India’s Quest for Inclusive Growth a Test-Bed for Global Sustainability

India has become a laboratory for converting rapid headline economic growth into a broader form of more sustainable development that can reverse the kind of income disparities that threaten to squander globalization’s gains and give rise to protectionism and isolationism.

“India is arguably one of the most innovative places for testing and rolling out these new models,” said Robert Greenhill, Managing Director and Chief Business Officer of the World Economic Forum, at the close of the three-day India Economic Summit here. The Forum and its members will be conveying the insights and ideas voiced during the Summit to the World Economic Forum Annual Meeting next January in Davos, Switzerland. “A lot of the challenges – but also a lot of the solutions – here in India are applicable broadly across the world,” he said.

India’s remarkable economic growth has put it on track to become one of the world’s largest three economies and given it the resources to tackle poverty and bottlenecks to more inclusive growth. Despite having side-stepped the global economic crisis, much of the nation’s poor rural sector has been largely left behind, not only contributing to rapid urban migration but also creating a potential source of political and social instability.

Corruption and poor governance remain a key drag on growth: corruption imposes a disproportionately high toll on poor parts of the country. “Because there’s no governance, there’s no development there, and because there’s no development, Maoists say they’re doing what they’re doing,” said Pawan Munjal, Managing Director and Chief Executive Officer of the Hero Group and a co-chair of the Summit.

Thankfully, India’s development has heightened the public’s awareness of corruption and emboldened it to demand accountability. New regulations are resulting that are forcing officials and executives to become more transparent. “You are starting to see a change,” said Hari S. Bhartia, Co-Chairman and Managing Director of the Jubilant Bhartia Group and President of the Confederation of Indian Industry. “The public is demanding better governance. And they’re starting to get it.”

Most recommendations on achieving inclusive growth are concentrated at the grassroots level. Education in particular remains a top priority – imparting vocational skills and providing graduates with the kind of knowledge that employers need. “We need to have education at every level,” said Ajit Gulabchand, Chairman and Managing Director of the Hindustan Construction Company and another Summit co-chair. “It must be opened up and we must again focus on education, education, education.”

The past few years have also seen an explosion of microcredit to poor rural communities, giving the capital they need to escape the poverty trap. But a series of scandals involving farmer defaults and aggressive collection efforts have underscored a corresponding problem: the need for greater access to savings products for the rural poor. For many, the only way to store their earnings remains to buy a goat. They need bank accounts, insurance and ways to invest and diversify risk. One of their greatest assets – land – remains unexploited due to rules against selling agricultural land. Though designed to protect farmers, it also makes it impossible to value their land and illustrates the need to explore land reform.

Water pricing, women’s rights and education and urbanization remain key issues in coping with rural poverty. But solving these problems will require the active involvement of the private sector, not only in providing governments with ideas and processes, but with providing new products and job opportunities for poor communities.

This will require that companies fundamentally shift the way they approach the rural poor and, as the late C.K. Prahalad wrote, to tap the fortune at the bottom of the pyramid. Rather than a form of charity or corporate social responsibility, companies have to see lower-income communities as a new and untapped market where the right products can not only earn profits, but also help vault the poor into the economic mainstream.

Farmers, after all, are small-scale entrepreneurs for the most part. “You have to consider agriculture not as subsistence, but as a profession,” said Ellen Kullman, Chair of the Board and Chief Executive Officer of DuPont and another Summit co-chair.

“The private sector has an equal role to play,” said Chanda Kochhar, Managing Director and Chief Executive Officer of ICICI Bank. “We have to create tertiary industries in agricultural areas that can make growth more inclusive.” Grassroots efforts are only part of the solution, she said. Infrastructure remains a key enabler for rural growth – a way to facilitate the exchange of goods and services between rural areas and urban centres.

Ultimately, neither companies nor governments can solve any of these problems alone. “It calls for a new model of collaboration, of cooperation between the private sector and the public sector,” said Dennis Nally, Chairman of PricewaterhouseCoopers International and a Summit co-chair.

Nor can one country pursue inclusive growth without thinking of other countries around it, a realization that India hopes to convey to the world next year in Davos. “India is a work in progress,” said Bhartia. “We want to share what we are doing in inclusiveness and learn from others.”

Watch the video of the session below: