Abstract

Poverty and Inequality in India; Recent Trends

K.S. Hari & Neelambar Hatti
India is a country characterized by multilayered diversity and cultural heterogeneity where different
types of inequalities and poverty have always been a fact of life in India. Since independence in
1947, India followed a development policy based on interventionist central planning and import
substitution with the objective of reducing inequality and poverty. One main reason for adopting
such a policy was the fear that a total reliance on the market mechanism would favor an excessive
consumption by the higher income groups, along with relative under-investment in sectors essential
to developing Indian economy. Policymakers adopted a middle path in which income inequality was
tolerated, provided it was not excessive and led to a higher rate of growth.
From the mid-1980s, the Indian government gradually adopted market-oriented economic reforms.
The pace of the policy accelerated during the early 1990s, with the adoption of neo-liberal reforms
programs, marking a period of intensive economic liberalization. The focus changed away from state
intervention for more equitable distribution towards liberalization, privatization and globalization.
During the past two decades India has made rapid progress in industrial and economic fields resulting
in an expanding middle class, with unprecedented access to goods and opportunity. Yet, it is not only
that the new income generated by economic growth has been very unequally shared but also the
resources newly created have been inadequately utilized to alleviate the enormous social and
economic deprivation of a majority of the society.
The reforms have created a great potential for economic advancement but it has also created new
vulnerabilities and insecurities; new imbalances have emerged, including a heightened inequality of
economic condition as well of opportunity. The capital began to flow into states and regions, which
were already developed and this, in turn, led to greater divergence than convergence not only
between rural and urban sectors but also within the urban sector. The newly emerging service sector
of the country is a mix of dichotomous activities, with highly paid IT and related activities, which
employ a very few on the one hand and the low paid petty trade and related services, which employ
majority on the other hand. The agriculture sector, with a history of exploitative relationship
between land ownership and labor, continues as the last resort for 60 percent of Indian work force,
who stay back in the rural areas. As Adam Smith put it, Wherever there is great property, there is
great inequality. Yet, successive Indian governments have failed to make any fundamental changes
in the land- labor relations and the end result is persistent and increasing inequality.
Have the government policies, or the lack of them, been the cause of growing inequality in India?
Have the neo-liberal market reforms since 1990s helped only those who were already well off while
leaving the poor behind? Are the increased inequalities observed in India in the post-reform period
caused by the stagnation of growth in employment in both rural and urban areas across the states?
Are the persisting inequalities a consequence of entrenched social and economic hierarchies? This
paper analyses the nature and causes of inequality and poverty in India since 1947 and tries to
explain the trends.

Poverty and Inequality in India; Recent Trends

K.S. Hari & Neelambar Hatti
Introduction
The past three decades have signaled the economic emergence of many developing countries,
generally exhibiting growth rates much higher than those in the industrialized countries.
However, the transformation of this economic growth into reducing poverty and inequality in
these countries has been disappointing and concerns have been raised over the growth not
being equally distributed. 1 Economists are increasingly focusing on the link between rising
inequality and the fragility of growth. Rising inequality despite sustained high rates of growth
has become a big issue both in popular and academic literature 2, and much of the debate has
centered on whether the main focus should be placed on growth or poverty and/or on
inequality. It is argued that achievement of sustainable high growth must be judged in terms
of impact that economic growth has on lives and freedoms of people 3 because economic
growth that fails to result in sharp and sustained reductions in poverty and inequality may
create more problems than it solves. Rapid economic growth achieved at the expense of
worsening redistribution of resources ultimately becomes unsustainable and may engender
social and economic tensions in the society. (Jha, 2000)
India, one of the emerging economies, has done well in terms of the growth of GDP and
became the second fastest growing economy, next only to China. Nevertheless, it has
seriously fallen behind in terms of economic and social justice for large sections of its
population. Given a young population in a hurry, uneven growth with benefits accruing to a
few 4, Indian inequality is provoking tension.
Since gaining independence since 1947, the Indian economy has gone through various phases
of growth. During the 1950s to mid-80s the average growth of GDP during was around 3.5
per cent 5 while per capital income grew by a mere 1.3 per cent. The economy moved on a

Assistant Professor, Gokhale Institute of Politics and Economics, Pune (India) and Emeritus Professor,
Department of Economic History, Lund University, Lund, Sweden.
1
The link between economic growth and inequality is a hotly debated issue in economic literature. For a
theoretical discussion of the link see, Beck and Kamionka (2012).
2
For a recent review of literature on growth, equality and poverty see, Jonathan Ostry, Andrew Berg and
Charalambos Tsangarides (2014). See also Augustin Kwasi Fosu (2010); Berg and Ostry (2011).
3
Amartya Sen & Jean Drze, 2013.
4
In India more than 10 per cent of GDP is in the hands of 55 individuals.
5
This is the famous Hindu Rate of Growth, a term was coined by Prof Raj Krishna who argued in one of his
lectures in the 1970s that no matter what happens to the economy the trend growth rate in India will be
3.5 per cent. For a broader analysis of the different phases of growth of the Indian economy since
independence see, Virmani (2006).

higher growth path in the late 1980s when some efforts were made to reform the economy.
However, after a blip in growth during 1990-92, broad economic reforms were introduced for
aligning the Indian economy with the world, putting the economy back on a higher sustained
growth path. It is now a well-established middle-income country in terms of gross GDP: at
US $ 1.95 trillion, the tenth richest in the world. The country is also macro-economically
stable, having maintained relatively stable fiscal and monetary bases during the past decades.
Nevertheless, there have been serious concerns that while the privileged class has done well in
this period, a large part of the population continues to lead rather precarious lives. With a
population of over 1.2 billion India is home to the largest number of poor in the world. About
42 per cent of the Indian population lives under the global poverty line of $1.25 per day. 6
(Government of India, 2014) Using a broader definition of the poverty line which includes
other dimensions of human capabilities, over half of the population is poor (Kannan, 2014).
A number of social indicators such as maternal and infant mortalities in many Indian states,
including in Gujarat, one of the richest, is worse than in sub-Saharan Africa. 7 Despite the
sustained high growth rates, while some aspects of social inequality have diminished, new
heightened imbalances such as economic inequality and poverty have developed during the
past two decades. 8 As Kaushik Basu has noted, the bulk of Indias aggregate growth is
occurring through a disproportionate rise in the incomes at the upper end of the income
ladder (Basu, 2008) Quality and distribution of the high growth India has experienced are
causing widening inequalities between classes, regions, rural and urban areas, a classic
growth-inequality paradox. The wealth created by sustained high rates of growth remains
unevenly distributed, not only at macro-level but also in terms of significant inter-state and
intra-state regional disparities. 9 Low growth rates and poor public services in poorer states
have further widened the disparity. 10The polarization has further divided the country into two
distinct groups of rich states and poor states (Bandyopadhyay, 2011).
6

Even using the rather parsimonious state definition of the poverty line, there are over 30 per cent abjectly poor
in India.
7
The societal reach of economic growth in India has been markedly limited. While India has been overtaking
other countries in the progress of its real income, it has been overtaken by many of these countries in terms of
social indicators. Even a much poorer country like Bangladesh has caught up with and overtaken India regarding
many social indicators. (Sen & Drze, 2013)
8
Despite vast differences in the political systems of India and China, the common factor has been increasing
inequality accompanying higher growth. However, while China grew faster, inequality or relative poverty also
grew faster in China than in India.
9
It is not only that the new income generated by rapid economic growth has been unequally shared, but also that
the resources newly created have not been utilized adequately to relieve the marked social deprivations of large
sections of the population.
10
For example, the adjoining states of Bihar, Jharkhand, Uttar Pradesh, Madhya Pradesh, Orissa and Rajasthan
collectively account for 44 per cent of the total population and over 60 per cent of the poor. Most of these states

