Inclusive Growth.

At the cost of being termed 'nerdy', I shall use this medium to think aloud my thoughts on the current talk of the town - Inclusive Growth. (See, I have invested so much time and effort the last six months in my MBA program that there have been spill-over effects and I have begun to believe that the trade is closer to my passion than engineering. Then again the last statement was fairly strong and is subject to the standard disclaimer: Strong statements are subject to market risks and are expected to change and temper with time.)

Well, coming back to the issue. A lot has been said about Inclusive Growth and no doubt a lot more will be said.. Now here's how I see the problem.

I believe that the issue of inclusive growth is a 'principal agent' problem (Google for principal agent problem in the economic context.) The agents being the haves and the have-nots. So, then if a particular section of the society is disbarred or prevented from sharing the profits of the entire community, it could act in accordance with its own interests and, thus, create market disturbances.

In simple layman terms, the interests of the entire community, society or organization need to be well aligned. For this to happen, the implication is that the rewards of progress need to be fairly distributed to all the stakeholders. More importantly, no one should get the feeling that they got a raw deal. This does not mean that you reward poor performance. On the contrary, poor performance should be punished and the agent should be told in very clear terms the basis on which his performance was judged, why he did not perform and what steps he could take to improve future performance. Similarly, excellent performance needs to be adequately awarded, thus, incentivising the agent to perform even better in the future.

Simple problems have simple solutions and complex problems have even simpler solutions. The concept of the principal agent problem is applicable in most disharmonious organizations and societies, and my limited knowledge would suggest that it applies to the problem of non-inclusive growth in the Indian economy.