Although the approach paper for the 12th Five-Year Plan was published in October 2011 and the Plan has actually commenced from April 2012, the plan document is expected only later in the year. The Indian economy has seen a sharp deceleration since the approach paper was published. Now, it is reported that the growth target has been reduced to 8.2 per cent from the originally assumed nine per cent. The question is whether even 8.2 per cent is realistic. Although the actual growth rate during the 11th Plan was close to eight per cent, that was achieved in a different policy environment.
The environment has drastically deteriorated and the potential growth has sharply declined since. In the April-June quarter this year, the economy witnessed the lowest growth of the decade with 5.5 per cent. With a sharp reduction in the savings rate, from 36.9 per cent of GDP in 2007-08 to an estimated 30.4 per cent in 2011-12, and in the investment rate from 38.1 per cent to 34.7 per cent during the same period, sustaining the growth rate of 8.2 per cent is questionable.
Surely, it is good to be optimistic, provided we are willing to work for it. The fact that we had actually achieved eight per cent in the 11th Plan cannot be a ground for setting the target of 8.2 per cent for the 12th Plan. It is not clear how the required public sector Plan investments of Rs 47.7 lakh crore or about seven per cent of GDP can be achieved in the prevailing fiscal scenario. The Centre and states are supposed to contribute Rs 20.6 lakh crore and Rs 27.1 lakh crore, respectively, and 43.2 per cent of the Central Plan is to be financed through Internal and Extra Budgetary Contributions of public enterprises.
Achieving the growth target of 8.2 per cent is predicated on significant structural reforms to bring down the fiscal deficit to three per cent and current account deficit to 2.5 per cent. Upgrading infrastructure, removal of impediments to foreign investments, land clearance issues, skill development and removal of distortions in the labour market — all these warrant significant reforms. The critical issue is whether we are prepared for these and unfortunately, history is not on the side of the planners. I hope to be proved wrong!
(The writer is a member of the Prime Minister’s Economic Advisory Council)