India is a unique mixture of fundamental divisions and disparities. Few countries have had to
contend with such extreme economic and social inequalities, characterized by deeply
entrenched hierarchies, defined by major disparities of caste, class and gender. (Sen & Drze,
2013) It is precisely for this reason that Indian inequality is deeper and pernicious than that of
many other emerging nations. Being well aware of the historical legacy of multiple
inequalities, at the time of independence in 1947 the Indian government under Jawaharlal
Nehru set the goals of unifying the nation, building industry, promoting economic growth,
and in the course of these, reducing inequality and poverty. Particularly since the advent of
planning era in the early 1950s, eradication of poverty and creation of a more egalitarian
society has been one of the main objectives of India's Five-Year Plans. However, even after
decades of planning the rate of reduction in poverty and inequality has remained painfully
slow and, large sections of the population continue to suffer from chronic poverty. Many
reasons have been given for the sad state of affairs; stagnation in commodity production,
especially in the agricultural sector due to lack of suitable policies, inadequate investments in
economic and social infrastructure and other factors. (Dandekar & Rath, 1971; Ahluwalia,
1978, Kohli, 2012, Sen & Drze, 2013) The poverty alleviation policies of the Indian
government during the past decades, particularly during the Congress regimes, have focused
more on numerous subsidies which have contributed to perpetuating inequality since such
policies take away any incentive to take one's own initiatives in life. 11
The year 1987-88 recorded a structural break in the long term GDP growth in India 12 and the
economy started to grow around 5-6 per cent per annum. In 1991-92, broad economic
liberalization initiatives were undertaken in the country for pushing the growth rate further.13
Indian economy attained the historically higher 8-9 percent growth during the period 2004-05
to2008-09 (Nagaraj 2013). To what extent high growth phase of the economy succeeded in

are rich in natural resources very poor in infrastructure and human development. See Census 2011 (population),
Govt. of India.
11
These subsidies, political sops, have increased the dependency of poorer sections of the populace, creating a
culture of dependency, a cargo cult, wherein with each successive government the poor expect more such
subsidies, perpetuating the dependency culture. Moreover, given widespread corruption prevailing in India,
many of such subsidies have a tendency to benefit the richer than the poorer sections of the population.
12
See Wallack(2003) , Virmani(2006), Balakrishnan and Parameswaran (2007) for a detailed discussion on the
long term growth in the Indian economy.
13
The approach to liberalization in India has some clear differences with the standard approach (The Washington
consensus). India opted for gradual and controlled liberalization in contrast to the stress on the speed of reforms
advocated by the Washington consensus.

reducing the number of poor in the country is a highly debated issue among researchers. 14 It
should also be borne in mind that the GDP growth was primarily driven by the growth in services
sector. Not all sectors of the economy grew at the same pace; this is clearly reflected in the rather low
agricultural growth rate, low quality employment, poor education and inadequate health infrastructure,
rural-urban divide, and social inequalities besides regional disparities. The growth was,

theoretically speaking, supposed to reduce the number of poor through the trickle down
mechanism. There are mixed results in the literature, with a majority arguing that the speed of
poverty reduction is slow in India. Here again interregional inequalities are vast. There are
states like Bihar and Odisha, whose performance in this regard is very poor and half of the
population in these states are still poor.
Another major characteristic of Indias high growth phase has been growing inequality across
sectors, regions and households 15. The reform initiatives have created a great potential for
economic advancement but it has also created new vulnerabilities and insecurities; new
imbalances have emerged, including a heightened inequality of economic condition as well of
opportunity. The capital began to flow into states and regions, which were already developed
and this, in turn, led to greater divergence than convergence not only between rural and urban
sectors but also within the urban sector. The newly emerging service sector of the country is a
mix of dichotomous activities, with highly paid IT and related activities, which employ a very
few on the one hand and the low paid petty trade and related services, which employ majority
on the other hand. The agriculture sector, with a history of exploitative relationship between
land ownership and labor, continues as the last resort for about 60 per cent of Indian work
force, who stay back in the rural areas.
It is against this backdrop that the present study tries to understand the long run dynamics of
poverty and inequality in the country. Given the extremely heterogeneous character of the
Indian economy and society, Indias achievements and failures cannot be understood in
composite terms, and it is essential to examine the experiences in sufficiently disaggregate
form. The internal diversities in India offer a great opportunity to learn from within (Sen
1999). Given the heterogeneity of India, the question of learning from India itself has to be

14

Mehta and Shah (2003) give a detailed review of poverty debate in India. See also Dev and Ravi (2007)
Sengupta et al. (2008), Datt and Ravallion (2010) and Kannan and Ravindran (2011).
15
There is a growing literature which discuss about the various dimensions of inequality in the country and how
it affected the long term deprivation of its poor. See Deaton & Drze 2002, Bardan 2010, Ghosh 2010, Motiram
and Sarma 2011, Vakulabharanam 2010, Weisskopf 2011.

integrated with learning from others. 16 In a heterogeneous society like India where
distributional aspects of growth to reduce poverty are important political decisions that
ultimately produce policies in order to redistribute the fruits of growth are central. Thus, the
empirical analysis will be limited to the post-1991 reform period and we will be focusing on
the policy failures for explaining the current phenomenon of high growth along with an
increasing inequality and continuing poverty in India.
The paper is divided in to the five sub sections. The first section will give an understanding
about the recent phenomenon of high growth in India and its regional dimensions. The second
section will be devoted for analyzing the question of income inequality in the country. The
issue of high incidence of poverty along with other capability failures will be discussed in the
third section. The fourth section will try to explain these in the framework of policy failures of
the state. The last section will conclude with a way forward with the idea of inclusive growth.
Growth Profile of the States
As a prelude to the analysis of the two-way relationship between growth and human development, we
first analyze the growth rate of Net State Domestic Product (NSDP) across the states in India for the
period 1970-71 to 2009-10. The four decades under study consist of two decades before the initiation
of large scale economic reforms and two decades after the implementation of reforms. This gives us a
chance to analyse whether the higher growth recorded at the national level is spread across states in an
equitable manner. Most of the studies that analyzed regional growth in India have found large
differentials in the attainment of growth. These studies are limited to the time period till 1999-00. We
extend our analysis to one more decade following reform. This gives us the advantage of a relatively
longer period to compare the results. We can identify the leading and lagging states in India in terms
of macroeconomic growth during the last four decades. We have examined the growth rate using the
exponential growth equation. We have not made an endogenously determined break in the time period
since we are dealing with a data set for 14 states; the states differ in the year of break and this makes
the comparison difficult. (Dholakia 2009)

Hence, we employed conventional style decade-wise

growth estimation. The aggregate NSDP growth of the states is given in Table 1.
From the decade-wise growth performance, we can infer that during the 1970s, most of the states
recorded very slow growth rates. Maharashtra registered the highest growth with 5.09 per cent and the
Madhya Pradesh recorded a very meagre growth rate of 0.46 per cent. During the 1980s, all the states
registered a growth revival and moved to a higher growth trajectory as was the case with the national
scenario.
16

Torsten Person & Guido Tabellini, 2014.

