Topics: Economic Development | Indian Economy — planning, mobilization of resources, growth, development and employment | Inclusive growth and issues arising from it
Questions
Q1. India since independence opted for planning as a model for growth and development. Discuss the issues involved in planning. (10 Marks)
Q2. Explicate the role of sound fiscal policy in resource mobilisation for development programs. (10 Marks)
Q3. Unemployment is a bad thing for a rising economy and growing population. Discuss the types of unemployment and factors behind it. (15 Marks)
Q4. Discuss the concept of inclusive growth and its relevance in the Indian context. Examine the need for inclusive growth in India and highlight the challenges faced in its implementation. (15 Marks)
Q5. Countries that sustained high growth for a long period focused on building social infrastructure. In the light of this statement, discuss the role of investment in social infrastructure for inclusive and sustainable growth in India. (10 Marks)
Model Structures
Q1. Issues in Planning as a Model of Growth (10 Marks)
Introduction
Economic planning has its genesis in the pre-independence period when nationalists and industrialists were in unison regarding the planned model of development. This resonated in the National Industrial Policy of 1948, the Planning Commission, Five Year Plans and even the NITI Aayog of today.
Main Body
Planning includes drawing up well-designed activities in an orderly manner to be implemented as per the plan. Non-renewable resources in any economy are limited, which necessitates a proper planning process. But examples the world over and various theories suggest that adopting only planning as a model can be counterproductive due to issues like:
- It is a centralized exercise which overlooks demands and needs at the grassroots level. The top-down planning model results in region-specific issues getting lost in oblivion.
- Five Year Plans in the initial stages bore fruit because of the same government at the Centre and states. But coalition politics has impacted cooperation and synchronization of schemes.
- The Planning Commission was an executive body which always overpowered the Finance Commission, a constitutional body. Many recommendations with scientific backing were overlooked.
- High fiscal deficit, depleting resources and increasing population have time and again made planning exercises a failure.
- Not in line with the ideals of the Constitution and the 73rd and 74th Amendment Acts, which mandated local self-government for a bottom-up approach.
Conclusion
Planning as the only solution is a double-edged sword, which is why NITI Aayog was formed as an enabling institute and think tank, with less interference in the working of constitutional bodies. Modern times call for cooperative and competitive federalism by which states can be self-reliant on development parameters.
Q2. Fiscal Policy & Resource Mobilisation (10 Marks)
Introduction
- Fiscal policy refers to the taxation and expenditure policy of the state that stimulates and regulates the macro-economic parameters of the country.
- The increasing influence of fiscal policy over monetary policy in recent times has highlighted its growing importance.
Main Body
Role of fiscal policy in resource mobilisation:
- Annual Financial Statement: The Budget is of prime importance in resource mobilisation — e.g., disinvestment of loss-making public sector assets was chosen as a way of mobilising resources for the National Infrastructure Pipeline.
- Fiscal consolidation: The FRBM framework maintains austerity in expenditure so that resources are diverted to the creation of physical and capital assets.
- Government borrowings: Mild inflation is desirable as it signifies growth; the government borrows to keep up with the pace of the economy.
- Feedback mechanism: Informal tools like Finance Commission recommendations and special-purpose committees (e.g., Raja Chelliah Committee on fiscal reforms).
- Optimum utilisation of resources: Proper prioritisation of funds impacts the economy — e.g., to correct premature deindustrialization, Production Linked Incentive schemes have been launched.
- Fiscal discipline: Maintaining a sustainable fiscal position, avoiding excessive borrowing, and managing public debt effectively.
- Countercyclical policy measures: During downturns, fiscal measures stabilize the economy — increasing government spending, targeted fiscal stimulus, or tax reforms to boost activity and mitigate recessions.
Issues of concern in fiscal policy:
- Stability: FRBM implementation is repeatedly pushed ahead of time; band-aid solutions like the Effective Revenue Deficit indicate stability issues in policy formulation.
- Modernization: New forms of budgeting like Zero-Based Budgeting and Gender Budgeting are not yet adopted effectively.
- Tussle with the central bank: Fiscal policy is effective when clubbed with monetary policy; frequent leadership changes at the central bank and concerns over distribution of RBI funds weaken it.
Conclusion
Fiscal policy is important mainly because it is the primary source of receipts and the primary distributor of revenue. For equitable distribution of the benefits of development, fiscal policy should be made people- and economy-centric.
Q3. Types of Unemployment & Factors Behind It (15 Marks)
Introduction
Unemployment occurs when someone is capable of working but is unable to find a job. For a top-ranked economy, unemployment is a major concern as it indicates over-reliance on external factors for sustaining growth.
Main Body
Types of unemployment:
- Structural unemployment: Skills are not developed or upgraded with time due to lack of structural transformation, resulting in a mismatch between jobs available and skills present.
- Disguised unemployment: More people are employed than actually required — common in the unorganized sector in general and agriculture in particular.
- Frictional unemployment: The time gap when an employed person leaves a job in search of a new one for better pay and opportunities.
- Technological unemployment: Emergence of new technology makes present skill sets obsolete.
- Cyclical unemployment: A result of boom and recession in the business cycle — organizations lay off employees during recession and downturns.
Factors behind rising unemployment:
- With reforms like GST and steps like demonetization, small industries and the unorganized sector suffered.
