Distinguished Lecture

Transcription

1 Institute of Public Enterprise & The Federation of Telangana and Andhra Pradesh Chambers of Commerce & Industry Distinguished Lecture on Inclusive Growth (June 27, 2016) By Prof Sukhadeo Thorat Chairman, Indian Council of Social Science Research, Ministry of HRD, Government of India 0

2 On socially Inclusive Growth Sukhadeo Thorat Focus on Inclusiveness in 11 th Plan The 11 th plan, singled out the type of growth rather than growth alone, as an important element of inclusive growth strategy in the 11 th Plan. The Plan observed The strategy for inclusive growth in the Eleventh Plan is not just a conventional strategy for growth to which some elements aimed at inclusion have been added. On the contrary, it is a strategy which aims at achieving a particular type of growth process which will meet the objectives of inclusiveness and sustainability, the Plan observed (11 th Five Year Plan, Volume 1, P. 5). The 12 th Plan take it further and observed 'Progress towards inclusiveness is more difficult to assess, because inclusiveness is a multi-dimensional concept. Inclusive growth should results in lower incidence of poverty, broad-based and significant improvement in health outcomes, universal access for children to school, increased access to higher education and improved standard of education, including skill development. It should also be reflected in better opportunities for both wage employment and livelihoods and in improvement in provision of basic amenities like water, electricity, roads, sanitation and housing. Particular attention needs to be paid to the needs Professor Sukhadeo Thorat, Chairman, Indian Council of Social Science Research, New Delhi & Emeritus Professor, Centre for the Study of Regional Development, Jawaharlal Nehru University, New Delhi 1

3 of the SC/ST and OBC population, women and children as also minorities and other excluded group. To achieve inclusiveness in all these dimensions requires multiple interventions and success depends not only on introducing new policies and governments, but on institutional and attitudinal changes, which takes times The Approach paper further observed An important consequences of the focus on inclusion during Eleventh Plan has been the much heighten awareness about inclusiveness and empowerment amongst people. (Faster and Sustainable and More Inclusive Growth An Approach to the 12 th Five Year Plan, Planning Commission, August 2011) The 11 th and 12 th Plan of India ( and ), thus is different from the preceding plans in the sense that it brought inclusive growth at the centre stage of the plan approach and strategy. For inclusive growth, the Plan in its own way not only emphasised on growth in income alone but also its outcomes" for the poor. It recognises that increase in aggregate income is critical and an extremely important one but its distribution in favour of poor is equally important for inclusive development. With this shift, relevance of growth is measured in terms of its outcome for the poor. The inclusive growth strategy is now become a part of 12 th Plan with a focus on faster and inclusive growth. The growth has to be faster but at the same time inclusive. This also means growth to be inclusive has to be pro poor so that growth takes care of the poor and there is less need for the 2

4 government targeted intervention for the poor. During few months efforts are being made to develop the growth strategy for each of the sectors in a manner such that it is inclusive of poor. The growth to be pro poor clarity on two aspect is necessary, first relates to as what constitute the pro poor growth and second is our experience about the pro poor nature of the growth in the immediate past. This will help us to develop an inclusive pro poor growth strategy with what Amartya Sen called, Growth with Clarity. In this back ground in this paper firstly we bring some clarity on the concept of inclusive growth that is pro poor drawing from the recent literature and in that context also discuss the inter linkage between growth, inequality and Poverty, secondly we discuss the recent experience of pro poor growth. What is pro-poor Growth? The concept of pro-poor growth has been a subject of discussion in the literature on growth strategy for poverty reduction and in the process refers to growth with equity, equitable growth, redistributive growth, growth for human development and inclusive growth etc. The recent discussion about the pro-poor growth has been initiated in the context of Inclusive growth nicely summarised by Grinspun (2009) (see also Eduardo (2009), Ravallion (2004), Kakwani et al (2004), Siddiqi (2009), Ravallion and Chen (2003, 2004). Ravallion (2003) argued that pro-poor growth is any growth in the mean income that benefits poor. Kakwani (2004) feels that it has limitation as it would encompass the vast majority of growth episodes so long as poverty 3

5 decreases which typically does. As most of the growth scenario will reduce some poverty, Kakwani (2004), therefore, proposes that growth is pro-poor if it benefits the poor proportionately more than non-poor (Grinspun, 2009). This leads to focus on the degree of distributional impact of growth, especially when Ravallion (2009) is particularly concerned about the relative benefit of growth amongst poor and non-poor. In this context some draw distinction between strongly pro-poor and weakly pro poor: former relates to a situation in which income rises proportionally faster for the poor than the non-poor and in the latter growth benefits the poor considerably less than the non-poor (Lipton, 2009). Thus, in addition to degrees of income gains to which Kakawani (2004) focused, the focus is also placed on the rate of rise in income of the poor. In this context the Grinspun (2009) argues that what matters is the trade off between changes in absolute poverty and in inequality between rich and poor. Thus what happens to income distribution between poor and rich and distribution around the poverty line in the process of growth matters most (and not so much the distribution of income between the upper layers of classes). This means that not only reduction in poverty is enough, but bias in favour of poor is necessary for pro-poor growth. Osmani (2005) took the criteria a step further and argued that while true test of propoorness is the existence of a policy bias in favour of the poor but it has to be with reference to the country s past record of poverty reduction and define pro-poor growth as growth process that reduces poverty more than it does in the past with benchmark. The bench mark will vary across countries. However, to overcome some limitation of Osmani s criteria, White (xxxx) proposed three criteria of pro-poorness--- share of the poor 4