Soon after the initiation of reforms, there was a considerable variation in the performance of the states,
with some states growing faster than the average and others, slower. As noted by Ahluwalia (2000),
the dispersion in the growth rate increased in the 1990s. Higher rates of growth were recorded in the
1990s in Gujarat, Maharashtra, Karnataka, Kerala, Tamil Nadu and West Bengal. But poorer states as
a group had shown decline in the immediate years following large scale reform. The higher growth
momentum of the Kerala economy is clearly visible during this decade.
Table .1: Growth Rates of NSDP
1970/71
States

1980/81

to

1990/91

to

to

Rank
1979/80

2000/01

Rank
1989/90

to
Rank

1999/00

Rank
2009/10

Andhra Pradesh

3.31

6.81

5.27

7.39

Bihar

2.38

4.57

11

2.10

14

7.76

Gujarat

4.46

6.49

7.40

10.54

Haryana

3.91

6.43

4.56

11

8.97

Karnataka

4.14

5.58

7.42

7.12

Kerala

2.18

10

2.87

14

5.81

8.47

Madhya Pradesh

0.46

14

3.85

13

5.28

5.75

12

Maharashtra

5.09

6.30

6.87

7.87

Odisha

1.56

11

5.20

4.85

10

8.74

Punjab

4.92

5.79

4.55

12

5.21

14

Rajasthan

1.10

13

7.52

5.51

7.53

Tamil Nadu

3.63

5.42

6.10

6.26

11

Uttar Pradesh

1.17

12

4.92

10

3.34

13

5.51

13

West Bengal

2.35

4.13

12

6.82

6.62

10

Source: Estimated using Central Statistical Organization, Government of India, Estimates of State Domestic
Product

In the first decade of the twenty-first century, all the states had a higher growth momentum and their
growth rates increased. All the states, except West Bengal, registered a high growth rate in this decade.
The difference between the higher and the lower growth states has also narrowed down. Gujarat
maintained the lead and moved to the double digit growth, while states like Maharashtra, Tamil Nadu
and Kerala could sustain a higher growth than others. At the national level also studies identified the
second wave of higher growth during 2004-05. 17

17

Balakrishnan (2010) identifies a second turnaround in growth momentum of the Indian economy since 200405.

Though the poorer states in India like Bihar, Odisha and Rajasthan attained a growth rate higher than
the national average, they have to go a long way to catch up with the higher income states. Due to
slow growth during the previous decade, they have a lower level of endowment to start with, and so it
will take them more time to catch up with the higher income states.
Level of Per Capita Income

How fast the higher growth is translated into the disposable income of the citizens in each
state depends on the changes in the level of income, which we discuss in the present section.
The simple way to do this was by ranking the states according to the level of per capita
income as done in Table 2, and inferring that there was no significant difference in the
ranking of the states. The poorer states as a group remained the same. The five poorer states in
India, viz., Bihar, Uttar Pradesh, Madhya Pradesh, Rajasthan and Odisha remained poor
throughout the last four decades. The number of richer states has gone up since the
liberalization period. This was possible mainly because of higher per capita income growth
rates in Kerala and Tamil Nadu. Andhra Pradesh moved from a poor state category in the
1970s to the middle income state category by the end of the first decade of twenty-first
century. Bihar continued to be the poorest state in terms of per capita income in India among
the major fourteen states. The gap between the richer and the poorer states actually increased
in India. The richest state in the 1980s, i.e., Punjab, had a per capita income of around three
times that of Bihar, the poorest state. This difference doubled during the last five decades.
During the last three years, Maharashtra, the richest state in India, had a per capita income
almost five times that of Bihar, the poorest state.
Punjab, which remained in the top position for the last three decades, recorded a decline in
growth rate in the post-reform period. Punjabs income level came down from first position to
sixth, and Maharashtra, which was in the high income category, moved to the top position in
India. Karnataka, West Bengal and Andhra Pradesh remained in the middle income category.
Only significant change in the ranking happened in the case of Kerala and Tamil Nadu in the
post-liberalization period. These two states have the dual advantage of higher economic
growth as well as the reduction in population growth. Hence there is improvement in both
numerator and denominator of per capita income estimate.

Table 2: Level of Per Capita Income (Actual Income and Ranking) across states
Year

Andhra Pradesh

1970/71
to1972/73

1980/81

1990/91

2000/01

2007/08

to1982/83

to 1992/93

to 2002/03

to 2009/10

585 (9)

1504 (8)

2078 (8)

17042(8)

34767 (8)

402 (14)

933(14)

1106(14)

6402(14)

10626 (14)

Gujarat

829 (3)

2011(4)

2704(4)

18312(6)

45463(3)

Haryana

877 (2)

2419 (3)

3476(3)

25603(2)

51250 (2)

Karnataka

641 (7)

1563(6)

2193(7)

17623(7)

36419(7)

Kerala

594 (8)

1487(9)

1858(10)

20804(4)

43148 (5)

484 (12)

1369(10)

1617(12)

11248(11)

18616(12)

783 (4)

2452(2)

3573(2)

22532(3)

53877(1)

Odisha

478 (13)

1265(12)

1463(13)

10468(12)

22706(11)

Punjab

1070 (1)

2818(1)

3829(1)

25978(1)

41314 (6)

651 (6)

1261(13)

1891(9)

12942(10)

22905(10)

Tamil Nadu

581 (10)

1555(7)

2290(5)

19910(5)

43687(4)

Uttar Pradesh

486 (11)

1299(11)

1631(11)

9733(13)

15442(13)

West Bengal

722 (5)

1727(5)

2236(6)

17012(9)

28581 (9)

Bihar

Madhya Pradesh
Maharashtra

Rajasthan

Note: Figures in brackets are respective ranking of states

Source: Estimated using Central Statistical Organization, Government of India, Estimates of State Domestic Product

Income Inequality in India: Recent Trends

One facet that has given rise to considerable debate and controversy is inequality. On the one
side are some scholars who argue that inequality is not of great concern ( Bhagwati 2010 and
Panagariya 2008), whereas on the other side are those ( Bardan 2010, Ghosh 2010, Motiram
and Sarma 2011, Vakulabharanam 2010, Weisskopf 2011) who argue that inequality is
increasing, raising serious questions about the equity and sustainability of the Indian growth
process 18.
In literature on inequality, a distinction has been made between inter-personal or vertical
inequality and group based or horizontal inequality and it has been argued that the latter has
received unduly less attention ( Stewart 2002). In the light of this, we examine both inter

18

One prominent and sensitive observer of India (Guha, 2011) has argued that inequality and corruption are two
mundane and materialist challenges that are confronting the very idea of India today.

personal inequality and inequality among sub groups of population. We have analyzed
inequality across caste, sector( rural versus urban), state and class.
Table 3. Inequality (Gini) for Major States

Andhra Pradesh
Bihar
Gujarat
Haryana
Karnataka
Kerala
Madhya Pradesh
Maharashtra
Odisha
Punjab
Rajasthan
Tamil Nadu
Uttar Pradesh
West Bengal
All India