- Very poor mobility of labour due to language barriers, religion, family reasons and hate crimes.
- Jobless growth: India has grown at 7–8% in recent years but with dismal growth in employment opportunities.
- In big joint families, disguised unemployment — some members don't work regularly and dependence on family income is high.
- Obsolete skills and poor literacy because the school curriculum is theory-based rather than practical or vocational; the thrust to the service sector left manufacturing under-developed and structural transformation incomplete.
- High population — the unemployment rate is one thing; total unemployed in absolute numbers is another.
Conclusion
Unemployment not only impacts the economy as a whole, it can convert the demographic dividend into a demographic disaster. Steps are needed to promote labour-intensive sectors with a major thrust on manufacturing, so that skill upgradation also occurs for better employment prospects.
Q4. Inclusive Growth — Relevance, Need & Challenges (15 Marks)
Introduction
- According to OECD, inclusive growth is economic growth that creates opportunity for all population segments and distributes the dividends of increased prosperity, both in monetary and non-monetary terms, fairly across society.
- It advances equitable opportunities for economic participants during economic growth, with benefits incurred by every section of society.
Main Body
Relevance in the Indian context:
- Socio-economic Equity: India's growth narrative has often been marked by stark inequalities; inclusive growth addresses these disparities.
- Poverty Reduction: Ensures the benefits of economic development reach the significant portion of the population living under poverty.
- Job Creation: Accommodates the burgeoning workforce and addresses underemployment and unemployment.
- Social Harmony: Reduces economic disparities among religious, regional and caste groups.
Need for inclusive growth in India:
- To improve stunted industrial development of the Indian industrial sector.
- Mass poverty and low per capita income need to be addressed.
- Low literacy: 74.04% overall, 65.46% among females (2011 Census).
- Infrastructural gaps hindering economic growth.
- India has the largest number of poor worldwide — 22.8 crore (Multidimensional Poverty Index 2022).
- To ensure group equality — SCs, STs, OBCs, minorities, women, differently-abled and other marginalised groups.
- To ensure regional balance.
- To address unemployment: PLFS (2020-21) puts total unemployment at 4.2% (6.7% urban, 3.3% rural), worsened by COVID-19.
- To counter poor nutrition levels.
Challenges in implementation:
- Economic: Poor industrial base (manufacturing short of the 25%-of-GDP target under the National Manufacturing Policy); weak mineral resource base in northern plain states; agricultural backwardness — structural imbalance between labour force employed and GDP contribution.
- Social: Divisions of caste, class, religion, language; poor women's LFPR (under 25% per NSSO) with at least 50% of women anaemic; urban–rural divide ("India vs Bharat").
- Administrative: Corruption (85/180 on Corruption Perception Index 2022); red tape (63rd in Ease of Doing Business); inadequate social welfare expenditure (health target 2.5% of GDP, education 6% — both unmet).
- Environmental destruction and disasters disproportionately hit marginalised sections (tribals, slum dwellers, farmers), compounded by land alienation for mega projects.
- Regional disparities and intergenerational inequality (India 44th in WEF's Inclusive Development Report on intergenerational equity).
Conclusion
Inclusive growth is not just a moral imperative but a foundation for sustainable growth. India needs to surmount these challenges and build an inclusive society where every citizen can contribute to and benefit from growth — with 'Sabka Saath, Sabka Vikas, Sabka Vishwas' as the guiding light.
Q5. Investment in Social Infrastructure (10 Marks)
Introduction
Social infrastructure covers a range of foundational services and facilities that meet social needs by building strong communities and contributing towards a good quality of life — health, education, recreation, skill development etc.
Main Body
Investment in social infrastructure leads to inclusive and sustainable growth in the following ways:
- Education: Encourages changes in knowledge, skills, values and attitudes for a more sustainable and just society. Right to Education Act, 2009; e.g., good educational outcomes in Kerala have contributed to inclusive and sustainable growth.
- Health: Better health is central to human happiness and well-being (WHO). Healthy people live longer, are more productive, and save more. Initiatives: Ayushman Bharat PM-JAY, National Health Mission.
- Skill development: To realise India's demographic advantage and ensure upward mobility of workers through upskilling and re-skilling — National Skill Development Mission, PM Kaushal Vikas Yojana.
- Women's empowerment: The IMF estimates equal participation of women in the workforce would increase India's GDP by 27%; per the World Resources Institute, women's inclusion in the labour force can advance low-carbon, sustainable development. Schemes: Mahila Shakti Kendra, Nai Roshni, Stand-Up India.
- Environment: Clean air and water and efficiency in resource use are central to equitable growth.
- Justice: An efficient and credible criminal justice system improves ease of living for the poor and marginalised; ADR mechanisms such as Lok Adalats ensure inexpensive and efficient dispute resolution.
Roadblocks:
- Inadequate quality of education and poor teacher-to-student ratio.
- Regional disparity in access to quality healthcare.
- Lack of participation of women in skilled/formal activities.
- Increasing air and water pollution, especially in urban areas.
- Lack of awareness regarding free legal aid for the poor and marginalised.
Conclusion
Investment in social infrastructure must be prioritised and budgetary allocations increased to ensure the benefits of growth are equitable. In this context, the government has unveiled ₹102 lakh crore of projects under the National Infrastructure Pipeline, of which social infrastructure is one component.
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