Inclusive GrowthAn Indian Perspective

IMF 1

Some Facts about India

• 3 tiers of government – Union, State, local bodies

• Public policy/expenditure on “inclusion” is often State/local body subject

• Fiscal devolution (Union to State, State to local bodies)

• DecentralizationIMF 2

Some More Facts about India

• Work force of almost 480 million, out of a population of 1.2 billion

• Organized sector of 30 million, at best 45 million

• Substantial chunk informal/unorganized, even outside agriculture

• 51% self-employed, limited employer-employee relationships

• Aadhaar 1.1 billion

• Pradhan Mantri Jan Dhan Yojana – 285 million bank accounts

IMF 3

What is Poverty?

• Poverty line based on household surveys of income/consumption expenditure

• Broader notions of poverty – HDI, MDGs, SDGs

• 1993-94, 45.3% 2004-05, 37.2% 2011-12, 21.9%

• Growth, composition of growth

• Socio Economic and Caste Census, 2011-12

IMF 4

Subsidies

• Production subsidies, consumption subsidies, explicit, implicit

• Union government – food, fertilizers, petroleum products

• State governments – power, road transport

• All subsidies = 10% of GDP; All taxes = 17% of GDP; Union government tax revenue foregone through exemptions = 5% of GDP

• Artificial distortion of prices and resource allocation, anti-poor biases

IMF 5

Subsidy reform

• Direct benefit transfers (DBT) – pensions, scholarships, LPG

• LPG gas subsidy (58.9% of market price), no subsidy on piped gas

• PAHAL (Pratyaksh Hanstantrit Labh)

• Puducherry, Chandigarh: Unconditional cash transfers, charging mobiles

• Voluntary giving up of LPG subsidies, 2016, 10 million

• Universal Basic Income – Jammu and Kashmir

IMF 6

Inequality

• Poverty is absolute, inequality is relative

• Inequality in what? Gini of income distribution of 0.466. Gini of consumption of 0.3 in rural and 0.35 in urban

• 600,000 villages, 600 districts. Story of radius of development expanding.

• Shape of Lorenz Curve rather than aggregate inequality measures

• Perceptions and does one do anything about inequality?

IMF 7

Trade-off of resources

• Public goods and services

• Collective private goods and services, merit goods

• Why are people poor? Physical infrastructure (Transport, water, energy), social infrastructure (education, skills, health), judicial system, financial products, land, markets, information technology

• Public provisioning – roads, railways, airports

IMF 8

Public financing versus public provisioning

• Choice, such as insurance in health

• Choice in education

• Unorganized nature, supply-side

• Composition of public expenditure – wages/salaries, pensions, interest payments

• Layers of delivery, leakage versus administrative costsIMF 9

Period of transition and churn

IMF 10