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GS Paper: GS3-02.Inclusive growth and issues therein

  • Pradhan Mantri Jan-Dhan Yojana (PMJDY) is necessary for bringing unbanked to the institutional finance fold. Do you agree with this for financial inclusion of the poorer section of the Indian society? Give arguments to justify your option.

  • Comment on the challenges for inclusive growth which include careless and useless manpower in the Indian context. Suggest measures to be taken for facing these challenges

  • What are the salient features of ‘inclusive growth’? Has India been experiencing such a growth process? Analyze and suggest measures for inclusive growth.

  • It is argued that the strategy of inclusive growth is intended to meet the objectives of inclusiveness and sustainability together. Comment on this statement.

    As per OECD, inclusive growth is economic growth distributed fairly across society and creates opportunities for all.

    Inclusive Growth Promoting Inclusiveness

    Expands economic opportunities with focus on education, health, skilling, and access to markets. Eg- PM-JANMAN for tribal inclusion.

    Balanced regional growth with targeted interventions.

    Income security – Social protection systems like MGNREGA, NFSA, PM-KISAN reduce vulnerability and support inclusive livelihoods.

    Strengthens financial inclusion – Eg- PM Jan Dhan Yojana opened 500 million+ bank accounts

    Equality of Opportunity – Eg- the Rights of Persons with Disabilities (RPwD) Act, 2016

    Ayushman Bharat: Provided free healthcare to 23 crore people.

    Inclusive Growth Ensuring Sustainability

    Affordable and clean energy (SDG 7) – PM Ujjwala Yojana distributed 10 crore LPG connections

    Encourages sustainable consumption and production patterns (SDG 12). Eg- Mission LiFE

    Supports protection of natural resources-forests, soil, and biodiversity (SDG 15). Eg: Compensatory Afforestation Funds

    Sustainable Livelihoods – Promotes climate-resilient agriculture, water conservation, and diversified livelihoods.

    Institutional Sustainability (SDG 16, SDG 17) through decentralisation, cooperative federalism and data-driven governance. Eg- Aspirational Districts Programme.

    Interlinking between Inclusiveness and Sustainability

    Inequality weakens long-term economic growth

    Environmental degradation hits the poorest hardest – Eg- Disaster induced Migration

    Inclusive growth strengthens environmental stewardship

    Sustainable livelihoods reduce vulnerability

    Intergenerational equity depends on both

    Challenges to Inclusive Growth under a Market Economy

    Rising inequality– Eg- the top 1% control 40% of net personal wealth.

    Regional disparities due to unequal investment and infrastructure. Eg- BIMARU States

    Jobless growth – Service sector contributes 55% of GDP but employs less than 30% workforce

    Weak social protection for informal workers (over 85% of India’s workforce).

    Market failures in public goods. Eg- Digital Apartheid in Education

    Way Forward

    Capability Approach (Amartya Sen) – increase Education and health spending to 6% and 2.5% of GDP respectively

    Strengthen progressive taxes, wealth taxes and targeted subsidies to reduce income inequality and expand welfare spending.

    Align national policies with Paris Agreement targets

    Universalise social security, pensions, maternity benefits, and unemployment allowance

    A nexus approach towards sustainability and inclusiveness is needed for ‘Sabka Saath, Sabka Vikas.’

  • Explain intra-generational and inter-generational issues of equity from the perspective of inclusive growth and sustainable development.

    Inclusive growth and sustainable development emphasise fair distribution of opportunities, resources, and benefits both within the present generation and across future generations.

    Intra-Generational Equity issues (Equity Within the Present Generation)

    Income and Wealth Inequality – the top 1% of adults in India control almost 40% of net personal wealth. (World Inequality Report)

    Social Exclusion – Caste, gender, disability, and minority identity restrict access to education, jobs, assets. Eg- Glass Ceiling for Women

    Poorer communities face greater vulnerability to pollution, floods, heatwaves, violating equity. Eg- Disaster induced migration

    Regional disparities – Eg- BIMARU States lag behind national averages in health, education and income.

    Low female labour force participation (41% vs 48% global average) limits inclusive access to economic opportunities.

    Inter-Generational Equity issues (Equity Across Future Generations)

    Climate change burden on future generations – Eg- Rising sea levels threatening the survival of low-lying island countries.

    Low social mobility- Eg – India ranks 76th in the Global Social Mobility Index (WEF), indicating persistence of inequality across generations.

    Failing to invest in research, innovation, and human capital reduces competitiveness of future generations. (R&D investment only 0.7% of GDP)

    Fiscal Burden – Unsustainable borrowing today limits fiscal space for future welfare and development spending.

