Credit seminar

Inclusive Growth in India: Challenges and Prospects

Presented by

Jagriti RohitRoll no: 10242

High GDP but EXCLUSION interms of low agriculturalgrowth rate, low-qualityemployment, poor education,Inadequate healthcareservices, rural-urban divide,social inequalities, andregional disparities.

Future GDP growthCurrently a $ 1.73 trillioneconomy with a population of1.2 billion.To sustain the economy todouble digit figure, inclusion ofall section of society is required.(word bank 2012)

• India’s government has made “inclusive growth” a keyelement of their policy platform, stating as a goal: “Achievinga growth process in which people in different walks in life…feel that they too benefit significantly from the process.”(Ahluwalia, 2007)

Inclusive growth

• The AfDB defines Inclusive Growth (IG) as economic growththat results in a wider access to sustainable socio-economicopportunities for a broader number of people, regions orcountries, while protecting the vulnerable, all being done in anenvironment of fairness, equal justice, and political plurality.

Social Sector Development

Poverty Reduction and increase in

quantity and quality of employment

Agricultural Development

Reduction in regional disparities

Protecting the environment

Elements of Inclusive Growth

Year Rural Urban Total In million

1993 – 94 50.1 31.8 45.3 403.7

2004 – 05 41.8 25.7 37.2 407.1

2009 – 10 33.8 20.9 29.8 368.9

2011 – 12 25.7 13.7 21.9 269.3

Poverty

• Poverty levels are high in few states like Bihar, Odisha,Madhya Pradesh, Uttar Pradesh.

• 80% poor are in rural areas.

Source: Press Note on Poverty Estimates, 2011 – 12, Planning Commission; Report of the Expert Group to Review the Methodology for Estimation of Poverty (2009) Planning Commission

cau

ses Social

Educational

Infrastructural

Employment

Agriculture

Rural wages

Rural non farm employment

Effe

ct

Hunger

Malnutrition

High mortality

Education and social advancement

Health risk

Urban migration and urban poverty

Employment

Problems in employment

• 423 million peoples in unorganised sector accounts for 92% of the total employment

• Growth of employment: unorganised sector• Quality of employment : do not have any social security

Agriculture growth Deceleration in growth

from 3.5% during 1981-97 to 2% during 1997-2005. Decline in yield growth

DisparitiesWidening economic disparities between

irrigated and non irrigated areas

Land and water use

Increase in non agridemand due to higher GDPand urbanization

InstitutionTo help small farmers in

increasing their productivity and

marketing

TechnologyUneven and slow

developmentInefficient use of

available technology

Commodity prices Vulnerability to world commodity and price volatility due to trade

liberalization

DEFICIT IN AGRICULTURE

land and water

management deficit

investment, credit and

Infrastructure deficit,

research and extension

(technology) deficit,

market deficit,

education/

skill deficit

institutions deficit,

Rural non farm sector

Micro and small enterprises

• Weavers, artisans, hawkers, people engaged in food processing

• Issue: unorganized and competition

Annually, India produces 205 million tonnefruit and vegetables, and is the second-largestcountry in the world as far as farm productionis concerned.However, it processes just 4.6 per cent of itsoutput. In contrast, countries like the UnitedStates (65 per cent), China (23 per cent) andPhilippines (78 per cent) are far ahead of Indiain reducing wastage and enhancing the valueaddition and shelf-life of the farm products.

Infant mortality in India is 50 per 1,000 births in 2009,compared to 41 in Bangladesh and 31 in Nepal. Similarly,if we talk about the under-five mortality rate, it was 69per 1,000 births in 2009 in India versus 48 in Nepal and 52in Bangladesh, according to Unctad's Least DevelopedCountries Report 2011 and Human Development Report

Looking at Planning Commission data,public health expenditure did not eventouch 1.4 per cent of the GDP in the 11thfive-year plan.

The proportion Of children that dropped out ofelementary school by Class VIII in 2007-08 was43%.

Social sector development

Six problems in Social Sector: education and health

• There have been significant achievements but there are problems

• Low levels of social indicators

• Slow progress

• Significant regional, social and gender disparities

• Low level and slow growth in public expenditures particularly on health

• Poor quality delivery systems

• Post reform period income inequality increased and itsworsening

• Benefit of economic development concentrated indeveloped areas significant regional disparities in India.