1993-94
2004-05
2009-10
Rural
Urban
Total
Rural
Urban
Total
Rural
Urban
Total
0.290
0.323
0.312
0.294
0.375
0.345
0.286
0.395
0.364
0.225
0.309
0.253
0.213
0.355
0.259
0.234
0.358
0.273
0.240
0.291
0.279
0.271
0.310
0.334
0.261
0.338
0.343
0.314
0.284
0.311
0.339
0.366
0.355
0.310
0.368
0.339
0.270
0.319
0.309
0.266
0.369
0.361
0.240
0.341
0.350
0.301
0.343
0.316
0.381
0.410
0.393
0.439
0.527
0.473
0.280
0.331
0.315
0.277
0.407
0.357
0.297
0.367
0.351
0.307
0.357
0.376
0.312
0.378
0.393
0.276
0.423
0.409
0.246
0.307
0.282
0.285
0.353
0.324
0.268
0.401
0.326
0.281
0.281
0.285
0.294
0.402
0.351
0.297
0.382
0.339
0.265
0.293
0.280
0.250
0.371
0.303
0.230
0.396
0.300
0.312
0.348
0.344
0.323
0.361
0.379
0.271
0.340
0.342
0.282
0.326
0.302
0.291
0.367
0.327
0.281
0.367
0.322
0.254
0.339
0.308
0.274
0.383
0.353
0.245
0.393
0.338
0.286
0.344
0.326
0.305
0.376
0.363
0.300
0.393
0.370

As we can observe, during 2004-05 to2009-10, for the country as a whole, rural inequality
decreased slightly, urban inequality increased and all India inequality increased. The increase
was less pronounced as compared to the same during the period 1993-94 to 2004-05.
However, it is worth noting that in the comparison between the latest two rounds, we examine
changes over only five years, whereas in comparison between 1993-94 and 2004-05, we
examine a much longer period. Taking roughly the two decade period between 1993-94 and
2009-10, inter-personal inequality increased at all the levels- rural, urban and all India.
Further, we can observe that in most states, urban and overall inequality increased during
1993-94 to 2004-05; the observation holds for rural inequality as well, although for a lesser
number of states.

If one looks at the consumption for the poor and the wealthy as a

percentage of median consumption, we can see that, the expenditure of an individual at the
90th percentile as a percentage of the median has increased since the 1990s - 212.63 per cent
(1993-94), 235.20 per cent (2004-05) and 234.41 per cent (2009-10). On the other hand,
expenditure of an individual at the 10th percentile, as a percentage of the median has

10

decreased steadily since the 1990s- 56.67 per cent (1993-94), 56.32per cent 92004-05) and
55.99 per cent (2009-10).
Table 4. Theil Decomposition Analysis
Sub
groups
1993-94
2004-05
2009-10
1993-94
2004-05
2009-10
1993-94
2004-05
2009-10

Within
Component

Between
Component

Caste
0.210
0.267
0.304
Rural-Urban
0.195
0.236
0.367
State
0.200
0.252
0.281

Total

0.010
0.014
0.013

0.220
0.281
0.317

0.025
0.045
0.049

0.220
0.281
0.317

0.020
0.028
0.036

0.220
0.281
0.317

Table above presents the results of a decomposition of the Theil index. For Caste, the share
contributed by the between component increased from 1993-94to2004-05, but then fell slightly in
2009-10. For sector, the share contributed by the between component increased between 1993-94 and
2004-05 and further in 2009-10. Essentially, rural- urban inequality increased since the 1990s. For
inequality among states, the share contributed by the between component increased between 1993-94
and 2004-05 and trend continued into the period 2004-05 to 2009-10. In other words, inequality
among states has been increasing steadily since the 1990s.
Growth and Poverty Reduction
The other side of the development is deprivation. An analysis of the deprivation indicators becomes
important in the Indian context since more than 30 per cent of the Indian population is still living
below the poverty line (GoI 2014). The extent to which the better-growing Indian states succeeded in
reducing deprivation will show the result of the trickle down strategy. With this objective, we
analyze the two important deprivation indicators and relate them to the levels of income in this
section.
The differences in the growth performance of the individual states have important implications for
poverty reduction, which is a critical objective of national policy. The debate and controversies on
poverty in India centered around two themes: (i) whether the post-reform period succeeded in reducing
the proportion of poor in India or not (ii) the methodology of estimation of official poverty line and the
11

per capita consumption expenditure estimate of NSSO, which is used for estimating the head count of
poor in India. The rationale of using head count ratio as a measure of poverty is also questioned in the
literature and the need for more comprehensive indices for understanding this complex issue is also
highlighted. 19 We classify head count poverty ratio of the states and their per capita income into low,
medium and high categories and explore their temporal movement over the period 1983 to 2004-05.
The percentage of officially poor among the major states in India for the period 1983 to 2004-05
along with corresponding per capita income is given in Figures 1, 2, and 3. The poverty ratios for total
population in major states show that it declined significantly in almost all the states since 1983.
Although there has been a decline in the proportion of people below the poverty line, the degree of
decline varies across the states, with some having very high poverty ratios for the total population. In
2004-05, it was more than 40 per cent in Odisha and Bihar, between 30 and 40 per cent in Madhya
Pradesh and Uttar Pradesh, and between 25 per cent and 30 per cent in Maharashtra, Tamil Nadu,
Karnataka and West Bengal. It may be noted that Odishas poverty level of 47 per cent was almost six
times that of Punjabs 8 per cent in 2004-05. Rural poverty is high in all these states except in Tamil
Nadu. Urban Poverty was 30 per cent or more in Bihar, Madhya Pradesh, Odisha, Rajasthan, Tamil
Nadu and Uttar Pradesh in 2004-05.
Figure 1: Classification of States based on per capita income and Head Count Poverty, 1983

19

See Sengupta et al (2008), Kannan and Ravindran (2011) for the Indian case, and Alkire and Santos (2010)
for the international scenario.

12

Figure 2: Classification of States based on per capita income and Head Count Poverty, 1993-94

Figure 3: Classification of States based on per capita income and Head Count Poverty, 2004-05.

13

Himanshu (2007) and Dev and Ravi (2007) looked into the absolute number of poor in different states.
They found that the number of poor for the total population (rural + urban) rose in Madhya Pradesh,
Maharashtra, Odisha and Uttar Pradesh. The number of rural poor increased in three states, Madhya
Pradesh, Odisha and Uttar Pradesh in 2004-05 compared to 1993-94. On the other hand, the number of
urban poor increased in eight out of fourteen states during this period. They further found the
concentration of poor in a few states. A group of four states comprising Bihar, Madhya Pradesh,
Odisha and Uttar Pradesh had a share of 49.8 per cent of the rural poor in the country in 1983. This
share increased to 55 per cent in 1993-94 and further to 61 per cent in 2004-05. Similarly the share of
seven states, Bihar, Karnataka, Madhya Pradesh, Maharashtra, Rajasthan, Tamil Nadu and Uttar
Pradesh in the urban areas rose from 61.6 per cent in 1983 to 70 per cent in 1993-94 and to 76 per cent
in 2004-05. Poverty of the total population (rural + urban) was found to be concentrated in five states,
viz., Bihar, Madhya Pradesh, Maharashtra, Odisha and Uttar Pradesh, their cumulative share being 65
per cent of the total poor in the country in 2004-05.
Dev and Ravi (2007) further found that the decline of percentage points per annum in total poverty
was higher for nine out of fourteen states in the post-reform period as compared to the pre-reform
period. The decline in rural poverty was also higher for all these states except Gujarat. In the case of
urban poverty, the rate of decline was higher only in four states, viz., Andhra Pradesh, Gujarat,
Karnataka and Madhya Pradesh.
In order to further strengthen our argument for relative deprivation in many states, we analysed the
movement of per capita income with the level of poverty in the state as captured in the official head
count ratio for the three time points 1983, 1993-94 and 2004-05. It can be inferred from the figures
that Haryana and Punjab remained in the group of high per capita income along with lower incidence
of poverty throughout our period of analysis. Kerala had a higher incidence of poverty along with
medium per capita income in 1983, but moved itself to low levels of poverty even at the medium
category of income distribution. The state moved to higher income along with a lower incidence of
poverty in 2004-05. Bihar, Odisha, Uttar Pradesh and Madhya Pradesh were in the vicious cycle of
low income and higher incidence of poverty in India. Rajasthan was in the category of medium levels
of poverty along with lower levels of income. West Bengal had high income and higher incidence of
poverty in 1983, but could manage to move into the level of medium poverty in 1993-94 and 2004-05.
Tamil Nadu, a state with a higher per capita income level throughout could only move into medium
level from its higher levels of poverty. Karnataka on the other hand, could maintain its medium
position on both grounds. Maharashtra continuously had a higher per capita income but failed to
reduce the head count poor in the state drastically and even in 2004-05 is in the category of higher
incidence of headcount poor. Its relative position has actually worsened in the post-liberalization
period.
14