    Way Forward

    Capability Approach (Amartya Sen) – increase Education and health spending to 6% and 2.5% of GDP respectively

    Strengthen progressive taxes, wealth taxes and targeted subsidies to reduce income inequality and expand welfare spending.

    Align national policies with Paris Agreement targets

    Universalise social security, pensions, maternity benefits, and unemployment allowance

    A nexus approach towards sustainability and inclusiveness is needed for ‘Sabka Saath, Sabka Vikas.’

  • “Investment in infrastructure is essential for more rapid and inclusive economic growth.”Discuss in the light of India’s experience

    The World Bank defines infrastructure as “the basic physical and organizational structures and facilities needed for the operation of a society, enterprise, or system.” It is prerequisite for rapid, inclusive and sustainable growth.

    Importance of Investment in Infrastructure for Rapid Growth

    A 1% increase in infrastructure investment can raise output by 0.4% in the same year and by 1.5% in 4 years. (IMF)

    Modern transport, logistics and energy infrastructure reduce time and transaction costs and increase competitiveness.

    Boosts Manufacturing & Exports – Eg- Port led development under Sagarmala project

    Crowds in domestic private investment and FDI –

    Facilitates Urbanisation and industrialization- Eg- industrial corridors, and smart cities support agglomeration economies and higher output.

    Energy Security through investments in renewables (48 % of the total installed capacity).

    Importance of Investment in Infrastructure for Inclusive Growth

    Bridges Rural-Urban Divide- Rural roads, irrigation networks and decentralised energy systems enhance market access and livelihoods. Eg- PMGSY

    Access to Basic Services – Water supply, sanitation, healthcare facilities, and DPI ensure equitable access for vulnerable groups. Eg- Jal Jeevan Mission

    Balanced Regional Growth- Connectivity in tribal, hilly, and northeastern regions improves mobility, education access, and economic opportunity.

    Employment Generation for low-skilled and semi-skilled workers. Eg- The PM Gati Shakti initiative is expected to create 1 crore+ jobs by 2030.

    Improves standard of living – Eg- over 4Cr houses constructed under PMAY

    Women Empowerment – Eg- SBM improving access to sanitation

    India’s Experience – Achievements and Challenges

    India has the second largest road network in the world (1.5 lakh km National Highway)

    Ports & Logistics: Sagarmala increased port capacity beyond 2,600 MTPA.

    Digital Infrastructure: Aadhaar, UPI, BharatNet deepened digital inclusion.

    Energy: Renewable capacity crossed 240+ GW, improving energy security.

    Challenges

    Lack Of Integrated Policy- India has the second largest infrastructure deficit in the world (after Brazil)

    Financing Constraints: NIP requires Rs 111 lakh crore.

    Delays in Land Acquisition & Clearances slowing project execution. Eg- Mumbai Metro

    Urban Infrastructure Deficits: Eg- 17% population living in slums

    Logistics Inefficiencies: 13-14% logistics cost compared to 8-10% global average

    Poor concession agreements and litigation in PPP projects

    Neglect of social infrastructure – Eg- health and education spending at 1.9% and 4% of GDP only

    Inadequate R&D expenditure (0.7% of GDP) hinder the adoption of innovative solutions.

    Way Forward

    Strengthen PPP Models with better risk-sharing and transparent concession agreements. (Kelkar Committee recommendations)

    Accelerate Gati Shakti Platform for integrated planning and faster clearances.

    Increase Sustainable Financing via green bonds, NIIF, and development finance institutions.

    Focus on Climate-Resilient Infrastructure in coastal, drought-prone and flood-prone regions.

    Sustainable and high-quality infrastructure is a essential for realisation of a $40 Trillion economy by 2047.

  • Is inclusive growth possible under market economy? State the significance of financial inclusion in achieving economic growth in India.

    As per OECD, inclusive growth is economic growth distributed fairly across society and creates opportunities for all. A market economy drives efficiency and innovation, but without corrective policies it can widen inequalities.

    Inclusive Growth under Market Economy

    Efficient Resource Allocation- improve productivity, reduce costs, and expand economic opportunities.

    Market economies enable entrepreneurship, MSME growth and innovation-driven jobs. Eg- Indian start-up ecosystem.

    State as an Enabler- Government gets resources to invest in public goods.

    Property rights, contract enforcement and regulatory frameworks ensure fairness.

    Technological development enabling inclusive development – Eg- DBT.

    Challenges to Inclusive Growth under a Market Economy

    Rising inequality– Eg- the top 1% control 40% of net personal wealth.

