sir, let me now briefly mention about the reforms in the education sector. First, I congratulate the Government for, at last, passing the Right of Children to Free and Compulsory Education Bill and making it effective from 1st April, 2010. Sir, that the country has taken 63 long years for making this legislation does not reflect well on our commitment to establishing a genuine egalitarian society as promised in the Constitution. Though the Act is fraught with several limitations, I welcome it as the first step in the right direction.

Sir, being in the field of education for the last three and half decades, and also as a concerned citizen, I am convinced that, in our country, education has been a major source of injecting inequalities in the society and sustaining them. At present, in our country, there are 15 to 20 types of elementary and middle level schools giving education to the children belonging to different socio-economic groups. The process of learning itself begins with segregation, that makes futile the talk of commitment to socio-economic equality. I wish, we would have introduced a common school system, at least, up to the level of elementary education; and I hope, we shall soon make an attempt towards securing that goal in the near future.

Sir, we must give priority to the reforms in the education sector from below. As per the Education Statistics of the HRD Ministry 2006-07, the drop-out rate up to 5th std. was 25.43 %, up to 8th std. 46.03 % and up to 10th std, 59.87 %. This was all India average. They differed considerably across regions, gender and socio-economic and cultural groups. For instance, it was 79.00 % for Bihar, 75.00% for Assam, 72.00% for West Bengal, 71.00% for Rajastan and 61.00% for Madhya Pradesh. The ambitious Sarva Shiksha Abhiyan (SSA) which was introduced in 2002 has made a significant contribution towards creating infrastructural facilities such as construction of school buildings and recruitment of teachers; while Mid Day Meal scheme may have helped reduce the drop-outs. Yet, the teacher-students ratio, in some of the states is alarmingly uneven, and teacher absenteeism is also a daunting problem. As a result, the quality of learning in our schools is far from desired. We must note this. Sir, The latest report of the ASER shows that about 40% of the children in the 5th Std. are not able to read well the text of the 2nd Std. This scenario has to be changed at the earliest. In view of this, we must make an all out effort to provide good quality elementary education with English, Mathematics and Science subjects at least up to 8th Std. This is the foundation of the entire edifice of our education system. The same story is almost true with respect to the health scenario in the country.

Sir, we will have to seriously look into the growing inter-regional and intra-regional economic disparities. It is a common knowledge in economics that due to differences in natural factor-endowments, all states and different regions of the states in a continental sized country like ours would not develop on the same scale. Today, in terms of per capita income, States like Haryana, Maharashtra, Punjab, Gujarat, Tamil Nadu, Andhra Pradesh and, Karnataka are on one end of the pole; while Orissa, Bihar, Jharkhand, Madhya Pradesh, Uttar Pradesh, Rajasthan and Chhattisgarh are on the other end of the pole and the gap is widening. The developed states also show wide intra-regional disparities. The issues of Telangana and Vidarbha are well-known. Sir, in 1950, we had 15 states, today we are having 35 states. If the process of regional differentiation continues to accelerate, I fear, in the next ten years, we may have around 50 states. It is therefore necessary that the inter- and intra-regional disparities are not allowed to further accentuate, and are reduced to the minimum through effective and integrated policy interventions by both the Centre and the States. Sir, so far as poverty is concerned, in 1999-2000, four backward states, viz. Bihar, Orissa, Madhya Pradesh and Uttar Pradesh accounted for 61% of the country's rural people living in poverty.

Inclusive growth has a social dimension.

Sir, the Scheduled Castes and Scheduled Tribes are historically two most dis-advantaged sections of the Indian Society. When we are discussing inclusive growth, we cannot discuss it in abstract sense. We have to refer to the tangible, existing, living socio-economic categories. The Scheduled Castes and Scheduled Tribe together constitute about 25% of the country's population. The benefits of economic development have accrued to these sections as well, but definitely not the extent desired. Due to the lack of access to land, irrigation and agricultural implements, they are not able to get sufficient benefits of development.

As a result, the gap between them and the rest of the society has been increasing. It was in this context that, in 1973, Smt. Indira Gandhi, the then Prime Minister of India introduced the scheme of Tribal Sub-Plan for the Scheduled Tribes and, in 1979, the Special Component for the Scheduled Castes so that the gap between them and the rest of the society is bridged sooner than later. Sir, the state governments have started implementing, to some extent, the Special component Plan and the Tribal Sub-Plan with the intervention of the Planning commission. However, except the two nodal Ministries of the central Government, that is the Ministry of Social Justice and Empowerment, and the Ministry of tribal Affairs, no sufficient attention is paid to the implementation of the Special Component Plan and the Tribal Sub-Plan.