• Per capita income : Highest per capita incomeRs.16,679 in Punjab; lowest per capita income stateRs.3557 in Bihar

• Female infant mortality varies from 12 in Kerala to 88in Madhya Pradesh

• Female literacy varies from 33.6% in Bihar to 88% inKerala ECONOMIC SURVEY 2010-11

• In general, richer states grew faster than the poorer states.

• Causes for disparities;

Investment in physical and

human capital

Technology

Institutions including

governance

Environment

Degradation of land, water. Increase in pollution levels

Challenges of climate change

Higher economic growth should not lead to decline in our environment

Change in Consumption patterns

India’s stand

11th and 12th five year plan focus is

on inclusive growth

To achieve inclusiveness in all thedimensions requires multipleinterventions, and success dependsnot only on introducing newpolicies and governmentprogrammes, but on institutionaland attitudinal changes broughtabout, which take time.

Strategies for inclusive growth

• Two strategies are used for inclusive growth

Social inclusion

Financial inclusion

Strategies

Social inclusion

Social Inclusive Programmes are initiatives of the government to provideaccess to marginalised sections to basic education and health facilities,better sanitation, better roads and other infrastructural facilities.

Expenditure on health and education is very essential for the overall development of the nation. Developed nations are spending more than 10 percentage of their GDP on Health and education facilities..

But still ‘emerging economy’ like India is spending 3-4% on public healthand about 6 % of its GDP on education which is quite meagre

• In order to ensure inclusive growth government shouldenhance its spending on education and health.

• Education improves the skills and abilities of human being,whereas health is very essential for an active and productivelife.

• Education and health are very essential to convert a humanbeing into a human capital.

• Studies have also proved that health facilities would enhancelife expectancy which would automatically enhance GDPfigures.

• That is the reason why we are giving more importance tothese social over head capital

Planning commission 12th

plan document

Need for social inclusion

• The trickledown effect of economic growth to the poorer sections of thesociety did not successfully lead to poverty eradication

• Poverty persists mainly due to the inability of some groups of people toparticipate in the process of economic growth

• Philip and Rayhan (2004): the poor are morevulnerable than any other group

• Social inclusion deals with both absolutedeprivation and risk and vulnerabilities

• It deals not only with social risks (sickness, oldage, unemployment and social exclusion) butalso with programs that secure income such asfood security, employment, education, etc.,ensuring social and economic security

Governmental efforts

• Various programmes by government of India

• MNAREGA

• INDIRA AWAS YOJANA

• PRADHAN MANTRI GRAM SADAK YOJANA

• NRHM

• ICDS

• MID DAY MEAL

• SARVA SHIKSHA ABHIYAN

• JNNURM

• ACCLERATED IRRIGATION BENEFIT PROGRAM

• RAJIV GANDHI GRAMIN VIDYUTIKARAN YOJANA

• RAJIV GANDHI DRINKING WATER MISSION

• RASHTRIYA KRISHI VIKAS YOJANA

12th five year plandocument

• Financial Inclusion as the “process of ensuring access toappropriate financial products and services needed by all sectionsof the society in general and vulnerable groups such as weakersections and low income groups in particular, at an affordablecost in a fair and transparent manner by regulated, mainstreaminstitutional players”.

Financial inclusion

General

• Census 2011 estimated that out of 24.67 crore households in the country, 14.48 crore (58.7%) households had access to banking services.

• Of the 16.78 crore rural households, 9.14 crore (54.46%) were availing banking services.

Farmers

• Only 27% farmers borrows from formal source of credit (rangarajan report 2012)

Region wise

• Exclusion is more widespread in north eastern region

Social group

• Only 36% of the disadvantaged group are indebted to formal source of credit

The efforts to include the financially excludedsegments of the society into formal financialsystem in India are not new.

The concept was first mooted by the ReserveBank of India in 2005 and Branchless Bankingthrough Banking Agents called Bank Mitr(Business Correspondent) was started in theyear 2006.

In the year 2011, the Government of Indiagave a serious push to the programme byundertaking the " S w a b h i m a a n"campaign to cover over 74,000 villages, withpopulation more than 2,000 (as per 2001census), with banking facilities.

