Towards Inclusive Economic Growth

Experience of India
S Prasad
Lecturer, Dept. of Economics, Sree Sankara
College, Kalady

Abstract
One of the major discussions in the area of development economics of
today is about inclusive economic growth. The developing economies like
India have now given more emphasis on shaping its strategies towards
inclusive economic growth. Sixty years after independence, India has
presently come forth as one of the emerging economies of the world.
However, does the development trajectory of India succeeded in
addressing the problems of common men in India? The first section of the
paper rightly observes the growth pattern of India over several five year
plans and also tried to evaluate the development experience over these
periods. The paper also tried to look at the changing structure of the
economy over different Plan periods. The second section of the paper
gives a critical evaluation of the developmental experience of India. By
highlighting the poor performance of India’s social sector, the paper tried
to strengthen the argument that, inclusive growth is imperative for
achieving the equity objective and is essential for the achievement of
sustainable economic growth.

1. Introduction

The concept inclusive growth or inclusive economic growth is widely discussed in recent
years and has greater relevance in the context of India. The word inclusive in the present
context means ‘not excluding any section of society’. As a result of the higher economic
growth in recent years, every segment of the society has to be benefited by way of income
and employment. This is what the concept inclusive growth envisages.

Sixty years after independence, India has finally entered a very excellent phase of long-term
economic growth, with strong support from service sector and a booming young population.
From the so called 'Hindu rate of growth', i.e., well below five percent annual growth rate,
the Indian economy has soared at an average rate of over seven percent every year in the last
decade and at around nine percent in the past three years. This is a remarkable achievement.
The unimaginable growth trajectory of India has been the corner stone of the discussions by
the developmental enthusiasts and other likeminded people in India in recent years. Even at
the time of the recent global recession, India stood upright among the mainstream economies
of the world. It is in this context we need to look at the growth trajectory, India having over
the years. How far we are able to address the common men in this part of the world? To what
extent we have succeeded in attaining sustainable economic growth? The paper rightly
observes these issues in detail.

2. Objectives of the Study

The broad objectives of the study are the following:

1. To evaluate the growth pattern of India over several Five Year Plan periods
2. To find out major shortcomings in the development experience of India.

3. Data Source and Methodology

The study made use of secondary data sources to fulfil its objectives. The period of analysis
for the study starts from 1950-51 to 2006-07 and assorted in terms of Five Year Plans and
thus covering ten Five Year Plans. The study mainly analysed the trend and composition of
Gross Domestic Product (GDP) of India (in constant prices) over the period of analysis.
Sectoral distribution of GDP (constant prices) is also analysed over different Five Year Plan
periods. Simple techniques like tabulation, diagrams, percentage distribution, growth rate etc.,
were employed for the purpose of analysis.

The data sources mainly include national account statistics, statistics related to plan outlay
during different plan periods etc., available with Economic Survey, 2008. Database related to
Global Hunger Index available in The Challenge of Hunger (Grebmer et.al., 2008), UNDP
Report, WHO report etc., were also used.

4. Scheme of the Study

The present paper is arranged in three sections. The first section addresses the issue of
growth pattern of India since independence. The section gives an understanding of the trend
and structure of the economy in a broader level. Section 2 deals with the analysis of the

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economy in terms of the major lacunas and to visualise the growth trajectory of India since
independence. Section 3 sums up and concludes major findings of the paper.

Section 1

The Indian economy has soared at an average rate of over seven percent every year in the last
decade and at around nine percent in the past three years. Table 1 shows the average growth
rate of each of the sectors of the economy over Five Year Plans.