The limitations of Head Count Ratio (HCR) for estimating the number of poor is often criticised in the
literature. We have also examined the multidimensional poverty Index developed by Alkire and
Santos 20 (2010) to give a better understanding about the extent of deprivation. The multidimensional
indicator takes in to account the deprivation in three major dimensions namely, education, health and
standard of living. It is a composite index of deprivation in these three dimensions. The results are
given in Table 5, which shows that the deprivation is the lowest in Kerala followed by Punjab and
Tamil Nadu. The poor states we have identified in our previous section, remain at the bottom ranking.
Bihar, with 81 per cent of the population suffering from some deprivation, is having the maximum
extent of deprivation in India. Six out of fourteen states are having a deprivation index more than the
national average.
Table 5. Multidimensional Poverty Index across Indian States 2010

MPI
Value

MPI
Rank

H
( Proportion
of
Poor)

Kerala

0.065

0.159

A
(Average
Intensity
of
Deprivations)
0.409

Punjab

0.120

0.262

Tamil Nadu

0.141

Maharashtra

0.193

Haryana

Population
( Millions )
2007

Contribution
to
Aggregate
MPI

35

0.6

0.460

27.1

0.324

0.436

68

2.6

0.401

0.481

108.7

0.199

0.416

0.479

24.1

1.3

Gujarat

0.205

0.415

0.492

57.3

3.4

Andra Pradesh

0.211

0.447

0.471

83.9

5.1

Karnataka

0.223

0.461

0.483

58.6

4.2

West Bengal

0.317

0.583

0.543

89.5

8.5

Odisha

0.345

10

0.640

0.54

40.7

4.3

Rajasthan

0.351

11

0.642

0.547

65.4

Uttar Pradesh

0.386

12

0.699

0.552

192.6

21.3

Madhya Pradesh

0.389

13

0.695

0.560

70

8.5

Bihar

0.499

14

0.814

0.613

95

13.5

All India

0.296

0.554

0.535

1164.7

100

State

Source: Alkire and Santos (2010)

Growth and Undernutrition
The extent of under nutrition is another indicator which captures the failure of economic growth in any
country. The macroeconomic growth and higher per capita income, if evenly distributed, is likely to
20

See Alkire and Santos (2010) for a detailed discussion of methodology.

15

have a positive impact in reducing the incidence of under nutrition. Cross-country studies have shown
that income growth has a positive impact on reducing malnutrition 21. Severe incidence of under
nutrition and nutrition-related deaths are a serious problem faced by several districts in India. We have
examined the extent of under nutrition across states in terms of three indicators for children namely,
severely stunted, severely wasted and severely underweight and totally thin in the case of adult men
and women. The anthropometric information collected by the National Family Health Survey (200506) indicates the severity of this problem across the Indian states. We compared these indicators with
the average per capita income of the states for the time period 2005-06. Our results are given in Table
6.
In this dimension also, Maharashtras higher level of per capita income failed to translate into higher
nutritional outcome. Two of Indias high income states, Maharashtra and Gujarat, showed a relatively
poor performance in terms of nutritional outcome indicators. Their ranking in these indicators show
that while Maharashtra was in 6th position in terms of children severely stunted, its rank came down to
7th and 8th position in terms of severely wasted children and women who are totally thin. Gujarat
performed the worst compared to all the states in the high income category. Kerala performed well in
all the indicators of under-nutrition. Tamil Nadu also performed well except in the case of severely
wasted children. The low income states as a group has performed badly in terms of nutritional
indicators as well.

21

See Strauss and Thomas (1998) and Haddad et al. (2002) for a detailed discussion. Based on their crosscountry study, Haddad et al. (2002) found that income growth has a positive impact on reducing under
nutrition among women and children.

16

State

Maharashtra
Haryana
Gujarat
Kerala
Tamil
Nadu
Punjab
Karnataka
Andhra
Pradesh
West
Bengal
Rajasthan
Odisha
Madhya
Pradesh
Uttar
Pradesh
Bihar

Table 6: Extent of Under-nutrition in Indian states (2005-06)

Children [% below -3 SD]
Body Mass
Index
Per
WeightWeight-forHeight[<18.5(total
capita
forage
for-age
thin)]
Income
height
(Severely
(Severely
(2005-06)
(Severely
Underweight) Women Men
Stunted)
Wasted)
19.1
(6)
19.4
(7)
25.5
(11)
6.5
(1)
10.9
(2)
17.3
(3)
20.5
(9)
18.7
(5)
17.8
(4)
22.7
(10)
19.6
(8)
26.3
(12)
32.4
(14)
29.1
(13)

5.2
(7)
5.0
(5)
5.8
(9)
4.1
(3)
8.9
(13)
2.1
(1)
5.9
(10)
3.5
(2)
4.5
(4)
7.3
(11)
5.2
(8)
12.6
(14)
5.1
(6)
8.3
(12)

11.9
(6)
14.2
(9)
16.3
(11)
4.7
(1)
6.4
(2)
8.0
(3)
12.8
(7)
9.9
(4)
11.1
(5)
15.3
(10)
13.4
(8)
27.3
(14)
16.4
(12)
24.1
(13)

36.2
(8)
31.3
(4)
36.3
(9)
18.0
(1)
28.4
(3)
18.9
(2)
33.5
(5)
33.5
(6)
39.1
(11)
36.7
(10)
41.4
(12)
41.7
(13)
36.0
(7)
45.1
(14)

33.5
(6)
30.9
(5)
36.1
(11)
21.5
(2)
27.1
(3)
20.6
(1)
33.9
(7)
30.8
(4)
35.2
(8)
40.5
(13)
35.7
(10)
41.6
(14)
38.3
(12)
35.3
(9)

40947
(1)
40313
(2)
36102
(3)
34837
(4)
34126
(5)
33960
(6)
29231
(7)
27486
(8)
23808
(9)
19445
(10)
17964
(11)
15927
(12)
13443
(13)
7798
(14)

Category

High
Income

Middle
Income

Low
Income

Source: National Family Health Survey 3 (2005-06), IIPS Mumbai

Human Development at the Regional Level

The relative performance of the states in human development is examined over the period 1971-2007
using the Human Development Index (HDI). The simplest way to do this was to rank the states
performance on HD at different time points, and then study the direction of change in the ranking
during the period. Moreover, since our interest was to assess the achievement of the states in HDI