    Regional disparities due to unequal investment and infrastructure. Eg- BIMARU States

    Jobless growth – Service sector contributes 55% of GDP but employs less than 30% workforce

    Weak social protection for informal workers (over 85% of India’s workforce).

    Market failures in public goods. Eg- Digital Apartheid in Education

    Significance of Financial Inclusion in Achieving Economic Growth in India

    Enhanced credit access for MSMEs, SHGs – boosts investment and employment. Eg. PM MUDRA has sanctioned over since inception.

    Greater savings through Jan Dhan accounts (53 crore accounts) ensures financial stability

    Formalisation of the economy via UPI, GSTN, Aadhaar – wider tax base and better compliance.

    Poverty reduction through targeted DBT, eliminating leakages and improving consumption.

    Women’s economic empowerment through SHG-bank linkage, Stand-Up India, digital microcredit – raises household productivity.

    Rural economic growth through Kisan Credit Cards, PM-Kisan and digital banking in villages.

    Improved risk management via insurance (PMJJBY, PMSBY) and pensions (PM-SYM) – stabilises vulnerable households.

    Boost to digital economy with UPI handling over – strengthens service sector growth.

    Inclusive growth under a market economy is possible when markets are balanced with public investment, regulation and financial inclusion.

  • Examine the pattern and trend of public expenditure on social services in the post-reforms period in India. To what extent this has been in consonance with achieving the objective of inclusive growth?

    Since the 1991 reforms, India shifted to a market-oriented growth model. Public expenditure on social services increased from 5% of GDP (1990s) to 8% (2024-25)

    Trend of Public Expenditure on Social Services in the Post-Reforms Period

    Early Post-Reform Phase (1991-2005)

    Low and stagnant spending around 5% of GDP due to fiscal consolidation.

    Prioritisation of basic education – expansion of SSA, mid-day meal.

    Health expenditure remained low at 1% of GDP, high OOPE.

    Rights-Based Expansion Phase (2005-2015)

    Public expenditure rose to 6-7% of GDP.

    Introduction of major rights-based entitlements: MGNREGA (2005), RTI, RTE (2009), NFSA (2013).

    Focus on rural livelihood missions, inclusion programmes. Eg- DAY-NRLM

    Post-2015 Period

    Social sector spending increased to 8% of GDP (2021-22).

    Health spending reforms – decline in OOPE from 65% to 40% (2014-2024).

    Women Specific schemes: Eg- Ujjwala (10 crore LPG connections)

    Emphasis on social security. Eg- e-Shram, PM Garib Kalyan Anna Yojana.

    Increased focus on skill development, digital inclusion. Eg- JAM Trinity, PM-KVY

    In consonance with Inclusive Growth

    Extreme poverty fell from 16.2 % in 2011-12 to just 2.3 % in 2022-23

    MGNREGA, NFSA ensured income security and food security (67% population coverage).

    Human Capital Improvement – Life expectancy increased from 58 years (1990) to 73 years.

    Regional Inclusion – Aspirational Districts improved health, education, and infrastructure indicators in 112 lagging districts.

    Women Empowerment – Eg- 45% women representation in PRIs

    Limitations and Challenges

    Rural-Urban Divide Persists – Urban per capita income is 2x rural.

    Only 24-25% of the population has any formal social protection.

    Poor Learning Outcomes

    50% of Class 5 students cannot read Class 2 text (ASER).

    50% of graduates are employable only (India Skills Report).

    Low Public Health Spending – Still around 1.9% of GDP, below the global average of 6%.

    Inclusion-Exclusion errors and Leakages in PDS.

    High Inequality – Top 10% hold 77% of national wealth (Oxfam).

    Capability Approach (Amartya Sen) by increasing Education and health spending to 6% and 2.5% of GDP respectively is needed for ‘Sabka Saath, Sabka Vikas.’

  • Distinguish between the Human Development Index (HDI) and Inequality-adjusted Human Development Index (IHDI) with special reference to India. Why is the IHDI considered a better indicator of inclusive growth?

    The Human Development Index (HDI), introduced by UNDP in 1990, measures a country’s progress in terms of health, education, and income. The Inequality-adjusted Human Development Index (IHDI), introduced in 2010, refines HDI by factoring in inequality of distribution of these achievements.

    India’s Human Development Performance

    Human Development Index (HDI)

    Rank improved from out of 193 countries.

    Since 1990, HDI improved by 53%, outpacing global and South Asian averages.

    Inequality-adjusted Human Development Index (IHDI)

    India suffers a 30.7% loss due to inequality.

    Poorest 40% hold only 20.2% of income, while the richest 10% hold 25.5%.