Table 1: Sectoral Average Growth Rate during Five Year Plans (%)
Five Year Plan Plan Period Agriculture Industry Service GDP
1st Five Year Plan 1951 to 1956 2.92 6.16 3.67 3.59
2nd Five Year Plan 1956 to 1961 3.45 6.49 4.69 4.28
3rd Five Year Plan 1961 to 1966 -0.04 6.91 5.17 2.87
Annual Plans 1966 to 1969 4.35 3.97 3.87 4.05
4th Five Year Plan 1969 to 1974 2.70 3.33 4.02 3.26
5th Five Year Plan 1974 to 1979 3.65 6.37 5.41 4.81
Annual Plans 1979 to 1980 -12.16 -3.49 2.43 -4.91
6th Five Year Plan 1980 to 1985 5.91 5.06 5.65 5.59
7th Five Year Plan 1985 to 1989 3.85 5.84 7.08 5.54
Annual Plans 1989 to 1992 1.53 5.03 6.17 4.28
8th Five Year Plan 1992 to 1997 4.67 7.74 7.30 6.54
9th Five Year Plan 1997 to 2002 2.60 4.33 7.88 5.52
2002-03 -5.89 6.89 7.47 3.84
2003-04 9.29 7.80 8.49 8.52
10th Five Year Plan
2004-05 0.70 10.54 9.14 7.45
(2002 to 2007)
2005-06 5.82 10.63 10.34 9.40
2006-07 3.95 11.45 11.08 9.62
Source: Economic Survey, 2007-08
It is evident from the table that over the years, India made a stunning performance with
regard to overall GDP growth. Except for 1979-80 (Annual Plan), India surged towards
greater level of growth rate during almost all plan periods. A look at the sector-wise growth
indicates a bias of growth path towards secondary and tertiary sectors. The growth
performance of agriculture is not even comparable with the performance of industrial and
service sectors. Except for few years the growth rate of agriculture is very low. The dramatic
performance of agriculture during 2003-04 was mainly due to the climatic advantage during
the year. The performance of agriculture was chiefly responsible for the historical growth
rate of about 9 percent during that year. This gives India a very practical lesson that,

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agriculture sector cannot be ignored in the march to attaining higher economic growth. The
year 2003-04 only gives a greater momentum in the growth path India experienced in recent
years. On the whole, the trend in the GDP shows a rather lopsided growth rate. Figure 1 is
expressive of the trend the economy has experienced over the Plan periods.

Figure 1: Trend of Agriculture/Industry/Service sectors during Five Year Plan Periods.

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10

Agriculture
0 Industry
1951 to 1956

1956 to 1961

1961 to 1966

1966 to 1969

1969 to 1974

1974 to 1979

1979 to 1980

1980 to 1985

1985 to 1989

1989-1992

1992 to 1997

1997 to 2002

2003-04

2004-05

2005-06

2006-07
Service

2002-03
-5

-10

-15
Plan Period/Year

From the diagram it is clear that the performance of agriculture sector has almost struggled to
set a better trend. Both the industrial and service sectors go hand in hand in recent years,
contributing to a better economic growth. The Figure 2 gives the trend in GDP over several
plan periods.

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Figure 2: Trend in GDP growth rate over different Five Year Plan periods.
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10

6
Growth Rate (%)

GDP

0
1951 to 1956

1956 to 1961

1961 to 1966

1966 to 1969

1969 to 1974

1974 to 1979

1979 to 1980

1980 to 1985

1985 to 1989

1989-1992

1992 to 1997

1997 to 2002

2003-04

2004-05

2005-06

2006-07
2002-03
-2

-4

-6
Plan Period/Year

As the diagram (Figure 2) shows except for 1979-80 (Annual Plan Period), the trend in GDP
is almost in affirmative and gives an impressive trend over the years. The problem with
respect to 1979-80 was mainly due to the political disturbances occurred in changing the
Congress Government to the Janata Government.

5. Structure of the Economy

The structure of the Indian economy has changed tremendously over the years since
independence. For instance, a look at the contribution of each of the sectors to GDP during
several plan periods gives a broad idea about the paradigm shift in the structure of the
economy. Let us have a look at the structure of the economy during the First Five Year Plan
(See Table 2)
Table 2: Contribution of different sectors to GDP (%) during First Five Year Plan
Year Agriculture Industry Service
1950-51 56.70 13.66 29.64
1951-52 56.33 13.95 29.72
1952-53 56.59 13.58 29.83
1953-54 57.42 13.62 28.97
1954-55 56.71 14.19 29.09
Source: Economic Survey, 2007-08

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It is very evident from the table that, agriculture contributed more to the GDP during the First
Five Year Plan period. During the Plan period more than half of the GDP was contributed by
the primary sector alone. The trend was almost same during the Second Five Year Plan
(1956-1961) period as well. However, the share of agriculture started declining since the
Second Five Year Plan period (See Figure 3). The Plan gives more thrust to the industrial
development. Since 1981 onwards, the service sector became the largest contributor to GDP.

