Redefining Growth: A Bottom-Up Approach for Inclusive Development

India’s economic journey over the past 75 years has undoubtedly led to impressive growth, yet this growth has not been inclusive. The model that was adopted—a largely top-down, capital-intensive approach—has inadvertently resulted in significant socio-economic disparities, where a mere 6% of the workforce finds employment in the organized sector, leaving the remaining 94% in informal, often precarious, work. This structure underlines a core issue: the benefits of development have not reached everyone equally, and the approach taken to economic progress has left many unabsorbed in the organized economy.

Capital-Intensive Growth and Its Impacts

In recent years, India’s investment focus has increasingly leaned towards capital-intensive projects within the organized sector. The organized sector, which operates with advanced technology and machinery, often requires significant capital but minimal labor, meaning that even as these sectors expand, they are not able to generate the employment needed to absorb the majority of the workforce. As a result, the bulk of employment remains in the unorganized sector, with limited income and stability. A hypothetical case can illustrate this: if ₹100 is given to a wealthy individual, they might spend only ₹5 and save the rest, contributing minimally to overall demand. Conversely, a worker in the unorganized sector would likely spend the entire ₹100, purchasing basic necessities like clothing, kitchen items, or school supplies, thereby stimulating demand.

When demand is generated, industries flourish. The spending habits of lower-income households have a much higher "multiplier effect," as their expenditure supports local businesses, creates jobs, and sustains demand-driven growth. Unfortunately, with development focused on capital-heavy sectors that cater mainly to higher-income groups, this self-sustaining demand is not being stimulated. This imbalance in spending power has led to weakening demand across sectors, constraining the economy’s growth potential.

Economic Growth and Rising Disparities

Rising disparities have serious implications for economic stability. Even before the pandemic, growth rates in India had begun to decline, illustrating the link between inequality and economic performance. For instance, in the fourth quarter of the fiscal year 2017-18, India’s growth rate was 8%. However, by the fourth quarter of 2019-20, just before the pandemic struck, growth had slipped to 3.1%. This downward trend can be attributed to widening disparities, as a vast segment of the population faced stagnant or declining purchasing power, leading to weakened demand and slower growth. Such disparities not only hinder equitable development but also threaten long-term economic resilience.

The Role of Policy and Budget Prioritization

The current trajectory of India’s budget allocations further accentuates these disparities. The government has substantially increased its capital expenditure, from ₹5 lakh crore to ₹7.5 lakh crore, and now to ₹11.1 lakh crore, with a significant portion directed toward large-scale infrastructure projects like freight corridors, highways, and the power sector. While these investments are crucial for a country’s infrastructure, they are less labor-intensive in today’s context due to advanced machinery and automation. In contrast, earlier infrastructure projects in the 1970s and 80s relied heavily on manual labor, thereby generating substantial employment opportunities. Today, these same projects employ a fraction of the workforce, as tasks are managed by machines and skilled operators.

The question then arises: where can India generate employment? The answer lies in labor-intensive sectors that have been comparatively underfunded, such as education, healthcare, rural development, agriculture, and schemes like the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA). These sectors not only create jobs but also provide essential services that can improve overall quality of life and enhance economic productivity. However, these areas have not seen a proportional increase in budget allocation, especially when adjusted for inflation.

Rethinking Development from the Bottom Up

To achieve a more balanced and equitable economic model, India’s development approach needs restructuring. A “development from below” strategy would involve prioritizing sectors that offer widespread employment opportunities and actively involve communities. For example, focusing on rural development and agriculture could lift incomes in lower-income households, which would, in turn, increase demand for goods and services. This demand would provide growth opportunities for both small businesses and the organized sector, creating a more inclusive growth cycle.

Labor-intensive sectors can also act as a safety net for vulnerable populations, helping to stabilize rural economies and mitigate the effects of economic shocks. Furthermore, investing in health and education can create a healthier, more skilled workforce, setting the stage for sustainable, long-term economic growth. Such an approach acknowledges that growth and equity are not mutually exclusive; rather, they are interdependent.

A Call for Equitable Economic Policies

India’s economic model stands at a crossroads. With disparities widening and demand stagnating, the urgency for equitable policies has never been more pressing. An economic policy framework that prioritizes labor-intensive sectors, redistributes resources to underfunded areas, and creates demand from the ground up would enable India to tackle these disparities head-on. Rebalancing investment between capital and labor-intensive sectors can foster a more resilient economy that provides opportunities for all sections of society.

 By reorienting policies to support the unorganized sector and stimulating demand through equitable growth, India can cultivate a development model that benefits all. Development should not only create infrastructure and capital but also nurture the foundations of social and economic inclusivity, ensuring that the fruits of progress are shared across all levels of society.