17

improvement, we examined the performance of the states in terms of Sens improvement index22 (Sen
1981).
Table 7 presents the achievements of the states in HDI at different time points. Judged by the
achievements in the chosen indicators of HD, Kerala is found to be the best performing state during
1971-2007. Bihar appears to be the worst-performing state in terms of HDI up to 1991, while in 2001
and 2007 the states in this category were Uttar Pradesh and Odisha, respectively. A wide interstate
variation in the performance of HDI is observed. The estimated value of HDI varies from 0.181 to
0.449 in 1971, 0.237 to 0.500 in 1981, 0.308 to 0.591 in 1991, 0.316 to 0.638 in 2001, and 0.362 to
0.790 in 2007. The percentage difference between the top performer and bottom performer increased
from 40 per cent in 1971 to 52 per cent in 1991 but came down to 45 per cent by 2007. This decline in
the gap between high and low HDI states has often been cited in the literature as human development
convergence 23. But the degree of such convergence is rather slow in India and there is still a high
degree of interregional variation in the human development index. The better-off states, viz., Kerala,
Punjab, Tamil Nadu, Maharashtra and Haryana, had a HDI above 0.550, and the worse-off states like
Bihar, Uttar Pradesh and Madhya Pradesh had a HDI less than 0.434 in 2007. Kerala, Tamil Nadu,
Punjab and Maharashtra have top ranks in the improvement index. West Bengal, Gujarat, Karnataka
and Andhra Pradesh had medium improvement, while the five poorer states as a group performed
badly in terms of the improvement index. This further supplements the reasons for their relatively low
level of attainment in human development.
Here the Indian experience leaves much to be discussed. The states which have recorded higher
economic growth throughout have failed to attain corresponding progress in human development
attainment. As we had seen in the previous section, unless the states attain a higher level of human
capital development, there are bound to be gaps between growth and human development and the
benefits of growth will not trickle down to the poor. The underprivileged will continue to be caught in
the same vicious circle. Since many states in India have focused on growth first and redistribution
later, the long-term implications of such a strategy becomes a question for further analysis, which is
dealt with the coming section.

22

23

Sen (1981) takes the absolute shortfall of actual longevity (or literacy) from some chosen upper bound and
then examines the percentage decline of this shortfall. The formula is (X2-X1)/ (Xmax- X1), where X1 and X2
are the indicator values in the initial year and the final year, respectively, and Xmax is the chosen upper bound.
Sens formula reflects the view that as longevity becomes higher, it becomes more of an achievement to raise
it further.
See Dholakia (2003, 2009) and Ghosh (2006) for a detailed discussion on human development convergence in
India.

18

Table 7: Human Development Index for Indian States

State
1971
1981
1991

2001

2007
0.473 (9)

SII

Andhra Pradesh

0.236 (9)

0.298(9)

0.377(9)

0.416 (10)

0.310(8)

Bihar

0.181(14)

0.237(14)

0.308 (14)

0.337 (13)

Gujarat

0.304 (4)

0.361(3)

0.461(5)

0.479 (6)

0.527 (6)

0.320(7)

Haryana

0.304(5)

0.360(4)

0.473 (3)

0.509 (5)

0.552 (5)

0.356(5)

Karnataka

0.306 (3)

0.346(5)

0.412(7)

0.478 (7)

0.519(7)

0.306(9)

Kerala

0.449 (1)

0.500(1)

0.591(1)

0.638 (1)

0.790 (1)

0.618(1)

Madhya Pradesh

0.203(13)

0.245(13)

0.328 (12)

0.394 (11)

0.395 (11)

0.240(11)

Maharashtra

0.298 (6)

0.323(7)

0.452 (6)

0.523 (4)

0.572 (3)

0.390(4)

Odisha

0.206(12)

0.267(10)

0.345 (11)

0.355 (12)

0.362 (14)

0.196(14)

Punjab

0.347 (2)

0.411(2)

0.475(2)

0.537 (2)

0.605 (2)

0.395(3)

Rajasthan

0.218(10)

0.256(11)

0.347 (10)

0.424 (8)

0.434 (10)

0.276(10)

Tamil Nadu

0.278 (7)

0.343(6)

0.466(4)

0.531 (3)

0.570(4)

0.404(2)

Uttar Pradesh

0.210(11)

0.255(12)

0.314 (13)

0.316 (14)

0.380 (12)

0.215(13)

West Bengal

0.241 (8)

0.305(8)

0.404 (8)

0.422 (9)

0.492 (8)

0.330(6)

0.368 (13) 0.228(12)

Note: SII- Sen Improvement Index

Source: HDI Values of 1971, 2007 and Sen Improvement index are own estimates and
1981, 1991, 2001 were taken from National Human Development Report (2001).

Towards an Explanation
As discussed in the previous sections, India is a country characterized by multilayered
diversity and cultural heterogeneity where different types of inequalities and poverty have
always been a fact of life in India. Since independence in 1947, India followed a development
policy based on interventionist central planning and import substitution with the objective of
reducing inequality and poverty. One main reason for adopting such a policy was the fear that
a total reliance on the market mechanism would favor an excessive consumption by the higher
income groups, along with relative under-investment in sectors essential to developing Indian
economy. Policymakers adopted a middle path in which income inequality was tolerated,
provided it was not excessive and led to a higher rate of growth.
19

From the mid-1980s, the Indian government gradually adopted market-oriented economic
reforms. The pace of the policy accelerated during the early 1990s, with the adoption of neoliberal reforms programs, marking a period of intensive economic liberalization. The focus
changed away from state intervention for more equitable distribution towards liberalization,
privatization and globalization. During the past two decades India has made rapid progress in
industrial and economic fields resulting in an expanding middle class, with unprecedented
access to goods and opportunity. Yet, it is not only that the new income generated by
economic growth has been very unequally shared but also the resources newly created have
been inadequately utilized to alleviate the enormous social and economic deprivation of a
majority of the society. It is in this context that we review some of the country experiences
regarding the role of state in building basic human capabilities, which is missing in India.
The Role of State in Economic Development: The Country Experiences
The role of the state as an institution in promoting economic development has been one of the major
topics of discussion in the political economy literature for centuries.24 There has been a recent revival
of interest in this subject after the collapse of hardcore state-dominated economies like the Soviet
Union in the late 1980s as well as the failure of the free market economies to provide equitable
growth. The successes of East Asian countries have added impetus to this discourse. The history of
successful development shows that market and state are not opposite forms of social organization.
Instead, they are symbiotically linked.
Indeed, there is now a general acceptance of the role of state in economic development and an added
emphasis on the role of state as a facilitator. An effective state is vital for the provision of the goods
and servicesand the rules and institutionsthat allow markets to flourish and people to lead
healthier, happier lives. Without it, sustainable development, both economic and social, would be
impossible (World Bank 1997). The state is central to economic and social development, not as a
direct provider of growth but as a partner, catalyst and facilitator. Governments have helped to deliver
substantial improvements in education and health and reductions in social inequality. There is a
general consensus in the literature that the states capability to undertake and promote collective
actions efficiently must be increased to advance human welfare.
The modern state has to play a complementary and supportive role in development, as opposed to the
restrictive role it plays under the laissez-faire system of free-market economy. 25 The history of
24
25

See Shonfield (1965) and Deane (1989) for a historical review.

The state can improve development outcomes in a number of ways: (i) by providing a macroeconomic and
microeconomic environment that sets the right incentives for efficient economic activity; (ii) by providing the

20

present-day developed economies shows that the state played a major role in building up the
fundamentals of social or human capital as well as in framing industrial policies. This complementary
or supportive role is very much important in a developing economy like India, where the weakness of
fundamentals is often cited as a major reason for the failure to tap the opportunities opened by free
markets. 26 In this section, we briefly examine the role played by the state in the developed countries of
Europe and the United States. A detailed review is carried out of newly industrialized countries in East
Asia, which had a similar pattern of growth immediately after the Second World War, but achieved
miraculous growth after the 1970s. This will give an idea of what the appropriate role of the state is as
an institution in the development process of India.