Figure 3: Trend in the Contribution of different sectors to GDP over the years
70.00

60.00

50.00

40.00
Agriculture
Industry
Service
30.00

20.00

10.00

0.00
1950-51

1952-53

1954-55

1956-57

1958-59

1960-61

1962-63

1964-65

1966-67

1968-69

1970-71

1972-73

1974-75

1976-77

1978-79

1980-81

1982-83

1984-85

1986-87

1988-89

1990-91

1992-93

1994-95

1996-97

1998-99

2000-01

2002-03

2004-05

2006-07

As the diagram rightly explains, the share of service sector increased greatly in comparison
with the other two productive sectors. Though the trend with respect to industrial sector in
this regard is in affirmative, the change took place only in a slow pace. Let us now look at the
latest position with respect to the contribution of these sectors to GDP (See Table 3)

Table 3: Contribution of each of the sectors to GDP (%) during 10th Five Year Plan
Year Agriculture Industry Service
2001-02 26.19 22.85 50.96
2002-03 23.73 23.52 52.75
2003-04 23.90 23.36 52.73
2004-05 22.40 24.04 53.56
2005-06 21.67 24.31 54.02
2006-07 20.55 24.71 54.74
Source: Economic Survey, 2007-08
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The table clearly tells us that almost half of India’s GDP comes from the service sector alone.
The result is in tune with the result obtained at the beginning of the present section that of the
gloomy growth trend of agriculture.
It is in this context, we tried to make a critical evaluation of the growth performance, India
had over the several years.
Section 2

6. A Critical Evaluation of India’s lopsided Growth Path

Despite the impressive achievement of the Indian economy, growth has failed to be
sufficiently inclusive in many respects. If we look at agriculture sector, which provides
employment to around 60 per cent of the population, we can see that the performance is very
bleak. A large chunk of the population is not included or benefited out of the ‘remarkable
achievement’ India realised. It might be largely unnoticed by the common folks as well as
the so called developmental enthusiasts that the time the Sensex crossed 15000 or 20000
mark and more, India now registered 67th in the Global Hunger Index — behind even
Nigeria or Kenya (Grebmer et.al, 2008)! Moreover all the Indian states have only at least a
“serious” level of hunger and there is not a single state with low or even moderate levels of
hunger (Menon et.al, 2008). Despite averaging over 8.5 percent growth since 2000, India has
achieved less than half of the United Nations Millennium Development Goal targets in
hunger and is 66th on the Global Hunger Index out of 88 countries, a report released by the
Washington based International Food Policy Research Institute (IFPRI) (Grebmer et.al,
2008). The fact is largely ignored out of the joy (or desperation) over the stunning rise (or fall)
of the media’s most loved index. Furthermore, the World Health Organisation (WHO)
reported that India as the leading nation in the number of women dying in childbirth (2008).
According to the report, every fifth woman died in child birth is an Indian. Adding more
concern to this fact, the report of the United Nations’ Food & Agriculture Organisation says
that we have the largest number of undernourished people in the globe (FAO, 2006). The
2006 edition of the report had shown that India had added more people to the “newly
hungry” in the planet than the rest of the world together. During 1995-97 and 2000-02
hunger grew in India at a time when it fell in Ethiopia! Not only these, but many of the world
development indicators are confirming this fact of India’s lopsided growth path. As per the
most popular development index, that is, Human Development Index prepared by the United
Nations Development Programme (UNDP), India’s rank is any way dismal. According to the
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2007 UNDP report, India’s rank is only 128 (UNDP, 2007), which was 126 in the 2006
report (UNDP, 2006). It is undoubtedly clear that we are ascending new heights of misery.

Juxtapose this fact with a recent report on India’s shining face of corporate world that India
now has over 1 lakhs millionaires (the intensity of their richness may vary, according to the
trends in the capital market). According to Forbes magazine, out of the 10 world's richest
persons, four were Indians. Except Mexico, Saudi Arabia, Brazil and Egypt, no one from
other less developed or developing economies are included in the world’s top 100 richest
club. A handsome number of rich people from a country which is the home of the largest
number of poor people in the world! It is quite evident that inclusive growth is imperative
for achieving the equity objective, and that’s why inclusive growth is now considered
essential even to sustain the growth momentum.

7. Why inclusive growth?

It is at this juncture, we need to rethink to shape our strategy for a more sustainable
development, which ensures inclusive economic growth. As we have already stated, in India
a major chunk of population is based in rural side. Without including this large segment of
population, no developmental effort will ignite the momentum of inclusive economic growth.
As it is evident from many studies, average monthly per capita consumption expenditure in
urban areas in India is almost double that of rural areas. There should be sufficient increase
in demand for manufacturing and service sectors from the rural population. Therefore the
rural economy must flourish by rejuvenating agriculture and allied activities. There should
also be significant effort to tackle the underdevelopment problems which exist in the urban
side as well, as a result of the increased growth pace.