6 in income growth exceed their existing share, poor s share in incremental income surpass their share in population and share of the poor in incremental growth exceed some international norm. It, therefore, appears that the criterion for the pro-poorness of growth acquires a number of add on meaning - that growth reduces absolute poverty, that it benefit the poor proportionately more than the non-poor, that the income rise proportionally faster for the poor than the non-poor, that poverty reduction is more as compared to the past benchmark, that it benefits very poor and not just the poor and such that the share of poor in incremental income exceed their share over existing share, exceed their population share and some international norms. Thus, to an extent the propoorness involves not only reduction in absolute poverty and its rate of change but the share in incremental income to the extent that the poverty reducing outcome in effect depends on the trade-off between change in poverty and inequality in income distribution - the nature of relationship between growth, inequality and poverty. On growth, inequality and poverty linkages There is rich literature on the inter-linkages between growth, inequality and poverty. First systematic statement on growth, inequality and poverty relationship was made by Kuznets in the 1950s where he argued that the long term secular behaviour of inequality follows an inverted U-shaped pattern with inequality first increasing during the early stages of growth in developing countries but is likely to fall after some time (Kuznets, 1955). Empirical studies that follow Kuznets pioneering work provide evidence that beside growth in per capita income, the income distribution is also 5

7 determined by other socioeconomic factors, such as population growth rate, income (or worker) share in non-agriculture sector, urbanisation level, education, government interventions and others (Tsakloglou, 1988; Ahluwalia, 1976, 1976b; Paukert, 1973; Adelman and Morris, 1973; Papanek, 1978). Tsakloglou (1988) found that the rate of population growth was positively related to income inequality while the educational level, the extent of government activity and the rate of growth of GDP per capita income hold negative relationship with inequality. Human capital and human capabilities as factors in the achievement of pro-poor growth is particularly recognised. Other studies found that while the share of non farm sector is important, the increase in employment in more productive sector and increase in productivity in traditional sector are critical for decline in poverty (Hull, 2009). Further, the spheres in which the growth takes place also matters for reduction of poverty of most and growth will benefit the poorest most if: a) growth is in sectors in which the poorest earn their livelihood, and b) growth is in the regions where they reside. The research by Ravallion (2009) brought further insight into the relationship between growth, inequality and poverty but with deviating results. For the most part of for eighty countries, Ravallion (2009) reports that there is little or no correlation between changes in inequality and rates of economic growth---inequality rose about as often as it fell" and concluded that "as generalisation across cross country experiences, it still appears that growth tends to be roughly distribution neutral". He also found that the rate of decline in poverty tends to be less 6

8 pro-poor in countries where initial inequality is higher compared to those where it is lower. In Ravallion's (2009) view, certain inequalities are particularly bad in so far as these not only generate higher poverty now but also impede future growth and poverty reduction. These bad inequalities that include, social exclusion, discrimination, restrictions on migration, constraints on human development, lack of access to finance and insurance, corruption are sources of inequality and limit the prospect for economic advancement among certain segments of the population, thereby perpetuating poverty. More rapid poverty reduction would require more growth, a more pro-poor pattern of growth, and success in reducing the antecedent inequalities that limit poor people s access to economic opportunities" (p. 185). On Social exclusion and persistence of poverty Among the bad inequalities, the one that is particularly important is social exclusion and discrimination. Studies have began to recognise that persistence of chronic poverty happens to be in social/ethnic/religious groups/women and their (social) exclusion and discrimination. Often these groups suffer from multiple disadvantages, including a poor asset base, a remote location, a history of exclusion and discrimination. The exclusion from access to resources and markets increases their propensity to be poor. In the field of economics studies by Becker (1957), Loury (1977), Manski (1993), Durlauf (1999) and others show that discrimination associated with race, region, ethnicity, gender, and religion reduces the opportunities to access and acquire assets, employment and social needs like education, health and food security schemes and to participate in governance and decision making process and create situation with less chances to come out 7

9 of poverty trap (Braun et al 2010, Thorat 2010). Such discrimination not only hurt the groups affected but also reduce overall economic growth and thus poverty reduction. Social exclusion aggravates poverty directly by denying the fair access to opportunities channelized through markets and non-market transactions and indirectly by adversely affecting economic growth. Furthermore, in many societies throughout the world, women have a weak agency or power with fewer land rights under customary or statutory legal systems than do men, often lack decision making authority in their households, are at a disadvantage in labour markets and in gaining access to services, have greater burdens on their time, and face threats of physical violence (see Sen, 1990 and 1998, Klasen: 2005, Kabeer: 2008). Evidence indicates that gender inequalities in access to resources at the farm level, and non-farm employment, and in education undermines pro-poor growth (Klasen: 2005, Kabeer: 2008). However, there is extremely limited empirical work which gives insight as to how social exclusion and discrimination cause more poverty among the excluded and discriminated groups. We have much less idea about the process of exclusion induced poverty. The social exclusion in general and economic exclusion in particular, essentially refers to the processes through which groups are wholly, or partially, excluded from having access to rights economic and social and full participation in the society. Exclusion could occur through direct exclusion, violating fair norms of exclusion (that is unfavourable exclusion), or through inclusion, but under unfavourable terms and conditions, again violating fair norms of inclusion (that is 8

10 unfavourable inclusion), or through deliberate government policies (active exclusion), and through unintended attempts and circumstances (passive exclusion), or exclusion caused through inability of some persons to relates to other persons - constitutive relevance (Sen, 2000). Addressing exclusion induced poverty of excluded groups will need policies to provide policy safeguards against market and nonmarket discrimination to excluded groups. 9