Poverty has not declined as much as was targeted. But this point should be read along with the knowledge that growth has not been what it was meant to be. And the fact is that whereas growth rates have been targeted now at 8 per cent, the actual growth performance of the economy is around 6 per cent. So, it is not surprising that the poverty targets have not been met.

Traditionally, we have never relied only on growth. Policy has always had it that growth will take care of the requirements of many groups. There will be marginalised groups that cannot benefit even from an economy that has taken off. Therefore, the policy since the late 1970s, 1980s towards, has always supplemented the growth thrust by some effort at targeting benefits to those who would be left out of the growth process.

The main things that have been talked about in this context are the public distribution system, the employment programmes that the government runs in rural areas, the wage-employment programmes and self-employment programmes, and some policies that focus on small farmers and small-scale industries. One of the problems in this entire effort is that we need to have a very careful evaluation, independent evaluation of the effectiveness of these schemes. The debate in India in the last several years has tended to focus on - are these schemes well conceived, though they are undoubtedly well-intentioned? Do they actually achieve what they are meant to achieve?

I believe that the majority of the people would go along with this summarised approach to poverty and development. One, growth is absolutely essential. It is essential for two reasons, which should be very clearly understood. First, the absolute impact that growth directly makes by generating incomes is going to swamp any impact of any individual scheme that anyone can remark.

I think it does not take very much by way of arithmetic to work out that if the overall growth rate of the economy can be increased by, say, two percentage points through an appropriate set of policies, and (then) you make any reasonable assumption about what share of this would accrue to the bottom 30 per cent (and) it is inconceivable that you will think of another instrument that will deliver the same good.

So, the real question is that it will directly have a huge impact. But the second reason why growth is very important is that it is what is going to determine the sustainability of the other targeted schemes. In the absence of growth, we will not be able to finance any of the good things that people want to do in order to strengthen the distributional outcome of a growth process in India.

Second, there is complete agreement that we should not be thinking of a growth process that does not very significantly accelerate the growth of agriculture. As long as 60 per cent of the population is dependent on agriculture, what has happened in the last five or six years, is a very disturbing development. In the first five or six years, from 1980 to the middle of the 1990s, India's agricultural growth rate was around 3.3 per cent or so.

At that time, virtually all calculations suggested that if we want to achieve 8 per cent GDP growth, we need to get 4 per cent agricultural growth. And that, by the way, has been achieved by other countries in Asia. So, it is not a huge number, because with 3.3 per cent growth already achieved, going to 4 per cent is just the next kind of step up the ladder. Unfortunately, after the mid '90s, there has been a very marked deceleration in agricultural growth. And the growth rate from the mid-90s till today (has been) approximately 2.1 per cent or 2 per cent, something of that order.

We need a completely new set of policies on Indian agriculture. I think the mid-term appraisal by the Planning Commission will address this issue. There are things we can do without going into details. The area we have neglected is both irrigation and water management. Water management in the rain-fed areas is essential. We can do a lot and should do a lot in this respect.

The other area we have neglected is: what is required for the diversification of Indian agriculture? We are locked into what is essentially a foodgrain-oriented strategy and we cannot just expand that to achieve diversification - horticulture, livestock, poultry, etc. The marketing requirements of that kind of agriculture are quite different from foodgrain-based agriculture.
Next is health and education.

This is an area, frankly, where our performance is very poor. Sometimes we are described as the new emerging market, one of the four 'bricks' (Brazil, Russia, lndia and China, referred to as BRIC nations by Goldman Sachs - editor's note), etc. The fact is that if you take the group of countries that we felt pleased to be grouped with, there are many good reasons why we are grouped with them.

There are two dimensions here and we just do not stand out properly, that is, health and education - particularly the education of girls and education (as a whole) in some parts of the country. Now it is the government's policy to focus a great deal of attention on this. Once again, the issue is not just money. It would be very easy to throw money down the existing schemes. The basic idea is that rather than run these as centralised systems responsible to the state governments, or the central government, they need to be run as systems that are responsive to local governments.

Another big area is unemployment, and people worry about it a lot and rightly so. The modernisation of the economy, the search for competitiveness is going to force us to get away from a mindset where jobs are simply created in order to keep people employed. That is not actually going to be sustainable. In fact, it is not sustainable. That is why some of these industries are going down. On the other hand, the scope for creating productive jobs is huge with the elimination of the 'multi-fibre agreement. 

You could well see in labour-intensive manufacturing the same kind of extraordinary growth that we have seen in software and business process outsourcing. The name of the game will be to create a policy environment in which India's labour-intensive industries can both modernise and expand.

It is a question of both modernising and expanding, choosing the most labour-intensive route in the most labour-intensive industry is a wrong way to go. The fact is that we need to switch more attention to labour-intensive industries. But within these industries we need to increase productivity and bring in modern technology. This may appear to be a contradiction, but it is not. The fact is that if we make that switch, even if in the labour-intensive end, we become less labour-intensive and the economy as a whole will absorb more labour. I think that is a huge opportunity which globalisation throws up.

The problem of employment is not a problem of producing jobs; there are far more people who are poor, than are unemployed. Most of the poor have jobs. The trouble, however, is that they are not jobs that lift them out of poverty. What we, therefore, need to do is to produce better-quality jobs.

We do need to have employment programmes because they provide a bottom level of social security. We do not have social security. You have to have an employment programme, which supports someone; it puts a social safety net of a minimum kind. But the real employment growth that we can get is not going to come from employment programmes. It is going to come from a set of policies that will make the economy grow at 7 to 8 per cent with a 4 per cent growth of agriculture and a major shift in emphasis towards labour-intensive sectors.

How to do that is something which I hope the mid-term appraisal will cast some light on.

(Excerpted from the author's address at the R.K. Hegde Memorial Lecture in New Delhi in January 2005)