[Solved] It is argued that the strategy of inclusive growth is intended to meet the objectives of inclusiveness and sustainability together. Comment on this statement. (UPSC GS-3 Mains 2019)

Growth is inclusive when it narrows social inequalities in a country or a group of countries. It’s a way of comparing the growth of developed and emerging countries. It’s the outcome of a model that not only calls for redistribution policies to reduce social inequalities in the near term, but also calls for the long-term development of all types of personal talents and skills: inequality is reduced by participating in growth and creating economic value.

  • Organization for Economic Co-operation and Development (OECD) defines Inclusive growth as the economic growth that is distributed fairly across society and creates opportunities for all. It refers to ‘broad-based’, ‘shared’, and ‘pro-poor growth’.
  • The rapid pace of growth is unquestionably necessary for substantial poverty reduction, but for this growth to be sustainable in the long run, it should be broad-based across sectors, and inclusive of the large part of the country’s labor force.

 Meaning of Inclusiveness

 Inclusiveness is a concept that encompasses equity, equality of opportunity, and protection in market and employment transitions and is, therefore, an essential ingredient of any successful growth strategy.

 Meaning of Sustainable Development

  • The UN  Brundtland commission’s report ‘Our Common Future (1987)’ defined sustainable development as development that meets the needs of the present without compromising the ability of future generations to meet their own needs.
  • How inclusive growth meets the objectives of inclusiveness and sustainability together Growth which is ‘inclusive’ and “pro-poor”, the incomes of poor people grow faster than those of the population as a whole, i.e., inequality declines. By focusing on inequality, inclusive growth could lead to optimal outcomes for both poor and non-poor households.
  • The inclusive growth approach takes a longer-term perspective, where it is important to recognize the time lag between reforms and outcomes.
  • Inclusive growth leads to a wider distribution of wealth which creates a demand in a country and hence leads to domestic demand-driven growth. India in the past 2 decades has been able to grow at a rapid rate only due to domestic demand.
  • Inclusive growth creates a strength in the economy to withstand shocks and growth becomes sustainable in the longer run.
  • With better wealth distribution people move away from polluting sources of energy such as wood, cow dung, etc and adopt more environment-friendly sources such as LPG which further improves environmental sustainability.
  • Sustainable development should be followed wherein we should not only be inclusive with respect to people but also bring the environment in its inclusion thus causing minimum depletion of resources and going for a circular economy.
  • Inclusive growth addresses the structural and fundamental problems in society and the economy. EX- current strategy to empower women. These strategies build strong foundations that are more sustainable for long term transformations.
  • In the past few years, the government is aggressively focusing on the strategy of inclusive growth in its various programs and policies. For Example, Jan Dhan Yojana has focused on incorporating the unbanked masses into the financial sector and has increased financial inclusion statistics to more than 80%.
  • Sustainable economic growth requires inclusive growth. Maintaining this is sometimes difficult because economic growth may give rise to negative externalities, such as a rise in corruption, which is a major problem in developing countries.
  • Nonetheless, an emphasis on inclusiveness—especially on equality of opportunity in terms of access to markets, resources, and an unbiased regulatory environment—is an essential ingredient of successful growth.
  • The inclusive growth approach takes a longer-term perspective, as the focus is on productive employment as a means of increasing the incomes of poor and excluded groups and raising their standards of living.
  • Policies for inclusive growth are an important component of most government strategies for sustainable growth.
  • For instance, a country that has grown rapidly over a decade, but has not seen substantial reduction in poverty rates may need to focus specifically on the inclusiveness of its growth strategy, i.e. on the equality of opportunity for individuals and firms.
  • In the short run, governments could use income distribution schemes to attenuate negative impacts on the poor of policies intended to jump start growth, but transfer schemes cannot be an answer in the long run and can be problematic also in the short run
  • . In poor countries such schemes can impose significant burdens on already stretched budgets, and it is theoretically impossible to reduce poverty through redistribution in countries where average income falls below US$ 700 per day.
  • According to a recent OECD study, even in developed countries, redistribution schemes cannot be the only response to rising poverty rates in certain segments of the population.
  • Economic policies have to look at growth over a sufficiently long term to factor in demographic ageing and the rise in healthcare costs.

Thanks to redistribution mechanisms, society has to help those in financial or educational need, e.g. by offering individual training to anyone who has lost their job. This may also include support for SMEs, young companies, startups, and funding R&D to stimulate innovation. Financial risk-taking has to be rewarded because it will encourage investment in businesses that will create value and keep talent in the country so it can thrive.

 Conclusion:

 Economic development requires sound foundations. Universal access to education and health services, access to financial services, new technologies and affordable bank loans, gender equality and more equal distribution of resources can all support economic development. A stable and predictable operating environment is a prerequisite for private sector investments. Good governance should be promoted and corruption tackled at all levels in both private and public sectors.

Further reading..

 The strategy of inclusive growth is intended to meet the objectives of inclusiveness and sustainability together.

 Pranab Mukherjee once said, “Inclusive growth should not be a mere slogan but a fundamental driving force for sustainable development.” Inclusive growth focuses on ecological friendly economic growth which is a necessary and crucial condition for poverty reduction and sustainability.

 Its intimately interconnected and explicable elements referring to the whole are:

  • It adopts a long term perspective and is concerned with sustained growth.
  • For growth to be sustained in the long run, it must be broad-based across sectors. Issues of structural transformation for economic diversification, therefore, take a front stage.
  • It must also be inclusive of the large part of the country’s labour force, where inclusiveness refers to equality of opportunity in terms of access to markets, resources and unbiased regulatory environment for trade, businesses and individuals.
  • It focuses on both the pace and pattern of growth.
  • It focuses on productive employment rather than income redistribution.
  • It has not only the firm but also the individual as the subject of analysis.
  •  It is in line with the absolute definition of pro-poor growth, not the relative one.
  •  It is not defined in terms of specific targets such as employment generation or income distribution. These are potential outcomes, not specific goals.

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