Development Experience of East Asia

The objective here is to take a brief look at the important role the attainment of human
development has played in the rapid economic growth of East Asian countries. This is done
mainly in the light of observations in the literature that a major reason why India has not been
able to realize the full benefits of liberalization is its weakness concerning human
development (Dreze and Sen 1995). In the 1980s, one of the reasons often cited for the failure
of the Indian economy to attain higher economic growth was the high degree of control
exercised by the state and there were strong arguments in favor of liberalizing the economy.
But even after the implementation of economic reforms in 1991, India has failed to attain the
kind of growth the East Asian economies and China have attained. 27
East Asia has a remarkable record of high and sustained economic growth. 28 From 1965 to
1990, its 23 economies grew faster than those of all regions. Most of this achievement is
attributable to the seemingly miraculous growth in just eight high-performing economies
Japan, Hong Kong, South Korea, Singapore and Taiwan and the three newly industrializing
economies of South East Asia, Indonesia, Malaysia and Thailand (World Bank 1993). The coinstitutional infrastructureproperty rights, peace, law and order, and rulesthat encourages efficient longterm investment; and (iii) by ensuring the provision of basic education, healthcare and the physical
infrastructure required for economic activity, and by protecting the natural environment.
26
27

28

Dreze and Sen (1995) give a detailed account of state failure in India. See also, Sen & Drze (2013).
Dreze and Sen (1995) argue that if India has to emulate China in market success, it is not adequate just to
liberalise economic controls in the way Chinese have done, but to create the social opportunities that postreform China inherited from its pre-reform transformation. The magic of Chinas market rests on the solid
foundation of social changes that had occurred earlier, and India cannot simply hope for that magic, without
making the enabling social changes, in education, healthcare and land reforms, which helped the market
function in the way it has in China.
The exceptionally high-growth performances of East Asian economies in the past several decades have been
amply documented. See Kuznets (1988), Wade (1990) and World Bank (1993) for details.

21

existence of active public policies and rapid growth in some of the East Asian economies,
especially Japan, Korea, Singapore and Taiwan, has raised complex, often controversial,
questions concerning the relationship between government, the private sector and the market.
Neoclassical economists mainly argue that the success of East Asia was primarily a result of
the accumulation of more capital and underscore the role played by the state as an institution
and the role of human development (Young 1992, 1994; World Bank 1993; Krugman 1994).
They point out that Asian growth seems to be driven by extraordinary growth in inputs like
labor and capital, rather than by gains in efficiency.
There is a strong counter-claim in the literature that these economies succeeded not just
because of opening up, but because institutional mechanism like the state played an active
role in laying the foundations of human development, which in turn facilitated higher growth.
In the Indian case, Drze and Sen (1995) argue that the major reason why India has not
succeeded in reaping the benefits of the free market is that it was not prepared like other
Asian countries in terms of the level of attainment in education, healthcare and land reforms
and strong state support for modern industrialization. If we look at the growth story in India in
recent years, we see that the states that had high human development could better benefit from
liberalization than states with a high number of illiterates or where the health indicators are
poor. When we review the development experience of East Asian countries since the postworld war period, 29 we can see a systematic involvement of the state in these activities. Why
India has failed to attain a similar kind of economic growth and human development is a
serious question to be asked.
The economic roles of education, learning by doing, technical progress and even economies
of large scale can all be seen contributing in different ways to the centrality of direct human
agency in generating economic expansion in the newly industrialized countries (NICs) (Drze
and Sen 1995; Sen 1999, Sen & Drze, 2013). The crucial role of education and skill makes it
all the more essential to pay attention to public policy to expand primary and secondary
education and promote skill formation. The role of widespread basic education has been quite
crucial in countries that have successfully grown fast making excellent use of world markets.
The modern industries in which these countries have particularly excelled demand many basic

29

The speed and unanticipated nature of this development is highlighted in the literature. Morris (1996) notes
that it took the UK 58 years from 1780 onwards to double its real per capita income. The US achieved the
same result in the 47 years from 1839, whereas Japan did it in 34 years from 1900 and South Korea took just
11 years from 1966.

22

skills for which elementary education is essential and secondary education most helpful.
While some studies have emphasized the productive contribution of learning by doing and on
the job training, such learning is greatly helped by basic education in schools prior to taking
up jobs. International comparisons also raise an important general question about the
complementarities between the opening up of economic opportunities and the social
conditions that facilitate the use of these opportunities. 30
The most notable common feature across the East Asian societies was a high level of access
to elementary or primary schooling prior to industrial take off. By 1965, the enrolment rates
for primary education in South Korea, Singapore and Hong Kong were all 100 per cent and in
Taiwan the figure was only marginally lower at 97.15 per cent. In the low-income economies
of the world, on the other hand, the average enrolment in that year was 73 per cent. The high
levels of access to basic education were also reflected in the relatively high levels of literacy
which were achieved. Further, the provision and expansion of basic education was not gender
specific. The general effect of the expansion of primary schooling was the easy availability of
literate and numerate women as well as men for the workforce at the time of rapid
industrialization.
The second common feature which emerges across these societies was the sequential nature of
educational expansion. In the early stages of growth and industrialization, the expansion of
primary education took priority. Overall, much less proportionately was spent on secondary
and tertiary education and these sectors enrolled a small proportion of the relevant age group.
The enrolment rates in secondary schools in South Korea, Singapore and Hong Kong were 35
per cent, 45 per cent and 29 per cent, respectively, in the early 1960s. When secondary
education expanded rapidly, it was initially education of a general and academic orientation.
In the more interventionist societies of South Korea and Taiwan, the state responded to public
demand and expanded secondary education. By 1986, the enrolment rates in secondary
schools in Taiwan had risen to 92 per cent, in Singapore to 71 per cent, in South Korea to 95
per cent and in Hong Kong to 69 per cent.
The expansion of tertiary education, defined broadly to include all full-time, post-secondary
education, followed the achievement of high levels of access to secondary schooling. In South

30

IMF (1991) commented that one lesson from the past is that economies such as Japan and South Korea which
committed themselves to education and training made great strides in both human development and
economic growth.

23

Korea, Singapore and Hong Kong, the percentage of the relevant age groups that survived up
to tertiary education in 1965 were 6 per cent 10 per cent and 5 per cent, respectively. By 1986,
enrolment rates in South Korea and Hong Kong increased to 25 and 33 per cent respectively.
In the late 1980s, South Korea and Hong Kong embarked on massive expansion programs for
tertiary education. In South Korea, this resulted in 44 per cent of the relevant age group
enrolled in tertiary education. With regard to the nature of the governments relationship with
tertiary education, there are high levels of state control in societies such as South Korea and
Taiwan.
The core components of the East Asian approach to human development can be summarized
as follows.
(1) The state coordinates education and research with a firm emphasis both on indigenous
value transmission and the mastery of foreign technology.
(2) High priority is placed on universal primary education while state investment at the
secondary and tertiary levels is limited primarily to critical areas such as engineering
and the sciences.
(3) Individual students, their families and the private sector are expected to provide critical
back-up for the education provided by the state.
(4) The state seeks to coordinate not only the development but also the utilization of
human resources and involves itself in manpower planning and job placements and
increasingly in the coordination of science and technology.
The most important point in all this is that the state has played a major part in every case. An
essential goal of public policy has been to ensure that bulk of the young population has the
capability to read, write, communicate and interact in a way that is quite essential for modern
industrial production. In India, in contrast, there has been remarkable apathy towards
expanding elementary and secondary education, and certainly too little government action,
rather than too much, has been the basic failure of Indian planning in this field. The neglect
of illiteracy is marked in relation to the low cost of making an adult literate. A comparison of
the type of provisioning across countries shows a skewness of public expenditure towards
higher education in India that is far greater than elsewhere in the world. The comparative
degree of skewness is actually quite staggering. Spending on higher education exceeds that on
primary education by a factor of six in India (Balakrishnan 2010).
24