Measures for Financial Inclusion in India

• Introduction of ‘No-Frills’ account• Relaxing ‘Know Your Customer’ (KYC) norms• General Purpose Credit Card (GCC) Schemes• Role NGOs, SHGs and MFIs• Business Facilitator (BF) and Business Correspondent

(BC) Models.• Nationwide Electronic Financial Inclusion System

(NEFIS)• Project Financial Literacy• Financial Literacy and Credit Counseling (FLCC) centres• Financial Inclusion Fund (FIF)

PRADHAN MANTRI JAN DHAN YOJANA

Six pillars

Universal access to banking facilities:

Providing Basic Banking Accounts with overdraft facility and RuPay Debit card

Financial Literacy Programme:

Creation of Credit Guarantee Fund:

M i c r o - I n s u r a n c e :

Unorganized sector Pension schemes like Swavalamban:

Role of Technology in FinancialInclusion

Electronically Know Your Customer(e-KYC)

Transaction through Mobile Banking:

Immediate Payment System (IMPS):

Micro-ATMs:

National Unified USSD Platform(NUUP):

Aadhaar Enabled Payment System (AEPS) and Aadhaar Payments Bridge System(APBS):

RuPay Debit cards:

CURRENT STATUS

• On an average 1,15,000 bank accounts are being opened every day. As on 22.10.2014, a total number of 6.47 crore accounts have been opened with a deposit of Rs. 4813.59 crore.

Scope of inclusive growth

Geographies

Business

Individual

• More focus on development of socially and economically backward area

• Development of micro finances, self help group and rural business

• Socially and economically backward groups and individual

Review

• Has Growth Been Socially Inclusive during 1993-94 – 2009-10? Sukhadeo Thorat, Amaresh Dubey (2012) Economic andPolitical Weekly.

• This paper examines the changes in poverty incidence andmonthly per capita expenditure in India using the NationalSample Survey’s unit record data of three rounds, 1993-94,2004-05 and 2009-10.

• The results indicate that the poverty rate has declined at anaccelerated rate during 2004-05 – 2009-10 for all socio-religious household groups.

• However, some groups benefited more than the others frompoverty reduction. Inequality has also begun to adverselyaffect poverty reduction, particularly in the urban sector.

• Regional Inequality and ‘Inclusive Growth’ in India underGlobalization: Identification of Lagging States for StrategicIntervention Amitabh Kundu K. Varghese (2010)

• The strategy of inclusive growth and balanced regionaldevelopment launched since 2003-04, has led to accelerationin the average growth in the less developed states, includingthose in the North-East.

• Poverty reduction has been relatively less in less developedcompared to developed states, resulting in concentration ofpoverty in a few backward states.

• The correlation of economic development with amenities,although statistically significant, is relatively low, whichsuggests that the problems pertaining to health, education,and access to other amenities cannot be effectively addressedjust by focusing on economic development

Bank Strategies for Financial Inclusion Rajasthan (Yogesh Suri, 2008, State Bank of Bikaner and

Jaipur )

• In August 2006, as lead bank in Rajsamand District, SBBJ was entrusted the task of achieving 100% financial inclusion in the district.

• 59 branches of the Bank took up the task of surveying 10004 villages and 21 semi-urban centres. About 2 lakh families were identified in the survey.

• Objective was to have minimum one account per household as per the voter list.

• Rajsamand emerged as one of the first districts where 100% financial inclusion was completed.

• The Bank holds number one position in credit linking Self Help Groups in the during 2004-05 to 2007-08.

Extension has always participated in rural development so its role in socialinclusion is evident

Capacity building of extension personnel toequip them with know how of financialinclusion.Catering to the need of financial literacy ofthe rural people.

Extension can help rural people to get the latest information of variousgovernment schemes and benefits

Role of extension

Extension personnel can provide help fororganising farmers organisation and self helpgroups

FOs should develop membership profilesto help take membership diversity intoaccount and measure how far theorganisation is representative of thecommunity.

Social inclusion can be enhanced by lowthresholds for entry of new members,active policies to include all types of ruralhouseholds, and a concentration on moresocially mixed groups.

Lesson from China

India leap frogged from agriculture to serviceswith less focus on manufacturing.

The share of employment in manufacturingin Malaysia is 50%, in Korea 62%, in China31%. On the other hand, the share ofemployment in manufacturing in India is only12%

Diversification towards rural non-formsector in China is one of the importantfactors responsible for rural povertyreduction (poverty 3%).

This was partly due to high agriculturalproductivity and investment in physicaland human capital.

WAY FORWARD

Conclusion

CONCLUSION

• There is a need to have a broad based and inclusivegrowth to benefit all sections of society and improveeconomic growth.

• Issues and challenges in five elements of inclusive growth(poverty and employment, agriculture, social sector,regional disparities and environment). Tackling thesesdimension will lead us to prosperity.