Measuring Inclusive Growth in India: An Application of Two-Stage Principal Component Analysis
Abstract:
This study tries to measure inclusive growth in the post-reform period of India and assesses its performance in different aspects of inclusiveness like economic inclusion, environmental sustainability, human capability, gender equity, and financial inclusion. We construct a composite inclusive growth index (IGI) using time series data for India over the period 1990 - 2020. Fifteen developmental indicator variables, categorized as economic expansion, environmental sustainability, gender equity, human capabilities, and financial inclusion, are used to construct the present IGI. The two-stage principal component analysis (PCA) method is used to derive the weights of the indicators. Results show that India performed quite well during the period 1991-2000 and 2001-2010 in all aspects of inclusive growth. However, the improvement rates of all dimensions of inclusive growth decidedly slowed down in the recent period (2011-2020). The inclusive growth index increased from 11.925 percent during 1991-2000 to 12.403 percent during 2001-2010 and declined to 2.572 percent during 2011-2020. Our present index measure will help researchers and policymakers to assess the performance of a country to its inclusive growth achievements and to track the time trend over time. Hence, this index measure will be crucial for formulating inclusive growth policies.
