Quest for Inclusive Growth

Building the Indian nation has required a conscious effort to bring its vast diversity into the economic mainstream. Politically, inclusion has functioned through a claim on fiscal resources for the so-called 'intermediate' classes. In principle, these 'intermediate' groups could have generated economic activity and employment for the larger number of poor to whom direct assistance was unmanageable. In practice, the amorphous intermediate groups have displayed limited leadership, with the important recent exception of the surge in information technology activity. Bold policy initiatives have been constrained because the aspirations to acquire the symbols associated with the intermediate groups have dominated. Major policy changes in India's political context are, therefore, possible only with strong new leadership in politically tranquil periods or under the duress of a crisis. To foster faster growth - while also breaking up the social hierarchies that persist in limiting inclusion - four long-standing challenges remain: undertaking effective decentralisation, raising educational attainments, placing limits on access to fiscal resources through binding fiscal rules, and achieving further discipline through external competition.