One such problem is increased rural-urban migration. As a result of the rural-urban migration,
population pressure in urban areas will be increased leading to an increase in the volume of
urban poor (Ray, 1998). There should be considerable effort to handle this problem. There
must be increased investment in housing, water, sanitation, lighting and power, waste
management, education, health facilities, and other infrastructure. Hence, urban development
policies have to focus on inclusive investment. One of the major problems associated with
the inability of absorbing this migrant population by the urban sector is lack of education and
skill level of the population. This segment of population may not be able to afford such
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education and skill development. In order to ensure their fitness, huge social sector
investment is required, covering the vast majority of people. Table 4 gives the share of total
outlay in education and health during different Plan periods in India.

Table 4: Percentage share of Education and Health in Total Outlay

Five Year Plan Year Education Health
Third Plan 1961-66 6.9 2.6
Annual Plan 1966-69 4.6 2.1
Fourth Plan 1969-74 4.9 2.1
Fifth Plan 1974-79 4.3 1.9
Annual Plan 1979-80 2.2 1.8
Sixth Plan 1980-85 2.7 3.1
Seventh Plan 1985-90 3.5 1.7
Annual Plan 1990-91 4.0 1.8
Annual Plan 1991-92 4.0 1.4
Eighth Plan 1992-97 4.5 1.7
Ninth Plan 1997-02 6.2 2.5
Tenth Plan 2002-07 5.5 2.1
Source: Economic Survey, 2007-08

There must be heavy public investment in education and health in order to improve the
quality of the population. Presently health expenditure as percentage of GDP is less than one
percent, and education expenditure is well below 4 percent (Economic Survey, 2008). Both
figures indicate India’s rank according to these statistics as one of the lowest among world
countries.

8. Approach towards Inclusive Economic Growth

Planning Commission has announced its approach to Eleventh Five Year Plan (2007-2012)
on the eve of the present plan period (2008). The approach envisages the strategy for faster
and more inclusive growth. Amidst praising the glory of Indian economy with respect to its
strong economic growth, the approach paper rightly emphasised the economy’s failure to be
more inclusive particularly after mid 1990s. Agriculture lost its growth momentum from that
point on and subsequently entered a near crisis situation. Jobs in the organised sector have
not increased despite faster growth. The percentage of our population below the poverty line
is declining, but only at a modest pace. Malnutrition levels also appear to be declining, but
the magnitude of the problem continues to be very high. Far too many people still lack access
to basic services such as health, education, clean drinking water and sanitation facilities

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without which they cannot claim their share in the benefits of growth (Economic Survey,
2007-08).

The plan trajectory as the approach paper says, envisioned faster, more broad-based and
inclusive growth. It aimed at 10 percent growth by the end of the plan period by reducing
poverty to a significant level and bridging several divides existed in the economy across
regions and communities by ensuring access to basic physical infrastructure as well as health
and education services to all.

In the approach paper, the planning commission has identified certain challenges to be
overcome to ensure inclusive economic growth. One such challenge is nothing but
overcoming the agricultural crisis. During the Ninth plan period, agriculture growth rate was
2.6 percent in comparison with 4.3 percent and 7.9 percent growth in industrial sector and
service sector respectively (See Table 1). The Tenth plan witnessed a deceleration in the pace
of agricultural growth to that of almost 2 percent. This deceleration is the root cause of the
problem of rural distress, caused by low farm incomes as a result of inadequate productivity
growth combined with low prices of agricultural output and lack of credit at reasonable rates.
To reverse this trend, a very realistic policy strategy, has to be formulated to double the rate
of agricultural growth.

Another challenge is the changing employment patterns. One of the major problems
associated with agricultural sector is the existence of underemployment or disguised
unemployment. 10 million workers currently in agriculture must find remunerative, non-
agricultural employment. Therefore non-agricultural employment would need to increase at
over 6 percent per annum during Eleventh Plan (Government of India, 2006).

A key element of Eleventh Plan strategy should be, to provide essential education and health
services to those large parts of our population who are still excluded from these. We have
already pointed out the emergency in this regard at full length before.

Major thrust must also be on the importance of increasing manufacturing competitiveness.

