The Hindu Business Line : Drought and inclusive growth

The need for inclusive growth must occupy the policymaker as much as concerns about GDP numbers as the drought will exacerbate regional inequalities.

If the recent deliberations of the Planning Commission are anything to go by, the Government would appear to be on top of what could turn out to be a major crisis of food scarcity and rising prices. Hope has been pinned on a partial recovery of the current kharif crop, on the rabi output, and of course, imports. While these may help mitigate the worst consequences of foodgrains shortages on the rural poor, a lot depends on whether glob al commodity prices rise to stoke domestic prices. New Delhi also appears sanguine that the drought will only marginally affect the organised economy’s growth. While that offers solace to a thin sliver of the population in the urban organised economy unevenly distributed across States; what does the policymaker have for the rural sector, likely to suffer a drop from its already low growth of less than 3 per cent and for those States largely dependent on farm incomes? The rural employment schemes will now witness an entry of larger numbers seeking work and just how many would get enough to sustain a decent livelihood is debatable. What is not, however, is that inclusive growth will become more elusive.

The years when growth was cresting one peak after another, when bank credit averaged 25 per cent a year, presented the best opportunity for the absorption of the marginalised into the mainstream. Various indicators show that this did not happen, least of all into the financial system. The Reserve Bank of India’s (RBI) annual study on scheduled bank business up to March 2008 the last year of high growth highlights the shallowness of financial inclusion. The rural areas account for nearly 40 per cent of bank offices compared with 17.8 per cent in the metropolitan group; similarly the proportion of deposit accounts is higher in the former (28 per cent) than in the latter by five percentage points. Yet, the metro areas account for 57 per cent of total deposits as against just 9 per cent from the rural areas. As for the distribution of credit, no prizes for guessing which sector gets the major share. The metropolitan group gets 57.1 per cent of bank credit. Combined with the 15.9 per cent for the urban sector, this means that 83 per cent of bank credit goes to a small section with the rural areas getting just 7 per cent. The regional distribution of bank centres is no better with seven north-eastern States together (Assam included) trailing a single State, Uttar Pradesh, by nearly a fourth.

The drought will exacerbate regional and sector inequalities; more than ever before, the need for an inclusive growth must occupy the policymaker as much as concerns about GDP numbers.

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