Sir, we have seen the problem of Naxal violence and insurgency.This problem has been there for the last three-four decades that has now assumed an alarming proportion. Today, it is a war against the Indian state. Like all other countrymen, I condemn the Naxal violence in the strongest possible words. But Sir how did it originate in the first place? It originated in perpetual exploitation, frustration, destitution and vulnerabilities of the Tribal people due to their inability to share the benefits of economic growth. On the contrary, there are several instances where the Tribals had to give cost of displacement and loss of livelihood alternatives for the sake of development which had very little meaning for them. It is in this context, that I quote the unambiguous and categorical remarks of the Hon'ble Prime Minister, in his Civil Services Day address. He said,

"(But ) we cannot overlook the fact that many of the areas in which such extremism flourishes are under-develped, and many of the people, mainly tribals, who live in these areas have not shared equitably in the fruits of development. It is incumbent upon us to ensure that no area of our country is denied the benefits of our ambitious development programmes."

Sir, I suggest three measures so far as the Tribal areas are concerned. One, the Implementation, in letter and spirit, of the Tribal Sub-Plan with emphasis on education and health); two, implementation of PESA Act and that the Tribal Forests Rights Act ( the latter was drafted by the Standing Committee of which I happened to be the Chairman); and three, the creation of some mechanism to ensure remunerative prices for the minor forest produce, the main source of livelihood of the majority of the Tribal population.

Sir, minorities constitute about 19% of the country's total population. This issue is very, very close to my heart. Some sections of the minorities, particularly poor among the Muslim community, are poorer than others. The Sachar Committee Report has amply demonstrated this. I therefore suggest that the Prime Minister's New 15-Point Programme for the Minorities, as also those adopted under the scheme on 90 Minority Concentrated Districts have to implemented in letter and spirit.

Sir, 6% of the country's total population is differently handicapped, and the government, in the last 50 years, has not taken sufficient care of them. (They deserve a better deal).

Sir, the last issue is the macro management relating to the objective of fiscal consolidation. During the last 20 years we have been talking about the fiscal consolidation. Being a student of Economics, I don't want to commit an error, let alone a blunder, by justifying large fiscal deficits, other things remaining the same, the implications of which for the macro economy are open for everyone to see. But, Sir, in a highly inegalitarian and poverty-sticken society like ours with abysmal performance in respect of Human Develoment Index, is it right to control the Government expenditure through constitutional legislation, which, to the best of my knowledge, was unknown in the post-War development literature? Further, what should be unacceptable is the fiscal consolidation in our country is secured mainly by reducing the capital expenditure, that is, the development expenditure, as the revenue expenditure falls slowly.

Sir, after 63 years of Independence, our achievements are stupendous, but our failures are also glaring. The country still suffers from pervasive poverty, hunger, malnutrition and illiteracy, disease and glaring socio-economic and regional inequalities. This being the scenario, accompanied by the fragile financial position of most of the states, I fail to appreciate our excessive pre-occupation with fiscal consolidation. I, therefore, suggest that the FRBM Act needs to be suitably amended so that it does not become an obstacle to inclusive growth.

Sir, we know how inflationary pressures, particularly food inflation, play havoc with about 80 to 85% of the people in the country who are totally disprotected due to the lack of any compensatory policy in place. Therefore, if we want to make growth inclusive, the Government should develop an integrated National Income, Wage and Price Policy.

Sir, as my esteemed Professor M L Dantwala, a doyen among India's agricultural economists, once said, that India never suffered from the famine of ideas; she suffered from non-implementation. Thousands of crores of Rupees are annually spent on social and economic welfare programmes particularly for the poor. I am aware, even these amounts are not proportionate to the scale of the problem. And yet, better implementation of all these programmes would certainly give relief to the poor. But the rampant corruption by all powerful vested interests have substantially reduced the efficacy of these schemes. However, we cannot throw baby along with the bath water. Both the Central and the State Governments must show enough political will and determination to implement these programmes by taking on the vestes interests. The implementation needs to be urgently made broad-based with the PRIs at the centre, with involvement of the genuine and committed NGOs and priority to the Women's Self Help Groups. The accountability and responsibility must be fixed with the permanent executive for the lapses of implementation.

Sir, poor people in this country have waited for justice for long . I appreciate their patience. But I do not think that they will wait any longer, nor do I feel that there is reason for them to do so.

Sir, inclusive growth is necessary not only to slowly converting political democracy into economic democracy, but also for maintaining the unity and integrity of the nation. To conclude, I find no appropriate words but to quote the warning that Dr. Ambedkar gave to the nation 60 years ago.

He warned:

"On 26th January, 1950, we are going to enter into a life of contradictions. In politics, we will have equality and in social and economic life we will have inequality. In politics, we will have the principle of one man one vote and one vote one value. In our social and economic life, we shall, by reason of our social and economic structure, continue to deny the principle of one man one value. How long shall we continue to live this life of contradictions? How long shall we deny equality in our social and economic life? If we continue to deny it for long, we will do so only by putting our political democracy in peril. We must remove this contradiction at the earliest possible moment or else those who suffer from inequality will blow up the structure of political democracy which this Assembly has so laboriously built up."

I thank you, Sir and all Hon'ble Members for patient hearing.

[Courtesy: Dr.Bhalchandra Mungekar's website]

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