Growth in industrial sector during Tenth Plan has increased from 4.3 percent to 9.5 percent
(Table 1). In order to aim 9 percent overall growth rate we must target at least 12 percent
growth rate for this sector alone (Government of India, 2008).
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Approach towards the development of human resources has also assumed significance.
Setting up of premier educational institutions like IITs (Indian Institute of Technology) and
IIMs (Indian Institute of Management) has paid us rich dividends. However our competitive
edge on the tracking of pure science has been loosened to a greater extent. Reflections from
higher education sector are not that promising. Higher education scenario, including social
science education has been aggravated to a significant extent. To continue our competitive
advantage and ensure a continuous supply of quality manpower, we need large investments
in public sector institutions of higher learning. This should be accompanied by fundamental
reform of the curriculum as well as service conditions to attract a dedicated and qualified
faculty.

It has been advocated that, our development strategy has to be sensitive to environmental
related issues and climatic changes. In the long run, the relationship between environmental
sustainability and economic growth must assume a complementary one that will ensure the
well-being of the human beings.

Implementation of new projects is always there in the process of economic growth, which is
at the cost of displacement of certain amount of population from their land. The approach
towards this marginalised population, who were forcefully excluded, must be in affirmative.
To give displaced people especially women, their due rights, it is necessary to frame a
transparent set of policy rules that address compensation, proper resettlement, and
rehabilitation and also gives project affected persons a permanent stake in project benefits.

9. Conclusion
To sum up, the present paper largely addressed the changing structure of the Indian economy.
With this background, the paper tried to envisage the development experience of India in the
context of, how well it is ‘inclusive’ in the growth path of the present scenario.
The paper arranged in two sections. The first section gives a thorough understanding of the
trend and the changing structure of the Indian economy over different Five Year Plan periods.
From a very modest growth path i.e., well below five percent annual growth rate, the Indian
economy has soared at an average rate of over seven percent every year in the last decade
and at around nine percent in the past three years. Furthermore, we tried to look at the
changing structure of the economy over different Plan periods. The growth trajectory of India
11
tells us its bias towards the tertiary sector. In this context we emphasised the economy’s
failure to be more inclusive particularly after mid 1990s, even at the time of strong economic
growth. The agriculture lost its growth momentum from that point on and subsequently
entered a near crisis situation.

The second section primarily dealt with a critical evaluation of the growth momentum India
recently experienced. Despite the impressive achievement of the Indian economy, growth has
failed to be sufficiently inclusive in many respects. We substantiated our argument by
highlighting India’s 66th position in Global Hunger Index according to International Food
Policy Research Institute (IFPRI), even at the time of a very high overall economic growth.
Supplementing to this argument, we indicated our poor performance of social sector in our
sixty years long development history. Invariably we argued that a handsome number of rich
people from a country which is the home of the largest number of poor people in the world!
Therefore it is quite evident that inclusive growth is imperative for achieving the equity
objective, and that’s why inclusive growth is now considered essential even to sustain the
growth momentum.

Amongst all, the most important one is good governance and transparency in the
implementation of public programmes. Corruption exists in every sphere of public life. This
has always slackened the confidence of the public on any government initiative towards
economic development. What needs to be done by the government is to lessen its
discretionary power, ensure greater transparency and accountability, and create awareness
among citizens.

References
Business Line (2008): Inclusive growth: An unfinished story, 07/02/2008.

FAO (2006): The State of Food Insecurity in the World- 2006, Food and Agriculture
Organization (FAO) of the United Nations, Rome.

Government of India (2006): Approach Paper to the Eleventh Five Year Plan, Planning
Commission, New Delhi.

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Government of India (2008): Approach Paper to the Eleventh Five Year Plan (2007 to 2012),
Planning Commission, New Delhi.

Government of India, Ministry of Finance (2008), Economic Survey 2007-08, Oxford

University Press, New Delhi.

Grebmer, Klaus von, Heidi Fritschel et.al (2008): The Challenge of Hunger 2008,
International Food Policy Research Institute (IFPRI), Washington.

Menon, Purnima, Anil Deolalikar, and Anjor Bhaskar (2008): Comparison of Hunger Across
States India: State Hunger Index, International Food Policy Research Institute (IFPRI),
Washington.

Ray, Debraj (1998): Development Economics, Princeton University Press, Princeton.

United Nations (2008), The Millennium Development Goals Report 2008, United Nations,
New York

United Nations Development Programme (2007): Human Development Report - 2007/08,

Palgrave Macmillan, New York.

United Nations Development Programme (2006): Human Development Report - 2006,

Palgrave Macmillan, New York.

World Health Organisation (2008): Annual Report-2007, Department of Making Pregnancy

Safer, World Health Organisation, Geneva.

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