Policy Implications for Achieving Inclusive Growth in India

When economic growth benefits only a select few while millions remain trapped in poverty, development becomes hollow. India’s journey toward inclusive growth represents a fundamental shift in economic philosophy-one that recognizes prosperity must reach every household, every village, and every marginalized community. This approach doesn’t just aim to grow the economic pie; it ensures everyone gets a fair slice.

Why agriculture still matters for India’s inclusive growth 🔗

Despite agriculture’s declining share in India’s GDP-from 44.6% in 1958-59 to around 15% today-the sector remains the lifeline for nearly three-quarters of Indian families who depend on rural incomes. This paradox creates a critical challenge: while fewer resources flow into agriculture, the sector continues to absorb a disproportionately large workforce, creating immense income pressure on agricultural households.

The solution lies not in abandoning agriculture but in transforming it. Raising productivity per unit of land has become essential since virtually all cultivable land is already farmed. This requires a multi-pronged approach: expanding irrigation infrastructure and improving water management, ensuring timely access to affordable credit, strengthening agricultural research and extension services, and developing efficient marketing systems that connect farmers directly to consumers.

Land and water: the foundation of agricultural prosperity 🔗

Think of water as the currency of agricultural growth. Without adequate irrigation, even the most fertile land remains underutilized. Strategic investments in irrigation and watershed development don’t just increase crop yields-they provide insurance against climate variability and create durable community assets. When villages manage their watersheds effectively, they’re not just storing water; they’re storing future prosperity.

Agro-based industries established in rural areas serve a dual purpose: they expand employment opportunities beyond traditional farming while reducing the overwhelming dependence on agriculture. A food processing unit in a village doesn’t just add value to crops-it creates year-round employment, reduces post-harvest losses, and keeps young people from migrating to overcrowded cities.

Unlocking opportunities beyond the farm 🔗

The Rural Non-Farm Sector encompasses a diverse range of activities-from mining and manufacturing to processing and services. Between 2011 and 2015, India witnessed a remarkable transformation: agricultural jobs declined by 26 million while non-farm jobs surged by 33 million. This shift signals both opportunity and challenge.

However, this sector struggles with significant bottlenecks. Imagine trying to run a small manufacturing business in a village with unreliable electricity, poor road connectivity, and limited access to mobile internet. These infrastructure deficits, combined with a shortage of skilled labor and insufficient credit facilities, constrain the sector’s potential. The path forward requires heavy investments coupled with effective governance systems to ensure sustainable, inclusive rural development.

Bringing banking to the unbanked 🔗

Financial inclusion means more than just having a bank account-it represents access to timely credit, insurance, and savings instruments at affordable costs. For disadvantaged and low-income groups, these services become gateways to economic participation and upward mobility.

The Pradhan Mantri Jan Dhan Yojana (PMJDY), launched in 2014, stands as one of the world’s largest financial inclusion initiatives. By February 2025, the scheme had opened nearly 55 crore accounts with deposits exceeding ₹2.52 lakh crore, with women holding 55.7% of these accounts and 66.6% located in rural and semi-urban areas.

Beyond account opening: making financial services work for people 🔗

PMJDY offers zero-balance Basic Savings Bank Deposit accounts, free RuPay debit cards with accident insurance coverage of ₹2 lakh, and overdraft facilities up to ₹10,000 for eligible beneficiaries. The scheme has facilitated Direct Benefit Transfers, ensuring government subsidies reach intended recipients efficiently while saving over ₹63,000 crore in FY22-23 by plugging leakages.

Yet challenges persist. Approximately 20% of PMJDY accounts remain dormant, and around 8.4% have zero balances-symptoms of inadequate financial literacy and limited awareness. Women and rural populations continue facing barriers due to cultural norms, lower literacy levels, and geographic isolation. The digital divide and inadequate infrastructure in remote areas further complicate access to modern financial services.

Infrastructure: the backbone of inclusive development 🔗

High infrastructure investment isn’t optional for inclusive growth-it’s foundational. Yet in many developing countries, including India, public expenditure on infrastructure as a percentage of GDP has been declining. This trend is particularly concerning for rural areas, where infrastructure deficits directly translate into lost opportunities.

Physical infrastructure-irrigation systems, roads, communication networks, transport facilities, and reliable electricity-enables economic activity. Human infrastructure-quality healthcare and education systems-builds the capabilities needed to seize opportunities. Without both, inclusive growth remains an unfulfilled promise. The decline in public investment in rural development has consequently slowed agricultural growth, creating a vicious cycle that traps communities in poverty.

