Lesson 20 of 70 7 min Free

Inclusive Growth, Poverty and Inequality

GS3 · Inclusive Growth, Employment and Industry

What is inclusive growth?

Inclusive growth is growth that is broad-based across sectors and regions, and that creates opportunities for all, especially the poor and marginalised, to participate in and benefit from it.

The Eleventh Five-Year Plan (2007–12) adopted "Faster and More Inclusive Growth" as its theme. The Twelfth Plan sought growth that is "faster, sustainable and more inclusive".

Dimensions:

Poverty reduction.
Employment generation, especially productive jobs.
Agricultural development, because most of the poor depend on it.
Access to health, education and skills.
Social inclusion: gender, caste, tribe and minorities.
Regional balance.
Financial inclusion.
Environmental sustainability.

Growth alone does not guarantee inclusion. If growth is driven by capital-intensive sectors, it can be "jobless". Gains also concentrate where human capital and assets are already concentrated.

Measuring poverty in India

Poverty lines over time:

1962 Working Group: ₹20 per capita per month (rural).
Alagh Task Force (1979): calorie norms of 2,400 kcal (rural) and 2,100 kcal (urban).
Lakdawala Committee (1993): state-specific lines, with CPI-AL and CPI-IW for updating.
Tendulkar Committee (2009): shifted from calorie norms to a consumption basket including health and education, with a uniform urban basket (URPCB/MRP). It estimated poverty at 37.2% (2004–05) and 21.9% (2011–12), the last official estimate.
Rangarajan Committee (2014): a higher line, giving 29.5% for 2011–12. It was not formally adopted.

Bar chart showing India's multidimensional poverty headcount falling from about 55 percent in 2005-06 to about 11 percent in 2022-23 — The 2005–06 figure is from the global MPI; later figures are from NITI Aayog's national MPI, so the series is indicative.

Timeline of poverty measurement in India from the 1962 Working Group to HCES data in 2024 — India has not adopted a new official poverty line since Tendulkar.

Recent estimates:

Household Consumption Expenditure Surveys (HCES) 2022–23 and 2023–24 (MoSPI): monthly per capita consumption rose, and the rural–urban gap narrowed.
Using the HCES data, the World Bank (2025) estimated extreme poverty (below $3.00 a day, 2021 PPP) at about 5.3% in 2022–23, down from 27.1% in 2011–12. Around 17 crore people moved out of extreme poverty.
The SBI Research and other studies put poverty even lower, with differences in method.

There is no new official poverty line. Treat the figures as estimates.

Multidimensional Poverty Index (MPI):

Developed by UNDP and OPHI; it measures deprivations in health, education and living standards.
India's national MPI (NITI Aayog) uses 12 indicators, adding maternal health and bank accounts to the global 10.
NITI's discussion paper (January 2024) estimated that MPI poverty fell from 29.2% (2013–14) to 11.3% (2022–23), with about 24.8 crore people escaping multidimensional poverty.
The largest declines were in UP, Bihar, MP, Odisha and Rajasthan.

Inequality

Measures:

the Gini coefficient, from 0 (perfect equality) to 1;
the Palma ratio: the income share of the top 10% divided by that of the bottom 40%;
Lorenz curves.

India's data:

Consumption Gini is relatively low at about 0.25–0.29, and some estimates show a decline: the World Bank placed India among the more equal countries by consumption in 2025.
Income and wealth inequality are much higher. The World Inequality Lab (2024) estimated that the top 1% held about 22.6% of national income and about 40% of wealth in 2022–23, a level it described as higher than in the British Raj era.

The gap between these numbers comes from consumption vs income, survey under-reporting by the rich, and tax data.

Dimensions of inequality:

Regional: per capita income in Goa, Sikkim, Delhi and Telangana is several times that of Bihar, UP and Jharkhand.
Rural–urban.
Gender: India ranked 131st of 148 countries in the WEF Global Gender Gap Index 2025; women's labour force participation is low.
Social group: SC/ST asset ownership and outcomes.

Strategies for inclusion

1. Direct transfers and safety nets:

PMGKAY free food grains to about 81 crore people, extended for five years from January 2024;
MGNREGA;
PM-KISAN (₹6,000 a year);
pensions;
delivered through JAM.

Card diagram of five pillars of India's inclusion strategy: safety nets, basic services, human capital, livelihoods and regional focus — The "new welfarism" focuses on delivering tangible goods and services directly.

2. Basic services ("new welfarism"):

housing (PMAY);
toilets (Swachh Bharat);
electricity (Saubhagya);
cooking gas (Ujjwala);
tap water (Jal Jeevan Mission);
health insurance (PM-JAY).

These provide tangible goods rather than only cash or subsidies.

3. Human capital: NEP 2020, Samagra Shiksha, POSHAN Abhiyaan and Skill India.

4. Livelihoods:

DAY-NRLM (Lakhpati Didi target of 3 crore);
MUDRA;
PM Vishwakarma (2023, for traditional artisans);
Stand-Up India.

5. Regional programmes:

the Aspirational Districts Programme (2018, 112 districts), praised by the UNDP;
the Aspirational Blocks Programme (2023, 500 blocks).

6. Social justice: reservations, tribal sub-plans (now the Development Action Plan for STs) and minority schemes.

Analysis: debates on inclusive growth

Universal Basic Income: the Economic Survey 2016–17 discussed a UBI to replace many schemes. Several states now run cash transfers for women: Madhya Pradesh's Ladli Behna, Maharashtra's Ladki Bahin, Jharkhand's Maiyan Samman. This raises questions of fiscal space and of empowerment versus dependency.

Freebies versus welfare: the debate on fiscal prudence. The RBI has flagged rising state spending on unconditional transfers.