Towards Inclusive Growth:

Inclusive growth is growth that not only creates new economic opportunities but also one that
ensures equal access to the opportunities created for all segments of society including the
disadvantaged and the marginalized. Growth is inclusive when it allows all members of the
society to participate in, and contribute to, the growth process on an equal footing regardless
of their individual circumstances (Ali and Zhuang 2007). The importance of equal access to
opportunities for all lies in its intrinsic value as well as instrumental role (Ali and Son 2007).
The intrinsic value is based on the belief that equal access to opportunity is a basic right of a
human being and that it is unethical and immoral to treat individuals differently in access to
opportunities. The instrumental role comes from the recognition that equal access to
opportunities increases growth potential, while inequality in access to opportunities
diminishes it and makes growth unsustainable, because it leads to inefficient utilization of
human and physical resources, lowers the quality of institutions and policies, erodes social
cohesion, and increases social conflict.
The distinguishing feature of the inclusive growth process is that it focuses attention on
understanding the causal factors behind inequality outcomes and then addresses the causal
factors. Inclusive growth depends on average opportunities available to the population and
how opportunities are shared among the population (Ali and Son 2007).
We have already seen the failures of India in terms of ensuring the opportunities to its
citizens and the corresponding outcome indicators in the previous sections. In terms of
opportunities and access to them, the Indian scenario tells a very miserable story. Growth
continues to bypass a large section of the society. Large majority of Indian living in rural and
urban areas are, and continue to be, excluded from Indias growth story. From the practical
point of view, the efforts made by the state in India for attainment of inclusive growth, would
be more of rhetoric of the policy makers than reality.
It is only during the past decade the Indian policymakers have responded to widespread
concerns over the unequal distribution of the growth and made inclusive growth a part of the
official agenda. The Indian 11th five-year plan 31 defines inclusive growth to be a process
which yields broad-based benefits and ensures quality of opportunity for all, thus implying
an equitable allocation of resources with benefits accruing to every section of the society.
31

th

11 Five-Year Plan; Towards Faster and More Inclusive Growth, Government of India, Planning commission,
2006.

25

India has already completed the Eleventh Five-Year Plan (2007-12) and has continued a
similar policy in the Twelfth Five-Year Plan: Faster, More Inclusive and Sustainable Growth
(GOI 2013). 32 The general public perception about worsening economic plight of the masses
has led the government to declare its commitment to the aam aadmi (common man) in general
and the poorest of the poor in particular. Its policy response has been to provide for a
variety of rights-based programs under Jawahar Rozgar Yoajna, the Mahatma Gandhi
National Rural Employment Guarantee Act, Right to Education and recently the National
Food Security Act. 33
Unfortunately, none of these right based initiatives are designed with the objectives of
improving the human capabilities and an equitable access to opportunities. The Indian policy
makers still hobble along the old strategy of subsidies to the poor than making an effort to
improve their wellbeing in a holistic way. Several studies suggest that there is a correlation
between inclusive economic growth and the level of public expenditure on social
development, including education and health. (Habito 2009) Literacy is arguably the most
significant factor in poverty reduction as it enhances employability. The role played by
literacy has been found to be particularly notable by Ravallion and Datt (2002), who reported
that nearly two-thirds of the difference between the elasticity of the headcount index of
poverty to non-farm output for Bihar (the state with lowest absolute elasticity) and Kerala was
attributable to the latters substantially higher initial literacy rate. In primary education India
is well behind other nations which have comparable level of economic growth and per capita
income. It is on primary education that the state has to concentrate most of its resources,
physical as well as human.
Indias public expenditure on health care, at 0.9 percent of the GDP, has been low even by
developing country standards. The corresponding share is higher in Pakistan (1.0),
Bangladesh (1.5), Nepal (1.5) Sri Lanka (1.8), and Bhutan (3.6) (UNDP 2004). Indias public
expenditure on health has been not only low, but has declined from 1.05 percent of GDP to
0.91 percent in the liberalization period (GOI 2006). Thus, the growth in GDP did not
translate into corresponding increase in public spending on health. By comparison, public

32

The draft of the Twelfth FiveYear Plan (2012-2017) lists twelve strategy challenges which focus on
inclusive growth. These include enhancing the capacity for growth, employment generation, infrastructure
development, and improved access to quality education and better healthcare, and sustained agricultural growth.
See, Inclusive Growth; A Challenging Opportunity, Deloitte, September 2011.+
33
Unfortunately, in India where corruption is widespread and systemic the benefits of many such programs do
not necessarily accrue to the poor and the needy but often to the rural economic and political elite.

26

health expenditure in most of the OECD countries averages around five percent of their GDP
(WHO 2006). India not only spends less on overall health, but public expenditure favours the
rich quintile of the Indian society (NRHM 2006). One consequences of this imbalance is that
skilled health personnel attend just 16.4 percent of births among the poorest 20 percent
compared with 84.4 percent in the richest 20 percent. Less than three percent of Indias
population has private health insurance. Indias attempts in recent years to provide health
insurance for the poor have not been successful. Around 25 percent of the poor do not even
seek healthcare because of the costs (World Bank 2002). A case study by Singh (2010) shows
that even in the wealthy state of Punjab, healthcare costs have led to farmers sale of
immovable assets and irrecoverable indebtedness.
It is important to improve the governance because the government in India still has a majority
stake in almost all crucial sectors such as health, sanitation and water. It is in these social
sectors that the political parties least interested once they come to power after elections. 34 Yet
these are the fields which need to be paid more attention to if we are to improve human
development alongside economic growth; with the current situation, it is no wonder that India
figures extremely low on world human development index reports. There also ought to be
greater accountability for politicians and civil servants. Progress in a democracy is slow but
sustaining, certainly in the case of a large and diverse country like India given its size and
complexity.
Inclusive growth is central for reducing social and economic disparities, and also to sustain
economic growth. It is imperative for India to develop holistic and integrated solutions for
solving the long-term problems of poverty, inequality, social exclusion, weak governance
structure and widespread corruption in all stages of public service delivery. The new
solutions, with an emphasis on sustainable inclusive growth, should pay attention to four
points in formulating public policies; opportunity, capability, access and security. Opportunity
aspect means generating opportunities to people to succeed economically as well as socially;
Capability concentrates on providing means to people to create /enhance their capabilities in
order to take advantage of opportunities; Access of course simply implies providing the
means to bring the first two together. If these points are in place, then follows security,
providing means to people to protect themselves against eventual loss of livelihood.
34

The political power of the Indian elite often serves as a barrier to the attention that the voices of the poor can
actually get, resulting in a near-exclusion on many issues of importance to large sections of the poor in India.
This exclusion is reflected in a rather pervasive disregard for the interest of the poor in public policy. (Sen &
Drze, 2013)

27

Particularly the first three points are of fundamental importance since if they are provided to
the population at large, security will follow.
The right policy mix for inclusive growth should be to expand the opportunities and
capabilities of those who have been left behind in the growth process so as to enable them to
participate in a sustainable growth process. Inclusive growth thus constitutes an essential
precondition for sustainable development, leading to equitable distribution of wealth and
prosperity to all sections of the society.

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