Progressive taxation: financing the inclusive vision 🔗

Taxes provide the primary financing mechanism for public expenditure on education, healthcare, job creation, and social welfare programs. They form the financial backbone of social security networks and basic welfare systems, providing essential support against unexpected risks and preventing poverty relapses during difficult times.

Progressive tax policies-where higher earners contribute a larger percentage of their income-are central to fostering fairer income and wealth distribution. When designed effectively, these policies don’t just generate revenue; they actively redistribute resources toward those who need them most, creating a more equitable society where growth truly benefits everyone.

Strengthening institutions that serve people 🔗

Development of service delivery institutions, particularly in rural health and education, determines whether policies translate into tangible improvements in people’s lives. Several institutions have failed in delivering better services, not due to lack of resources but because of weak accountability mechanisms and insufficient community participation.

An interesting pattern emerges: institutions become more responsive when women are empowered. Self-help groups, particularly those led by women, have proven remarkably effective at increasing community savings, negotiating better prices, and gaining political influence to demand better public services. Strengthening Panchayati Raj Institutions through genuine decentralization can improve service delivery by bringing decision-making closer to communities.

Social protection: creating safety nets that work 🔗

Social protection systems play vital roles in mitigating poverty and inequality through redistribution while giving platforms to excluded sections of society. India has implemented numerous poverty alleviation programs spanning food security, housing, cash transfers, and educational support.

MGNREGA: guaranteeing the right to work 🔗

The Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA), enacted in 2005 and implemented in 2006, represents a paradigm shift in social welfare. Unlike previous employment schemes, MGNREGA is a legal entitlement that guarantees 100 days of wage employment annually to every rural household whose adult members volunteer for unskilled manual work.

The program’s strength lies in its design. If employment isn’t provided within 15 days of application, beneficiaries are entitled to unemployment allowance-one-fourth of the minimum wage for the first 30 days and half thereafter. Employment must be offered within 5 kilometers of the applicant’s residence, and minimum legal wages must be paid. Women are guaranteed at least one-third of the jobs, with actual participation often exceeding 50%.

MGNREGA has generated over 1200 crore person-days of employment since inception, with around 5 crore households receiving work annually. Beyond providing income support, the scheme creates durable assets-roads, canals, ponds, and wells-that enhance rural infrastructure and productivity. The program prioritizes water conservation, irrigation facilities, land development, and rural connectivity, addressing multiple development challenges simultaneously.

Other programs complement this framework: the Public Distribution System provides food subsidies, Indira Awas Yojana supports housing construction, and various schemes offer pensions, scholarships, and educational support like midday meals that simultaneously address nutrition and school attendance.

The path forward: from policies to prosperity 🔗

Achieving inclusive growth in India requires sustained commitment across multiple fronts. Agricultural transformation must prioritize productivity enhancement while ensuring benefits reach smallholder farmers. Rural non-farm sectors need infrastructure investments and skill development initiatives to realize their employment potential. Financial inclusion must extend beyond account opening to ensure active usage and meaningful participation in the formal economy.

Infrastructure development-both physical and social-requires prioritization and adequate funding. Progressive taxation and efficient public expenditure management will provide the resources needed. Institutions must be strengthened and made accountable, with genuine decentralization empowering local communities to shape their development pathways. Social protection programs need continuous refinement to ensure they reach intended beneficiaries without leakages or bureaucratic hurdles.

The vision of inclusive growth isn’t about charity or redistribution alone-it’s about creating an economy where everyone can contribute productively and share in the prosperity generated. When agricultural households have secure livelihoods, when rural youth find meaningful employment nearby, when every family can access banking services and healthcare, when government programs actually deliver benefits to intended recipients-that’s when growth becomes truly inclusive.

What do you think? How can we better balance economic growth with equitable distribution of its benefits? What role should communities play in designing and implementing inclusive development policies in their regions?

References

1. https://www.worldbank.org/en/news/feature/2012/05/17/india-agriculture-issues-priorities
2. https://www.policycircle.org/budget/policy-reforms-for-rural-economy/
3. https://www.adb.org/publications/accelerating-agriculture-and-rural-development-inclusive-growth-policy-implications
4. https://en.wikipedia.org/wiki/Mahatma_Gandhi_National_Rural_Employment_Guarantee_Act,_2005