K. C. Chakrabarty, Deputy Governor of RBI in this speech clarifies the meaning of inclusive growth.
Inclusive growth as the literal meaning of the two words refers to both the pace and the pattern of the economic growth. The literature on the subject draws fine distinction between direct income redistribution or shared growth and inclusive growth. The inclusive growth approach takes a longer term perspective as the focus is on productive employment rather than on direct income redistribution, as a means of increasing incomes for excluded groups. Inclusive growth is, therefore, supposed to be inherently sustainable as distinct from income distribution schemes which can in the short run reduce the disparities, between the poorest and the rest, which may have arisen on account of policies intended to jumpstart growth. While income distribution schemes can allow people, to benefit from economic growth in the short run, inclusive growth allows people to “contribute to and benefit from economic growth”.
The ‘inclusive growth’ as a strategy of economic development received attention owing to a rising concern that the benefits of economic growth have not been equitably shared. Growth is inclusive when it creates economic opportunities along with ensuring equal access to them. Apart from addressing the issue of inequality, the inclusive growth may also make the poverty reduction efforts more effective by explicitly creating productive economic opportunities for the poor and vulnerable sections of the society. The inclusive growth by encompassing the hitherto excluded population can bring in several other benefits as well to the economy. The concept “Inclusion” should be seen as a process of including the excluded as agents whose participation is essential in the very design of the development process, and not simply as welfare targets of development programmes (Planning Commission, 2007).
Hmm.. What we seem to be doing is just opposite. Just throwing more and more schemes/funds in the name of inclusive growth. Which also does not help given the state and scale of corruption.
This obviously is also the easy way as helping people participate in inclusive growth requires many reforms.
The speech then goes onto talk about financial sector and how financial inclusion can help in achieving the overall inclusion. In the end Gov says:
In conclusion, I would like to reiterate that the current policy objective of inclusive growth with stability is not possible without achieving universal Financial Inclusion. Thus, financial inclusion is no longer a policy choice today but a policy compulsion. And as agents entrusted with the task of achieving financial inclusion, the role of the mainstream financial sector in achieving inclusive growth becomes central.
I am all for financial inclusion but just focusing on financial inclusion without real sector inclusion is going to create major problems. And in India, we seem to be moving somewhat on financial inclusion (though it mainly means micro credit as of now) but nothing at all is happening on real inclusion front.
This is pretty similar to general role of finance as well. It works best in economies which create and provide opportunities for people. It is like one of the oils in the economic engine. Principles of finance and inclusive finance are much similar. Financial inclusion is actually a deficiency of the financial system to provide basic financial services to people. Hence, the focus on Financial inclusion. Other than that nothing much changes.