Structural concerns:

Jobs and productivity: real wages in rural areas have grown slowly.
Agriculture employs about 46% of workers but produces only about 18% of GVA, a sign of disguised unemployment.

Common prelims traps

Tendulkar (2009) gave the last official poverty estimate (21.9% for 2011–12). Rangarajan (2014) was not adopted.
India's national MPI has 12 indicators; the global MPI has 10.
The Alagh committee used calorie norms, not the Tendulkar committee.
A Gini coefficient closer to 1 means more inequality.

Quick self-test

*What three dimensions does the MPI cover?* Health, education and living standards.
*What does a Palma ratio of 2 mean?* The top 10% earn twice as much as the bottom 40%.
*Why is consumption inequality lower than income inequality?* The rich save more, and surveys under-report their consumption.

Practice: Mains question

*"Rapid decline in multidimensional poverty has not been matched by a similar improvement in income inequality." Examine the statement with reference to recent data. (250 words)*

Regional inequality and convergence

Divergence: the gap between India's richest and poorest states has widened since the 1990s, rather than narrowing as growth theory predicts. Southern and western states attracted more investment, had better human capital and urbanised faster.

Per capita income: Bihar's per capita income is about one-third of the national average, while Goa, Sikkim and Delhi's are well above it.

Policy responses:

Finance Commission devolution formulas that weight income distance;
Special Category Status, which ended for new states after the 14th Finance Commission;
centrally sponsored schemes with a higher central share for the North-East and Himalayan states;
the Aspirational Districts approach of competitive and cooperative federalism: districts are ranked monthly on 49 indicators across health, education, agriculture, financial inclusion and infrastructure.

Quick self-test (more)

*What does a "trickle-down" approach assume?* That growth at the top will automatically benefit the poor, an assumption that the inclusive growth approach rejects.
*Why might PMGKAY reduce measured poverty?* The imputed value of free food raises the effective consumption of the poor; the World Bank's estimates consider this.

Key term

Kuznets curve: the hypothesis that inequality first rises and then falls as an economy develops. India's experience of rising income inequality during rapid growth fits the rising phase, but the curve is not inevitable; policy choices matter.

⚡ Quick revision

Inclusive growth: 11th Plan theme; broad-based, opportunity for all
Poverty lines: Alagh 1979 (2,400/2,100 kcal), Lakdawala 1993, Tendulkar 2009 (21.9% in 2011–12; last official), Rangarajan 2014 (29.5%; not adopted)
World Bank 2025: extreme poverty ~5.3% (2022–23) vs 27.1% (2011–12) at $3/day
NITI national MPI (12 indicators): 29.2% (2013–14) → 11.3% (2022–23); 24.8 crore escaped
Inequality: consumption Gini ~0.25–0.29; top 1% ~22.6% of income (WIL 2024); Gender Gap Index 2025 rank 131
Schemes: PMGKAY (5-year extension from Jan 2024), Aspirational Districts 2018 (112), Aspirational Blocks 2023 (500), PM Vishwakarma 2023

A system of hereditary social groups (jatis), traditionally linked to occupation, marriage within the group (endogamy) and ideas of ritual purity and pollution, which has shaped social hierarchy, opportunity and politics in India and South Asia.India's two main families of price indices: the Consumer Price Index, which tracks the retail cost of a fixed basket of goods and services bought by households, and the Wholesale Price Index, which tracks prices at the first point of bulk sale of goods; they are built differently and often move apart.Most often, the 2012–14 expert group under former RBI Governor C. Rangarajan that revised India's poverty line, estimating 29.5% of the population as poor in 2011–12; the name also refers to his earlier committees on balance of payments, sugar decontrol and other economic reforms.The World Bank is an international financial institution, created at the Bretton Woods Conference of 1944, that provides loans, grants and advice to developing countries for projects and reforms aimed at reducing poverty and promoting growth; it is part of the wider World Bank Group headquartered in Washington, D.C.A measure of poverty that counts how many people are deprived in several basic aspects of life at once, such as health, education and living standards, and how severe those deprivations are, instead of relying only on income or consumption.The Gini coefficient is a summary measure of inequality in the distribution of income, consumption or wealth, ranging from 0 (perfect equality, everyone has the same) to 1 (perfect inequality, one person has everything). It is often expressed as a percentage or index from 0 to 100.PM Garib Kalyan Anna Yojana (PMGKAY) began in April 2020 as a pandemic relief measure giving 5 kg of free food grains per person per month to NFSA beneficiaries, over and above their regular entitlement. Since January 2023 it has been merged with the NFSA so that the regular entitlement itself is free, and it has been extended for five years from January 2024.A 2005 law that gives every rural household a legal right to at least 100 days of unskilled manual wage work a year on public works, with an unemployment allowance if work is not provided within 15 days of demand.A central scheme launched in February 2019 that pays ₹6,000 a year to landholding farmer families in three equal instalments of ₹2,000, transferred directly into their bank accounts, as income support for farm inputs and household needs.The Union government's flagship housing programme, launched in 2015 for towns (PMAY-Urban) and in 2016 for villages (PMAY-Gramin), which gives financial help to poor and lower-income families to build, buy or upgrade a pucca house with basic amenities, usually in the name of a woman of the household.India's central bank, set up on 1 April 1935 under the RBI Act 1934 and nationalised in 1949, which runs monetary policy, issues currency, regulates banks and payment systems and manages foreign exchange.The value of all goods and services produced in an economy or a sector minus the value of inputs used up in producing them; it measures output from the supply side, and GDP equals GVA at basic prices plus product taxes minus product subsidies.Disguised unemployment exists when more people are engaged in a job than are actually needed, so that the marginal productivity of the extra workers is zero or close to zero: removing them would not reduce total output. It is most common in family farms in developing countries such as India.

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