    Why IHDI is a Better Indicator of Inclusive Growth

    Accounts for Inequality – Unlike HDI, IHDI reduces scores based on income, education, and health disparities, showing the real distribution of gains.

    Closer to Ground Reality – Reflects what people actually experience, not just national averages. For India, 30.7% loss of human development due to inequality.

    Reveals Hidden Gaps – Exposes divides across region, caste, class, and gender that HDI alone masks. Eg- gender gap in Labour Force Participation Rate

    Guides Policy Better – Eg- targeted schemes like PM Poshan Abhiyan or Eklavya Model Schools

    Captures Inter-generational Equity – By highlighting disparities, it stresses need for equal opportunities for long-term human development.

    Comparative Value – Countries with similar HDI can differ widely in IHDI, revealing which societies are more inclusive.

    Supports SDGs – Aligns with SDG 10 (Reduce Inequality) and SDG 1 (No Poverty) by showing inequality-adjusted outcomes.

    As Amartya Sen observed, “Development is about expanding freedoms.” HDI shows progress, but IHDI shows whether that progress is fairly shared.

    Government Budgeting

  • Increasing coverage, growing distress

    Why in the News?

    Recent NSS 80th Round (2025) data reveals a striking contradiction: health insurance coverage has increased significantly since 2017-18, yet hospitalisation rates have not improved and out-of-pocket expenditure has sharply increased, especially in private hospitals. This is significant because, for the first time, empirical evidence shows that government-funded insurance schemes are not delivering financial protection, and may even be benefiting relatively better-off groups.

    Why has increased insurance coverage not improved healthcare utilisation?

    1. Stagnant hospitalisation rates: NSS data shows hospitalisation rates remain below 2014 levels in rural areas and only marginally higher in urban areas.
    2. Shift to private care: Public hospital usage declined, while private sector reliance increased.
    3. Access barriers: Unavailability of medicines, diagnostics, and high transport costs reduce public healthcare utilisation.
    4. Inefficiency in coverage translation: Coverage expansion does not ensure actual service delivery or utilisation.

    Why is out-of-pocket expenditure increasing despite insurance schemes?

    1. Rising private sector costs: OOP expenditure increased >70% (rural) and ~80% (urban).
    2. Partial coverage: Insurance schemes often exclude diagnostics, medicines, and indirect costs.
    3. Additional charges: Despite coverage, patients are frequently charged extra in private hospitals.
    4. Low reimbursement rates: Below-market rates under PMJAY incentivise informal billing practices.

    Why are insurance schemes disproportionately benefiting the better-off?

    1. Urban bias: Only 13% of urban beneficiaries belong to the poorest class.
    2. Awareness gap: Poor households have lower awareness and utilisation capacity.
    3. Private sector access: Better-off groups are more capable of accessing empanelled private hospitals.
    4. Structural inequality: Insurance design fails to address social determinants of access.

    What fiscal and systemic challenges are emerging from insurance-led healthcare?

    1. State fiscal stress: Increased hospitalisation under schemes leads to budgetary pressure on states.
    2. Delayed reimbursements: States like Haryana report delays in payments to private providers.
    3. Dependence on private sector: Weak public infrastructure leads to over-reliance on private providers.
    4. Market distortion: Insurance subsidies indirectly support private healthcare expansion.

    Is insurance-based Universal Health Coverage (UHC) viable for India?

    1. Profit-driven incentives: Private providers focus on high-margin treatments, undermining equity.
    2. Limited preventive care: Insurance model emphasises hospitalisation, not primary care.
    3. Weak regulation: Insufficient oversight leads to overcharging and unnecessary procedures.
    4. Public system neglect: Investment in primary healthcare remains inadequate.

    What alternative model is suggested for effective healthcare delivery?

    1. Strengthening public healthcare: Emphasis on universal, tax-funded public health systems.
    2. Primary care focus: Initiatives like Ayushman Arogya Mandir (AAM) offer comprehensive primary care, including NCDs.
    3. Integrated approach: Combining preventive, promotive, and curative care
    4. Regulation of the private sector: Ensures accountability and cost control.

    Conclusion

    India’s health insurance expansion highlights a structural paradox: coverage without care and protection without affordability. A shift from insurance-led to system-strengthening approaches, especially in primary healthcare, is essential for achieving equitable and sustainable Universal Health Coverage.

    PYQ Relevance

    [UPSC 2022] Is inclusive growth possible under market economy? State the significance of financial inclusion in achieving economic growth in India.

    Linkage: The PYQ highlights the gap between coverage expansion (financial inclusion) and actual welfare outcomes, similar to health insurance failing to ensure real protection. This is directly relevant to analysing whether insurance-led healthcare promotes inclusive growth or deepens inequality.