What is inclusive growth?

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.

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5 Responses to “What is inclusive growth?”

  1. Saurabh Agarwal Says:

    Dear Amol,
    Came across this post a bit late. Inclusive growth is much talked about subject with this government. But you would also agree that people are not ready to realize the true meaning and means to it. What my little knowledge tell me is :-

    1. Inclusive growth is a relative term. Do you want to make the rich poorer to bridge the Gap? Not a good idea I suppose. Once there is growth the results have to percolate down.

    2. Governments have to focus on social infra so that the bottom of the pyramid gets involved in the growth proceeds. Here education will be the Key enabler.

    3. The role of Micro-finance (the sector getting in limelight for all wrong reason now-a-days) is also important. Also we may need to lubricate all are credit delivery mechanism.

  2. Dr. Mohini Verma Says:

    Everybody is for financial inclusion , but it is the most illusive and the result is in the opposite direction till date. India has been independent for 64 years now, but yet nearly 50 % of its population is poor : hungry, malnourished , uneducated, with shabby clothes, poor housing , cities and towns full of slums. These underprivileged are most unfortunate borned in this country. Those who are elites / so called privileged , their heads should hang is shame that they have not been able to help their brethern by totally eradicating poverty for all in 64 years.
    In this regard, I personally recommend a book recently published ” 5 Years Guarantee:How to Make India Richer ”
    authored by Shrawan K Vikram published by Manas Publications , New Delhi ( ISBN : 978-81-7049-384-6 ).
    This book brings breeze of fresh thinking. It explains that India should have been richer than most of the rich countries today. But it is poor for no reasons, except for getting exploited by the rich (white) countries of its resources and constant indoctrination by theories and concepts helpful in subtle exploitation process. The book gives data and beutiful examples to prove.
    The book is unique that it talks less on problems but more on the solutions and action plans to remove poverty and create wealth in shortest possible period – 5 years. It explains in the benning itself how no extra money is required to achieve the goal of total inclusiveness. Money is inconsequential in fast rate national development.

    Dr. Mohini Verma

    • Pranjal Ghosh Says:

      Mohini Ji, the biggest problem with economics is making things constant. we can’t talk about solutions by ignoring problems which economics always make constant. Wealth maximization, income distribution, strategy for economics development and many more words are worthless till economics continues making problems constant.
      Assumptions always give positive solution, only on theories and on paper but all these solutions are arbitrary.
      The day all economist would be able to inculcate realistic components into their equation would prove a solution more real in nature.
      You very know what constants I am talking about.
      Thank You

  3. Modest Says:

    Update me with the current post

  4. Happy New Year wishes to all and Mostly Economics 2011 in review « Mostly Economics Says:

    [...]  What is inclusive growth? 3 comments December 2010 [...]

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