Context

As the Indian economy is going through a severe crisis, a major solution to the present economic crisis is to go in for inclusive growth; it also means shared prosperity.

Where India stands on poverty and how the slowdown is impacting the poor.

• Bottom 30-40% adversely impacted: The slowing economy has had an adverse impact on the bottom 30%-40% of the population.

Absolute poverty on the rise: The incidence of absolute poverty, which has been falling since 1972-73, has increased to 30% (4% jump).

• 44% population below the multi-dimensional Poverty line: The Human Development Report (2019) has shown, more than 44% of the Indian population is under the multi-dimensional poverty line.

• Rising inequality: The poorest 50% population at present owns only 4.1% of the national wealth.

                                     While the richest 10% of people own 73% of the total wealth in India (Suisse Credit 2019).

• Rampant malnourishment: India has 15.2% population malnourished (women 15%) as against 9.3% in China.

                                                    And 50% of the malnourished children in the world are in India.

• At 112^th position on global hunger: India’s global hunger rank has gone up to 112 while Brazil is 18, China is 25 and South Africa, 59.

• Dismal performance on education: In the field of education as per a UN report (2015), overall literacy in India is 74.04% (more than the 25% are totally illiterate) against 94.3% in South Africa, 96.6% in China and 92.6% in Brazil.

    Almost 40-45% population is either illiterate or has studied up to standard 4.

• Poor quality of education: Given the quality of education in India, the overall population is very poorly educated, with the share of ‘educated unemployment’ rising by leaps and bounds.

What needs to be realised?

• Focus on domestic demand: It needs to be realised that when exports are declining, the economy will have to depend on domestic demand for growth.

      It is no more feasible for the top 20-25% population to continue growing without depending on the demand from the bottom 40-45% population.

• Demand by the bottom 40% a must: There is thus a strong reason now for the economy to increase effective demand of this bottom 40-45% population at least to continue growing-to reach a $5-trillion economy by 2024.

What is wrong with the growth process?

• Bottom 40% not getting the fair share of growth: A major reason for the crisis is that the growth process has marginalised the bottom 40-plus% of the population.

      It is in the sense that they do not get a fair share of the economic growth, and are more or less deprived of productive employment with a decent income.

      They have not been used as active participants in the growth process. Their potential has not been promoted.

• Less spending for the poor and its consequences: Though the bottom population depends on the government for basic health and elementary education (and also for access to higher educational opportunities)-

      The government spends just 4% of GDP on health (against the norm of 4-6% of GDP) and 3% of GDP on education (against the norm of 6-8% of GDP).

       How this dismal spending affects the poor: As a result of this below norm spending, these people are left hardly literate and sick, with poor nutrition and high morbidity.

      They are incapable of acquiring any meaningful skills or participating actively when new technology is spreading in the rest of the economy.

• The sub-optimal use of labour force: This sub-optimal use of the labour force in the economy is not likely to enable India to achieve optimal growth with proper use of the national resources -the labour force.

Inclusive growth- a solution to the present economic crisis

• Inclusive growth also includes shared prosperity: Here, inclusive growth does not mean only including all sections of the population in the growth process as producers and beneficiaries; it also means “shared prosperity”.

    Since India has already committed to sustainable and inclusive growth at the UN General Assembly, India is definitely obliged to implement inclusive growth. This should be our “New India”.

• What “New India” would involve?

    Improve the capability and opportunities: To start with, to improve the capabilities of the masses as well as their well-being by expanding productive employment opportunities for them.

What expanding productive employment mean? The main steps to expand productive employment for all in the economy should be made up of-

1. A process of inclusion.

2. Expanding the quality of basic health for all.

3. ensuring quality education to all.

• How will “New India” help?

Which will by itself generate large-scale employment in the government.

Having a well-educated and healthy labour force will ensure high employability.

Such people will be able to participate actively in the development process.

The cycle of more productive employment: Having a well-educated labour force will help start-ups and MSMEs, in turn triggering a cycle of more productive employment in the economy.

Global competitiveness increase: This will also improve the global competitiveness of our production units.

Labour absorption potential of MGNREGA: Employment guarantee schemes such as the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) will also increase employment.

Assets generated under MGNREGA will expand capital formation in the economy, thereby raising the labour-absorbing capacity of the mainstream economy.

• Why this strategy is advantageous?

Such a strategy has multiple advantages:

First– it will raise incomes and the well-being of those who need it most urgently.

Second– it will raise effective demand rapidly, which is so badly needed in the economy today to raise economic growth.

Third– growth will be equitable and sustainable.

Way forward

• Finally, how does one raise resources to increase new public investments in the selected sectors?

• Raise direct taxes: One major strategy is to raise direct taxes, both capital tax and wealth tax.

Past growth has failed to reach the poor: Growth led by providing tax cut and extra incentives, but this growth does not much percolate to the poor.

Consequently, taxing the rich has to be a major strategy to raise government revenue.

• Treat public expenditure as an investment: The public expenditure on raising capabilities should be treated as social investment rather than social welfare, policymakers will be willing to spend on this capital formation.

• Let the fiscal deficit slip: Finally, there was no sound economic reason to control fiscal deficit ratio. Sound macroeconomics never supports this.